"If at first you don’t succeed,” W. C. Fields supposedly said, “try, try again. Then quit. There’s no point in being a damn fool about it.”

Unlikely success after spectacular failure represents a core theme of American financial, political, and military history. From the depths of the Great Depression arose an economic juggernaut that still dominates the global economy. From a bitterly divisive and bloody civil conflict emerged a stronger union. And from the ashes of Pearl Harbor rose an American phoenix that became the greatest fighting force ever. On an individual level, our most storied inventors and entrepreneurs suffered humiliating defeats before realizing their dreams.

But sometimes failure begets only more failure. In this sprawling, highly readable survey of the landscape of disappointment—a successful, if unlikely, marriage of an upbeat self-help instruction guide and a keen economic analysis of key contemporary issues—Megan McArdle maps out exactly how failure breeds success, and how not to be a damn fool. “We should stop spending so much energy trying to avoid failure or engineer it away,” she writes. Instead, “we should encourage people to fail early and often—by making sure that their failures are learning opportunities.”

How? For one thing, McArdle urges parents to allow their children a taste of social and educational failure. She argues that “formal rules” must be aligned with “informal moral rules,” and that executives must “understand the limits of their experiments” (as the creators of New Coke did not). At times, she turns her prose surprisingly inward, appraising her personal and career decisions, and she skillfully interweaves her mother’s near-disastrous appendicitis with a broader exposition of medical error. Her thoughtful analyses of Rathergate, the Challenger disaster, and unemployment showcase how easily human failings accrete—and can be overcome.

In a chapter on punishment, McArdle plumbs the depths of the criminal rehabilitative system and exhumes Hawaii’s Opportunity Probation with Enforcement (HOPE), which has “slowly and steadily [been] reducing crime among probationers.” She identifies its founder, Judge Steven Alm, as the ultimate tough-but-fair jurist whose unswerving punishment of all violators has left even his probationers gushing about how “great,” “awesome,” and “amazing” the HOPE program has proven. Judge Alm, for example, requires his charges to submit to frequent random drug testing—as often as several times per week—and automatically sends them back to jail every time they test positive or fail to show up.

“Over the course of the day,” McArdle writes, “the judge uses the words ‘decision,’ ‘choices,’ and ‘control’ to almost every probationer he sees.” Removing uncertainty, fostering consistency, reinforcing smart decisions, and promptly penalizing foolish decisions are indispensable to any effective punitive regime. Indeed, arbitrarily letting some misbehavior slide undermines the rehabilitative project: “Occasional mercy is not merciful,” in McArdle’s estimation.

In her final (and finest) chapter, McArdle turns to bankruptcy, the quintessential symbol of failure breeding success. The United States offers one of the most generous debt-forgiveness systems in the developed world, which is all to the good because of the doors it opens: “Everywhere else, bankruptcy is a stigma, an enduring disgrace, a permanent stain. Here it’s just as likely to be the doorway to a business empire.” Extinguishing debt unleashes the entrepreneurial spirit according to “the principle of the fresh start: by wiping old debt off the books, we help the economy by speeding up the redeployment of capital—human and financial.”

It’s no coincidence that Americans are wildly more risk-loving and innovative than our European friends, where bankruptcy is politically, economically, and morally discouraged. We have twice the rates of new business ownership and early-stage entrepreneurial activity as France, for instance. And yet McArdle evinces great sympathy for the likes of Dave Ramsey, the “debt-free” crusader who implores his audiences to live within their means, because his hectoring prevents abuse of our open-handed bankruptcy process. “It’s people like [Ramsey],” she says, “encouraging debtors to pay off as much as they can, who make it possible for us to maintain the easy bankruptcy laws that give relief” to failed-but-soon-to-be-successful entrepreneurs.

McArdle’s prose falters at times, drifting toward truisms in a somewhat muddled chapter on blame, the mortgage meltdown, and 9/11 truthers. But overall, her common-sense approach enlightens and enlivens the complex issues she examines. Ultimately, what she writes about bankruptcy applies with equal vigor to the project of American market-based capitalism, the preeminent force for global good: “By shielding entrepreneurs from catastrophic results, we free them to take more risks—the good kinds of risks that have made America one of the most dynamic economies in the history of the world.”

Michael M. Rosen is an attorney in San Diego.

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