Ireland bailed out its banks to stop the much vaunted but never explained domino effect of banks going down. As a result its debt went up, and its AAA credit rating went down. Most investment funds are required to be established in AAA countries. So, it is said, Ireland’s financial industry is increasingly moving abroad to places like Luxembourg.

How’s that for a domino effect?

When individuals make a mistake, it may have a domino effect. But so do the state's mistakes. The only difference is that when the state creates a domino effect it will be of far greater magnitude than an individual's.

On top of that, the state making mistakes is more likely than an individual making mistakes, because of Hayek's Knowledge Problem: central decision makers simply do not have the knowledge about individuals' choices and opportunities that those individuals have. That state intervention usually has side effect is generally accepted — the left's response is to mend it with more regulations which in turn will fail. State failure is therefore not so much a domino, it is a spiral.

The domino effect was the argument which was successfully used by politicians to explain why they bailed out the banks with taxpayers' money. The domino effect of banks collapsing remains elusive, but in the UK the domino effect of bailing them out is very real indeed: the debt rising to £1 trillion; no growth; and sky-high unemployment.