Snowstorms, Chicagoans understand: A winter weather system shuts down business activity for a few days, then the sun comes out. A recession or financial crisis? We’ve survived those too.
The coronavirus pandemic is a different category of catastrophe, a public health threat that can only be tamed by banning aspects of human interaction. It’s impossible to keep an economy humming when people temporarily can’t mingle, whether on Ford’s Chicago assembly line or at a tavern.
So who might save the day when there’s no snow to melt? That’s a dangerous question because the easy answer is expensive: The federal government has the power to commit near limitless amounts of taxpayer money to replace every missing paycheck, protect every nervous employer and save every buckling business. To go big, as President Donald Trump vows. To spread cash around. To make payrolls. To save airlines. And Boeing too. How about money for Boeing?
There’s panic selling on Wall Street and panic promising in Washington, where Congress is compiling a $1 trillion-plus emergency fiscal stimulus package. How much exactly and to benefit whom? As the Associated Press notes ominously: All the pressure is for the package to keep growing.
NO ONE SHOULD BE EVICTED BY A PANDEMIC
There is urgent work for the government to do to protect Americans from COVID-19. It begins with defeating this potentially deadly illness as quickly as possible, even deploying public and workplace lockdowns. The Federal Reserve needs to use its powers to keep the financial system operating so the economic disruption of coronavirus doesn’t trigger a banking meltdown.
Federal and state governments also have a role, which includes supporting people who have lost their jobs due to the public health emergency. The economy is headed for a period of steep job losses. Trump signed a $100 billion aid package to expand paid leave and unemployment benefits. Congress could work off that base to add coverage if needed so that, for example, gig economy workers can supplement lost income. The social safety net should be ready when people need help. The Housing and Urban Development Department suspended foreclosures and evictions through April. Good idea. No one should be put on the street because of an epidemic.
THE SECONDARY VIRUS EFFECT: WRITING CHECKS
The caution we express is about the secondary coronavirus effect: the rush by politicians to throw money at this crisis in hopes of making all negative and unanticipated consequences go away. It’s business as usual for government to spend other people’s money aggressively. When in doubt, spend. When not in doubt, spend. When in crisis, spend more. That’s the only way to look at the White House plan to fight the virus by, yes, writing checks to most Americans.
How much of your money, taxpayers, is Washington willing to hand out? Treasury Secretary Steve Mnuchin suggests $1,000 to most workers, and $500 to children, in April and again in May if the epidemic is still raging. For a family of four, that would be $3,000 a month, as both assistance and stimulus for the stagnating economy. Could that figure go higher? You bet. Senate Majority Leader Mitch McConnell likes the sound of $1,200 per person.
But people still working don’t need the cash. It will arrive as a gift (remember, a gift you are paying for). This is profligacy. Past exercises in government largesse suggest many recipients will save the money instead of spend it. Pols would be wiser to deliver relief money quickly to those in need, such as: furloughed restaurant workers, quarantined Uber drivers and underemployed dog walkers (because Fido is enjoying the work-from-home experience).
BAILING OUT THE BIG BOYS
As soon as Americans began social distancing and business activity fell off, the leaders of some of America’s biggest industries started worrying, and seeking government assistance. Airlines want money to tide them over. The restaurant industry, hotels and casinos too. Small businesses want help, and so does one of the country’s largest: Boeing. Who couldn’t use a few billion dollars to get past a tight spot? Trump, whose casinos have filed for bankruptcy, feels their pain.
The problem with bailouts to specific industry — whether in the form of cash, loans or other assistance — is that selecting winners and losers plays God in the marketplace. Government aid to private businesses distorts competition and allows weaker players to survive. Bailouts also create a moral hazard, establishing the notion that business owners and investors can take aggressive risks — such as running up enormous debt during good times — because they believe the government will save them. This creates a destructive cycle: Companies act recklessly, get bailed out, then go forward (even the weaker ones) while still being reckless. Remember that the airlines got bailouts after 9/11.
SAY ‘NO’ TO BOEING
During the Great Recession, General Motors and Chrysler received government help. Ford didn’t ask — because it was in better shape. It had prepared. That’s why we didn’t like those bailouts. If Americans weren’t willing to save automakers by buying their vehicles, they shouldn’t have had to save them with their tax dollars. The same principle should apply to United Airlines, Boeing and other companies.
While true that this unforeseen epidemic caused passenger airline traffic to virtually disappear, it’s also true airlines failed to prepare for a few months’ disruption. According to Bloomberg, the biggest U.S. airlines spent 96% of free cash flow last decade buying back their own shares. Boeing brought problems on itself. The company mismanaged the design and rollout of its 737 Max jet, leading to two fatal air crashes, the grounding of the fleet and exit of the CEO. Now with the airlines cutting back, Boeing is suffering.
There are ways for struggling companies to survive, such as enticing new investors to provide loans. Bankruptcy court reorganizations also are possible, which would hurt shareholders, but that’s how it’s supposed to be: Investors and executives who get the rewards should bear the risks, without counting on help from Uncle Sam and his millions of taxpayers.
AMERICA COMES TOGETHER, AND ADAPTS
The scariness of this moment is balanced by a certainty: empty streets, closed dining establishments and reduced business activity represent part of a temporary freeze. The pandemic will lift, and then the economy will roar back to life. Many analysts expect a deep recession with high unemployment followed by recovery within a year.
The American economy is fundamentally strong, and its businesses are flexible. Just drive down those seemingly quiet city blocks and you’ll see new signs outside restaurants offering curbside delivery of takeout food. Never used video business conferencing before? We bet you will soon.
Most workers, like most companies, will get through this crisis by adapting. This cataclysmic event will have the feel of a long snowstorm. Some businesses will fail. Many people will be out of work. Government should be there to provide appropriate assistance, just as it’s there to help shovel the snow after a storm. “Appropriate,” we’d add, isn’t a synonym for “unnecessary” or “unlimited.”
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