The New York Times editorial board offers advice on “How to Avoid Complete Economic Destruction.” The short answer is for the federal government to spend a whole lot of money to backstop existing businesses and ensure they can pay their workers during the pandemic.
The longer answer:
The purpose of saving businesses is both to preserve the productive capacity of the economy and the welfare of workers. If all the nation’s restaurants were to disappear, new restaurants eventually would emerge in many of the same spaces. But there is no reason to incur the incalculable cost of destroying the old businesses and creating new ones. Far better to maintain, as much as possible, the fabric of the economy as it existed before the crisis.
Congressional Republicans on Friday proposed a bailout program that contains many of the necessary elements, but it lacks the necessary scale. It would provide $300 billion in funding for businesses with 500 or fewer employees. Each company could borrow up to $10 million, and any money used to pay wages would not need to be repaid, provided the company maintained staffing and wages until the end of June. That sum, however, is only sufficient to cover four months of wages, at the median wage, for 20 million workers — or less than one third of the workers employed by small companies. And businesses also need to pay for benefits, not to mention other expenses, like rent. Michael Strain of the American Enterprise Institute estimates that the amount small businesses actually need is around $1.2 trillion. [Note that AEI is a conservative think tank – ed.]
The Senate should embrace an alternative proposal by Senator Tammy Baldwin, Democrat of Wisconsin, to forgive up to $10 million in borrowing no matter how the money is used, so long as a company doesn’t cut back on staff or wages. Better yet, Congress should emulate the United Kingdom, which said Friday that it would provide companies with as much money as was necessary to meet their payrolls and preserve jobs. “There’s no limit on the funding available for the scheme,” said Rishi Sunak, chancellor of the Exchequer.
Under the Republican plan, the bailout program would be managed by the Small Business Administration and the loans would be made by commercial banks. But the S.B.A. is itself small, and banks are not staffed to handle an emergency program. The federal government’s reliance on banks to modify mortgage loans during the last financial crisis ended in disaster. In recent weeks, the banking industry’s struggles to handle a modest increase in mortgage refinancing applications has offered a timely reminder of its limitations. The Federal Reserve is better equipped to manage the process than the S.B.A., but it’s unlikely to be much faster. It has the legal authority to create a lending program, and it could create the money, too. But it would also need to create a new bureaucracy, or else rely on the banks.
That’s staggering but plausible, for reasons I’ll get to shortly. Interestingly, though, the editors have a different view of the problem for larger businesses:
Notwithstanding the urgency of action, it is important to draw a distinction between small companies, which are inherently vulnerable to major disruptions, and larger businesses whose vulnerability is partly a product of poor choices, notably the vast sums companies wasted in recent years buying back shares of their own stock to enrich their shareholders.
Boeing, for example, is seeking a $60 billion bailout — which, as it happens, is almost exactly the amount of money the company has distributed to its shareholders since 2013, in the form of $17.4 billion in dividend payments and $43.1 billion spent repurchasing its own shares.
The major airlines spent 96 percent of free cash over the last decade buying back their own stock to drive up share prices, living in the moment with little regard to the future. Among the beneficiaries? Airline executives, who sold about $1.6 billion in shares during that period.
Executives in the air travel business, which includes Boeing, should have been ready for a rainy day even if they could not reasonably have been expected to anticipate the particulars of the coronavirus crisis. This is, after all, the third time in 20 years that the industry has faced a debilitating surprise. Accordingly, the responsible course for the government is not just to provide another bailout, but to require changes in behavior.
I’m unconvinced that sending profits to shareholders is either “wasted” or a “poor choice.” It is, after all, the function of a publicly owned company to make money for its shareholders. But I absolutely agree that it goes both ways: if they cash in during good times, they shouldn’t expect the taxpayers to bail them out in bad.
But here’s the thing: the airlines aren’t in a pickle because of a normal recession or even a great one. They’re failing—as are movie theaters, bars, restaurants, and many other small businesses to which the NYT are apparently more sympathetic—because of government action.
While it’s unreasonable to expect the airlines to have planned for the greatest epidemic in over a century, I would be hard to persuade that yet another taxpayer-funded bailout was in order if the fear of COVID-19 was cutting into demand for their product. That’s just life in the big city.
But it’s a far different thing, indeed, when the President has essentially canceled all international flights and ordered millions of Federal employees not to travel even internationally. Or when governors and mayors across the country are ordering people outside a handful of essential industries to remain at home other than to buy groceries and other essentials.
Having ordered American citizens to give up their livelihoods for weeks and possibly months in order to avoid spreading a disease that could kill millions of people and overwhelm the capacity of our hospital system, the government has a moral obligation to compensate people for their losses.
Because of that, I’m on board with the NYT’s conclusion:
There is no need to choose among the various kinds of aid that Congress is considering. The abrupt plunge in the nation’s economic fortunes has no obvious precedents; it requires a massive response. Send checks to every American. Lend money to every business. Strengthen the social safety net. The risk of doing too much is greatly outweighed in this moment by the consequences of failing to do enough.
The correct answer right now is D) All of the Above.
