Who Pays for Coronavirus Losses?
Some inchorent musings about a massive question.
The New York Post reports that Dish network is claiming force majeure to avoid paying Disney-owned ESPN $80-100 million in rights fees during a time when the network has no live sports to broadcast. I don’t have a strong stance on the merits of that particular fight but I do in the broader issue of where the buck stops.
Dish says it wants to give its customers a partial refund, on the not unreasonable basis that they’re paying quite a bit of money for sports programming they’re not getting. Meanwhile, ESPN is paying some sports leagues for content they can’t deliver. The leagues, in turn, are scrambling to figure out how to survive—let alone pay players, staffers, and low-level employees what they’re owed.
Despite the “look” of multi-billion-dollar corporations grubbing over money, laying off workers, and the like it’s not anybody’s fault. All parties had every intention of fulfilling their obligations but are prevented from doing so because of a once-in-a-century emergency.
One obvious answer is that society, through its government, should band together and make everyone whole by borrowing and handing out trillions of dollars. We’ve passed multiple multi-trillion-dollar bailout packages already, though, and don’t seem to have made a dent.
Further, there is understandable outrage when programs ostensibly aimed at helping small businesses wind up helping massive corporations. Everyone from Ruth’s Chris Steakhouses to the Los Angeles Lakers have been shamed into giving back money.
Yet it’s not at all obvious to me why that’s the case.
If the point of bailing out restaurants is to enable them to continue paying their workers, meeting their rent, and emerge on the other side of the crisis intact, why do we care whether it’s JoeBob’s Steak House or Joe Bob’s local Ruth’s Chris franchise?
Relatedly, there are perfectly understandable demands from customers for rebates on services they paid for but aren’t getting. For example, parents and college students who paid tuition for in-person instruction at prestigious schools are getting inferior online instruction. But, if anything, the institutions in question are having to spend much more money to pivot to online.
For that matter, many of us are paying quite a lot in property taxes to send our children to public schools. At least in Fairfax County, where the schools are run by criminally incompetent hacks, we’re not getting it. Instead, we’re being dragooned into service as teacher assistants and lunchroom attendants while trying to carry on our full-time jobs from home. And those who aren’t lucky enough to be able to do that are having to fork out money for daycare instead.
Again, though, with the exception of the incomprehensible botching of the switch to online, this isn’t anybody’s fault. The schools fully intended to deliver the services we’re paying for but have quite reasonably closed in response to a public health crisis.
There’s no one-size-fits-all answer to these questions.
The relationship between Dish and Disney is different from that between Dish and its subscribers which is different than that of a restaurant and its employees or a public school system and its taxpayers. But they’re all related in that people are paying for things they’re not getting or not getting paid at all because of extraordinary circumstances.
On the one hand, I’m almost certainly out of luck on my property taxes. Hell, they’ll probably go up as a result of all this. But I’m not sure those forced into paying for emergency daycare because of school closures shouldn’t be compensated in some way. Especially those near the bottom of the totem pole who were struggling to begin with.
Should we be sending checks to waiters and dishwashers at restaurants that have been ordered closed indefinitely? Almost certainly. But they’re morally no different from the entrepreneurs who scraped together the money to open the restaurants.
In a capitalist system, we expect risk and reward. If a major flu epidemic were making people afraid to go to bars, restaurants, and movie theaters and some of those establishments went under, I’d say that’s awful but the risks of capitalism. But when governors are ordering the business closed, that’s tantamount to a taking and we ought to compensate them for it.
As Ilya Somin notes, there’s substantial case law immunizing governments for the impact of the exercise of their police power. But we agree that there’s a strong moral case for making people whole.
But how whole? And up to what amounts?
I don’t personally share the outrage of some that we’re bailing out some big companies hurt by the shutdown. But, rather clearly, they shouldn’t be at the head of the line.
I’m sorry, I fail to see where Disney has caused the removal of sports from TV. Presumably Dish is still broadcasting Disney movies, right?
Right now there’s a kerfuffle brewing over legally protecting businesses who open early against lawsuits. The idea is that employees would sue because they got ill being forced into a toxic environment on purpose and that would be devastating to the economy. So we must protect companies deciding their personal profit is more important then the health of their customers and employees. In other words, get back to work peasant, you don’t get to complain if it’s killing you. Be grateful you have a job.
As for businesses who’ve taken losses, the traditional answer is “that’s the market”. It’s only be in recent times that businesses have expected to be compensated in some way when they take a loss. In capitalism, it doesn’t matter if the loss is via Act of God, government or competition – the market owes you nothing, you play at your own risk. In fact, that’s supposed to be what make the owner different from the worker in that they *can and do* choose such devastating risk and that’s why they deserve to profit from their endeavors. For every dollar you make, you could lose your whole livelihood in a flash. The workers have more of a “guarantee” of economic safety in that theoretically there’s always “work” they can do and thus get a job elsewhere while the owner loses what little they have and get downgraded to worker to survive.
I’m not unsympathetic to small business owners. It must be crushing to try so hard just to see it all wiped away by a plague; years of effort and toil gone with no recourse. But that’s capitalism, baby. That’s how it’s always been. That’s what happens after hurricanes destroy restaurants that never get rebuilt, earthquakes take out bowling alleys and depressions shutter salons forever. We’re just seeing it nationally instead of locally for a change. Do you sue the state when it tells you to close during a hurricane and your business goes under because of it? The government is reacting to an Act of God, an immediate threat to life that must be addressed. COVID-19 is a just slow-moving Act of God that’s killed more then any hurricane ever has or will. If you stay open and people are hurt /killed, shouldn’t you be held liable? Your defiance of nature and insistence on capitalistic profit means you should be vulnerable to market corrections aka lawsuits and closure.
@OzarkHillbilly: ESPN doesn’t carry Disney movies, so far as I know. Presumably, they would be delivering Major League Baseball and NBA games right now but aren’t. I don’t think it’s unreasonable to expect a discount considering that they’re not delivering what was promised.
Because of a massive car crash 18 months ago, I’m going to have to declare bankruptcy. I’ll get to keep $4000 worth of assets. But sure, let me pay some tax money so that the billionaires who own ESPN are made whole.
@James Joyner: Bad reading on my part, way bad. sorry.
I am not really qualified to weigh in on the broader question. However, there is a component of this that Criminal Justice Reform advocates are watching very closely — how local governments (and in particular court systems) are going to attempt to recoup extreme budget shortfalls.
Historically we’ve seen communities, especially those in “low tax” areas turn to fees and fines to make up the difference. In many places, the courts are partially funded through these fees and fines. The issue is that this sets up conditions for what is known as “for-profit policing.” And more often than not, these practices target the most vulnerable communities who, perversely, are the least likely to be able to actually pay the fees.
Perhaps the most egregious case of this is what was happening in Furgeson. The predatory fees and fine being visited on that community were, ultimately, was the underlying source of the unrest.
For more on this practice during the last recession, see this coverage from NPR: https://www.npr.org/2014/05/19/312158516/increasing-court-fees-punish-the-poor
Because Ruth’s Chris didn’t use to keep restaurant staff on. The took the loan, laid off their low level employees, and then tried to claim that giving millions to high level executives qualified as spending it on payroll.
@mattbernius:
Hmmm, would something like that pertain to traffic cameras? There was a case recently where someone got a ticket for “speeding” in a school zone – turns out it was doing 30 (the street’s normal speed) and class hasn’t been in session for weeks. However, the cameras are still running and it seems being used to issue citations. Person challenged and ticket was dismissed but now I’m curious at how many people just paid without thinking and if this will keep happening.
That would be reasonable if the programs were sufficiently funded and the administration was fair. The big banks sucked up the money and excluded the small banks that likely served small local businesses. Then they showered money on their preferred customers, which in general were large corporations.
This being America, isn’t surprising, but it is certainly not how the relief package was presented to the American people by both Tiny and Congress. I suppose Congress once again voted on legislation that nobody had read and the venalness of Tiny’s administration is baked in. Grifters are going to grift.
Fixed it for you. JoeBob’s the tiny local place has zero cash to pay their workers and the owner themselves are probably screwed for cash personally. They need to money because they are scraping the bottom of the barrel. Ruth’s Chris on the other hand has reserves and their proprieties are keeping the C-level 100% funded rather then retaining dozens of servers.
I think the rule of thumb here would be that if the company chose to furlough or let go low-level employees rather then cut the salary/benefits of the big bosses, you have ZERO right to claim you’re a small, struggling business right now. If you still have fat to trim, then get in the back of the line while we bail out small businesses that really need help.
@KM:
Traffic cameras are explicitly marketed to municipalities as both (1) increasing public safety and (2) increasing revenue through tickets (which include additional fees and fines).
Another recent example we’re seeing is people being ticketed for the condition of their lawn at the same time they are being asked to avoid unnecessary time outside.
The reality is most municipal governments in places that had to shelter in place are not expecting revenue to get back to normal for two to three years. That’s going to have a cascading effect that has not been particularly well accounted for… yet.
@KM: So, I don’t claim to understand the business model of Ruth’s Chris per se. But I’m operating on the assumption that, like most restaurant chains, they operate on a franchise model. I can understand the consternation to money going to Ruth’s Chris’s corporate headquarters. But an independent RC franchise owner strikes me as exactly the same as the owner of a mom-and-pop local restaurant of equal size.
@James Joyner:
Agreed! Individual restaurants absolutely have that right and I’d encourage their owners to do so. However, the applications weren’t (to the best of my knowledge) from the restaurant or franchise level, else Ruth’s couldn’t have returned the money. Each individual requester would to and their response made it sound like cooperate made the request so corporate has to give it back. Now, if corporate planned to distribute it among the franchises, fine – I’d reluctantly agree to that under the premise one application gets approved faster then 1,000. We all know that’s not what happened, though.
A smart bill would have language in it pertaining to franchises since they’re so popular in the US. A corporation as a whole might apply but 100% has to be distributed to the franchises with nothing for C-level distribution. Simple enough to add, right? Would resolve a lot of this confusion yet never makes it in specifically so this kind of grift can happen.
But is it the franchisees independently filing for the loans or the corporate headquarters?
If the former, no problem. If the latter, big problem.
These chains want to have it both ways: They are a large corporation when it is advantageous to them, and they are small businesses when it isn’t. Schrodinger’s cat on a corporate level.
Come now. We all know that the borrowed money will never be repaid out of tax revenues. At best the interest will be paid in perpetuity as the debt is rolled over. In the 1990s I worked in an industry where this was a given — perpetual debt service was simply treated as a cost of doing business, much like salaries and rent. It will be either defaulted on, or cash printed up to repay it. Congress choosing to default is probably unconstitutional (although good luck having either the executive or judicial enforce that). So, printing our way out of the situation it is.
Given that, I almost certainly favor keeping workers nominally employed at much lower hours, and paying them (with printed money) for time not worked. The exit strategy is much smoother, and the problem of extracting the printed money is a problem for a future time when things aren’t quite so harried.
@Michael Cain: somebody asked the other day if we ever paid back the money we borrowed to fight World War I?
I am not against bailouts as such.
But it can’t be the case that a company that in previous years spent its cash by paying dividends and buying back its own stock gets bailed ou; and after being bailed out, goes right back to the next stock buyback program once the economy recovers.
They could apply for loan, though. If losses gets socialized, profits should too.
@Michael Cain:
That last part is critical as we keep discovering how our social safety nets are really not set up for people who are (1) still employed and (2) working/getting paid for significantly reduced hours or (3) furloughed.
@Teve:
From memory, so suspect, no for the most part. It’s very hard to find a chart of the national debt that doesn’t show it as a fraction/percentage of GDP. As best I recall, that type of chart showing sharp declines in the debt following both WWI and WWII very largely reflect explosive growth in GDP.
@KM:
“more important than” not “more important then”. “Than” is for comparisons. You can remember that because “comparison” has an “a”.
Also, in fourteen hundred and ninety-three, Columbus sailed across the sea.
But, on topic, strong CDC guidelines would protect companies who opened and had workers get sick, since the company would be able to say “we were following recommended CDC guidelines”.
I would have no objection to laws that protect businesses from liability if they are following best scientific advice. It would protect the workers (boss can’t make you work shoulder to shoulder) AND the company. We still might need to help workers and companies if the guidelines aren’t good enough.
@Teve:
Choose wisely.
I think I have more than $4000 worth of assets on my desk. That’s a really, really low limit.
@KM:
I’ll see your “has the reserves” and raise you that, when I asked MS Cortana about it moments ago, it told me that a typical Ruth’s Chris franchise costs somewhere between one million and ten million to open. This is definitely not Joe’s and I’m not able to even find sympathy for the franchisee on the topic of rescue loans.d
ETA:
It probably depends on who owned the bonds. Bonds that have been owned by individual citizens are more likely to have eventually redeemed. Bonds held by financial institutions, governments, and the really rich probably get churned into new issues–whatever the term for that process is.
Angry about the failed FCPS response to distance learning in Fairfax County? Sign this petition: https://www.change.org/FCPSFailsCovidResponse
And James, even before you pointed out my massive misreading of your first paragraph, I resisted giving you a hard time about this part:
It still bother’s me tho, so here it comes:
OH MY FRICKING GAWD!!! YOU MEAN I MIGHT HAVE TO ACTUALLY ENGAGE IN PARENTING???
YOU MEAN I CAN”T DUMP IT OFF ON SOMEBODY ELSE??????????????????
Really, I understand that you pay taxes, (guess what, so do i) but so the F what? Could you fly your privileged flag any higher?
As a divorced parent who could not be there every day for my sons, I took my parenting duties very seriously. I lost countless jobs and made sacrifices uncounted because I thought that was FAR more important than whatever money I might make on whatever job I was working.
It is your responsibility to take care of your children. You don’t get to foist that responsibility off on other people just because you pay taxes.
@OzarkHillbilly: That type of attitude goes back a long way. I remember a story from back in the early 80s where a public school elementary teacher that I knew told me about a parent-teacher conference she had with the parents of one student. As she was talking about the child’s classroom behavior and interactions with his classmates and noted that he was showing signs of developing anti-social behaviors that warranted action on their part they replied
Once they’re out the door to school, they’re someone else’s problem. Din’t you know that?
@James Joyner:
There are 150+ Ruth’s Chris Steakhouses and the entity that got the loan was Ruth’s Hospitality Group, Inc. which is the corporate entity that owns more than 80 of those restaurants. The other 70+ franchises are held by just a few dozen owners and THEY weren’t included in that loan. So, it was the main corporate entity that got the loan and evidently the intent (before they finally succumbed to public pressure and returned it) was to pay their corporate staff plus their people who were working delivery and catering operations, who would have continued working regardless.
I personally feel absolutely NO SYMPATHY for companies like that. They evidently had cash in hand of their own of around $75 million!
I do, however, hope that my favorite neighborhood non-chain pizza place and sushi restaurant and the second hand shop and all these types get the help they need. Many of those, however, are finding that their employees would rather be temporarily unemployed and sequestered at home since A) they will get more money from unemployment benefits right now, and B) they really need to be home because their children aren’t in school right now.
I’m one of the lucky ones. I’m a federal retiree with a good pension and zero debt. My wife had a business she now is able to run entirely from home. Even without getting our $2400 stimulus check, we stand to come out ahead just because we are saving money by not eating out and I’m certainly getting lots of projects done around the house.
If the point is to get money to workers who can’t pay their rent or buy food, why are we handing it to entities that are not people, much less workers? Ruth’s Chris Inc. isn’t going to starve, or fail to feed its children. Joe Bob’s Local isn’t either. The people who need a safety net right now are just that — people. Human beings. Not corporations, limited liability partnerships, or other nonhuman legal entities.
If you want the people to be protected from the consequences of the disaster, pay the people. If the people starve, they won’t be around to drive the economic recovery. If the businesses fail, they will be quickly replaced by a dozen new businesses. Some of those new businesses will be small businesses, if the would-be entrepreneurs weren’t allowed to starve during the crisis.
@DrDaveT: if we give the money to billionaire corporations, it will trickle down to the workers. 😀
@KM: well as long as the plaintiff needs to prove absolutely they got sick at work and not somewhere else and also not be allowed punitive damages if the company took serious steps to prevent transmission then no immunity is ok.