Against the coronavirus corporate bailout

Americans should oppose the nearly $2 trillion corporate bailout bill masquerading as “stimulus” currently under negotiation in the U.S. Senate. This profligate spending will do little to help the American economy or average citizens in the long run. But the additional debt added to an already whopping $1 trillion 2020 federal deficit will plague taxpayers for years.

Long-run thinking, though, is not in vogue in Washington, D.C. Perhaps our president, senators, and U.S. representatives are beyond hope. Perhaps they have fully embraced state control of the economy. The American people have not — and if our elected representatives vote “yes” on this rushed and unholy bill, we should vote “no” on them in the fall.

We are in a dramatically deflationary period, with vast parts of the U.S. economy shut down due to the COVID-19 virus. More money and more cheap credit can’t stimulate anything in such an environment, because money and credit aren’t goods and services. It can and will, however, saddle future generations of Americans with more debt misery and entrench a standard of moral hazard for corporations from which free markets may never recover.

The correct response to the current economic crisis is simple and painful. First, get America back to work as soon as possible. Humanitarian concerns and economic concerns are not in conflict; in fact, they are closely linked. An economic depression is far deadlier than any virus, and tradeoffs are required. A poorer America is an America with far worse public health.

Second, allow existing bankruptcy and insolvency processes to run their course. Bailouts are not the answer, new owners who can turn companies around are. Corporate assets, contracts and products don’t disappear in bankruptcy. Yes, there will be pain as many (not all) existing employees lose their jobs. But executives and boards of failing companies should lose their jobs first and foremost, and new shareholders should seek clawbacks of ill-deserved bonuses and stock compensation. 

Again, this will not be pretty — but shareholders, not taxpayers, must bear the economic burden when companies fail.

As with most “emergency” spending legislation, this proposed bill is lengthy and its details are fuzzy. But today’s Wall Street Journal sums up the whole sordid process nicely: “Lobbyists Pile On to Get Wins for Clients Into Coronavirus Stimulus Package.” 

Among these opportunities: $500 billion in business “loans” from the U.S. Treasury, which means backed by you and me. Seventy billion dollars is earmarked for airlines and their suppliers, including Boeing, Delta, United and General Electric.

Airlines especially deserve scrutiny for approaching the public trough. Several reportedly spent more than 95 percent of their free cash flow in recent years on stock buybacks. That money was wasted, vaporized by the drop in their share prices over the last week. If they need money now, they have several choices: Borrow, sell stock or sell airplanes. Theirs is a particularly cyclical and volatile industry; don’t executives remember the falloff of travel after 9/11? Why don’t they hold more operating cash?

The unasked question lurking underneath the Senate bill is this: How do we pay for it all? Congress doesn’t have $2 trillion to spend, and 2020 tax receipts won’t begin to cover the bill. This means the federal government will effectively “print” the money, likely in a circuitous way by issuing new Treasury debt and using the Federal Reserve Bank as a backstop to buy it all if investors won’t. And what sort of investor wants to loan Uncle Sam money for 10 years at less than 1 percent interest anyway? 

At least Sen. Bernie Sanders (I-Vt.) is more honest: He thinks government simply should give Americans money every month, with or without a crisis. We now see plainly that congressional Republicans agree with him, at least conditionally. What a sad state of affairs. 

If the bailout of 2008 had worked, U.S. companies would not need a bailout today. They would have thanked their lucky stars then, and focused on building healthier balance sheets with more cash and less debt. Let new owners, not American taxpayers, save them today. 

Jeff Deist, former chief of staff for Rep. Ron Paul (R-Texas), is president of the Mises Institute, a non-profit think tank that promotes teaching and research in the Austrian school of economics.