The U.S. economy is in freefall. With whole cities across the country basically shut down to contain the coronavirus epidemic, consumer spending has crashed, and workers are being laid off by the tens of thousands. Indeed, unemployment claims seem to be coming in much faster than they did during the 2008 crisis, which took months to take hold. Unless the federal government acts quickly, we could very well be looking at Great Depression-levels of unemployment very soon.
So far there has been a lot of discussion about direct cash payments to individuals, and there seems to be wide agreement that something like this needs to happen. Both the Trump administration and congressional Democrats are proposing various forms of this idea. (A massive boost for unemployment insurance is also a vital measure.)
Less popular, however, is the possibility of bailouts to big businesses, and it's easy to see why. These companies have puked themselves inside out disgorging money to executives and shareholders, leaving nothing for a rainy day, and now they want taxpayers to save them? For instance, Boeing, which is begging for a $60 billion bailout for aerospace companies, paid out $60.5 billion in share buybacks and dividends between 2013 and the first quarter of 2019. The big four airlines asking for a $50 billion bailout have spent $45 billion on shareholder payouts since 2010.
However, a business rescue could be conducted in a fair way, and doing so would be good policy — preventing mass layoffs and preserving businesses in a better form so they are still around when the epidemic has passed.
Of course, it would be wildly unfair to simply rescue these companies in their current form. But there is no reason that shareholders and executives have to benefit from a corporate rescue. Congress can simply structure payments and attach conditions that prevent the money from going to the ultra-rich. First, any money given to publicly-traded corporations should mean the government gets newly-issued stock in return, and dividend payments would be banned for the duration of the crisis. Second, rescued companies would be forbidden from conducting stock buybacks — indeed, these should be banned entirely as they were prior to 1982. As economist Gabriel Zucman points out, buybacks are little more than a tax dodging mechanism, because capital gains taxes are easier to avoid. That way the public instead of investors captures most of the upside of any rescue. Third, rescued companies would be required to accept tight limits on executive compensation — say, three times the average salary of the firm's employees. Any CEO who doesn't like it can find another job.
For the most troubled companies — which is probably a lot of them — this would mean full nationalization, where the state is the majority shareholder. At time of writing, Boeing's total market capitalization was under $60 billion and falling fast. Even news of a potential bailout has not improved the stock price, because investors fear (hopefully rightly) it will come with strings attached that will prevent Wall Street looting. In another few days the government should be able to pick it up for a song. And there is really no reason why the state shouldn't keep most of these stocks indefinitely. The U.S. could use a state-owned flag carrier to provide competition to price-gouging private airlines. Other stocks could be folded into a social wealth fund that pays out dividends to the American people on a per-capita basis.
Once we have ensured that bailout monies are not gobbled up by the top 1 percent, the basic goal would be to keep workers employed and keep the lights on at as many companies as possible until the crisis passes. As Zucman and Emmanuel Saez write in a policy brief, even hollowed-out American companies are still important repositories of knowledge and investment, and employ millions of people. Letting them fail would wreak terrible social carnage. The state should act as a "payer of last resort" until the masses can leave their homes. Many European countries are already doing this.
Indeed, this is a perfect opportunity to snatch these companies from clutching talons of profit-crazed financiers and executives, and restructure their business practices towards actual production. As Maureen Tkacik writes in The New Republic, Boeing's infamous 737 MAX was "the world's first self-hijacking plane" because financier culture wrecked the company's ability to make things. Careful engineers who warned the plane was a death trap were overruled by financier idiots obsessed with short-term profits, who insisted that outsourcing and cutting corners would increase margins. Result: hundreds of people needlessly killed. Physically preventing Big Finance profiteering would go a long way towards driving the Wall Street demon spirit from American factories, and restoring some pride in high-quality production.
A small business bailout, meanwhile, is a much easier sell. Small independent companies are not usually publicly traded, nor do they have huge profit margins, so there is little need to worry about Wall Street goblins. Conversely, if there are not some kind of loans, grants, or rent and tax deferrals to keep them alive in stasis until the crisis passes, this sector is going to be devastated. The restaurants, coffee shops, and so on that make up a huge chunk of the culture of American cities will cease to exist in a matter of weeks if something doesn't happen soon — indeed, many have already closed.
American business for decades has been dominated by greedy, corrupt oligarchs who privatize the gains and socialize the losses. The coronavirus crisis calls for the opposite response. Rich stockholders and executives can be thrown overboard, but the American people should save the remaining business structures, and be cut back in on the fruits of corporate production in the process. If done right, it would be both sensible and fair.
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