Going directly to people does not maintain jobs for people to return to.
You know that saying about teaching a man how to fish.
Saving the businesses is the same as grabbing the fishing rod so the fish don't pull it into the ocean and the man has no rod to return to.
Giving it directly is giving the man a fish so he feeds himself for a day (something we are also doing with $1200 checks).
If we don't grab the rod and save it, we're stuck feeding the man for many days, until there is another rod available to use.
You may ask "Why not just buy the man a fishing rod?"
Well because there is no rod and rods don't scale to support a population of 330 million people. We're past the point in our economy where everyone can sustain themselves solo. It's more like fishing nets (companies) that each require dozens to thousands of people to operate to pull in a catch.
We're saving the fishing nets.
We lose enough fishing nets and soon enough there won't be enough fish to collect as tax and redistribute to those we need to feed for a day. The ability to hand out anything at all is backed by the fishing nets and the people operating them. You need to save both.
No. We are saving the owners of the fishing nets. The companies can (and likely will) fire the employees to save themselves. Which should beg the question: why does the owner of the company get the money, and not his customer (who is generally also his employee)? Because we want to save capital formation as it was pre-COVID, instead of letting consumers provide the incentives for capital to reformulate to adjust to new market realities.
The reason we persist with the 'freeze the system in place' is
1) We assume the capital class are more capable of redistributing money than the labor class (I think the current approach will favor major corporations and erode the market dynamism that has generally typified the US economy)
2) We assume that the costs of capital destruction are higher than the costs of damage done to the labor class (I think this is faulty)
3) The capital class have taken over the means of distribution and decision-making apparatus (this is inarguable, and is the primary reason the bailout has been shaped so favorably for capital instead of labor).
More ossification of the US markets. More preferential treatment for the politically and economically well connected. More penury for the lower and middle classes, especially the younger generations trapped under a growing debt burden without the opportunities to escape from under it.
Glad I have another citizenship and the resources to bail if it plays out the way I think it will.
> The companies can (and likely will) fire the employees to save themselves.
Some employees. Every business has employees that are critical to ongoing operations and employees that are not critical and will be shed when doing so prevents insolvency. It's better to fire some employees and save some jobs instead of insolvency which results in the loss of all jobs at that company. There should be nothing controversial about this. Even a socialist system is going to dial headcount up and down based on whether or not having extra headcount is providing excess value or destroying value in excess of the resources being put into that enterprise/endeavor. To do otherwise is wasteful/destructive.
> and not his customer (who is generally also his employee)?
I'm unsure what you're asking here.
> reformulate to adjust to new market realities.
This is neither free nor instantaneous. The Great Depression, by way of example, lasted for 10 years and without WWII would likely have lasted a lot longer. There's a ton of friction it letting things collapse and waiting for things to reformulate for the betterment of most of society, assuming it ever does.
The owners of capital are those that would suffer the least in this scenario. Maybe they can buy one less boat, maybe they escape to another nation where things haven't collapsed. For labor, the consequences of a prolonged reformulation is often dire.
The Great Depression isn't the only example of the multi-year cost of reformulation. Zimbabwe is still suffering the costs of its reformulation. Brazil suffered the consequences after hyperinflation that destroyed companies and the damage lasted almost two decades and took the Plano Real to create conditions where things could reformulate. There's also the Weimar Republic and now Venezuela.
Reformulation is long and painful and there is no guarantee that what arises from the reformulation is better than what was there before. Given how well the US economy was generally doing before this pandemic, there is strong reason to believe it won't be better simply due to the fact that things tend to revert towards the mean.
> We assume the capital class are more capable of redistributing money than the labor class
"capable of redistributing money"? Anyone can redistribute money. That's just asking if people can spend money handed to them. Both classes are equally capable of spending money.
What's valid to ask is which class will be more effective in spending that money in a way that produces greater returns in the future. The group that spends the money on nets to catch fish in perpetuity will prove far better stewards of that money than those that spend the money on fish to feed themselves until they run out of money.
Given that the capital class is generally trained in trying to find invest money to generate future returns, it's pretty safe to assume that they will produce a richer society. That society will most likely be unequal, but the wealth of those at the Nth percentile in a society that invests well will likely be better off than those at the same Nth percentile in a society that does not invest as well.
> We assume that the costs of capital destruction are higher than the costs of damage done to the labor class (I think this is faulty)
Several examples where the costs of capital destruction result in great damage to the labor class: Venezuela, Zimbabwe, Cuba, the former Soviet Union, pre-capitalist People's Republic of China, Weimar Republic, 80s in Brazil, etc.
Even the countries that socialists envy, such as the Nordic countries in the European Union, are only able to provide a strong social safety net because of the preservation of capital and a general high degree of economic freedom.
You said you believe that assumption is faulty. Can you provide us with counter-examples where allowing capital to be destroyed we less than the resultant damage to the labor class?
> The capital class have taken over the means of distribution and decision-making apparatus (this is inarguable, and is the primary reason the bailout has been shaped so favorably for capital instead of labor).
Can you elaborate here? Last The US is a democracy and everyone doing the distribution and making decisions here was elected by the American people by either direct vote (Congress) directly, indirect vote (Electoral College) or was appointed by someone that was elected by the American people.
You can't just claim something is inarguable. It's actually a pretty easy point to argue.
Near as I can tell, it has been shaped in favor of capital instead of labor because those making the decisions understand how destructive the destruction of capital will be for the entirety of the American people, both those that labor and those that don't.
> trapped under a growing debt burden without the opportunities to escape from under it.
No one is born with debt. You acquire debt voluntarily. Don't take on debt and you won't have any burden.
> Going directly to people does not maintain jobs for people to return to.
Every one of the 16 million people who've lost jobs in the last month has some combination of rent, mortgage, food, insurance, and other expenses that they spend money on. Receiving that money is how many companies need to stay in business. Giving the money to the companies doesn't necessarily provide people with their material needs. Money given to people gets spent in to the real economy. Money given to companies might trickle down in to the real economy, but it also winds up just pumping up the financial economy, inflating balance sheets and asset prices, not necessarily providing anything anyone needs.
I don't know why I'm replying but if you read my entire comment, you'd see that your concern is addressed: some of the bailout is going directly to the people to address those needs.
Barely. As in, to the most insignificant drop in the bucket given the infiltration of rent extractors into the average American wallet. 1200 is easily pissing into the winds of a single month, and gets no one far enough out of immediate financial concern that they can start planning how to reorient their productive effort.
Honestly, the more I look at the whole situation, the more it looks like two-thirds of the bail-out is going toward major actors in terms of the causative agents of the problem. The difference between a 1 time payment of 1,200, and a payment of 37000 is that:
37000 is 2 and change years worth of salary for someone making minimum wage ($7.50 an hour), a bit less two years for those at $10 an hour, and a year and change at $15 an hour.
Given that level of infusion, you've bought people a significant amount of time to contribute to normal economic activity at a level they're already participating at, and in some cases increasing it. You're also, by routing that straight to citizen's, giving people the chance to organize into new business units more adapted to the times.
There is also nothing keeping recipients from using said infusion to buy stocks or bonds propping up the Market in traditional ways, but also, by not bailing out companies directly, you give them a shot at dying, and for the price of assets to stabilize at a lower point via sell-off, also freeing up room in consolidated markets unfriendly to new entrants by taking out the least efficient yet too large to die actors.
To be honest, I'm shocked more quote "Free Market aficionados" aren't livid about how this stimulus is going down. Instead of dropping the stimulus in the place most likely to do some good, you've given Corporate America yet another infusion with which to become that much more streamlined at wealth extraction, and divorced from the material reality of delivering immediate goods and services through the coordination of primary market actors instead of leaving the primary wealth allocation decisions to a bunch of bankers.
I've met my fair share of cranks hung up on the Federal Reserve, but I'll be damned if I'm not starting to find myself aligning toward their general stance. The only difference between these two models of bailout is that one actually frees up and delegates economic power to everyday citizens to reshape the economic landscape as they desire (helicopter money) and one guarantees that entrenched players are in no way threatened in losing control of their systemically advantaged position in terms of controlling overall capital expenditure direction.
Sorry man, but I just don't buy it. There is nothing in Free Market economics which states that once you get big enough, your survival takes precedence over the rest of the Market. Yet this policy has clearly demonstrated that our political system as a whole buys that. It is frankly ludicrous. The only message I'm getting out of this move is that legal fictions are more important in the grand scheme of things than actual citizens, which to be frank, has likely been written on the wall for the last 40 years.
Let's say we let every business fail that would fail and the money goes to individuals only equitably. You honestly think 2 years is going to be enough to create what may end up being 47 million lost jobs as estimated by the Fed? Unemployment is likely to be over 32%. It's going to be very very ugly if we don't save those jobs.
The higher the job losses, the longer it takes for the market to create jobs because everyone is forced to be frugal.
The most jobs created under any president was under the two terms of Bill Clinton. That was 18.6 million (15.6%) increase. The greatest percentage increase was under the three terms of FDR, a 21.5% increase. You're arguing that we'll be able to creates jobs at a rate that is an order of magnitude greater than the fastest we've ever created jobs.
You're honestly arguing that the economy will be able to add even close to 47 million jobs in 2 years?
Giving money only to individuals instead of saving the jobs would be akin to condemning us to a recovery that will take at least a decade to recover from and that would be a very very dark decade for many of the 47 million that lose their job.
> You honestly think 2 years is going to be enough to create what may end up being 47 million lost jobs as estimated by the Fed?
I think he, and I, are arguing that if you give 47 million people the money they'd earn from their jobs (that's the magnitude of the bailout(s)), they could spend it in any number of ways, including keeping things they way they are.
To your original analogy; the bailouts are currently structured to keep fishing poles and nets in place, but do very little to restock the river with fish. What the GP and I are arguing is that restocking the river with fish is a better way to keep the whole system running.
EDIT: As a concrete example of this thinking, Nick Kokonas (twitter @nickkokonas), Grant Achatz' business partner in a number of restaurants in Chicago, has been arguing against buying gift cards to support restaurants, and in favor of buying takeout. Gift cards put money in the hands of empty restaurants and leaves them with future obligations. Selling takeout now not only puts current money in the hands of the restaurants, it lets them pay staff with current revenues, and keeps the entire supply chain back to the farm in business now.
> they could spend it in any number of ways, including keeping things they way they are.
Please explain to me how minimum wage for two years allows people to even remotely approach keeping things the way they are?
You're not even remotely proposing paying people how much they would earn from their jobs. Minimum wage is far from that. A bailout that gives 47 million people the money they'd earn from their jobs for two years would cost approximately $6T (US average income * 47 million * 2 years), which is an order of magnitude more expensive than the current bailout. The majority of the $2T bailout that passed and the $2T bailout that is proposed is loans not handouts with no obligations as you're proposing. Only about $500 billion is handouts. $250B in direct transfers to Americans and about $250B in pork like the money going to the Kennedy Center. The rest of the $4T is loans to small businesses, states and corporations to help save jobs until this passes. The overwhelming majority of that will be paid back like it was paid back under TARP.
Apart from it being an order of magnitude greater amount of money that would never be recovered ($500B vs $6T), another very important question is where would the tax revenue come from to finance that $6T? You've just destroyed all the businesses (corporate income tax, payroll taxes, property taxes, etc.) and all the personal income tax 47 million people. The only tax you'd be collecting is sales tax, which only states can collect.
Federal tax revenue would plummet, and that's all BEFORE we get to the point where those that haven't been laid off yet now lose their jobs because we're doing nothing to save the remaining jobs. At this point, the ranks of the unemployed swell far greater than 47 million. If you read the paper from the FED that estimates 47 million unemployed, you'll see that it relies on the assumption that the government makes an effort to save as many jobs as it can via a bailout like we did in 2008.
A total collapse in tax revenue would completely tank the value of the dollar and US treasury bills, since the revenue used to service our debt would evaporate. The US dollar and US treasury bills would no longer be considered safe and almost certainly would lose its status as the World's reserve currency. Americans simply do not appreciate how important having the reserve currency is to supporting our quality of life.
Furthermore, that restocking analogy totally fails. The problem isn't about how many fish are available. There's no lack of fish in the sea. It only matters how many are in the sea if that's the bottleneck. The bottleneck is being able to catch enough to feed 330 million people before those people starve. The fish is a metaphor for all the opportunities people can put work into in order to produce and feed themselves. If 330 million people found themselves with fully stocked oceans and no nets or fishing rods, a lot of people are going to starve.
Market opportunities to support yourself and prosper have never really been lacking at any point in human history. The only thing that has ever been lacking is the labor, talent and leverage (debt, technology, organization) to exploit those opportunities.
You're proposing destroying one of the key sources of leverage (organization) that has allowed us to sustain a high quality of life for 330 million people. Leverage multiplies gains on the way up and multiplies losses on the way down.
The more and more I process your proposal, considering second and third order effects, the more insane it is. Have you done any back of the napkin calculations here and considered the weaknesses in your proposal at all? It would cause catastrophic economic collapse in the US on par which the collapse of Venezuela or the former Soviet Union.
The frightening bit is this is a collective decision. People will gladly choose comfortable servitude and a predictable albeit corrupt promotion in wealth than having to endure the vacillations of personal liberty and living honestly.
It's an idea and definitely worth exploring, but my gut tells me that that is both far easier said than done and it likely comes with many unintentional consequences that we should figure out first.
One challenge is that the world is run by software. I have no clue how we would begin even modifying everything to account for such a dramatic change so broadly. Also, who do we suspend this for? Everyone? Only those that can't pay? This solution gets very messy very fast due to the layers upon layers of creditors, who themselves may have creditors. Among those creditors it's likely you can count both the American government and regular Americans (people with pensions and 401k's).
One of the potential consequences that concerns me is what all those creditors do when this is all over? Is there any a new element of risk (suspension of payments) that gets priced in that makes all credit more expensive in perpetuity? Is more expensive credit in perpetuity more expensive than the solutions we're pursuing? Do the creditors pull out of the system entirely and move their money to systems that didn't suspend rent and debt repayment obligations? I really don't know, but doing that is uncharted waters that should not be taken lightly since there may be consequences worse than the solution we're pursuing.
All the solutions are going to be imperfect. Generally those solutions that leave the machinery intact are easier to manage and reason about. Messing with the machinery in a time of crisis is generally inadvisable. It's the equivalent of changing code live in production.
these kinds of solutions always assume there isn't enough slack in the system to give more than the minimum when it's clearly not the case because all of the fed models have slippage factored in. but no when it's welfare absolutely every penny has to be accounted for.
>some extra conditional $600 checks
conditional on what? literacy? drug tests? skin color? why conditional at all?
Businesses are legal fictions. Even if they go bankrupt, their assets, employees, and IP will continue to exist and can be used to start new businesses.
There's a reason you see same companies going into bankruptcy every few years or so. It's relatively cheap to acquire a failed company and shore up their financials.
Once that's done, you can loan their stock back to them at an inflated price, then file for an IPO. Things are good for a few years, until they can no longer make their loan payments, then they go bankrupt again and the bondholders acquire the assets of the failed company, lather, rinse, repeat, until there's no longer a viable company left, and the brands & IP are liquidated by the court.
You know that saying about teaching a man how to fish.
Saving the businesses is the same as grabbing the fishing rod so the fish don't pull it into the ocean and the man has no rod to return to.
Giving it directly is giving the man a fish so he feeds himself for a day (something we are also doing with $1200 checks).
If we don't grab the rod and save it, we're stuck feeding the man for many days, until there is another rod available to use.
You may ask "Why not just buy the man a fishing rod?"
Well because there is no rod and rods don't scale to support a population of 330 million people. We're past the point in our economy where everyone can sustain themselves solo. It's more like fishing nets (companies) that each require dozens to thousands of people to operate to pull in a catch.
We're saving the fishing nets.
We lose enough fishing nets and soon enough there won't be enough fish to collect as tax and redistribute to those we need to feed for a day. The ability to hand out anything at all is backed by the fishing nets and the people operating them. You need to save both.