What the American People Should Take Away From the Pandemic

A concrete law we can pass to stop this from ever happening again

Photo by ElevenPhotographs on Unsplash

Government has given out trillions in stimulus to businesses and corporations and just allowed crumbs to individuals.

We need to put guardrails in place so that Government cannot do this again. Never again should we let our politicians provide Government assistance to companies instead of people.

What we learned from the stimulus

The approach we know that politicians and pundits always push is that we cannot let businesses fail. We can’t let the banks fail. We can’t let the airlines fail. We can’t let corporations of any kind fail. As far as I can tell from what the politicians and pundits tell us that is for two reasons. 1) is to save jobs and 2) is to save the economy overall.

  1. Point one is easy to challenge. Any funds that you give to the company may possibly save a job. But the amount that ends up in the worker’s hands will be greater if the funds bypass the company and go directly to the worker. This is just basic logic as labor expense is not the only expense a company has so some part of any stimulus a company receives will not be spent on labor.
  2. I’ll let Chamath Palihapitiya challenge point 2 and why giving directly to the people would be better for the economy.

“We know this economy is always consumer led. It’s consumption that drives growth in the United States. It drives jobs and capital allocation and the more money in individuals’ hands the better they can be to support businesses, buy different products,”

“The first phase of stimulus was, you know quite honestly, wasted. A lot of this money got sent to companies. Those companies didn’t allocate it properly. They still ended up laying off tens, if not hundreds of thousands of employees, just literally the day after the stimulus said that they could. The money wasn’t functionally useful.”

The largest transfer of wealth in history

The chart below is the M2 money supply indicating the number of dollars in circulation plus those in savings, money market, CD’s and other short term easily liquidated investment vehicles. As you can see the U.S. has been printing a ton of money in order to hand these trillions out to corporations.

M2 Money Supply via St. Louis Fed (fred.stlouisfed.org)

Eventually, this is going to cause inflation to occur and the dollar to be worth less. It hasn’t occurred yet because for the most part this money hasn’t started to circulate yet. When exactly this money starts circulating nobody really knows. But whether it’s this year or five years from now it’s only a matter of time.

This means that this year has been a double whammy to income inequality. Not only did these trillions in the stimulus get sent to the already wealthy companies for the most part but when inflation occurs the dollars that you have in savings, and the income you are receiving, are going to be worth less than they currently are.

When businesses fail

Yes, when a corporation or small business fails it’s not necessarily a good thing. Jobs can be lost and lives can be hurt. But for the most part when they are bailed out the person benefiting is management and shareholders.

Let’s say an airline fails. Yes, workers will be laid off, shareholders will take a hit, 401K’s might be hurt, there will be less competition between airlines, Boeing might be hurt as there is one less customer to sell planes to.

But only for a little while!

If there is demand for those planes to keep flying either 1) new shareholders will come in and purchase the company and reinject enough capital or 2) another airline will buy it or 3) multiple airlines will absorb the planes, workers etc. into their companies.

The workers will either get their jobs back with the same company or with another company eventually. All will be good as long as they are able to be taken care of by short term government assistance. Assistance directly to the people through, in the case of this pandemic, direct assistance checks or unemployment checks.

Corporations should never be where bailouts are directed

I am a capitalist. I believe in markets, incentives, profit, hard-work, innovation, sacrifice, delayed gratification, growth, achievement, personal responsibility etc.

I also don’t have any problem with a robust safety net.

I just believe that the safety net should be solely for individuals and never for corporations.

It’s time CEO’s of the big corporations have to exercise a little personal responsibility over their companies.

Government has become a tool to drive more money to the rich and take advantage of the poor. These two stimulus bills in 2020 have been examples 1 and 1a for how they do it.

A simple concrete law we can pass to stop this from ever happening again

We should demand congress pass a law that no bail out, stimulus, or direct assistance of any kind can ever be given directly to a C-Corp, S-Corp, LLC, or LLP. Basically, no entity other than an individual can ever receive direct assistance from the U.S. Government.

The banks weren’t too big to fail. There might have been even more pain for a short time. But other banks, PE’s, shareholders etc. would have stepped in and bought the companies or assets.

Similarly today. Airlines and other corporations and even restaurants should be allowed to fail. We can give assistance to the restaurant workers. And even the restaurateur (many are millionaires already so they wouldn’t qualify, but the ones who need it would qualify). Then they can close things down, and get another job and scrimp and save and sacrifice once again to start another one when they are ready. By the way, just as things have been for basically all of humanity until only a few decades ago.

If we made it a law then first it would keep these types of bills that are basically socialism for the wealthy from happening again.

But second, it will make corporations manage their risk differently. If they know they can’t go begging to the government every time they need some money.

Perhaps they will focus more on the long-term viability of the company and less on short term shareholder return and the next quarter’s 10-Q. Perhaps instead of squeezing every bit of juice out for this quarter’s results and management bonuses; companies can save just a little more cash, do a little less share buybacks, and concentrate a little more on mitigating long term risks to the company.

Finance professional with a passion for reading, writing, history, economics and the world.

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