By Peter J. Ferrara
Normally government bailouts of troubled companies are not justified. If a private company is in business for profit, and gets in trouble financially, allowing it to go bankrupt and out of business is just the market at work.
If it gets to keep the profits it makes without any limit, then it should pay the price for any losses it incurs. Those losses are the market telling the business it is doing something wrong. It is not creating value, but destroying value to the extent of its losses, which it consequently must be the party to bear.
Even in the case of workers losing their jobs, those jobs were not creating value. So the worker’s talents must be reallocated elsewhere, where the worker can productively contribute his or her talents to adding to, rather than subtracting from, broader economic growth and GDP.
It is generally the employer’s fault, not the worker’s fault, that the job was not contributing to the broader economy. But the worker’s productive abilities must still be reallocated to their most productive use.
The workers will most likely earn higher wages in more productive jobs. And we will all gain from a more productive economy and higher GDP and standard of living as a result of that reallocation of the workers to their most productive activities.
For humanitarian reasons, protecting the workers from any harm or suffering as a result of that employment reallocation would also be justified. That is why unemployment insurance is justified, though not paying a higher income or wage than the job was originally paying. Paying higher, or even equivalent wages, for not working will only create new losses of productive value. Workers will just not work if they can make more or even equivalent wages from not working than by working.
But this time, more broadly, the stimulus bailout was justified because the business losses were not created by the declining companies. They were created by the government, through its public health policies. That is why I can’t go to the movies, or eat at my favorite restaurants, or watch my favorite sports, or fly to where I would like to go, staying in my favorite hotels.
And that is why it is fair and justified for the government to bear the losses it is creating. It is the government, not the businesses or the workers, that must be alerted as to the losses its policies are creating. So those losses can be taken into account in setting, terminating and recovering from those policies.
That recovery will be faster if profitable businesses are preserved, and productive jobs are retained, rather than reallocated, so the workers can be put back into productive operation. The jobs and businesses will still be ready and waiting for customers and workers to return when everything returns to normal. That is another reason the stimulus bailout was justified this time.
President Trump is right to be so determined to end those losses and get America back to work as quickly as possible. By Easter, on April 12, he will have lined up Governors, covering much of the country, who will have agreed that their states should get back to work by then. Those in other states will then wonder why they haven’t gotten back to work.
The stimulus, though, will not be effective if all that increased borrowing to finance it drives up interest rates. Or if as a secondary effect it crowds out and displaces the private investment that would have resulted from the pro-growth policies previously in place. The tax reform tax rate cuts, or the energy deregulation, were so effective in promoting American energy independence, as America surged to leading the world in production of oil and natural gas, producing a blue-collar boom.
That led to millions of increased jobs, as America led the world in production of low-cost energy, which, along with the tax rate cuts, began to bring back manufacturing to America. That increased income and wages, for the middle class, blue collar workers, and lower income workers, with job and wage competition reduced for the lowest income Americans by Trump’s pressure to reduce immigration.
During the Great Depression and World War II, America ran up its national debt to obtain the needed emergency financing. With record low interest rates, that means that investors are willing to finance that emergency funding for the stimulus bailout this time as well, even though that is driving America to all time record national debt.
Trump is aiming to restore a V shaped, booming recovery with these policies, starting in mid-April, when the weather is warming up, and new modern medicines are having an effect in beating back the virus. That will reduce the national debt as a percent of growing GDP. He would then glide to re-election all the more as a successful war time President, defeating the virus and bringing back America’s blue-collar boom.
Peter Ferrara is the Dunn Liberty Fellow in Economics at the King’s College in New York. He served on the White House Domestic Policy Council under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
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