The global economy is hurtling toward a disaster of historic proportions. Supply chains have been broken, businesses have been shuttered, and every measure that the United States can now take to slow the spread of the novel coronavirus pandemic will bring economic life to a standstill.
If people are to avoid contact with one another ― an essential step at this point ― they cannot go to work. If people do not go to work, the economy does not function. Large corporations are announcing widespread layoffs and the economists at Goldman Sachs now predict a 5% contraction in the U.S. economy over the next three months ― the worst such drop since the administration of President Herbert Hoover.
There is no way for any nation to survive what is coming without massive economic support from the government. The obvious, easy remedies include immediate financial relief for working families. An infusion of cold, hard cash to households cannot at this point prevent a devastating recession, but it can rescue families and maintain some foundation for commercial society. People still have bills to pay when the economy craters.
This simple task has already proved too arduous for President Donald Trump and House Majority Leader Nancy Pelosi (D-Calif.), whose first effort at a paid sick leave bill can only be described as pathetic, providing only partial sick leave benefits to just 20% of the American workforce. One can hope that the escalating severity of the crash will persuade them to take economic support seriously. It seems to have swayed radicals like Sen. Mitt Romney (R-Utah), who on Monday proposed sending $1,000 a month to every American adult for the duration of the coronavirus outbreak.
But helping households is the easy part. Other necessary rescue measures will prove far more controversial. Many, if not most, sectors of American industry will require government help to make it to the other side of this collapse. And the prospect of public assistance to massive corporations will not sit well with a public still stinging from the outrages of the 2008 bank bailouts.
Rescuing American industry should not be inherently scandalous. Most people want there to be airlines and factories and banks and retailers when this crisis is over, and only a tiny percentage of hardline libertarian true believers would resist the idea that the government should actually do something about a once-in-a-century pandemic.
It is not the bailouts that should be offensive, but American industry itself. Over the past 35 years, policymakers in both parties have encouraged risky corporate excess that has delivered tremendous short-term gains to shareholders and executives while shortchanging workers and leaving companies unprepared for the unexpected. Economists sometimes refer to this practice as “efficiency,” but to ordinary people, it looks more like theft. In 2018, corporations spent a record $806 billion buying back their own stock ― by far the highest number on record, followed by $710 billion in 2019, the second-highest annual total on record.
“It is not the bailouts that should be offensive, but American industry itself.”
This is an economy-wide phenomenon. American Airlines spent $15 billion buying back its own stock between 2014 and 2020. In June of last year, J.P. Morgan announced plans to buy back over $29 billion of its own stock over the next 12 months. The Marriott hotel chain buys back 5% of its stock every year and has been increasing direct cash payouts to shareholders for more than eight years. Pharmaceutical companies spend more money on stock buybacks than they do on research for new drugs.
Companies could put this money to better use ― investing in new ideas, upgrading equipment or simply paying workers more. Stock buybacks just inflate the short-term value of a company’s shares. If you own stock, they make you richer.
Which is great, if you own stock. But about half of U.S. households don’t ― not even through retirement plans ― while only 22% own at least $25,000 worth. The higher up the wealth ladder you go, the fewer people there are, and the bigger their chunk of stock ownership.
In short, the primary product of American business is inequality. Our corporations are designed to create a small number of very rich people. Whatever else they produce in the process is incidental.
Bailing out this inequality machine is quite reasonably abhorrent to most people. They struggle to make ends meet as these companies pay workers barely enough to get by so that people at the top can become fabulously wealthy. And when a disaster comes, it is vile to think of the richest people in the world being rewarded for their recklessness.
The solution is not to block the bailouts, but to implement them with very strong strings attached. Corporations who accept public money in any form ― be it emergency lending from the Federal Reserve, cash bailouts from Congress, or creative new tax breaks ― should be prohibited from paying dividends or buying back stock for, say, a decade. Executive compensation from the past decade should be clawed back, and, most importantly, shareholders in these companies should be wiped out. Stock prices should go to zero, and new stock issued to prevent old shareholders from profiting from public largesse. Pension funds and retirement accounts could swap their stock for government bonds before being wiped out to prevent the stock write-offs from hitting retirees.
If you need the government to save you in bad times, you don’t deserve to keep your profits from the good times.
The U.S. economy cannot and should not go through the coronavirus pandemic without government help. As John Maynard Keynes observed more than 80 years ago, there is no natural bottom to an economic downturn. Things can — and in this case, in particular — will keep getting worse until our leaders step in to restore economic order. But we must ensure that aid benefits the public, not the superrich.
Zach Carter is the author of “The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes,” available now for pre-order from Random House.