Are You Ready For the Great American Business Bailout Lollapalooza?
It's a good thing the government is banning gatherings of more than 50 people in one place. There is a line forming outside the capitol building of lobbyists, activists, special pleaders, shamans, witch doctors, and snake-oil salesmen, all looking for a bailout from the government because of the Covid-19 pandemic.
The logic is simple: government has shuttered the American economy and now government owes those who are losing their shirts a lot of cash so they can keep operating.
The list of potential beneficiaries is growing by the day: airlines, cruise ships, casinos, restaurants. Soon to be added to that list are hotels, resorts, and other entertainment companies.
Will it stop there? Your guess is as good as mine. The point being, there are going to be a lot of people with their hands out and the question, as always, is who gets the goodies? When Democrats are in power, Democrat interest groups get the cash. The 2008-2009 financial crisis bailouts not only gave hundreds of billions to Wall Street, but the government bailout package of nearly a trillion dollars benefitted unions, teachers, bureaucrats, and the construction industry.
But what's coming makes the 2008 financial crisis look like a picnic. For the better part of the rest of the year, it's likely that most American businesses -- with the exception of grocery stores and pharmacies -- will suffer closures. And the hardest hit may be the restaurant industry.
The coronavirus pandemic — fast-moving, and endangering people who spend time in public spaces — is uniquely poised to take down the restaurant industry as we know it. As if tailor-made to render restaurants unusable, the pandemic is a time bomb. And restaurants will not be able to delivery or takeout their way out of it.
Many of the restaurants that close during the pandemic will not reopen their doors. Diners should also brace for a restaurant landscape that will be entirely different by the time — however near or far off it may be — they can be safely encouraged to enjoy a crowded night out again.
How can the government bailout 800,000 businesses? Who gets how much? It's an impossible situation.
The bailout of airlines and the cruise industry is pretty straightforward. There are a small number of businesses with articulated problems. They're asking for about $60 billion (for starters).
But do they really deserve it? The nation can't function without an airline industry, but the loss of cruise ships isn't critical to the economy. (It's critical to those who work in the industry, but the government is going to have to triage the problem and cruise ships shouldn't be a priority.)
As with the financial crisis, the government is going to put a gun to the heads of businesses and force "reforms." Should the government force cruise lines and airlines to guarantee there will be no layoffs in return for the cash? Maybe Congress should close some tax loopholes. Democrats will want limits on executive compensation and maybe a crackdown on "golden parachute" retirement packages.
There's talk of the Federal Reserve purchasing large numbers of businesses to keep the doors from shuttering permanently. That may be one way to help small businesses that are most at risk of never opening again. But the thought of the Fed owning a large slice of the American economy should send a chill down your spin.
Not at risk of permanently shutting down are oil and gas giants. But a lot of smaller fracking companies are being slammed. With the oil price war between the Saudis and Putin raging, fracking companies are losing big. While the war can't go on forever, they may require some sort of bailout to get back on their feet -- or stay in business.
Taking money from the government is almost like taking money from the mob. It will change the way that many companies do business. It will alter the competitive landscape in many industries -- benefitting some, ruining others. Unfortunately, there is no alternative. "Creative destruction" doesn't work when the entire economy is already destroyed.
American business is going to look a lot different when things get back to "normal."