Words like "aid" or "stimulus" or "relief" are one word arguments. Who doesn't like aid? These are marketing BS words. We need to use more clear language like "economic transfer". This puts us in the right frame of mind to discuss who the money is being transferred from and to.
"Pardon me, Average Joe Taxpayer. We noticed you haven't been purchasing any tickets on American Airlines lately. In order to help you with this problem, we're going to take money from you and give it to American Airlines. What's that? No, you won't be getting free flights, you silly goose. We're just going to give them your money and you get nothing in return."
US productivity increases at roughly 2% per year. With a stable money supply prices would on average decrease by roughly 2% per year. The Federal Reserve has a target inflation rate of 2% per year.
In the best case the Fed would need to hold interest rates a 4%+ per year to compensate dollar holders for the loss of purchasing power. Prior to 2008 those benefits used to accrue directly to the government. The Federal Reserve purchased only Treasury bonds which would lower overall market rates for government bonds. In addition any bonds held by the Fed were effectively interest free as interest was returned to the Treasury.
In 2008 the Fed started to purchase mortgage bonds and other assets and later started to pay interest directly to banks. This is a direct transfer of purchasing power from dollar holders to homeowners and banks.
In this case look at the alternative if the Federal Reserve didn’t allocate those loans. The airline would go to court and file bankruptcy and losses would be allocated to equity holders and creditors. Those losses don’t magically go away because it isn’t easy to see who the losers are.
You’re assuming a fixed amount of stuff and that the system is running at maximum capacity.
If there is any unemployment in the system it isn’t. It is systemically supressed. (There is insufficient spending in the right areas to employ everybody. Largely from the people that would otherwise be employed).
What you are describing is the “full employment fallacy”.
We’re demonstrably not at full employment. Which is when Everybody who wants a living wage job has one. Only then does what you say hold true.
And that’s because Interest Rate Targeting doesn’t work. If the Fed was required to hire everybody who couldn’t find another job they wanted then we’d be in the position you describe.
We’d also have an empirical test of how well Interest Rate targeting works
It doesn't, or at least not yet. Increasing the money supply might eventually cause inflation, but it's not a mechanical link and doesn't happen automatically. For example, the money might be paid back, and that decreases the money supply again.
Also, for inflation to happen, people will have to try to buy more stuff than what's available, and merchants will have to raise prices. Although we've seen shortages for a few things, that kind of overall spending is unlikely to happen until the recovery phase when people are feeling confident again.
Other than the staggering amounts, it's not really different from any other bank making a large loan.
There's more to inflation than CPI. For example, the entire stock market is being inflated right now with these dollars. We should be experiencing deflation because many classes of assets should be crashing harder than they are. Keeping things steady when they should be deflating is still taking my money through inflationary forces.
There aren't many people who benefit from a stock market crash, which is why the Fed is propping things up. I happen to have money to invest when the price is low enough, but that's unusual, and complaining about not having that opportunity (yet) would be "world's smallest violin" territory.
An opportunity cost is not a real cost. There are always missed opportunities.
Stocks are not the only thing that would be falling rapidly. Real estate is another. What's happening here is that the Fed is making sure that the people who are rich and powerful stay rich and powerful. Otherwise, why not let average people get functionally infinite loans at zero interest? Why can a bank/corporation sell their depressed assets to the Fed at before crash prices but I can't? Every privilege given to incumbent wealth is a middle finger to the average worker.
That's kind of the point of inflation though, isn't it? If you accept that money exists to facilitate trade and improve on the barter system (not necessarily a reasonable assumption, especially since money is flexible enough that it could very well serve other purposes if we wanted and allowed it to), then it's a bit odd to let it hold its value in perpetuity because the delayed nature of such transactions no longer represents the barter system that money was meant to replace.
As a simplified example, suppose that 1 duck is generally worth 2 chickens and that monetary prices reflect this (e.g. ducks are worth $10 and chickens $5). I sell you a duck for $10. Time goes on, and the relative values swap -- ducks are worth $5, and chickens are worth $10. I buy two ducks from you for $10. Those two _monetary_ transactions if compressed in time into the bartering that money was meant to replace would represent me trading one of my ducks for two of yours, which assuming no other hidden variables is an unrealistic trade that would never happen.
The relative values of goods shift constantly, and arguably a dollar yesterday really isn't conceptually the same thing as a dollar today -- even though they can both be represented with the same slip of paper. Inflation is one strategy to align money more closely with its role as a medium of exchange.
standard disclaimers -- opinions are my own not my employer's, I'm not a lawyer, I'm not an economist, the above is a simplified model and blatantly ignores huge swathes of fiscal policy, ....
> We never had an income tax in the United States before WW2.
There was an income tax during the American Civil War, but it was temporary. Then Congress passed an income tax in 1894, which was ruled unconstitutional in 1895. The 16th Amendment, which made it constitutional, was ratified in 1913. So your history is as shaky as your moral philosophy.
Because it is stating a highly-debatable position as a pithy slogan, with no justification, basis, or rationale given. It's trying to make progress in the debate, not by force of superior ideas, but by stating the slogan often enough that it sticks in at least some peoples' minds.
The tax burden has been moved from corporations and the upper class to the middle. Perhaps changing that dynamic would be more useful than spouting memes which support your own detriment.
> In the interview, Mnuchin also said many companies are ceasing stock buybacks and are likely to use the additional capital to retain workers.
So they are on the honor system.
> Some experts disputed that assertion. “Some companies have ceased buybacks and dividends and some haven’t. We shouldn’t have to keep our fingers crossed,” Gelzinis said.
Is there a public list of the companies that took the aid?
Absent real restrictions on the loans, the next best option might be a website that shows the amount borrowed by those companies next to any layoffs, dividends, exec bonuses, or share buybacks they did while taking the loans.
Government bailouts should come with very onerous conditions so they are used only as last resort. But I guess 2008 should have taught us that this is not going to happen.
Government bailouts should be in the form of stock purchases. Want a bailout? Government owns part of the company. Want to issue dividends after the bailout? Government gets some. Too many bailouts, and the company is now state-owned.
taking equity seems to pop up with every story on corporate bailouts.
the problem with taking equity is that it's not simply an income stream, it's a responsibility. you become a stakeholder and need to manage the asset lest it devalue in ways you don't like. it's messy and much more criticizable, something politicians and bureaucrats loathe.
fixed-income assets like loans are much simpler, and have the added benefit of naturally having higher liquidation preference (bondholders get paid before shareholders).
loans with performance penalties/incentives are cleaner to implement, but the problem there is lobbying that waters down penalties and magnifies incentives.
there's no simple solution, including taking equity. i'd love every loan to have a clause stipulating no executive stock incentives or share buy-backs for 7 years post-loan, but no one is lobbying for that.
Loan means the company will be required to pay it back at some point. Suddenly increasing a company's liabilities by millions or billions, not to mention the interest burden, might have major significance for the long-term survivability of said company. That's fine if you only care about easing the short-term shock of the lockdown, but it could very well slow down the post-lockdown recovery.
And what happens when you require a bailout because the government forcefully shut down the economy? You need to critically think about what you are offering up as a solution.
When we were talking about being shut down for 2 weeks, this position made some sense. There are lots of reasons a company might face a 2 week disruption of operations, and it's fair to say an inability to tolerate it represents some real and avoidable fragility.
We're now a month and a half in, and some states have committed to broad mandatory shutdowns for another month. "Our business becomes illegal through the end of Q2" is not the kind of rainy day businesses can be reasonably expected to plan for.
i'd buy that argument for small businesses (<~$10MM in revenue), but for larger businesses (>$100MM) in most industries, a 6-month operational cushion isn't usually onerous, especially given the advantageous cost of capital generally afforded large businesses already.
Also egregious are companies flush with cash who are laying off workers, putting them on unemployment and costing the public hundreds of millions of dollars. Disney is one such company.
They do pay unemployment insurance, so I guess they can argue they're collecting on their insurance.
MayTheForth be with you, because your Disney paycheck won't be.
> Is there a public list of the companies that took the aid?
The latest count I’ve seen today is up to approximately 230 companies who have done so. There are some lists being compiled, but I haven’t found a definitive, complete list of all 230+ companies.
You CAN'T preserve jobs, given the economic catastrophe that is occurring. Demand for many products and services have fallen off a cliff. Air travel is but one example. It's not like demand is going to recover overnight for the airline industry. It will take many years to recover. They will have to pare back flights and they will likely have to consolidate carriers in order to remain profitable.
Propping up zombie companies does nobody any good. It just leads to capital destruction.
If the government has required your legal business to close, you should be compensated for that. Just as if they take your land to build a road, they have to give you the fair market value of the land. Otherwise, if you're not being compensated, you should be free to stay open.
These are only "zombie companies" because they've been directly shuttered by the government.
I don't think this analogy is applicable. The government hasn't banned air travel, and the drop in demand is more of a second order effect as the result of minimizing potentially detrimental behavior (spreading the virus).
In general I don't believe the government is required to compensate businesses if regulation results in loss of business and possibly the loss of the business. As an example, look at CFC bans and fuel/emissions regulations. A company may suffer a loss and/or go out of business because of a regulation, but they can't demand compensation for that from the government.
The US government hasn't banned most international travel for legal residents. There's a list of restricted countries that require legal residents coming from them to only go to specific airports with enhanced entry screening.
It has banned entry by foreign nationals from those countries, but I wouldn't call that banning most international travel.
Why are we prioritizing businesses before individuals?
Maybe our old system was inefficient and these dying companies should be left to die?
We can't say the same about people. Who are in fact in trouble, and a dying person is far more morally reprehensible than a company having to shut down.
Businesses are people. They're just groups of people selling shit to other people, who likely do the same. Consumers are leaf nodes in this graph, so every business that dies due to lack of consumer demand could mean a dozen more are going to fall as a result.
No they are not. Businesses are legal entities which have different standards of liabilities than people. The way to support businesses is not to make sure that the government hands them a wad of cash, but by handing a smaller wad of cash to individuals so that they can continue to fund businesses directly through the market. This has the benefit of also keeping corporate taxes flowing to federal coffers.
If the people have money, but the company can't sell to them, what good does that do for the company?
And if the people want to buy from the company, but the company goes bankrupt before the people are allowed to buy, then giving money to the people didn't help the people (at least not with respect to this problem).
What good is giving money to a company that can't contribute to the economy? That's feeding a parasite. 70% of this economy is driven by consumer spending at the bottom, not by companies like Boeing covering their poor financial decisions. Giving a company like boeing money is fundamentally unproductive compared to giving it to the people, who would reinvest it into the most productive and critical aspects of the economy, not just who commands favorable defense contracts or golfs at Mar a Lago.
What do you mean? Everything is available online and can be delivered to your door. About the only thing I don't have access to is little boutique shops. I can even get weed delivered via app.
That being said, I don't think anyone is looking to spend money with unemployment at 20%. People are using their stimulus checks to pay down debt and buy diapers. Belts are being tightened. Rent is not being paid. None of this is a recipe for consumer spending without a sustained injection of cash. $1200 buys three weeks rent in a 1 bedroom apartment in LA county.
> About the only thing I don't have access to is little boutique shops. I can even get weed delivered via app.
If that's the case then you're living in the 1% (0.1%?) of places where this is available.
> None of this is a recipe for consumer spending without a sustained injection of cash.
A sustained injection of cash means nothing if it's just paper money without anything backing it. If people aren't out, you know, creating things to sell, then a continuously pumping out money means rampant inflation.
>if they take your land to build a road, they have to give you the fair market value of the land
Yeah, well, in Wisconsin under Walker, a lot of our farm families learned the hard way that this is not always the case. (Foxconn). It depends on how badly they want your land. But, yeah, it can be perfectly legal for the government not to pay you fair market value.
But to your central point, the government doesn't have to compensate you for anything in an emergency. That's why when criminals rob a bank or Walmart and then hide out in your home unbeknownst to you, the police are free to grenade the place. Perfectly legal for them to leave you the burning hulk of what used to be your house and say, "Don't thank us!" It was an emergency. (Or at least, they'll say it was.)
The reason those businesses had to close is because we're in the middle of a pandemic that's killed ~50,000 people in 2 months. That sucks, but the government didn't cause this and doesn't owe the business owner any more than they owe any other citizen.
I agree that they should have never been shuttered by the government, but the die has already been cast. They can't undo the damage. What they did is equivalent to a scorched earth economic response to Covid-19. We're going to have to rebuild every industry we hurt. Some of those industries may never come back to the level they were (i.e. cruise ships). There's also fundamental shifts in consumer patterns that are occurring and will continue to occur as a result of economic uncertainty, trade battles with China, price shocks in response to supply / demand shocks, etc.
In the U.S. we also need to shift our consumption based economy to become more of a production based one, like we were 40 years ago. That kind of shift doesn't happen overnight.
Most comments here focus on the question if "who deserves what?". This is a stupid question, as it becomes a tautology revolving around how people define the word "deserves". A more intelligent question is "what should we do to have the best outcome?". Is it better to have more companies around to provide goods, services and jobs, or more people around with stable housing and pocket money to purchase goods and services?
In an economy driven mostly by consumer spending at the bottom, definitely the latter. This is almost a chicken and egg scenario, but not quite.
You can give a company money to hire people and make product X, but it doesn't do you any good if no one has money to buy product X, or most people see X as a luxury and are tightening belts. You can counter this by giving more companies money to hire more people, so that the workers at company producing Y have money to buy product X. Then it becomes difficult to determine what companies to prop up, and which to avoid. Inevitably, who gets propped up are the industry leaders, not the tiny players, and that sector consolidates and contracts.
A better approach would be to inject the money directly at the bottom. Let consumers make these picks on which companies are economically productive and should be supported, let the free market sort this out by adding liquidity at the consumer level. 70% of our global economy is driven by consumer spending, not by blue chips paying off their corporate debt.
Warm, trickle-down economics. The people clearly aren't bothered enough by losing their jobs or receiving pittance consolation prizes, or they would've revolted by now.
Ironically, the people who I've come to respect recently are the ones protesting the quarantine. Don't get me wrong they are stupid but the fact that they are protesting something they believe is wrong says a lot about the people who have been exploited by the system and did nothing about it.
Barking up the wrong tree is either virtue-signaling, divide-and-conquered tribalism, a failure of moral courage, and/or a failure of critical-thinking skills. It's easier for most people to make pointless gestures or scapegoat certain groups than attack the root causes of their misery... and there's no strategic thinking involved.
The obvious matter for everyone with a net balance sheet less than eight figures is that small segment of society whose greed and entitlement has greatly outpaced their respect and decency towards others and the planet. The vast majority of people are too afraid of the corporate state's militaristic violence potential or too complicit in relative comfort to rock the proverbial boat. In inverted totalitarian societies, you get deplatformed or harassed at airports; in totalitarian societies, 70-some students and teachers get delivered by the police to other criminal gangs for disposal in the hills.
Yourself? If so, don't fall for learned helplessness, my friend. That's a desired endgame for the bastards.
All it takes is a million or so people walking over to the seats of power and gently encouraging the particular corrupt officials to voluntarily turn themselves over for jail pending trial.
I'm not a fan of mania for hope or future hockeystick progress, but it's the purposeful actions of moral and physical courage of a relative handful of unreasonable people who dent the universe. The worst that can happen is dying without trying; anything else is better than that.
archive doesn’t work if you use CloudFlare 1.1.1.1 for your DNS because archive screws with CloudFlare DNS requests for their own reasons. Top answer is archive’s side, second answer is CloudFlare’s side: https://webapps.stackexchange.com/questions/135222/why-does-...
We need a new plan. Every single job before-covid (BC) is not coming back. Even if we opened the country at 100% tomorrow not every job will come back. There’s a paranoia that’s set into the American psyche that will take years to adjust.
It's pretty sad that this is glossed over so much. Plenty of business have folded already, let people go, broke their leases, liquidated what can be liquidated, and whoever held ownership got their portion of the remaining pie.
To bring these pieces back together, the lease, the workers, the investors, the money, is impossible. Some of these pieces are no longer in existence, and the economic conditions that enabled the company to form in the first place are no longer present. It's like trying to make a living tree from ash and smoke.
I'd start with combating the paranoia with numbers and stories that would compare realistic risks. You can even start before the acute pandemic ends, by comparing pandemic-time and post-pandemic numbers for swine flu (yes, even if it's not eventually justified for COVID).
Alas, if media circus around plane crashes in any indication, that does't pay.
So, we can only hope for lack of informed-ness, apathy and paranoia-fatigue to settle in and solve this particular aspect for us.
Why does aid for corporations rely so heavily on loans or bonds? If a continuing source of frustration and dysfunction is that profits are privatized and losses are nationalized, and if the issue is that companies need an influx of cash, why do we not ask these companies to sell the federal government a stake? If the companies recover, why shouldn't the public benefit as a result of their investment?
The idea that the federal government would take an ownership stake in companies in exchange for this cash infusion seems like it's been a fringe left wing proposal -- but I don't understand why it's fringe.
Because the notion of government ownership of the means of production is, if not the very definition of leftism, at least a key ingredient.
Of course it's not that simple, but it sounds that simple, and these days that's all that matters. People hear "government stake" and they reflexively think Cuba or Venezuela or China, not Germany.
To be fair, the Fed is buying corporate bonds, essentially lending them money with interest. Yeah, it helps businesses but then I doubt the Fed will lose any money in the long term.
The Fed can't really gain or lose money, as they create or destroy it at will. They're loaning with much lower interest than would be available on the open market, which is a direct subsidy.
>>They're loaning with much lower interest than would be available on the open market, which is a direct subsidy.
Sure the companies benefit, a lot. Warren Buffet might give them loans with 12% a year, the Fed at 3% or whatever. But what does the Fed lose? Nothing, if x% don't pay others will make up for it and USGOV will try to recoup from the failing biz whatever they can.
If they go bankrupt or downsize, what does USA gain, other than more unemployed people? So this is great IMO. Lend them money, as long as the money comes back, the Fed can create trillions and trillions.
Well when you have the money printer at your fingertips, it really is impossible for you to lose money. But that doesn't mean that what they're doing with the money supply and buying bonds is moral or fair.
What they're doing is monetary fascism, where they are picking the winners and losers based on arbitrary criteria. Some companies and industries will get more help than others. Whoever gets the money first will have an advantage over who gets money last. The moral hazards of this interventionism are many.
It also means that people who properly hedged for risk, the way capitalism actually works, are getting punished.
I grow tired of the narrative that companies should have seen this coming and hoarded cash. Investors are never going to allow companies to sit on massive war chests of cash in perpetuity because ROI is then zero and that's not what investors lent them the cash for. If they wanted invested cash to be sat on or hyper safe investments, they would buy government bonds or park the cash in a bank for less risk. If companies have tons of cash and aren't doing anything with it, it is inevitable that investors are rightly going to clammor for buy backs or dividends to see ROI. Besides, basically no one has the cash on hand to deal with a long-term collapse, regardless of executive behavior.
The fortune 500 financial company I work for has 365 days of liquidity. They've committed to no layoffs and no pay cuts in 2020. It's a publicly traded company, so the investors must be ok with it.
It's not a restriction on the jobs, it's a restriction on the loan or even a restriction on conditions under which the loan will be forgiven without being paid back.
Edit: Now that I've seen a mirror of the article, this program is about buying bonds that have to be paid back with interest no matter what. Point stands about the conditions being on the buying side though.
> it's a restriction on the loan or even a restriction on conditions under which the loan will be forgiven without being paid back
I’m not sure the Fed has the power to do something like that. It’s a huge expansion in purview, particularly with adding forgiveness conditions, in which case it’s literally giving free money to private citizens without Congressional authorisation.
"Pardon me, Average Joe Taxpayer. We noticed you haven't been purchasing any tickets on American Airlines lately. In order to help you with this problem, we're going to take money from you and give it to American Airlines. What's that? No, you won't be getting free flights, you silly goose. We're just going to give them your money and you get nothing in return."