Where does the (economic) buck stop?

  • Workers (as a systematic class, apart from individual factors) should not bear the loss. They should be protected.
  • If a large publicly-traded business fails, the shareholders should get wiped out. Granted, a pandemic isn’t the corporation’s fault, but, that’s the risk they take when investing. Shareholders get to take unexpected gains, so they should take unexpected losses.
  • For the same reason, small businesses shouldn’t be relieved of all of their losses, but small businesses are good for communities so we shouldn’t let them get wiped out either.
  • Since workers as a systematic class should not bear the loss, but investors should, that means that our strategy should be to provide grants to workers, but loans to large businesses. Small businesses should receive a mixture of grants and loans.
  • (For those interested in democratizing the economy, this is a good opportunity: offer to write off some of the loan if businesses sell to their workers. Or just gift the business to the workers after it fails.)
  • However, while investors should get wiped out, what we don’t want is for these businesses to actually shut down — we’ll still need airlines when this thing is over, just under different ownership. That probably means that we need to take control rights away from current owners long before the business is actually bankrupt. Otherwise, seeing the road to ruin before them, the businesses will have incentive to fire workers and sell physical capital to stave off the loss. At minimum the loans should be conditioned on them not doing this. Perhaps the loans would also stipulate that once they reach a certain size (some percent of assets perhaps), then the government becomes the sole owner.
  • What about landlords and creditors? These are some of the most parasitic sectors in the economy these days (alongside intellectual property holders), and so it would probably be well and good for them to eat some of these losses as a class. One tactic for this would be, if the government replaces rent and interest payments, it could do so only at less than 100% of their previous amounts.
  • These previous points will probably do bad things to the income of the retired, as many elderly depend on investment income to live. But we probably don’t think that “the retired” as a class should bear much loss, so this income will need to be replaced, likely by expanding Social Security.
  • “The sick” as a class also shouldn’t bear the loss. If we place exorbitant bills on people who get the disease, that will just discourage others who need treatment from coming in, which will hasten the spread of the infection.
  • Other than this, probably the next most logical determinants are by income an wealth. Those most able to lose should bear the most loss. That’s an argument for using progressive taxation as the primary tool to distribute these losses, to prevent inflation.
  • And finally, since the working class has been increasingly squeezed for the last generation, it’s better to err on the side of bigger rather than smaller. That means we should both replace workers’ lost cash inflows and look to reduce their outflows.

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