By Noah Dawson
Milton Friedman once wrote that “nothing is so permanent as a temporary government program.” While that quote is of course cliche in economically libertarian circles, it has a great deal of truth to it. One example that comes to mind would be the massive corporate bailouts being pushed into relief/stimulus packages.
While many of the bailouts are technically one time affairs, the fact is that this won’t be the last recession. Several years from now, after the markets “recover” we will find ourselves in yet another financial crisis. Why? Because, during recessions, the government decides that it can mitigate the crisis by deeming certain corporations too big to fail, bailing them out so that they may continue business as usual. But, what incentive is then given to those companies, the companies who made bad decisions, to be more careful? If they know that another bailout is waiting for them the next time things go south, they won’t prepare for the storm, as the government has them covered. What about the companies that made good decisions? They see that they wasted capital on being frugal. All a bailout does is create a higher level of moral hazard that prepares the economy to enter another recession years down the line, all but guaranteeing yet more bailouts in the future. It’s why I’ve been predicting this recession long before the virus came.
My note to politicians: Be unpopular. Don’t support corporate bailouts. Businesses will fail, but, in the long run, it’s the only way for the market to thrive.
Provided