On Friday, President Donald Trump signed into law the most expensive spending bill in American history, with the stroke of a pen funneling trillions of dollars in government aid to households, businesses and industries suffering from the economic shutdown. The natural response from the media has of course been to foolishly celebrate yet another fissure in the supposedly crumbling foundation of free market capitalism.
It is a challenging endeavor to find an historical economic meltdown which vast swaths of the American public did not attribute to market failures, while concurrently ignoring the role played by the government in precipitating the crisis. This is no different. The truth of the present matter is that the government shutting down private businesses and then compensating those businesses in order to prevent them from going insolvent is not a bailout. Suggesting otherwise is idiotic.
Bailouts are assistance provided by the government to failing businesses in order to save them from the consequences of their own poor business decisions or from unforeseen, nongovernmental events for which they were inadequately prepared but should have been. There have been legitimate examples of bailouts throughout history. In 1979, as the result of high gas and oil prices, declining auto sales and immense foreign competition – and worsened by the company’s risky decision to expand during the previous decade – Chrysler was on the precipice of bankruptcy. Fearing the loss of millions of jobs and concerned about the effects this would have on an already weakened economy, the federal government intervened by floating the company a $1.5 billion loan.
That was a bailout. Yet, history is replete with instances of government intervention precipitating economic problems which were subsequently blamed on the free market and then “solved” with larger government.
Contrary to popular belief, the Great Depression did not result from the predictable consequences of a recklessly unregulated free market. As Milton Friedman and Anna Schwartz argued in “A Monetary History of the United States,” there were several failures of the Federal Reserve which precipitated the crash and subsequent depression.
The Federal Reserve began tightening monetary policy months preceding the October 1929 stock market crash, ultimately raising interest rates and plunging the economy into recession. In defending against speculative attacks, the Fed then harmed domestic commercial banks by further raising interest rates through fall 1931. The economic collapse was only worsened by yet another rise in interest rates the following year, as well as the failure of the Fed to support domestic banks as a lender of last resort during the panic.
Nevertheless, the Keynesian economic ideology forwarded by President Franklin Roosevelt blamed the market and promoted government spending as the means by which to save capitalism from itself, though the doubling of the public debt throughout his first two terms failed to lower the unemployment rate.
As well, in the lead up to the 2007-08 financial crisis, the federal government required private banks to provide subprime mortgages to minority applicants, which contributed to the housing bubble along with government smart growth policies that artificially raised the value of land. When the bubble burst, President Obama was forced to “bail out” the banks to preserve the integrity of our financial system. This, of course, didn’t stop anyone from blaming the crisis on supposed irresponsible market deregulation.
History is stocked with examples of government bailouts of failing private businesses or whole industries, as well as instances of government intervention gone wrong and the interventionist measures taken by politicians to clean up their own mess. The decision to shut down nonessential businesses in response to the novel coronavirus was justified. It is, however, the doing of the government that these businesses and their workers are in such a precarious position.
Consequently, there are two useful takeaways from this unprecedented current event. First, the present economic crisis is not to be misconstrued as a failure of the free market or the response regarded as a bailout of a failing industry. And, second, this is not an indication that government intervention or exorbitant spending should be the norm. In fact, the converse is true. This calamity is precisely the reason that we should not run up trillions of dollars in public debt on needless spending during periods of stability.
Crises are almost always accompanied by an expansion of the scope of government and the erosion of liberties. Presently we must ensure that our alleviating of hardship doesn’t produce more down the road. Preventing blatant falsifications from gaining traction is just one of the ways in which to do this.
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Kevin Catapano is a weekly columnist for The Daily Campus. He can be reached via email at firstname.lastname@example.org.