America’s Economic Future Could Use An Invisible Hand
By Parveen Singh
“At least we still have our jobs,” a coworker said to me as we spoke on Zoom just before a client video call got underway.
“Yeah, but at what cost?” I replied as we laughed at the number of busy hours that we had worked in just a few amounts of weeks as our clients scrambled to get their ducks in a row amid the latest economic catastrophe stemming from the COVID-19 pandemic.
This anxiety about the stability of our jobs is natural we’re often told, but amid such a stunning lack of corporate and political governance from governments, health organizations like the CDC or the WHO who have continued to mislead us in dealing with the outbreak, where irresponsible models of governing have paved way for layoffs across all industries.
Stunning as it may be, our lack of preparation for this kind of disaster was well predicted. From philanthropist and Microsoft founder Bill Gates to just about any academic that studies economics during a crisis.
In a recent article co-authored by Leo E. Strine Jr., Mr. Strine discusses the lack of leadership from corporate governing structures of American companies often worth billions of dollars, having to cut the jobs of thousands of workers, in a mere few months, requiring bailouts for the government to continue functioning.
A stunning example of how a vast number of companies in the private enterprise system have relied on the government as life support in times of crisis, an echo to the Great Recession, but this time around even greater in the size and scope of the aid the government has offered.
While Mr. Stine goes on to endorse progressive approaches of restructuring how corporations handle stock buybacks and cash reserves as a means to resolve this issue in the future, he misses a much simpler, answer, that requires a lot less regulation and has sat in our college economic theory books for years.
Letting them fail.
When Dr. Milton Friedman appeared on The Phil Donahue Show in 1979, his touting of Adam Smith and free-market economic policies, stunned the country, but his ideas of refusing to buy out corporations during times of crisis akin to the one we are currently in offers a much more relevant and actionable solution than the highly regulative and constrictive proposals popularized by Senator Bernie Sanders and others in the more left-wing of the Democratic Party.
The evidence of economic stimulus having a real effect on the long term health of the U.S economy is slim, the stimulus packages of the Great Recession passed under the Obama Administration, may have generated some short term flexibility for investors, but American companies like General Motors have continued to shrink their domestic workforce and operations.
The latest multi-trillion economic stimulus plan which effectively bails out the hospitality and airline industry without penalty in addition to the trillions that the Fed continues to pump should be deeply concerning to American consumers. Even after receiving stimulus money, layoffs and furloughs are still estimated to happen en masse.
The alternative to Keynesian Intervention
By allowing these organizations to suffer at the hands of their losses owed by their lack of efficient management, it rewards existing companies that do save capital to outlast the fallout, while simultaneously setting a behavioral model of credence and responsibility for any company that wants to do business in the future, knowing that it is up to their decisionmaking alone that will determine their survival in the long term.
This solution, however, is two-sided and in addition to thoughtful corporate decision making, requires determination from political leaders to muster up the courage to make often unpopular decisions of distributing aid to companies, or as many on both sides of the aisle have referred to as corporate welfare programs. And make no mistake, this is a bipartisan issue, whereas Democrats are generally keen to profusely increasing funding of government-aided programs, Republicans have also flip-flopped on being the party of fiscal conservatism in the latest economic stimulus, which they decried a decade earlier during the 08-09’ recession.
In a political and economic culture where administration after one another has continued to intervene in the economic cycle with stimulus proposals, American workers continue to be held hostage to this cyclical pattern that when markets fall, layoffs will ensue, and there will be subsequent bailouts that increase our debt and fail to sustain long term stability in the economy.
American companies need to stop seeing the government as a paternalistic entity to ensure their survival, and with leadership and guidance that puts its confidence in the market, forcing corporations to adopt policies that will help them maintain operations in times of downturn, will help us snap out of the outdated Keynesian model of economic intervention that we’ve followed for decades.
Parveen Singh is a financial communications consultant from New York City.