Hello all,
I am not the most well versed in economics and am curious why the government bails out big businesses (like airlines etc.). On one hand I see posts and articles arguing it’s because those big conglomerates are in league with the government and then on the other hand I see it’s to protect workers/employment. In the grand scheme of the US economy, is it that bad to let businesses/corporations fail? (Regardless of whether those corporations are greedy/poorly ran.)
Thank you!
In: Economics
So there’s three theories behind “bailouts”. Firstly is the idea that the whole “free market capitalism” idea of “if a business fails another will come along to replace it” is kind of fine in *theory* but ignores the idea that economes are made up of..oh what’s the word I’m looking for. Oh yes. People.
And yeah *in theory* if an airline or bus company or bank fails another might come along *eventually* to fill that market gap but in the mean time actual people with actual lives and actual responsibilities need to *do things* and sometimes when you live in the real world, and not this black ink on white paper rule of economic theories sometimes market inefficiences are necessary to protect *actual living human beings and the things living human beings need to do* because the hidden cost of “market corrections” that extend beyond raw numbers is human suffering.
And a lot of us think that’s bad.
Secondly, it’s disruption. And sometimes when the building is collapsing it makes better financial sense to pay money to prop it up for a while until it can be repaired. Economic downturns leave a lot of human suffering in their wake (there’s that term again) and if you can throw money at a problem to stop it from happening. Does it produce market inefficiencies and potentially bad downstream economic effects? Yes, yes it can. But governments are there to protect the people, not the economy. Sometimes that’s a choice you make.
And to that point, it may not actually introduce the worst economic outcome. One of the most world-regarded economists once stated, essentially, that in a recession the government should pay people to dig holes one day, and fill them the next. Meaning just..keep money going. Keep money circulated. Pay people to do busy work that *does not matter.* That you need to disrupt the death spiral, by any means necessary.
And on the third point..the world is a whole lot different now than it was then, and this idea of “another company will take the place of the one that left” …may not be so true. Like if a major microprocessor manufcaturer goes belly up your neighbor Bob ain’t picking up a hammer and going “alright, lemme take a crack at ‘er”. Our technology is complicated, this isn’t the 18th century. You can’t just “start” doing some sorts of jobs. There are significant barriers to entry.
There’s a whole lot of debate about whether government interventions are good economically or bad economically and it’s hardly settled. What is broadly accepted though is there’s more to the world than an economy.
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