At some point, likely in the next day or two, the United States Congress will send the biggest economic stimulus bill in American history to the president’s desk—a comprehensive aid package worth $1.8 trillion and a “wartime level of investment in our nation,” Senate Majority Leader Mitch McConnell said in the early hours of Wednesday.
The package is bigger than the $787 billion stimulus passed after the financial-system meltdown of 2009 and bigger than the New Deal’s $47.1 billion ($836 billion today) that aided millions during the Great Depression. The proposed legislation includes aid for small businesses, help for hospitals and schools, and direct payments to individual Americans.
But the bulk of the measure addresses the dire state of much of corporate America. For companies whose businesses have been decimated by the COVID-19 pandemic, there is a $500 billion basket of loans and loan guarantees—most notably some $50 billion, possibly more, for passenger airlines.
And while some argue that it’s not the government’s job to intervene in a free-market economy, even those on the political right are largely in agreement that something big has to be done to save the system from complete collapse. “Legislation to keep workers connected to employers, provide stability for businesses caught in this uncertainty and mitigate the overall economic effects of this crisis is necessary,” Kay C. James, president of the conservative Heritage Foundation, said in a statement released Sunday.
But bailouts for big corporations are a touchy subject, even in unprecedented times such as these. In a survey released this week by GoBankingRates, six respondents in 10 said the government shouldn’t be bailing out big businesses. Another survey, this one conducted by Data for Progress, revealed that close to three-quarters of Americans say corporate America should only get bailout money if it agrees not to lay off workers—that sentiment held firm irrespective of political affiliation.
Even the word “bailout” has become so politically toxic that the current measure on the Hill contorts itself to avoid using it. Last week, Rep. Michael Waltz, R-Fla., tweeted, “Words matter. This is a ‘rescue,’ not a ‘bailout.’” Sen. John Cornyn, R-Texas, said simply, “Bailouts are never popular.”
How did we get here? How did the notion of throwing a lifeline to a company—even one in the airline industry, which employs 750,000 people globally—become such an abhorrent idea?
A quick thumbing through the economic history textbook shows that Uncle Sam has a long track record of bailing out big companies. The Penn Central Railroad, Lockheed Aircraft and Chrysler were just three of the huge corporations the government aided in the decades before the big rescue of JPMorgan Chase, Citigroup and the other big banks in 2008. And while the results of those earlier interventions were a mixed bag and bailouts have always been the subject of intense debate, the idea of bailouts wasn’t always met with the near-universal suspicion it is now.
One reason is that the current crisis—and the need for bailouts—is so much bigger and more urgent than what we’ve seen in the past. “Those earlier bailouts are not the same as something that’s as systemic as this one,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. But the other big factor, Wessel said, is that the last big round of bailouts a decade ago left such a bad taste in taxpayers’ mouths that they’re now demanding terms to accompany the loans.
“We’ve learned that the public will not stand for rescues unless there are some strings attached,” Wessel said. “The two lessons I’d draw is that it’s politically essential to try to put some constraints on the business getting the money, and it’s economically wise to make sure that the taxpayers get some of the upside and they don’t take all of the losses.”
The bailouts of yesteryear
While the U.S. government hasn’t bailed out corporations very frequently, it has been willing to do it when two things were at stake: national security and the jobs of a lot of Americans. And, historically, bailouts have yielded reasonably good results, or at least prevented larger catastrophes from happening.