On the heels of the passage of a historic $2 trillion government relief bill, leading economists at some of the country’s top business schools have a message to lawmakers: Bail out people before large corporations.
“Bailouts allow investors to keep all the profits in good times without bearing the losses in bad times. Instead, bailouts impose losses on taxpayers, including those most in danger of losing their paychecks,” is the argument more than 150 leading economists make in a letter to Congress.
“Spending taxpayer money to bail out large corporations is a huge mistake. The money should instead be spent on the people who are most affected,” the letter continues. “There are many people who live hand to mouth. Many of them will not be paid if they cannot work. These are the people most affected by the shelter in place orders, and they are the ones the government should be helping.”
‘BAILING INVESTORS OUT IS GROSSLY UNFAIR’
While the letter is noble, it might be too late. Lawmakers in the Senate reached a deal in the early morning hours of Wednesday, March 25; the bill is expected to move quickly through the House and be signed into law by President Donald Trump. The relief package is meant to mitigate sweeping economic issues amid the spread of coronavirus in the U.S. As constituted, it’s the biggest fiscal stimulus package in U.S. history and will reportedly include direct checks to individuals and $500 billion to states and businesses impacted by the pandemic.
Taxpayers that make $75,000 or less will receive $1,200 checks from the government. Those making between $75,000 to $99,000 will receive smaller amounts and families will receive $500 for each child 17 or younger. Unemployment safety nets will reportedly grow substantially and small businesses and distressed industries may apply for grants and other assistance.
The letter signed by B-school professors warns against bailouts directed at large corporations or industries, similar to the $800 billion bailout after the 2008 recession.
“When you bail out a large corporation, the people you are actually bailing out are the investors in that corporation,” the letter reads. “Bailing investors out is grossly unfair. Investors knew when they made their investments that they would have to weather a storm or two.”
PROFS FROM PRETTY MUCH ALL LEADING B-SCHOOLS HAVE SIGNED THE LETTER
“The potential to earn high returns when the economy is in good shape compensates (investors) for this risk,” the letter continues. “Bailouts allow investors to keep all the profits in good times without bearing the losses in bad times. Instead, bailouts impose losses on taxpayers, including those most in danger of losing their paychecks.”
Professors from Harvard Business School, Stanford Graduate School of Business, The Wharton School at the University of Pennsylvania, MIT Sloan School of Management, and dozens of others signed the letter. Among the signees were Anat Admati, professor of finance and economics at Stanford; Jonathan Parker, professor of finance at MIT Sloan; and two other Stanford finance profs: Jonathan Berk and Paul Pfleiderer.
The entire letter and list of professors that signed it can be viewed here.