Why should taxpayers pay to save airlines when private equity firms would've been happy to?
The pandemic has been much less harmful to global stock markets than global economies for a couple of reasons; mainly because of the low interest rates and lots of fiscal stimuli. At first glance it might seem that stock markets are overvalued, that central banks and stimulus money is keeping valuations artificially high but there might be something deeper at play. Laissez-faire economic theory would suggest that governments should leave the economy be; after all downturns are what enables Schumpeter’s ‘creative destruction’ which is what makes market economies so dynamic. But laissez-faire economists are relatively few and don’t constitute an important interest group so laissez-faire economics is unusual in practise. I personally don’t buy in to the idea that governments shouldn’t interfere with markets as that can lead to a very inequitable society filled with monopolies but not intervening to save big firms does have its merits.
I think governments stepping in to prop up hard hit industries like airlines was a mistake. Most economies with advanced capital markets have firms which specialise in buying up companies in trouble, fixing them up and selling them. Why should the taxpayers foot the bill of saving airlines when Blackstone would have been happy to do so? Furthermore, by letting private equity firms buy up struggling businesses they not only take on the risks associated with saving such businesses but also force them to become more efficient which ultimately benefits consumers.
I advocate for letting businesses fail, but not letting the people who work at firms which go bust suffer. Governments should opt to help individuals instead of companies to make companies more efficient and make people feel more safe working at small and new firms. By saving firms instead of individuals governments are not only doing a disservice to the wider economy, but also inadvertently enabling higher valuations on stock markets as they drastically lessen the risk of firms going bust. By letting firms fail and protecting individuals instead governments can produce more efficient economies at potentially a lower cost for the taxpayers, seems like a win-win to me.
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Written by Karl Johansson
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