The New Socialism

A common complaint in the aftermath of the 2008 financial crisis is that government policy exclusively benefited TBTF banks, as opposed to ‘main street’. Conservative critics likened it to a soft form of socialism, with the financial, housing, and, to a lesser extent, the auto sector, being the main recipients and beneficiaries of such policy. Fast-forward to 2020 and the current Covid situation, and again the government seems to be picking winners and losers, but in this instance, it’s large multinational/big-box stores and online retail such as Amazon, Starbucks, Costco, Netflix, Target, and Walmart, which reaped pure top-line growth from stimulus programs while smaller stores were forced (either due to regulation or loss of business) to close and did not benefit.

Unlike the banks in 2008, these large retail companies did not need to be bailed out, but the stimulus programs and shutdowns effectively had the same effect, infusing these companies with cash from a combination of increased businesses activity due to smaller competitors being closed and $1,200 stimulus remittances, so all this economic activity and stimulus was funneled into maybe 20 or so large companies that were already very profitable and with stockpiles of cash before Covid. Pretty sweet deal, and is why the stock market has done so well , especially large-cap tech and big-box retail such as FAANG stocks.

I think this makes the situation more egregiously unfair than in 2008, because at least in 2008 shareholders were already wiped out when the bank stocks went to zero due to being insolvent, but in this case, already healthy companies were the main beneficiaries, and shareholders got richer rather than losing everything and then subsequently being bailed-out (which in 2008 didn’t improve the share price much anyway, as the equity had already been wiped out. All the 2008 bailouts did was buy the toxic debts, not reimburse shareholders). The PPP loans will help small business to some degree, but it’s not that much money, and many businesses will close due to permanent loss of customers even as things begin to reopen. It’s not like you can just shut down your small retail business for 2-3 months and then everything will return to normal afterwards. A restaurant or store already has low profit margins even with full capacity, so operating at half capacity is in many cases not worth it.