2020-03-16_Bloomberg_Businessweek_Asia_Edition

◼ COVID-19 / GOVERNMENT Bloomberg Businessweek March 16, 2020

25

Should we bail

out companies

left reeling?

○ Covid-19 will cause some companies to fail and

will push entire sectors to the brink. The ques-

tion is how much the federal government—and, by

extension, the American taxpayer—should do to

rescue companies felled by the economic effects

of the virus. It’s treacherous territory. Bailouts of

financial institutions damaged by the 2008 crisis

provoked populist anger on the left and the right.

Donald Trump owes his presidency in part to the

public’s revulsion over taxpayer funds going to Wall

Street while ordinary citizens suffered.

Now it’s the Trump administration that has to

decide which companies and sectors merit help,

how much, and in what form. On March 10 the pres-

ident pitched Republican senators on economic

relief for the travel and hospitality industries,

Lindsey Graham of South Carolina, who attended

to keep people entertained. Instagram, WhatsApp

chat groups, and Telegram channels have become

hubs for plague jokes and at-home exercise

tutorials. In a country where dancing in public is

officially discouraged, videos of dancing nurses

have become a phenomenon: Nurses filmed them-

selves swirling their hips and wrists to pop songs,

their identities shielded by hazmat suits, masks,

and hospital gowns. 

Trust in the government, never high among a

large share of Iran’s populace, may be at an all-time

low. A visibly ill Harirchi assuring the nation on

live TV on Feb. 24 that the government had every-

thing under control did little to inspire confidence.

Memes ridiculing official responses to Covid-19 have

gone viral. “The first Friday without wishing for the

death of other nations,” went one joke, shared on

social media after Friday prayers were canceled on

March 6. “Well done to the people of Iran.”

Jokes aside, the outbreak in Iran is deadly and

shows no sign of abating. Infections in the area

are going up “exponentially,” says Gholam Ali

Jafarzadeh, an MP for the city of Rasht in Gilan

province. “We will witness a humanitarian catastro-

phe if serious measures are not taken.”�Arsalan

Shahla, Golnar Motevalli, and Marc Champion

the meeting, told Bloomberg News. Graham said

Senators John Hoeven of North Dakota and James

Lankford of Oklahoma suggested a federal bailout

for the shale drilling industry. “I don’t know at this

point if that will be in any final package,” Senator

John Thune of South Dakota said.

The argument in favor of bailouts is that the

Covid-19 pandemic is an out-of-the-blue disaster that

no company could reasonably have been expected

to prepare for, and if companies fail, there will be

serious harm to their employees, customers, sup-

pliers, lenders, and the overall economy.

The argument against bailouts is that companies

can and do continue to operate even if they require

protection from creditors in federal bankruptcy

court. True, shareholders may lose everything with-

out a bailout, and creditors will take a haircut, but

that’s how capitalism works. “Capitalism without

bankruptcy is like religion without hell,” says Jeffrey

Miron, an economist at Harvard and the libertar-

ian Cato Institute, quoting an economists’ bromide.

The key question in assessing whether to bail out

a firm is whether its failure would cause harm to

the overall economy. Timothy Geithner, who was

President Obama’s Treasury secretary, argued that

saving financial institutions in the 2008 crisis was

crucial because they were too big to fail and too

interconnected. If one defaulted, it could trigger a

cascade of defaults that would shut down lending

and destroy the economy.

In other industries, though, the failure of one

company can help competitors. If one airline shuts

down, its rivals pick up its customers, and with

one less rival, their prices can rise to more profit-

able levels. So letting weaker companies go under

could save an industry.

Another question is who wins from a bailout.

After the financial crisis, some Democrats argued

that the government should have done more to help

homeowners pay their mortgages, rather than helping

banks that recorded losses when they foreclosed on

the loans. Similar arguments may be made this time

around. Dean Baker, senior economist at the liberal

Center for Economic and Policy Research, says the

quid pro quo for any bailout should be a hard cap

of $1 million in annual compensation for the compa-

ny’s chief executive officer and other officers. (“I’m

confident that they can find good help for under a

million bucks,” he says.)

Whoever wins from a rescue, though, some-

one else is going to lose by comparison. That’s why

most economists urge caution. “One should be very

hesitant about bailouts,” says Harvard’s Miron. “Once

you do it, it gets harder not to do it again the next

time.” �Peter Coy

What I’m

telling my

medical

school

students

Dr. Judith Aberg, the

Dr. George Baehr

professor of clinical

medicine, Icahn School

of Medicine at Mount

Sinai, New York

For me, there’s no

single sentence for

the medical students,

as they have so much

to learn. They should

learn all they can about

SARS-CoV-2. The more

you educate yourself,

the more you’ll be able

to educate and inform

others. What is this

virus? How is it similar

or different than other

respiratory viruses?

Why is it spreading

so fast? How do you

protect yourself and

others? How do you

screen and diagnose

people who may be

at risk of Covid-19?

What are the best

infection prevention

practices? How do

we treat someone

with Covid-19? What

are the potential new

therapies?

I think many would

say wash your hands or

stay calm, but in reality,

[medical students]

need to know so much

more.——As told to

Cynthia Koons

ARASH KHAMOOSHI/POLARIS