Coronavirus Didn’t Bring the Economy Down — 40 Years of Greed and Corporate Malfeasance Did
By: Paul Constant
Tags: Coronavirus, Stock Market, Politics, Labor, Economics

In a recent episode of the Pitchfork Economics podcast, Nick Hanauer and David Goldstein answered listener questions about the economic impact of the coronavirus pandemic. Listeners reached out via Twitter, voicemail, even Instagram DMs with a lot of questions — too many to address in a single episode.

This tidal wave of questions speaks volumes about the anxiety Americans are feeling about the economy right now. Nobody really knows how bad it’s going to be, or how long it’s going to last, but they’re trying to get an assessment of what the major factors will be of a post-quarantine world.

Hanauer and Goldstein called out one alarming trend in a few of the calls and messages from listeners: A recurring assumption that corporations and wealthy people might suddenly start behaving in a more responsible manner once the coronavirus has passed.

Hanauer pointed out that there is no evidence that coronavirus will spontaneously create a more inclusive form of capitalism: “I was baffled by how passive people were about these super-unfair arrangements before the virus,” he exclaimed, adding that he’s even more perplexed by that passivity given current events. He calls this well-intentioned belief that the wealthiest members of society will see the error of their ways a kind of “neoliberal framing.”

A better, more economically sound nation is possible, Hanauer said, but it will come about because enough people stand up and demand that corporations and the wealthy don’t hoard their profits at the expense of everyone else. “No society should need permission from wealthy people to operate in a high-functioning way,” he said.

Most of the listeners seemed to understand that. Many questions were tinged with a growing sense of outrage, particularly the ones revolving around corporate bailouts in the CARES Act stimulus package that was passed into law last month. People are economically hurting, and they resent the fact that billions upon billions of dollars are being poured into relief for large corporations.

Hanauer thinks this resentment is a logical response. “One of the reasons that we’re having to bail out all of these industries,” he said, “is that the industries themselves have been made fragile by decades of shareholder value maximization” instead of “building resilience.”

This pathological insistence on shareholder value favors “dividends or stock buybacks or giant bonuses for executives” above all else, “and as a consequence those companies and those industries are unbelievably fragile right now.”

Stock buybacks sound complicated but, Hanauer explained, the mechanism couldn’t be simpler: Corporations “make a bunch of money and instead of paying workers more, or investing in more production, or sticking the money in the bank,” they buy back shares of their stock. When companies buy their own stock back, it “reduce[s] the number of shares, which means that the existing shareholders all earn a bigger portion of the company.” This pushes up the value of the stock for existing shareholders.

So the record-breaking corporate profits of the last 12 years were privatized in a series of grotesque stock buybacks for shareholders and huge payouts for executives, but the bill for coronavirus damages are being socialized and absorbed by all taxpayers, Hanauer says.

You only have to look to the airline industry for a crystal clear example of the stimulus rewarding corporate malfeasance, Goldstein explained. “Boeing, with its 737 Max grounded over the past year, was borrowing money to buy back stock,” Goldstein said. “And now it’s getting a $17 billion bailout from taxpayers.”

There’s no law demanding that corporations must buy back stock of course — in fact, buybacks were considered illegal stock manipulation until the 1980s. Boeing and other bailout recipients could just as easily have invested that money back into their workforce and product line. But instead, they’re offering voluntary layoffs and early retirement packages for workers, at taxpayer expense.

“We rearranged our economic system in a way so that the richest 1% of Americans got essentially all of the benefits of economic growth over the last 40 years,” Hanauer explained. “The top 1% got $21 trillion richer, while the bottom 50% got $900 billion poorer.” That direct transfer of wealth from the poorest Americans to the wealthiest accounts for the money that used to go to retirement.

None of this happened in secret; many of the listeners who called into the show knew the answer to their questions before they asked. But in times like these, when everything we think we understand about the economy is tossed against the wall and left in pieces, it’s important to understand the mechanisms that got us in this situation. It’s only by fixing these systems that we’ll be able to build a better economy — one that can withstand a recession like this without putting our futures in peril.