Sure, we’ve an economic crisis as a result of the coronavirus. Or, perhaps, an economic crisis as a result of the gross over reaction to said Covid-19 dangers. It’s time which will tell us whether that is actually true. If the Swedes, who are doing nothing much in the way of economic closedown, end up with less bad health care results, or even the same, then the actions of many governments will have been that over reaction.
At which point we’re going to have the most interesting conversations about their competence to close down parts of the economy over climate change and all the rest, aren’t we?
But, given where we are now, what do we do about all those businesses going bust?
The important underlying point here is that bankruptcy doesn’t destroy economically productive assets — it just removes them from the legal wrapper and management where they’re not well used.
A bankruptcy, whether Chapter 7 or 11, doesn’t destroy land, or labor, knowledge, nor machinery. A Chapter 7 liquidation simply says this is just never going to work and sends those assets off to be used by someone else where they might be put to better use. Chapter 11 starts from the same place, it isn’t working, but it might if there’s more capital, less borrowing, different management, and so on.
The bankruptcy process is the one we should be using, as we have been for a couple of centuries now.
There is a moral point to consider, too. Either bankruptcy process wipes out the capitalists in those organizations and makes heavy demands upon those who lent to them as well, which is, in the grander scheme of things, just fine. For they get all the benefits in the good times, so the pain is theirs to endure during the bad times. The destruction of their shareholdings is not the same thing as laying waste to the productive capacity of the nation. It’s just moving that ownership around a bit.
It is possible, of course, to think of another way of doing this. We could have subsidies, bailouts, and political favors. But who gets what in such a system will depend upon the position in the political alimentary canal of the supplicant. This is not a known manner of reaching useful outcomes.
Just let them all go bust. We’ve already got a good system for picking the useful bits out of the resultant mess — let’s simply make use of the bankruptcy courts.
That is, we’ve already got a system to do this. Therefore we should use the system we’ve got to do this.
Only those deluded enough to think that government is going to be better at the sorting process would disagree.