It came out earlier in the week that Harvard University would be availing itself of some of the so-called ‘stimulus’ money extracted by politicians from the private sector. Extracted is italicized as a reminder that there’s no stimulus to speak of in the CARES Act. The private sector growth already happened, thus enabling the extraction of wealth for redistribution.
Thinking about Harvard some more, conservatives and libertarians have shown how little they get it at times. Some on the left are outraged too, but their misunderstanding of basic economic is a given.
The problem isn’t the $9 million that Harvard ($40B endowment) was supposed to get (the University has since refused the check). Goodness, if only politicians would solely feed their pet causes on occasion. The much bigger outrage is that a federal government with powers “few and defined” has a claim on so much of our existing and future production that it was able to come up with $2. 2 trillion to throw at an economic disaster created by politicians on the city, state and local level.
Notable about the faux stimulus program is that it’s not just Harvard that put the usual suspects on a path to wild indignation. The perpetually outraged were similarly bated into a frenzy when it was revealed that Shake Shack, a $1.6 billion (market cap), global fast food chain would receive $10 million (since returned) from the federal government’s Paycheck Protection Program (PPP).
Readers can imagine the reaction. Shake Shack is a big corporation that can more easily access funds from banks and private investors! How dare it take $10 million from taxpayers! Small businesses are the “backbone” of the U.S. economy, and should get all the federal money. Let the big fend for themselves!
You see, it turns out it wasn’t just Shake Shack. Ruth’s Chris is another rather large chain that received total loans of $20 million, plus Pete Wells of the New York Times reports that “more than one out of every four dollars in the fund [PPP] went toward big loans of $2 million and above, thanks in part to lobbying from the National Restaurant Association.” Close your ears for the outrage coming! Get ready for all the anger expressed by conservatives and libertarians about “lobbyists” using their power to boost the big at the expense of the small! The big chains don’t need the money, they should leave it for the small that lack access to “high-priced lobbyists,” connected banks, etc.
As usual, the outrage is misplaced. A much bigger problem than forgivable federal loans to businesses (Shake Shack ultimately, and properly, got a loan from a private source) is the sad fact that the federal government has given itself a role in matters economic to begin with, and that it once again has the power to summon copious amounts of money to throw at the problems of the political class’s own making.
The outrage is the spending itself, not who gets the money. Absent the lockdowns there wouldn’t have been the $2.2 trillion extraction. Yet the perpetually outraged are going to make this about Shake Shack?
That they will shows how much they miss the point beyond their wasted focus on well-endowed universities and chains. To understand why, readers need only walk the streets of Cambridge, MA, where Harvard is located. Are the myriad small businesses clustered around Harvard the reason for the school’s existence, or did they locate near Harvard in order to benefit from the foot traffic that its existence as the world’s most prominent university ensures?
Applying the same logic to Shake Shack, do readers want to bet that there’s a benefit for smaller, lesser known businesses to be located near what is a global brand? Getting more specific, if you’re going to develop a shopping/dining center, would you anchor it with restaurants like Shake Shack and Ruth’s Chris, along with retail stores like Apple and Polo, or a major collection of much smaller, much less known brands? The question answers itself. The big make the small possible. Without the big, national and global brands pulling in diners and shoppers, there’s very little chance for the smaller restaurant and retail names to catch the attention of diners and shoppers.
Translating the above, the backbone of American business is most definitely the big, and frequently the global. Absent them, the path toward profitability for the small and lesser known is quite a bit rockier.
To be clear about what’s being said here, this is not an endorsement of the federal government’s extraction of $2.2 trillion from the economy. The latter is a non sequitur. It’s the equivalent of a doctor walking in on a patient being smothered, only to blithely recommend a ventilator. The federal handouts make no sense. Repeat that over and over again. You don’t reward the creators of misery with extra funds to throw at their mistakes, plus the spending misses the asphyxiation point. Businesses don’t have a money problem; rather they have a problem of suffocation by politicians.
Still, can we at least try to be serious about the proverbial cart and horse? If the U.S. economy is going to improve, the big and global will lead the revival. To pretend, as so many do, that now’s the time to double down on ‘feel good’ nonsense about the nobility and economic importance of small businesses is to dumb down what is already an incredibly dumb discussion.