More Stupid Proposals
So amidst the Coronavirus, companies are struggling – particularly travel and hospitality industry ones, including bars, restaurants, etc. Various discussions around government bailouts have been started and a stimulus package is making its way through Congress. Former presidential candidate, Elizabeth Warren waded into the fray with a set of requirements that she would levy upon companies accepting federal government bailouts:
- Companies must maintain payrolls and use federal funds to keep people working.
- Businesses must provide $15 an hour minimum wage quickly but no later than a year from the end
- Companies would be permanently banned from engaging in stock buybacks.
- Companies would be barred from paying out dividends or executive bonuses while they receive federal funds and the ban would be in place for three years.
- Businesses would have to provide at least one seat to workers on their board of directors, though it could be more depending on size of the rescue package.
- Collective bargaining agreements must remain in place.
- Corporate boards must get shareholder approval for all political spending.
- CEOs must certify their companies are complying with the rules and face criminal penalties for violating them.
Let’s get this out of the way, none of these were ever floated as requirements when previous administrations did bailouts. Regardless, let’s take apart the various, stupid ideas above:
Maybe out of all of these, I could agree with number one the most. Still, the idea of the government dictating how a private sector business should operate is insane to me. Changing employment levels is a routine course of action for companies. Under this provision, a company that was already planning on ramping down efforts that accepts the bailout, would have to keep those employees on…for some unspecified amount of time. What are these employees supposed to work on? Sit around and play games, watch the news, or pick their noses?
Number two has been a rallying cry among Democrats recently. Requiring a $15 minimum wage only increases costs on the books of the company. In order to address this, companies will raise prices to customers and therefore drive up costs to consumers. For those not at the very bottom of the wage scale will see increased prices but no increase in wages to offset the costs and therefore most savvy consumers will start to reduce spending and be more selective in purchasing. Basically, a tightening of consumer spending will take place. This isn’t good for the economy and reduces the growth at a time when we need to quickly recover from this set back. This advocacy by the Democrats only reinforces my belief that they really do not understand economics*
I just don’t get number three. There are a few reasons why a company would engage in stock buybacks – for example, for larger companies, it can be a preferred way to return cash to its shareholders rather than issuing a dividend. But in the end, the decision is really about trying to tune the company’s key financial metrics. This affects how it gets evaluated by investors. Having the federal government remove this lever it absurd and, again, goes back to the understanding the economy point I made in the previous paragraph.
“Companies would be barred from paying out dividends or executive bonuses while they receive federal funds and the ban would be in place for three years” Sigh. They really don’t get how the economy works, do they? There are a number of aspects to this one. While bonuses sound like a luxury, people should remember that at a lot of companies for financially conservation reasons, employees reaching high levels of salary compensation might be frozen at a certain salary level and annual bonuses make up any additional take-home pay growth. Dividends are paid to investors. That could be your 401k fund, a mutual fund you own, or maybe part of your non-retirement investing strategy. So what Elizabeth Warren is saying here is that she wants to take away money from you and your retirement funds.
Again, these requirements largely have nothing to do with good economic practices or recovery steps from the situation in which we find ourselves. Putting one or more employees on the Board of Directors for a company is this idea that liberals have where they think there’s this big “us” vs “them” within companies. I really question whether they understand what a Board of Directors does and what is expected and required of a board member. I doubt a random employee could effectively do the job mostly do to a lack of experience.
Of course, the Democrats echo what they know and seek to protect unions through ensuring collective bargaining agreements stay in place. Hey, while we’re at it, Sen Warren, let’s end and ban all public sector unions and really dig into union leaders who have outrageous salaries. Ready to go there? No? I didn’t think so.
Sen Warren also wants to mandate that companies must have shareholder approval for any political spending. So she wants companies to have to spend more time and effort in coordinating a shareholder vote for any political spending? Right, companies should have to work more inefficiently is exactly what we need at this time. I don’t think I can face-palm any hard than I am already. Is there any question why she isn’t in the race for president anymore?
Look, I’m no big fan of government bailouts. I get that we need to do something when the country faces crises like this where for public safety, national security, or other major reasons companies are negatively impacted. Individuals should strive to have some personal safety net but even then for some it’s really hard to build that up in the light of medical issues, tragedies, and other unexpected circumstances. Having said all that, any restrictions that are placed on companies should be done in the light of making sure that we reduce the recovery time as best as possible and encourage quick growth. Elizabeth Warren should stay out of this – she clearly doesn’t understand it.
* I’m looking at you, Paul Krugman
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