Small Business Bailout Makes Banks Nervous

The basic economic problem right now is that a lot of companies have shut down and aren’t earning any money. The ordinary reaction, for a company that doesn’t make stuff or earn any money, is to go out of business and lay off all of its workers, but it is pretty widely recognized that that would not be a good reaction, for most businesses, right now. Your favorite local restaurant’s revenue has not gone to zero because its food was bad, or because it failed to innovate to keep up with changing tastes or whatever. Its revenue has gone to zero because a plague has caused governments everywhere to prohibit eating in restaurants, we hope temporarily. One day the lockdowns will end and people will go back to restaurants, and it would be nice if your favorite restaurant could reopen that day. It would be nice if the cooks and waiters could come back to work that day. It would be nice if they could get paid in the meantime. It would be nice as a human matter (they need the money), as a macroeconomic matter (if they don’t have money then other businesses will collapse), and as an organizational-capital matter: It is hard to start a new business, and if all the businesses shut down then it will be hard to start all new ones when the lockdowns end.

In a perfect world every otherwise-viable company would just stay together through the pandemic; companies that can keep doing business would keep doing business, while companies that can’t keep doing business would just magically get money from somewhere as though they were still in business. In a large country that prints its own money, the magical source of money is the government. And so the quite appealing U.S. government response is to give restaurants—and other small businesses shuttered by the coronavirus—money to pay their employees even while they’re not working.