Billionaire Leon Cooperman recently said on Squawk Box that the government’s intervention in business due to the Coronavirus crisis will “likely” change capitalism forever.
OK, that’s a bold yet vague statement that could have gone a million ways. But the rest of his argument is downright dangerous because it calls for more government involvement in business and, of course, a tax hike.
Why am I so riled up? Simple.
Applauding the government’s “involvement” in capitalism does not change capitalism. But it does mark the end of “the good kind” of capitalism. In its pure, free-market form, capitalism thrives only as citizens, entrepreneurs, voters, and people serve and care about one another.
We should fight against the temptation to encourage any government involvement in businesses, even during times of crisis. For many right now, the temptation to have the government swoop in and fix things is strong. It makes sense… in the short run.
After all, if the government got us into this mess. If they broke it, they should fix it. But that’s not what happens when the government steps up its involvement. We’ve watched this movie enough times to know how it ends. When the government intervenes in business, it causes more problems than it solves.
In 2008 when we experienced the financial crisis, the government went in and “bailed” out companies and organizations on the brink of collapse, much to the chagrin of citizens all over the country. That bailout is what set us up for the current economic downturn.
Sure, the coronavirus was the point of the tack currently bursting the bubble. But it was the government’s economic interference in 2008 that made the bubble-bursting economy we currently face possible.
When the government intervenes to ensure certain companies escape peril, they erase “responsibility” from the equation. But that’s not all that happens.
It’s not just the idea of keeping “responsibility” in the right hands - those of citizens rather than politicians. Anytime the government gets involved with businesses, particularly big businesses, it’s the small businesses and the new entrepreneurs that suffer.
It’s happening this very minute with companies like Boeing and some of the major airlines. It’s happened in the car and banking industries. The government comes in and bails out businesses considered “too big” to fail.
At the same time, this move prevents small businesses from coming in and taking market share when that would be the logical and healthy outcome for the economy. Yes, allowing these businesses to fail would cause short-term pain. Investors, stakeholders, and employees would suffer loss - for a time. That’s 100% true.
But when there’s this expectation that the government will take care of us, personally or as a commercial entity, we only make the problem worse.
Without the risk of loss, we become reckless. We shuck our responsibility - on a personal level, in business, and as investors. If it’s impossible to fail, we make sloppy decisions because there is no consequence. No longer is there any incentive to choose wisely.
We’re standing at a crossroads as a nation. Will we allow - and even beg - the government to get more involved in our lives “for our own protection”? This very question is polarizing on every level, from individuals through to big corporations.
It would be a real mistake to give any more control to the government. Instead, this is the time for entrepreneurs to create new solutions to problems.
If the government stays out of the way, capitalism will work just fine. It will do its job. Entrepreneurs will take ownership of problems, create new solutions, and thrive only in direct proportion to how well they serve people. It’s always been entrepreneurs who efficiently solve the problems that plague us.
But if we expect Donald Trump, Joe Biden, Bernie Sanders, or Andrew Yang - or any elected politician - to solve our problems, we will never ignite the engine that made America great in the first place. The profit motive is the engine of opportunity, creation, and service to one another.
Now more than ever, we need entrepreneurs to rise up and create new solutions. They won’t do that if they’re collecting unemployment. Neither will they do it if the playing field is uneven if they witness crony capitalism and political favor funneling bailout money to businesses that have outlived their natural lifespan.
Small business owners watch huge corporations collect proceeds from interest-free loans, impervious to risk, inoculated against failure. How can simple blood, sweat, and drive compete with a bubble-wrapped government-incentivized business that is not allowed to fail?
They can do so by staying the hell out of the way. They can let citizens and entrepreneurs solve the world’s challenges by giving us MORE capitalism, not less.
But if we let the government continue to overstep…
We can expect government involvement in business to become the new normal. We will sacrifice our long-term growth, happiness, and liberty. If, as a society, we choose to avoid short-term pain by surrendering a free market economy at the feet of an intervening government, we will avoid short-term pain. But we will surrender something far more valuable in the process.