Does Every American Deserve a Government Bailout? Some Say ‘Yes’

Demonstrators protest the Wall Street bail-out - Nicholas Roberts/AFP/Getty Images)
Demonstrators protest the Wall Street bailout – Nicholas Roberts/AFP/Getty Images

“Where’s the bailout for Main Street?”

That was one of the prevailing cries from the Occupy Wall Street protests a few years back, right as the financial crisis hit and the Great Recession took hold. Wall Street banks — largely through their own risky behavior and negligence — ended up on the verge of ruin after a number of toxic assets turned sour, and instead of simply letting them fail, the government bailed them out with a $700 billion rescue package.

That flew in the face of traditional free market ideals, but as was explained later by leading figures like Hank Paulsen and Ben Bernanke, had the United States not bailed out Wall Street, the entire world’s economy could very well have melted down. That may have been okay with some people, but the government was not about to let it happen.

On a smaller scale, government bailouts are relatively rare. Yes, the auto industry received one in 2009, and the airline industry did too, in 2001. But throughout the years, there haven’t been all that many.

That doesn’t mean that people, and businesses, haven’t asked for one, however.

Take Evgeny Freidman as an example, the owner of a taxi fleet in New York City. According to The New York Times, Freidman is claiming that he is entitled to a government bailout because his business has been ravaged by new competition in the form of ridesharing companies like Uber. Saying that he is, like the financial industry, “too big to fail,” Freidman says that because of the city’s medallion system for licensing taxis, he is owed support now that the taxi industry has become increasingly competitive.

“I have delivered, personally, in excess of $300 million to the city in these auctions,” Freidman said, referring to the amount he’s paid to secure medallions at auction. “Do I not have a little bit of standing to say there should be support from that institution that I delivered, personally, $300 million to? To do what the government does for every other industry? Am I not being logical?”

Interesting argument. But is he right?

Most people would probably think that he’s crazy. After all, why is it the public’s responsibility to bail out private enterprises when they get in trouble? If a taxi company is being dragged asunder by a better, more efficient business model, that is part of the natural business cycle. Prevailing attitudes would suggest that if the government isn’t willing to extend bailouts to private citizens when they get in trouble, then people’s businesses shouldn’t get a life saver either.

Entering into a private agreement with a mortgage company or a bank for a business loan, for example, comes with it a certain level of inherent risk — risk that you might not be able to keep up with your mortgage payments, or that your business will fail in the face of competition or mismanagement.

The taxi business, in many ways like the auto industry, is already afforded a number of protections by the government. Medallions have kept competitors protected through a licensing system. This helps keep competition at bay, and allows the incumbents to thrive. Uber has turned this system upside down, many times by operating outside of the law. It’s hard to side with Mr. Freidman’s argument that he deserves a bailout, however, as he has been able to artificially keep his business intact through protectionist legislation.

Why don’t individual citizens get a bailout when they get in trouble? In a lot of ways, average Americans have bailouts built into the system for them, in the form of the social safety net. While there have been considerable attempts — and some success — in dismantling said safety net through defunding and legislative changes, protections are still there.

That’s not to excuse predatory lending or unethical business practices that sometimes trap people in tricky financial situations, though.

If individuals and small businesses shouldn’t be bailed out every time they’re in trouble, then the same logic would apply to big businesses — although we know that’s not the case. The airline, auto, and financial industry bailouts were justifiably criticized, but due to the severity of the situation, and the potential fallout of letting those industries fail, they were given an out. It’s moral hazard in action, and does set a bad precedent. It also shouldn’t be taken as a textbook example of how to do business.

Bailouts can be necessary, although that’s rarely the case. But that doesn’t entitle everyone to taxpayer-funded life rafts every time there’s financial trouble. It erodes the free-market basis of our economy, and at best, should act as the government’s ‘nuclear option.’

Follow Sam on Twitter @Sliceofginger

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