The Anna Karenina Principle and Government Aid
By Nikita Guelmer and Reetesh Sudhakar, 7/14/2020
The Anna Karenina Principle and COVID
The Coronavirus pandemic has had an undeniably large impact on public life around the world. From the closing of local schools and towns to total lockdowns of whole countries and their borders, the pandemic has already proven to affect almost every single global citizen. In many ways COVID-19 has changed lives completely, but some of the greater impacts of this pandemic may take years to fully understand. Specifically, when it comes to the health of local economies.
In practically every community there is a local establishment that has been closed since the beginning of quarantine, and while many of these businesses are in the process of reopening, some were not able to withstand the impact of a closure. The U.S. Government has publicly offered some grants to small businesses in an attempt to stabilize their sources of income, but federal grants come with numerous nuances, and only those fitting specific characteristics qualify for these grants. Some states and local counties have been offering relief to their local businesses, but the amount of aid they are able to distribute is limited based on the funds of these local governments themselves. While the government has attempted to ease the loss of profits with these grants and programs, many small business owners are still struggling because this aid is, simply put, completely insufficient.
The most difficult aspect of this pandemic, for everyone, from medical professionals, to students, to economists, is the uncertainty of time. No one knows when a vaccine will be developed, or rather when life will return to a relative normal. While it seems that the statistical amount of COVID-19 cases has dropped in Europe and Asia, the situation in the U.S. is far more uncertain. The economy is trapped in a limbo of confusion and businesses remain unable to create concrete schedules and predictions, affecting small businesses disproportionately. While many large corporations have large savings and millions of dollars to fall back on, local businesses lack similar resources. If you look at your local shopping options, you will likely see large chains of businesses unaffected by these closures, and small businesses making major changes to their business model in an attempt to withstand the impact of this indefinite closure.
While many big companies have announced bankruptcies, and almost all businesses have had similar trends of ‘Unprecedented’ drops in sales, local businesses are in a much more delicate position. Economists are all predicting a recovery period that will last several years, but these analyses are mostly concerning big businesses. No one can predict the impact this pandemic will have on local businesses, simply because they are so diverse in their positions. There is no uniform prediction for small business as a whole because every small business is different. From retail to public services, every small business has different funds and different economic cushions that they have prepared for emergencies. Every small business has different customers and niche markets, but unfortunately this data is so specific that it is almost impossible and useless for the government to try and make economic forecasts. Not to say that all big businesses are the same, but when you compare them to local establishments, they all seem rather homogenous.
In conclusion, it is almost impossible to predict the long lasting effect of the pandemic on local businesses. They are simply too different, too unique, and too irrelevant for the government to make any long lasting conclusions. Like Tolstoy said; “Happy families are all alike; every unhappy family is unhappy in its own way.” That is not to say that the government does not care about the unhappy families of small businesses, but one solution will not fit all small businesses.
In practically every community there is a local establishment that has been closed since the beginning of quarantine, and while many of these businesses are in the process of reopening, some were not able to withstand the impact of a closure. The U.S. Government has publicly offered some grants to small businesses in an attempt to stabilize their sources of income, but federal grants come with numerous nuances, and only those fitting specific characteristics qualify for these grants. Some states and local counties have been offering relief to their local businesses, but the amount of aid they are able to distribute is limited based on the funds of these local governments themselves. While the government has attempted to ease the loss of profits with these grants and programs, many small business owners are still struggling because this aid is, simply put, completely insufficient.
The most difficult aspect of this pandemic, for everyone, from medical professionals, to students, to economists, is the uncertainty of time. No one knows when a vaccine will be developed, or rather when life will return to a relative normal. While it seems that the statistical amount of COVID-19 cases has dropped in Europe and Asia, the situation in the U.S. is far more uncertain. The economy is trapped in a limbo of confusion and businesses remain unable to create concrete schedules and predictions, affecting small businesses disproportionately. While many large corporations have large savings and millions of dollars to fall back on, local businesses lack similar resources. If you look at your local shopping options, you will likely see large chains of businesses unaffected by these closures, and small businesses making major changes to their business model in an attempt to withstand the impact of this indefinite closure.
While many big companies have announced bankruptcies, and almost all businesses have had similar trends of ‘Unprecedented’ drops in sales, local businesses are in a much more delicate position. Economists are all predicting a recovery period that will last several years, but these analyses are mostly concerning big businesses. No one can predict the impact this pandemic will have on local businesses, simply because they are so diverse in their positions. There is no uniform prediction for small business as a whole because every small business is different. From retail to public services, every small business has different funds and different economic cushions that they have prepared for emergencies. Every small business has different customers and niche markets, but unfortunately this data is so specific that it is almost impossible and useless for the government to try and make economic forecasts. Not to say that all big businesses are the same, but when you compare them to local establishments, they all seem rather homogenous.
In conclusion, it is almost impossible to predict the long lasting effect of the pandemic on local businesses. They are simply too different, too unique, and too irrelevant for the government to make any long lasting conclusions. Like Tolstoy said; “Happy families are all alike; every unhappy family is unhappy in its own way.” That is not to say that the government does not care about the unhappy families of small businesses, but one solution will not fit all small businesses.
Why Government Aid for Large Businesses is Justified
The United States government has provided large corporations hundreds of billions of dollars to keep economies from collapsing. The payout for large corporations has overshadowed the focus on local communities, despite the fact that small businesses received large public awareness. The number of bankruptcy filings has risen while revenues decrease. In April, there were 560 bankruptcy filings, a 26% increase from 2019. As a result, the government has directed its efforts toward significant corporations in the hopes of keeping the national economy stable once society has returned to normal. If these large businesses close their doors, America’s economic long-term stability will be in jeopardy.
For businesses, bankruptcy is a financial haven in the current economic crisis. Companies facing financial downturns without any assistance are facing adverse effects. Retail stores have taken a significant shock, as sales decreased by 16.4% in April. For example, J.C. Penney, a prominent department store, filed bankruptcy due to the lack of sales and economic tolls.
The current COVID-19 crisis makes shocks much more challenging for businesses, especially within large industries. Because employers across the country have limited travel, the transportation industry has been deteriorating, causing a lack of demand for oil. Prices have dropped to an all-time low because the demand for oil has diminished. Industries like transportation aid communities, but because of the current crisis, they’ve been facing severe downturns. As a result, the government has taken steps to keep these large businesses alive.
Large corporations have claimed hundreds of millions of dollars from the Paycheck Protection Program. While the $2.2 trillion CARES Act promised to help small business owners across the country, the Small Business Administration ran out of funds, denying new applications based on insufficient funds. However, large companies like DMC Global and Wave Life Sciences were able to claim $6.7 million and $7.2 million, respectively. DMC Global pioneers development in metalworking and construction and Wave Life Sciences spearheads therapies for genetically-diseased patients. Both of these companies spur innovation and development within the United States. If these businesses shut their doors, millions would be affected immediately, and large communities would face adverse economic effects due to the lack of jobs and investment in their region.
As the United States continued to report cases of COVID-19, the country hit record levels of unemployment, necessitating rescue bills. But the government has been focusing on larger businesses, to prevent severe shocks in unemployment numbers. Although bailouts from the government have been focused on large corporations, the collapse of such establishments will be far more detrimental to the US economy. These loans have minimal interest rates, and if borrowers maintain their workforce, the amount they pay back is negligible.
Assistance to all businesses is a necessity; however, the government has primarily focused on aiding companies that are more likely to survive and boost the economy post-pandemic. Although unemployment has been rising as a result of small businesses closing, the numbers would be damaging if large firms closed their doors. Helping small businesses that provide links in supply chains is beneficial for local economies. However, the national economy will suffer more if large suppliers and substantial companies file for bankruptcy and shut down. By helping businesses that will revitalize our economy after this pandemic, the government is ensuring a more stable recovery for our country.
(1)
Otar, Chad. “Council Post: The Impact Of The Coronavirus On Small Business.” Forbes, Forbes Magazine, 29 May 2020, www.forbes.com/sites/forbesfinancecouncil/2020/05/29/the-impact-of-the-coronavirus-on-small-business/#34f0d77ecf84.
Repko, Melissa. “American Companies Spent Years in an Economic Boom. Then the Coronavirus Hit.” CNBC, CNBC, 11 May 2020, www.cnbc.com/2020/05/10/american-companies-spent-years-in-an-economic-boom-then-the-coronavirus-hit.html.
(2)
Cowles, Charlotte. “The Week in Business: Throwing Money at a Pandemic.” The New York Times, The New York Times, 29 Mar. 2020, www.nytimes.com/2020/03/29/business/the-week-in-business-coronavirus.html.
Franck, Thomas. “Here Are the Largest Public Companies Taking Payroll Loans Meant for Small Businesses.” CNBC, CNBC, 23 Apr. 2020, www.cnbc.com/2020/04/21/large-public-companies-are-taking-small-businesses-payroll-loans.html.
Miller, Hannah, and Christina Cheddar Berk. “JC Penney Could Join a Growing List of Bankruptcies during the Coronavirus Pandemic.” CNBC, CNBC, 15 May 2020, www.cnbc.com/2020/05/15/these-companies-have-filed-for-bankruptcy-since-the-coronavirus-pandemic.html.
Silver-Greenberg, Jessica, et al. “Large, Troubled Companies Got Bailout Money in Small-Business Loan Program.” The New York Times, The New York Times, 26 Apr. 2020, www.nytimes.com/2020/04/26/business/coronavirus-small-business-loans-large-companies.html.
Otar, Chad. “Council Post: The Impact Of The Coronavirus On Small Business.” Forbes, Forbes Magazine, 29 May 2020, www.forbes.com/sites/forbesfinancecouncil/2020/05/29/the-impact-of-the-coronavirus-on-small-business/#34f0d77ecf84.
Repko, Melissa. “American Companies Spent Years in an Economic Boom. Then the Coronavirus Hit.” CNBC, CNBC, 11 May 2020, www.cnbc.com/2020/05/10/american-companies-spent-years-in-an-economic-boom-then-the-coronavirus-hit.html.
(2)
Cowles, Charlotte. “The Week in Business: Throwing Money at a Pandemic.” The New York Times, The New York Times, 29 Mar. 2020, www.nytimes.com/2020/03/29/business/the-week-in-business-coronavirus.html.
Franck, Thomas. “Here Are the Largest Public Companies Taking Payroll Loans Meant for Small Businesses.” CNBC, CNBC, 23 Apr. 2020, www.cnbc.com/2020/04/21/large-public-companies-are-taking-small-businesses-payroll-loans.html.
Miller, Hannah, and Christina Cheddar Berk. “JC Penney Could Join a Growing List of Bankruptcies during the Coronavirus Pandemic.” CNBC, CNBC, 15 May 2020, www.cnbc.com/2020/05/15/these-companies-have-filed-for-bankruptcy-since-the-coronavirus-pandemic.html.
Silver-Greenberg, Jessica, et al. “Large, Troubled Companies Got Bailout Money in Small-Business Loan Program.” The New York Times, The New York Times, 26 Apr. 2020, www.nytimes.com/2020/04/26/business/coronavirus-small-business-loans-large-companies.html.
