Penna Dexter

The election came and went without passage of a fourth coronavirus relief/stimulus bill. Negotiations between the White House and the House of Representatives started last spring, ramped up as the election approached, and then stalled out. Senate Majority Leader Mitch McConnell urged caution, preferring that Congress assess the effects of the first three massive relief packages before passing another one.

The original stated purpose for passing more stimulus was to try to keep the coronavirus crisis from turning into a 21^st century Great Depression. That scary scenario is looking less likely. The news that the economy grew at a record pace in the third quarter — recovering about two-thirds of the ground it lost earlier in the coronavirus pandemic — portends our hoped-for V-shaped recovery. This validates Senator McConnell’s caution and begs the question: Do we really need another stimulus bill?

All this stimulus is likely doing more harm than good. Back in July, The Wall Street Journal published an article by a Morgan Stanley global strategist arguing that “Our growing intolerance for economic risk and loss is undermining capitalism and now threatens its very survival.” Ruchir Sharma warns in his piece, “The Rescues Ruining Capitalism” that, during the last four decades, “As government did whatever it takes to eliminate recessions, downturns no longer purged the economy of inefficient companies, and recoveries have grown weaker and weaker with lower productivity growth.”

He points out that capitalism involves creative destruction. Without it, he writes, “The deadwood never falls far from the tree.” Well before the pandemic, easy money and bailouts allowed inefficient companies to survive as unprofitable zombie corporations, taking on more debt at low, close to zero, interest rates. Meanwhile startup creation is stunted.

Mr. Sharma points out that, as governments across the world accumulate massive debt to fund unprecedented stimulus measures, they’re distorting “the price signals that make free markets efficient in allocating capital.”

Eventually, he warns, we must shift out of rescue mode.