literally, thousands of small companies employing tens of thousands of
people. While some of those small companies have benefited outrageously
from federally-mandated set-asides and contract fraud,
most actually get by with normal profit margins and normal reserves of
cash (that is, not huge amounts relative to their expenses). Those small
companies simply cannot go six months on IOUs. They would go bankrupt,
throwing potentially tens of thousands of people out of work (a problem
that is still looming on the horizon when the war ends).
brings up another problem with Yglesias' IOU-nomics. The big
contractors are required by law to hire a certain number of smaller
subcontractors to staff their contracts. Because these companies would
most likely go bankrupt if told to operate at a loss for more than a few
months, those contracts -- whose functions are vital to national
security, as Yglesias acknowledges -- would go empty. Every contract,
and the laws that govern them, would have to be rewritten to allow the
bigger firms to rehire the workforce of those bankrupted subcontractors.
It is, without exaggeration, an outrageous, enormous undertaking
completely glossed over by just waving your hands to say "eh, let them
Then there's the somewhat philosophical question of
whether it is smart to ask companies to work for free on the hope that
politics won't get in the way of their income. Just in the top five
companies, they employ several hundred thousand people. Demanding they
all go on IOUs for an interminable time is just... well, it's really bad
politics. With stakes as low as an airplane engine
gloves come off. What about threatening hundreds of thousands of jobs?
And in the future, what company on the planet would dare risk more
business with the U.S. government if, at any moment the political winds
shift, their contracts are canceled and they're left without income?
That is simply a ludicrous risk to take on.
Lastly there's the
very real problem that if companies doing contracted work for the
government suddenly lost their income streams, they'd sue the government
for breach of contract. The government can order a work hold, or they
can cancel the contract. But they cannot demand companies perform work
for free. Did Yglesias consider the legal costs of his IOU scheme? I
While I'm deeply sympathetic to Matthew's attempt to
find some way to get a bit more leeway on the government debt issue,
it's not something that can be solved quite so glibly as asking hundreds
of thousands of people to feed themselves on IOUs. It requires hard
choices about budgetary priorities, about taxation, and about meaningful
cuts both to the DOD budget and to the overall federal budget. That is
the ultimate answer to fixing the debt problem. Demanding people work
without pay is not.