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Don't Bail Out Bars, Let Them Reopen

So long as governments view lockdowns as their primary tool for combating COVID-19, they are in effect sentencing bars and other shuttered businesses to a likely death.

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(Puhhha/Dreamstime.com)

A worsening COVID-19 pandemic in much of the country is prompting state governments to shut down or delay the reopening of their bars, leading in turn to calls for a government rescue of drinking establishments.

On Monday, California Gov. Gavin Newsom, a Democrat, ordered all bars in the state to close in response to that state's rising number of COVID-19 cases and hospitalizations. Last Friday, Nevada closed bars in seven counties, including Clark County, which contains Las Vegas. Texas, Arizona, and Florida have all closed down their pubs and clubs again.

The closures come in response to a wave of public health warnings about the unique hazards of the bar environment, where loud talking, closely-spaced (often fixed) seating, dancing, socializing, and sealed windows make it easy for COVID-19 to spread.

"Bars: really not good, really not good. Congregation at a bar, inside, is bad news," said Anthony Fauci, director of the National Institute for Allergy and Infectious Diseases (NIAID), in late June. "Except for maybe a hospital with sick patients, I couldn't imagine too many more risky places than a super cramped indoor bar with poor ventilation and hundreds of people," said one Harvard Medical School professor to The New York Times.

For fans of both a nice draft beer and government-imposed lockdowns as a tool for fighting the pandemic, this has created a dilemma, neatly summed up by a tweet from The Atlantic's Derek Thompson:

The solution for many is a bailout of regrettably shuttered bars.

This, argued Slate's Jordan Weissmann last week, would prevent many bars from permanently closing, and reduce the pressure on politicians to rush reopenings.

Weissmann argues:

The problem with shutting bars and nightclubs down indefinitely is that it would put many of them out of business permanently. And so long as bar owners are worried about going bankrupt, and bartenders are worried about losing their jobs, they are going to put political pressure on local elected officials to let them reopen, whether or not [it's] actually safe.

"The obvious solution to this bind is to bail the bars out," Weissmann continues. "Give them money so that they can cover their expenses, including rent, even while they are shut down. That way, mayors and governors will no longer face a choice between containing the virus and sentencing beloved local businesses to likely death."

There is a cool—if authoritarian—logic to the idea of the government paying off aggrieved parties with the explicit goal of quelling political opposition to its lockdown policies. But so long as governments view lockdowns as their primary tool for combating COVID-19, they are in effect sentencing bars and other shuttered businesses to likely death regardless.

Bailouts will only delay that while reducing pressure on policymakers to scale up responses to the pandemic that don't involve locking everyone in their homes until a vaccine is rolled out.

And it's not like the federal government's last small business bailout program, the Paycheck Protection Program (PPP), was enough to prevent many recipients from going under.

Some of that can be chalked up to the design of the program, which forced businesses to spend most of the money they received within eight weeks on retaining staff in order for their loans to be forgiven. Yet as The New York Times noted Monday, "the [PPP] rules were later relaxed, but in a sign of how many small-business owners did not feel confident that they would be on steady ground by the time repayment was due, roughly $130 billion of aid money remained untapped when the program ended in June."

Given business owners' wariness to participate in a reformed PPP, we shouldn't be too bullish on the idea that another few more months of bailouts will tide bars over until they can hit profitability once again. Ultimately, bars need customers to survive.

It's possible that even if bars are allowed to reopen, many of them will still fail. Restaurant reservations, a proxy measure for people's willingness to go out, are still down by as much as 60 percent from last year even in states that are largely reopened. The recent surges in some states that are linked to bars will likely make even fewer people willing to return to them if they do in fact reopen.

This is a feature, not a bug, of lifting lockdowns. Giving businesses the freedom to reopen means we will discover which of them can actually hang on in a world where COVID-19 is an ongoing concern. Letting some of these businesses fail will allow the workers and capital tied up in them to flow to other economic activities that can survive during a pandemic.

The alternative proposal of combining continual lockdowns with bailouts will only set the stage for a zombified economy where the still-productive sectors of the economy are required to prop up firms that may take years to be profitable again.

And though paying businesses to stay closed might reduce pressure on the government to avoid hasty reopenings, it also reduces pressure on the government to increase testing, contact tracing, and universal mask-wearing strategies that have been successfully deployed in other countries to curb the spread of COVID-19 and which are allowing bars and restaurants to reopen.

The practical case against bailouts aside, there is a more principled argument for providing aid to forcibly closed bars; namely that the government owes you compensation when it takes away your ability to earn a living with your property.

"If the government shuts down only certain businesses on the grounds that they're areas where the pandemic can be spread more quickly, that's an action that the bar owner then is taking on behalf of the public," says Oliver Dunford, an attorney with the Pacific Legal Foundation. "Arguably the public should have to pay for it."

That's a reasonable argument, but it can also be addressed by letting bars reopen. Business owners would then be free to ply their trade, and taxpayers wouldn't be on the hook.

America has badly bungled its COVID-19 response to the point where we're currently facing the options of perpetual lockdowns or letting things reopen without sufficient means of controlling the virus's spread.

Neither is appealing, but if forced to chose between the two, I think the latter is preferable in perhaps all but the hardest-hit cities. Months into this pandemic, people are about as informed of the risks of COVID-19 as they're ever going to be and can decide for themselves which activities they think are safe.

That's not a perfect solution. There are externalities to individuals' behavior during COVID-19. But lockdowns and business closures are only one—increasingly costly and rather draconian—means of dealing with those externalities.

Instead of bailing out bars, states should let them reopen. Potential patrons should exercise caution in deciding whether to go to them. Businesses that can't offer a safe enough environment to attract patrons should be allowed to fail. And governments worried about the health consequences of operational pubs should get serious about adopting other strategies for containing COVID-19 that don't involve locking people in their homes for months on end.