> That does happen, but many including the biggest tech companies found a clever way around it. Via a combination of ultra-low interest bearing bond sales and share repurchases. It does the same thing but avoids those taxes. So there's no incentive for profit retention
on net.
The loans allow the money to be transferred back into the domestic entity, but there are then restrictions on issuing more in dividends or buybacks than you have in profits, and borrowing isn't considered profit. So they can get the money back into the US and use it for wasteful empire building but they can't give it to the shareholders -- it makes the problem worse.
And buybacks have more advantageous tax treatment than dividends but they're still taxed as capital gains on the difference between the price you bought the shares and the price you tender them for, which doesn't happen if the money stays inside the corporation.
> Part of going into business is accepting risk, including systemic risk. That's why the corporate veil exists and it's generally positive for the overall economy when weak businesses fail. A strong business would have an operating model that can withstand such risk.
You're using two incompatible definitions of weak. In the first case you want weak businesses to fail because they're inefficient, i.e. they're consuming more resources than they produce and go bankrupt. In the second case the business fails because there is a situation resulting in a temporary loss of revenue (shutdowns) but the business still has operating expenses (e.g. rent) and is too efficient to have enough slack to bridge the gap. The inefficiency wasn't caused by the business occupying space it couldn't use, because at the time nobody could use that space -- the loss was a sunk cost to society at large.
If you let them fail then when the temporary situation ends there is greater market concentration because the leanest companies failed, which allows the remaining ones to charge higher margins due to the reduced competition to the detriment of their customers or suppliers.
> I'm surprised that opportunity costs of capital allocation are ignored when defending bailouts. They introduce market inefficiency and reward complacency.
This is why "bailouts" should be distributed uniformly without regard to risk of failure, e.g. through lower interest rates or fixed sum payments to everyone. Then you're not rewarding the most precarious companies because they get no more than anyone else, but you still prevent them from failing. Meanwhile those in a stronger position can use the money they received to increase investment or consumption, which is what you want in a down economy anyway.
> In principle, yes. In reality, most markets are not competitive to that degree.
It still works like that in practice much of the time. Blockbuster's product wasn't as good as Netflix and now they're gone. GM's product wasn't as good as competing ones and it led them into bankruptcy. Blackberry, Sears, RadioShack, Circuit City, AOL.
It could happen more than it does, but it still does.
