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Reparations for the Business Victims of Lockdowns

Reparations for the Business Victims of Lockdowns


ith pandemic controls gradually ending, many people have called for some kind of justice to be realized: investigations on the origin and implementation of lockdowns and mandates, punishment for the perpetrators, and compensation for the victims. 

How wonderful it would be! And yet I tend to agree with Clarence Darrow who wrote that the state has no means to dispense pure justice in the Aristotelian sense. It cannot undo wrongs, repay costs sufficient to restore what it has destroyed, or punish people enough to alleviate the suffering it wrought. It’s also the worst-possible institution to be charged with such a task: it is implausible to believe that the perpetrator can be trusted with the task of restitution. 

There is no making up for two years of lost education and art, no means to revive the hundreds of thousands of businesses (⅓ of all small businesses) that were forced to close, and no path to restore the life hopes of millions that were so cruelly shattered. There is no fixing those whose cancers were not treated when hospitals were closed to routine screenings and no way to bring back those who died alone without friends or family because their loved ones had to comply with stay-at-home orders. 

The damage is done. The carnage is around us all. Nothing can change that. We can hope for truth and honesty but longing for pure justice is futile. That realization makes the pandemic response even more morally objectionable. 

If, however, we think of lockdown reparations as consisting of some form of compensation, there could be a path for a new crop of political leaders to pursue. There is precedent for this: the US government did pay reparations to those victimized in Japanese internment camps during World War II. Germany was forced to pay reparations after World War I (that did not end well). 

And the very idea is baked into the 5th Amendment of the US Constitution which says “nor shall private property be taken for public use, without just compensation.”

Lockdowns seem like a “taking” as described by the Constitution. Governments took private property from millions of business owners, churches, schools, and families. They took control of hospitals, gyms, recreational centers, meeting locations, skating rinks, movie theaters, libraries, and just about every other business, except the big box stores that were deemed essential and non-disease spreading. This was clearly unjust. That the feds doled out low-interest loans and so on to sustain many hardly makes up for taking away the right to do business. 

Even if you believe that all this taking was necessary for “public use,” there is still the job of compensation. The trouble is that the payer, namely government, has no resources of its own. Everything it pays it gets from taxing, borrowing, or inflating, all of which comes out of the productivity of others, which means even more taking. It also doesn’t seem right to take the compensation fund even from the big businesses that got rich during the lockdowns simply because they did in fact provide a valuable service. 

As Richard Epstein, author of Takings: Private Property and the Power of Eminent Domain, points out, the core idea behind the takings clause is that the state can seize private property only when doing so solves some market failure such as a free-rider or holdout problem. This supposedly generates a surplus of wealth from which the expropriated victims can be compensated, so that the act of taking, at least in theory, makes everyone better off or at least no worse off. 

But the lockdowns and related mandates did not create wealth or solve any market failures; they were pure acts of destruction. The lockdowns only did damage; they did not generate any surplus wealth from which the victims can be compensated. This is, in fact, one reason Epstein would strictly limit the state’s power of eminent domain to situations where there are clear gains, such as highways and the like. 

My suggestion, then, is to let the compensation – the reparations – take the form of relief from continued impositions of high taxes, mandates, and regulations particularly as they affect small businesses, which were the hardest hit from pandemic lockdowns. In other words, to make up for the wrongs done and to rebuild a vibrant small-business sector, the owners need to be emancipated from the bureaucratic tangles, taxes, and demands that have tightened over the decades. 

The burden of government, according to the American Action Forum, five years ago cost small business 3.3 billion hours and $64.6 billion per year: “small businesses must comply with more than 379 hours of paperwork annually, or nearly the equivalent of ten full-time workweeks.” The numbers are undoubtedly higher now, as any small business owner can tell you. 

Highly capitalized and larger companies can bear these burdens much easier – which is one reason they exist in the first place. Such interventions forestall the realization of genuine competition and entrench an elite class within enterprise. This was made vastly worse during lockdowns, where the privilege of staying open was allocated to those with political connections while independent businesses were slammed shut. 

How to compensate? My proposal in short: all businesses with fewer than 1,000 employees should be exempt from all federal corporate taxes (21%), FICA taxes, and all other expensive and arduous mandated benefits (including health care mandates) for a period of 10 years. 

Ideally I would make it longer but I’m trying here to think about political viability. This would not restore what was lost. But it could provide some compensation for those that managed to survive, and provide an excellent and fertile ground for new businesses. 

This would also have symbolic value: clearly showing an awareness of the egregious attack on small business that took place over two years. Small businesses are the 99% that employ nearly half the workers in America. A healthy and thriving small business sector is evidence of a society committed to genuine free enterprise versus a cartelized system that favors only large and politically connected corporations. 

Reparations for them seems like a moderate but essential step. 

Consider the objections:

1. The lockdowns were mostly imposed by States, not the federal government. That’s technically true only because the federal government doesn’t have the means to enact a lockdown. From March 13, 2020, and onward, the federal government clearly encouraged them, pressed the states into service, and the CDC/NIH put massive pressure on every state health official to enact emergency edicts that had the force of law. Also, states should also consider compensation. 

2. FICA taxes (social security, unemployment, etc.) help the worker and removing the mandate that small business pays only hurts workers. Actually, workers pay the whole bill in an economic sense, so eliminating these taxes could end up boosting wages and helping millions of people make the transition to private savings as opposed to the pathetic Social Security System. Eliminating the federal corporate tax will also translate into higher wages and great profitability all around. 

3. Eliminating the health-care mandate will harm workers. Actually, it is workers who pay the premiums out of their wages and salaries, despite the illusion. Allowing businesses to opt out would allow each worker to make a decision about what kind of package they want to purchase if they want to do so at all. The lockdowns made telemedicine far more viable and there are ever more doctors’ consortiums that are operating on a cash basis. Perhaps the new party in power will finally address the crying need for health-insurance reform, making it available to people more readily outside of the corporate setting. 

4. It’s not fair to offer this to small businesses but not to large ones, plus it punishes businesses with 1,500 employees and grants favors to those with 1,000 or fewer employees. That is true. But the cutoff has to be somewhere, and because it is small businesses that were harmed the most, they should be first in line for compensation. Many large companies did gain an advantage in the marketplace during lockdowns, so this discriminatory approach, while very imperfect, at least seems to recognize that. 

5. Many large businesses were hurt too, such as cruise liners, chain restaurants, movie theaters, and others. This is absolutely true. Perhaps vast tax breaks should also be available for any company that can show harm done during 2020-21. People who specialize in such legislative issues can hammer out the details of what this would look like. My main point here is to urge a serious conversation about this. 

The lockdowns were and are an intolerable attack on property rights, the freedom of association, free enterprise, and basic rights of trade and exchange that have been a bedrock of a thriving economy since the ancient world. They were also without precedent on this scale. We need a clear statement from the top that this was wrong, and did not achieve the aims. A well-constructed reparations package would make the point. 

We should be under no illusions that this is likely to happen but it is still interesting to consider whether and to what extent some degree of justice is realizable. Reparations aside, we need some kind of universal guarantee, embedded in enforceable law, that nothing like these lockdowns can ever happen again. They should be ruled out in any society that considers itself free.