Flying Pork Barrels
The airline bailout enriches stockholders at the expense of taxpayers.
In the past few weeks, politicians have been transformed into statesmen, and George W. Bush has perhaps had greatness thrust upon him. But you can't escape your origins. Congress and the president have pulled off the neat trick of rising to the occasion while simultaneously stooping to pork-barrel politics as usual.
I refer to the airline bailout—$5 billion in cash and an additional $10 billion in loan guarantees. You might think that in times like these our leaders would be too busy for everyday pursuits like handing out giant dollops of corporate welfare. You'd be wrong.
Let's be clear about what this bailout will do for the flying public: exactly nothing. It won't keep any planes in the air that wouldn't have been there anyway. Airplanes are flown when it's profitable to fly them, and they're not flown when it's not profitable to fly them. Giving cash to the airlines doesn't change the profitability of any given flight, so it doesn't affect any decision about which flights to offer.
If a given route can generate $100,000 in fares in exchange for $80,000 worth of fuel, labor, and maintenance, somebody will fly that route. If the same route can generate only $60,000 in fares, nobody will fly it. That's equally true whether the owners of the airlines are rich or poor.
What if the airlines go bankrupt? So what if they do? They'll be reorganized, and the profitable flights will continue to be flown—if not by existing carriers, then by new carriers who will step in to fill any breach. All those jumbo jets will still be out there, and as long as enough people want to fly, someone will be flying them.
So, what does the airline bailout accomplish? One thing and one thing only—it enriches the millions of people who own airline stocks at the expense of the millions of others who don't. And in the process, it undermines the very principles that we uphold and our enemies want to destroy.
There has always been some small risk that an unforeseen disaster—whether natural or man-made—would dramatically reduce the demand for air travel. It is one of the glories of our capitalist system that such risks are borne by precisely those people who are willing to bear them. If you want to participate in this particular risk, you buy airline stocks. If not, you buy stock in something else. That's called freedom of choice, and it's part of what we're fighting to preserve.
The bailout is tantamount to canceling everyone's bets after the wheel of fortune has already been spun. That's unfair to taxpayers who will foot the bill (and don't get to share in the bounty when the airlines have a year of windfall profits). It's also unfair to everyone else. Here's why: Risky investments usually yield high returns; that package is frightening to some investors and attractive to others. But if you start bailing out troubled industries, you reduce both the risk of stock market investing and the high returns that go along with that risk. That limits the range of options available to everyone. The risk-averse are forced (through the tax system) to bear the very risks they were averse to, and the risk-preferring are prevented from shouldering other people's risk burdens and earning a fair reward for their courage.
So, if it won't affect air traffic and it's patently unfair, what's the argument for bailing out the airlines? It's the same as the argument for agricultural subsidies—these guys have a lot of political clout, and they're exploiting it. Period. It's not like they're the only ones who are suffering these days. I'll wager that the average airline investor is hurting a whole lot less than, say, the average New York City taxi driver.
In Afghanistan, you can't choose your reading material, your occupation, or the length of your beard. In the United States of America, it just got marginally harder to choose your risk portfolio. The gap between our systems is immense, but we've just taken one tiny step toward closing it. Chalk up a small but disconcerting victory for the bad guys.
Steven E. Landsburg is the author, most recently, ofMore Sex Is Safer Sex: The Unconventional Wisdom of Economics. You can e-mail him at firstname.lastname@example.org.