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  • pcpaul@hotmail.com
    Valid points, as well as food for thought everyday economics Flying Pork Barrels The airline bailout enriches stockholders at the expense of taxpayers. By
    Message 1 of 2 , Sep 27, 2001
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      Valid points, as well as food for thought

      everyday economics

      Flying Pork Barrels
      The airline bailout enriches stockholders at the expense of taxpayers.
      By Steven E. Landsburg

      Thursday, Sept. 27, 2001, at 4:00 p.m. PT

      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.


      _______________________________________________________________________________
    • Vyrle Owens
      28 Sep 2001 Dear Paul, Thanks again for a thoughtful contribution. This same thing has been bothering me as well. I can certainly understand our leaders,
      Message 2 of 2 , Sep 28, 2001
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        28 Sep 2001

        Dear Paul,

        Thanks again for a thoughtful contribution.

        This same thing has been bothering me as well. I can certainly understand
        our leaders, politicians, and business people (as well as preachers and
        doomsday prophets) taking advantage of the crises of recent days to advance
        their positions and points of view, to consolidate and reinforce their
        power and influence, and to just plain take advantage of the more naive,
        trusting, or apathetic among us. But I do not necessarily like it.

        I thought the president was a person who wanted to continue to get the
        government and its expenses out of our lives. Maybe he forgot.

        Vyrle

        ----------
        From: pcpaul@...
        To: ujeni@yahoogroups.com
        Subject: [ujeni] An email from Slate
        Date: Thursday, 27 September, 2001 07:35 PM

        Valid points, as well as food for thought

        everyday economics

        Flying Pork Barrels
        The airline bailout enriches stockholders at the expense of taxpayers.
        By Steven E. Landsburg
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