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A Poorly Thought Out Bailout

Dan Tortorice

A week ago President Bush signed a bill earmarking 15 billion dollars to bail out the airline industry. The bill was passed with overwhelming support, by almost 300 votes in the House and with only one dissenting vote in the Senate. Even those congressmen who questioned the bill voted for it to show unity in this difficult time. But this is not for the best, because the air line bailout bill is misconceived and harmful.

Part of the bill is meant to compensate the airlines for time they were required to ground their planes. However, as was duly noted by objecting congressmen, $15 billion far exceeds the loss suffered by airline industry when the Federal Aviation Administration grounded all flights.

The real motive behind the bill is to keep airlines running at the same level they were before the events of September 11th. While it is noble to say that we will not let terrorists effect our airline industry, it is also a waste of resources. The airlines are scaling back flights because people do not want to fly. They can not find enough people to fill a flight so that it would be profitable for the airline to fly. People derive a benefit from flying, and are willing to pay money to receive that benefit. If the airlines can not fill planes, it is because the economic value of the benefits the flight will create are exceeded by the costs. These are flights that should not happen, and they waste resources.

When the federal government subsidizes airline industries, it pays for these flights to take place. It pays for flights which have more costs than benefits. It pays money so we can wind up with less resources than we had before. Why would congress do such a thing? Their justification is that the airline industry would collapse if not for their aid. This is silly. While personal travel will decline, business travel will probably not be affected much. Moreover, while people can chose to take trains short distances, air travel is still the only realistic way to travel across country. What congress must believe in order to justify their bill is that there will be a huge decrease in demand that will wipe out the airline industry, and people will later see the light and want to travel by air again. And they must also believe that it would cost more than 15 billion dollars to resurrect the airline industry. Only then would it make sense to spend the 15 billion now. This simply is not the case.

The irony of this whole situation is that governments usually argue that an industry gives some external benefit to society, a benefit that they can not force consumers to pay for, and that is why we should fund that industry. But if anything, the airline industry creates external costs to society that they are not required to pay for. Pollution from their planes, the demolition of a couple of billion dollars of property in Manhattan, and the death of over 6,000 people are just a few of these costs. I would venture to say that, this month, the societal costs of the airline industry operating were greater than its benefits.

But even if you think bailing out the industry is a good idea, there are some more perverse elements of the bill that you would most likely find objectionable.

Take, for example, the provision that requires airlines to freeze salaries of airline executives. Now is the time that airlines need their best executives. To prohibit them from increasing salaries, to not allow airlines to compete with other industries for the top executives, is counterproductive. Congress should encourage airlines to do what it takes to hire the best possible managers. They need people who can confront the problems that these events have made evident, and provide solutions so that this sort of tragedy never happens again.

A final provision, which seems quite insensitive, is a provision that will allow families to receive compensation from a special government fund if they give up their right to sue airlines. While this is an attempt to streamline the compensation process, it seems downright wrong to ask people who lost a family member to give up their legal rights, to give up their right to seek justice. While the airline industry clearly does not have the main share of culpability here, the victims’ families may believe they do. They may feel they owe it to their loved ones who died to hold the airlines accountable for the shortcomings which made these attacks possible. Our government should not try to bribe them to give up this perceived obligation. Often when actions are taken in haste, we later come to regret them. This bill is one such example.