Lone Candle
Champion of Truth
“The whole “airborne” debate can get very complicated and technical, but the basic issue is simple: Indoor dining is very unsafe. And the outdoor dining that’s been used as a substitute is running out of steam as weather gets cooler across much of the country. For health reasons, we need fewer customers at these businesses. For economic reasons, we need them to survive. The fix is a huge bailout.”
“Let’s remind everyone why we shouldn’t bail out airlines. Yes, the coronavirus crisis is both a public health and an economic tragedy. But this doesn’t justify the government granting special privileges to private firms, at least not without those firms first taking other available steps to potentially avoid the need for a bailout.
There are other options they could pursue.
First, the airlines still have plenty of access to private capital markets. They own significant amounts of durable assets that they can sell or use as collateral to get additional financing. Indeed, they’ve been able to secure substantial private capital since the beginning of the pandemic.
Second, if private financing fails, some airlines can and should do what they’ve done in the past when in such a predicament: declare bankruptcy. Past bankruptcies tell us that airlines can continue flying safely even during a bankruptcy, so there’s no systemic risk posed to the economy at large.
To be sure, bankruptcy would mean that, for the time being, airlines may fly on more limited routes. But that shouldn’t be a problem in light of a collapse in demand, which won’t be resolved as long as Americans remain wary of flying.
There’s no easy solution during this pandemic. Many people and businesses have no options at all. But an airline bailout would bring about more negative consequences. The first is that it’s a huge expense for taxpayers to shoulder with no promise for a solid return. We’ve already bailed out the airlines, and all this past coddling has done is to postpone the inevitable layoffs of its excess employees.
Analysts don’t think air travel will return to prepandemic levels for several years—some say up to seven. Let’s assume that it takes five years for air travel to return to its previous level. That would require taxpayers to extend up to $320 billion in bailout funds to the airlines.”
“A report from the National League of Cities in May revealed that the states weren’t very good at getting the money to local governments. Also, a new dataset collected by the Department of the Treasury Office of Inspector General that looks at how much the state and local governments have spent of their coronavirus relief bill funds as of June 30 shows that they have spent much less than you might think.
Some states have spent virtually none of the money allocated by Uncle Sam.
South Carolina, for example, has yet to use its $2 billion in relief. Michigan, which is asking for a bailout, spent only 3 percent of the more than $3 billion it received. New Jersey is also asking for a bailout, yet it has distributed a measly 2.1 percent of its federal funds so far.
The states demanding bailouts may likely argue that what they really need is more flexibility in order to be able to use federal funds to address their revenue shortfalls. As matters stand right now, states must use the bailout money on coronavirus-related expenditures. So, when those actual expenditures are lower than the allocated funds, they can’t spend them.
The flexibility argument doesn’t hold water, in my opinion. It’s one thing for state and local governments to ask the federal government for help to cover expenditures they couldn’t foresee, such as those related to the pandemic. But they shouldn’t be asking federal taxpayers to pay for their routine expenditures, especially when these governments have failed to plan appropriately for revenue shortfalls that inevitably occur, as they’re bound to encounter emergencies. Governments should prepare for them. They should cut spending and, if that’s not enough, they should turn to their own citizens for the funds needed to cover non-coronavirus expenditures. Those funds could be obtained through higher taxes or spending cuts elsewhere. Their routine spending should come from their taxes.
State and local governments are always eager to have the federal government solve their financial problems for them. But they will continue to have financial difficulties as long as Uncle Sam continues to cave. The first step toward having healthier and more responsible state and local governments would be no bailout.”
“The Maine lobster industry, which has been battered for years as a result of the Trump administration’s trade war with China, got some good news Wednesday. The president unexpectedly announced that the lobster industry will be eligible for bailout funds that had previously only been given to farmers and ranchers.
Trump being Trump, he portrayed this not as what it is — a course correction aimed to belatedly limit the collateral damage of his own policy ideas — but rather as an effort to rescue coastal Maine from the depredations of the Obama administration which he claimed “destroyed the lobster and fishing industry in Maine.””
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“Maine fishing actually prospered a great deal during the Obama years. It was a generally rough period for the Maine economy, especially inland, due to both the overall weakness in the American labor market and a specific structural decline in demand for paper. But the lobster industry did very well thanks to a combination of what seems to be an increase in lobster catches induced by climate change and strong demand from Asia.”
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“The origins of this week’s lobster policy announcement lie in taxes that Trump initially imposed years ago on goods imported from China. Those higher taxes did not generate the policy concessions Trump was looking for, so they led to higher and more wide-ranging taxes on Chinese imports over the years.
China retaliated against these moves by reducing imports of a range of American-made products, largely agricultural, which created a political problem for Trump because rural voters are one of his important constituents. The tariffs also raised consumer prices in the United States by something like $57 billion per year, according to the conservative American Action Forum. But Trump never expressed much concern about the impact on consumer prices, insisting (falsely) that the economic cost of the taxes fell entirely on Chinese producers.”
“Governing requires setting priorities, and that’s never more important than during a crisis. Members of Congress have a political incentive to spend and spend and spend, but there simply isn’t enough money to go around—in fact, we passed that point a long time ago.
“I do believe it makes sense for the government to provide support to businesses and families that can’t make it through this,” Sen. Rand Paul (R–Ky.), who voted against this week’s coronavirus bill, said Tuesday on the Senate floor. “I don’t want to see this massive accumulation of debt destroy this great country.”
Lawmakers would do well to keep one eye on the mounting debt as they consider their next steps.”
“There’s consensus in Congress that another relief bill is needed, and Democrats have been talking about either extending the extra $600 a week in federal aid or adding more weeks before an individual would be kicked off regular UI benefits (without the extra $600 per week), according to a senior Democratic aide.
But the problems that currently exist have led unemployment experts like Stettner and Evermore to say that Congress also needs to fund the system itself, by helping states add more employees and get better technology to help connect people to the benefits they so badly need.”
“The new rules, which the U.S. Department of Transportation (USDOT) issued yesterday, provide the industry with some additional flexibility for how many flights they’ll have to perform in order to access federal funding.
But USDOT’s minimum service standards will still require air carriers to operate money-losing flights in order to access government loans and grants, wasting both industry and taxpayer dollars, and potentially setting the stage for prolonged government intervention in the passenger airline industry.”
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“the exact number of flights left up to the Secretary of Transportation to decide.”
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“These loans come with their own set of requirements. Most significantly, the CARES Act gives the Treasury Department the power to demand equity in these airlines in return for loans, which it can hold for up to five years. (The government would not get any voting power with these shares.)
“What is the government going to pay per share on this? Right now, the share price is very low, at the level of support they are holding out, you could potentially have the government be significant, major equity holders in these carriers,” says Scribner.”