President Obama’s Chief Economic Advisor: Airline Bailouts Were “Dumb,” Had No “Conceivable Logic”

Ninety six airlines have been given payroll support grants out of the CARES Act. The way airline bailouts were sold is that we just needed to fund them until the end of September when things could get back to normal, but that isn’t happening.

The money was supposed to mean that everyone kept their jobs at full pay, but airline lobbyists got the language changed so that money could be freed to prop up equity holders. Employees had to stay on payroll, but could be forced to work fewer hours and paid less.

Airlines like to point out that the CARES Act wouldn’t have covered their full payroll but that’s disingenuous because it was never supposed to. Airlines weren’t going to furlough everybody (and certainly not nearly as many people based on their thinking in March). So the funds were supposed to top them off enough to keep on at full pay the people that would have lost their jobs.

At the time I argued that government should be the last place airlines looked for money. Even after the bailout was passed they continued to go to financial markets to raise money. And that shareholders and creditors should take a hit before taxpaypers – especially when an airline bankruptcy doesn’t mean the end of air service it just means someone else owns the airline.

Nevertheless “full pay for all” won the argument. We now know that was just kicking the can down the road, since United is promoting massive layoffs and Delta is candid about having far too many people on their payroll.

President Obama’s chief economic advisor says this wasn’t just a waste though, it leaves the airline industry in worse shape and slows down the process of airline industry employees finding the new jobs they’re eventually going to need.

Larry Summers was President Obama’s chief economic advisor, Bill Clinton’s treasury secretary, and President of Harvard University. He drove the U.S. response to the Mexico economic crisis of 1994 and the Asian financial crisis in 1997. And he led the Obama administration’s response to the Great Recession. He’s even been referenced in The Simpsons.

In this talk, at 29 minutes and 5 seconds, he explains why the payroll support grants were “dumb.”

Some of the time it’s dumb to maintain employment… What conceivable logic is there [in the airline baul out] in telling Delta Air Lines they have to retain every flight attendant until October 1st? Delta Air Lines is years away from needing the number of flight attendants it has now. And it is zero percent probability to want to have those flight attendants back on October 1st.

So what conceivable purpose is achieved by the government mandating that the illusion that those flight attendants have jobs to come back to is perpetuated as a condition for giving money? The right answer for those flight attendants is more generous unemployment insurance, and for them to get unemployment insurance and figure out what’s coming next.

…Ultimately for these industries to be viable they probably have to shrink.

Summers explains that by trying to keep all of the airlines alive, you assure that they all have excess capacity and that they’re all unprofitable. That has long-term consequences for the whole economy, “the failure to allow the appropriate economic adjustment is kind of the mistake that Japan made in the 1990s. We need as we realize how long this is going to play to be aware of those risks.”

He argues that we should have provided money to people suffering and “grants to the airline industry seem to be a classic example of something that won’t work.”

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Larry was great in The Social Network. He knew what was up with those Winklevoss twins.

  2. I’m not saying they should have bailed out the airlines for money to keep airline employees on board but I wonder if MR. summers also then was in favor to bail out Wall Street???
    Keep this in mind President Trump shut the airlines down to flying to China in January basically 10 days after we saw the virus coming from China. President a Trump was called many things by the main stream media for doing this. President a Trump in hind site was 100% correct in doing this.
    But as he shut the airlines down (they were not going to do it on their own) this caused economic chaos on the airlines probably more than any other industry. So that being said is why this was done. Any low seniority union worker at the US major airlines should be extremely grateful for the President getting the money to them without being laid off for a handful of months and if they are smart they should be preparing for the inevitable that is coming Oct 1st. Again this web site just won’t give our President credit but only try to attack.

  3. RKToledo… FYI – An article in the Harvard Crimson in 2003, during Summers’s tenure as president, detailed a reportedly “special connection” between Larry Summers and sex offender Jeffrey Epstein.

  4. @ Walter A. — You give Trump way too much credit. He cares zero about airline employees or anyone else. All he cares about is his own re-election. The guy is good at one thing — lying.

  5. Then was GM, Chrysler, AIG, Fannie etc bailout under Obama a mistake too I love how these people selectively decide what politically connected industry gets its share. Here is a novel idea: let’s stop spending money we don’t have.

  6. @Walter

    A relative of mine flew back from Italy in Mid-March during the worst Italian outbreak. No one took her temperature, questioned, or said anything to her for that matter at the airport. She self-quarantined for 3 week, and fortunately she is in good health. I would grocery shop for her and leave the stuff by her garage and call he to collect the items after I drove off. This is an anecdotal incident about closing our borders, but also if you take a one look at the disastrous pronouncements and self-aggrandizing press conferences, you should know that the problem is with this president, management, style, and lack of leadership. From firing the entire pandemic-response team, to declaring that the Pandemic was a hoax, to announcing we would have ZERO cases in one week, to playing the blame game, to withholding aid based on political favors, and the list goes on!

    Granted, Larry Summers and his Wall Street pals should have given Barry a better advice, to save 5.1 million Americans from losing their homes, and millions more that lost a huge portions of their retirement account while Banks and corporations were collecting our taxpayers’ monies. But no one actually died! Imagine if we have lost 100K people to a 3-months pandemic during the Obama years, can you imagine the response??? Why the special treatment for this moron???

  7. @ Walter A. — Do you have any source to back up your claim, besides Fox News? Trump didn’t ban airlines from flying to China in January.

    His administration put a ban on foreign nationals who had been to China in the previous 14 days. US citizens, family of US citizens, and permanent residents could continue flying home from China.

    Delta, for example, continued flying to China until Feb 6th.

    It was falling demand and an increased travel advisory from HHS that resulted in flight suspensions.

    In the future, try reading multiple news outlets, and even better, watch the unedited speeches for fact checking.

    Most importantly, one man doesn’t run a country. It takes a legion of the best and brightest to run a functional country.

  8. I care that Gary Leff says that the airline bailouts were a bad idea. Summers, who in the heck is he? Never heard of him.

    [Actually, I have to say, among the hacks that are considered wise men by the left, I kind of have a soft spot for the former Harvard President Summers, because, in 2005, he told an economic conference that the under-representation of female scientists at elite universities may stem in part from “innate” differences between men and women. Chuckle chuckle chuckle. Talk about speaking truth to power! LOL.]

  9. Good luck to the workers trying to “figure out what’s coming next“. Very easy to say from an elitist. One of Obama’s biggest mistake was to recruit Summers. Wall Street and big banks certainly got a fat bailout thanks to him. Way to change the system and corporate culture of failed banks!

  10. @ Walter A


    The Trump financial bailout is the best thing to have happened to the airlines since the Revolutionary War soldiers liberated the airports in 1775.

  11. The laid off airline employees should have been eligible for some sort of enhanced UI payments and some funds for retraining, rather than having the airlines be the funnel for wage supports to those workers for the period.

    It’s obvious that with Delta for example mothballing all the remaining MDs and eliminating the 777 by year end, there’s no ‘return to normal’ coming soon.

    So help the gate agents, FAs, cleaners, mechanics etc find new careers once we do climb out of this pit.

  12. The CARES Act funding for the airlines was a bailout for union employees. They get paid now and then in October they collect unemployment insurance. There is logic to providing funding to tide employees over like with the PPP but airlines are not going to snap back and won’t be where they were for at least 5 years. Employees with reduced hours will still get full unemployment benefits in October. Airlines didn’t benefit from this CARES ACT one bit. 95% of employees should have been let go in March.

    After the 2008-2009 crisis, Banks paid back every penny of the bailout with interest. If every government program operated that way the government would be in the black. I don’t see anyone paying back their stimulus checks, unemployment benefits, welfare checks, disability checks or PPP money with forgiveness. Larry Summers is a typical big government bureaucracy worm but propping up the banking system in 2008-2009 was the right move. Saving GM for $63 an hour jobs of union labor and pensions however did cost tax payers billions that were not paid back and did nothing to make manufacturing competitive with China or Mexico.

  13. At that point was GM, Chrysler, AIG, Fannie and so forth bailout under Obama a misstep too I love the way these individuals specifically choose what politically associated industry gets its offer. Here is an original thought: we should quit going through cash we don’t have.

  14. @ Walter A. “Keep this in mind President Trump shut the airlines down to flying to China in January basically 10 days after we saw the virus coming from China. President a Trump was called many things by the main stream media for doing this. President a Trump in hind site was 100% correct in doing this.”

    Let’s see, Trump closes down Chinese airlines flying to U.S. BUT, Trump let in 40,000 Americans returning from China. Your talking point might excite skinheads for Trump, but does not excite real Americans who can smell his bullshit a mile away.

  15. Allowing airlines the ability to stall for time was a necessary and worthwhile aim of the CARES Act. Why? The alternative would have been even greater economic chaos. With near-zero airline revenues now and for the immediate term, all major US airlines would have been forced into bankruptcy within weeks, and ALL of them would, at present, fail the basic bankruptcy test of producing a viable business plan. Bankruptcy judges would be forced to order every large US airline into liquidation, greatly compounding America’s economic and logistical hassles when we can least afford them.

    Hopefully by October 1 there will be enough forward momentum in airline revenues to allow industry executives to begin restructuring their businesses into smaller, viable companies (likely with the help of Chapter 11).

  16. @waltera Yes Walter. we shouldn’t forget all the great things chump and his admin have done for us. Thousands of deaths including the infections of kids. Yep, ole “Bone Spurs” War General chump. What a great scientific genius. I’ll have to remember to drink some Mr. Clean and put a light bulb up my arse to make sure I get that ultra-violet light preventing me from getting the virus and if those don’t work, there’s always hydro- chloroquine.

  17. Sad when everything substantial down to the smallest insignificant fact gets politicized. The real knuckleheads are the one’s who insult and belittle others as it make them feel like real mover’s and shaker’s. To resolve problems, one must sit down with others, play nice and actually get the issue resolved. This no longer occurs. I remember the good old days when President Reagan would get together with Tip O’Neil over the weekend and get disagreements resolved. This is the only way to move forward. Both sides of the political spectrum are guilty.

  18. I shouldn’t be surprised by some of the responses. But I just want to respond so here goes to just a few and sorry as one comments said I stirred up the TDS people which is obviously true.
    Stirring up the TDS was not my intention. I din’t really mean to make this political but wanted to give the President his due which some will never due and thus we get the term “NEVER TRUMPERS”
    To CirrusFlyer – my information (it seems you are a “NEVER TRUMPER” is not from Fox news LOL.
    The President issued the CDC in Jan to limit the flight to and from China to essential travel only. I have some friends who are flight attendants and have seen the internal info (because there was concern of safety in flying with the virus. The Airlines of course wanted the revenue but as demand became weak they were then not fighting the White House on the issue.
    To Rog – You should go do some research on the UV light issue before spuing your hatred.
    To Gene – I am not trying to give Trump massive credit beyond what he did and stood for.

    Lastly to the Pro Trumper’s here I also am not saying that the Bailouts are my preferred choice just say why I believe Trump and congress made it happen.

    I do agree with some that maybe it could have all been done a different way and not give it to the Airlines directly in this way. But is done and over and hope it all recovers like my 401K has come back above where it was at the begining of the year and a little over as of today.

  19. One last comment
    Let us all support the Airlines that are United States companies and to me chiefly try at least to keep as much work in the United States as possible by keeping the work for themselves “in house.”
    Forget President Trump for a moment, I hope we all want to make America Great so I challenge you to do a little research and just look at the 4 “major” airlines in the United States (AMR,UAL,DAL,LUV)
    just look at Maintenance levels who do their own work. if the fares are close keep the money and jobs in our United States.
    Let’s see comments on that from you “pro Trumper’s” and even from you NEVER Trumper’s but claim to want whats best for America.

  20. @walter a. You forgot to mention the tens of thousands of deaths and now there are kids dying because of chump and his administrations delays in battling the virus. Nice to see your 401k is going up but chump has nothing to do with it. Anyone familiar with the market ought to know that. Except for going to Scotland and Canada, chump has no clue about living in other countries and how they compare to the U S. So the maga bullsh&t is just that, a ploy to get the uninitiated and idiots in this country to vote for that chump bull.

  21. Rog haters gunna hate. you truly have TDS.
    Fact is (I know Biden doesn’t like Facts he says he prefers truth over Facts???)
    I know this for another “Fact” My 401was stagnant for the previous 8 years before President Trump won and even to today its has doubled under President Trump even as of today after the Chinese Virus situation that Governor Cuomo has some how many many deaths of during homes in NT going no? But that’s got noting to do with him right??? Gov Cuomo has even said President Trump has given him what he needs (except for billions more in cash to blow on solar panels.

  22. @walter a Obiously you invested in the wrong 401k for 8 years and secondly I don’t really give a sh&it about what your investments do. Of course NYC has a lot of deaths. One of the biggest cities in the world. Chump and his admin are the major cause for the deaths in this country and now kids are dying because of his inaction. One more thing learn how to spell and write simple sentences.

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