Over the past several days I wrote to expect the airline industry going to the government asking for a bailout. That happened yesterday. They want $50 – $60 billion, in the form of:
- direct cash
- subsidized loans
- tax rebates and tax abatement
Hotels were already talking up a bailout, too, even though there’s less systemic risk with hotels than airlines even. Remember that Marriott, Hilton, and other large chains generally do not even own the hotels. Their businesses are hurting, but not every hurting business is the taxpaying public’s problem, they have their own issues to worry about.
From a press release, "leaders from Best Western, Choice Hotels, Hilton, Hyatt, InterContinental Hotels Group, Marriott, MGM, Pebblebrook, Universal and The Walt Disney Company are meeting with the White House and Congress to" ask for a bailout. Subsidize #Mickey!
— gary leff (@garyleff) March 17, 2020
Airport workers, many of whom could be on unemployment insurance soon, are also seeking a bailout.
Since airlines are expecting a bailout airport workers demand one too, from another press release: "Contracted Baggage Handlers, Cabin Cleaners, Wheelchair Attendants and other Airport Workers Demand They Are Not Left Behind"
— gary leff (@garyleff) March 17, 2020
Now Boeing wants a bailout, too and this is just getting started.
The money actually comes from somewhere. It won’t be coming from higher taxes today. Indeed, with the economy heading into recession tax revenue will fall which means government borrowing will be up even before coronavirus response and the pork and corporate welfare that gets tacked on.
Borrowing money now is a future obligation, one to be paid by taxpayers in common. We need to approach this judiciously. The goal is to stop financial contagion in a leveraged way, not to prop up every business that loses money or risks bankruptcy. Bankruptcy is nothing to be afraid up. People misunderstand and think it means going out of business. It doesn’t.
- There’s nothing special about workers in airports as such, the concern to address is workers more broadly who may either have lost their jobs (we shouldn’t be requiring workers to look for jobs now to qualify for unemployment) and workers who shouldn’t feel it necessary to go to work sick. Those are issues of concern to the public at large to limit further spread of the virus.
- Managers and shareholders should take haircuts first. If firms go into a restructuring, and they cannot get capital, a public concern is making sure that resources are deployable going forward – not to backstop the most politically-connected shareholders.
- Our politics will respond to the loudest voices and the ones that are first in line. It’ll be harder and harder as successive – and perhaps more systemically important – industries and groups come with needs.
- Bailouts now work at cross-purposes from public health. The government’s strategy is for people not to be working now, to the extent possible. Any jump start to the economy will need to be targeted to idle resources – once the virus threat has subsided.
There are lessons we should be learning from China.
- Industrial production (manufacturing, mining, utilities) were down 13.5% in the first two months of 2020 – vs. an expectation of 3%. “This was the first decline on record.”
- Retail sales down 20.5% against a 4% expectation, “again the first decline on record.”
- Fixed asset investment (infrastructure, property, machinery and equipment) fell 24.5% against 2% expectation “the first shrinkage on record.”
So far while 95% of large businesses in China, outside of Hubei, have re-opened while just “about 60%” of small and medium-sized businesses have.
The economic challenges aren’t primarily in travel, that’s just what’s slowing down first, and when everybody is bailed out no one is.