The Congress set a bad example by bailing out the airline industry post 9/11. Even after 2 bailouts, they want more. The only airline (Southwest) that didn't ask for the bailout has been doing just fine, making a profit. The market cap of Southwest is more than that of all of the other airlines combined (I know, marketcap is just an indicator).
Companies with failed business models should be allowed to fail: that is The American Way. This economy depends on the fact that failing companies die, and in their place better/faster companies are born. Just like any other healthy ecosystem, we need a certain amount of "churning" to keep things moving. Stagnation is bad, and will only lead to long-term problems.
The US economy is DRASTICALLY improved by commercial air travel. The fact that you can cross the country at will is a BIG part of why we think of ourselves as one country and NOT a union of states (the Civil War was a BIG step in this direction as well).
If you allow unprofitable airlines to fail, there are side effects. Right now, you can get anywhere pretty easily and pretty cheaply. For a while, the regulated airline market had heavily regulated costs that helped keep all costs "reasonable."
The problem with "market forces" is that it ignores externalities. There is an overall economic benefit to having small cities connected to the nation's air travel grid. The nation as a whole benefits, but the airlines are only compensated for some of it.
You can't worship at the altar of market capitalism (and you SHOULD) without understanding and appreciating the problems that externalities create. Figuring out how to internalize externalities, which IS a legit role of the government, is VERY tricky business. The more you internalize externalities, the BETTER the market functions.
Let me give a hypothetical. Airline A services small towns in 10 states connecting them to business centers. The airline agrees to continue service with a $1 billion bailout because the routes are unprofitable. If the routes result in business of $10 billion, and alternatives like video conferencing would only produce $6 billion dollars, than the airlines are worth $4 billion to society. In this case, it's a no brainer, because it will also generate over $1 billion in tax revenues. What if alternatives would develop $9 billion? Society is a wash on the decision, economically, but the bailout might still make sense because of the side effect of making people in those states live better by being able to vacation.
We definitely need churning, but you need to look beyond the sum requested by the company, political ideology, and desire for churning. You need to understand what the full economic consequences are before judging an economic action.
No bailouts (Score:5, Insightful)
Companies with failed business models should be allowed to fail: that is The American Way. This economy depends on the fact that failing companies die, and in their place better/faster companies are born. Just like any other healthy ecosystem, we need a certain amount of "churning" to keep things moving. Stagnation is bad, and will only lead to long-term problems.
The problem with airline failures (Score:5, Insightful)
If you allow unprofitable airlines to fail, there are side effects. Right now, you can get anywhere pretty easily and pretty cheaply. For a while, the regulated airline market had heavily regulated costs that helped keep all costs "reasonable."
The problem with "market forces" is that it ignores externalities. There is an overall economic benefit to having small cities connected to the nation's air travel grid. The nation as a whole benefits, but the airlines are only compensated for some of it.
You can't worship at the altar of market capitalism (and you SHOULD) without understanding and appreciating the problems that externalities create. Figuring out how to internalize externalities, which IS a legit role of the government, is VERY tricky business. The more you internalize externalities, the BETTER the market functions.
Let me give a hypothetical. Airline A services small towns in 10 states connecting them to business centers. The airline agrees to continue service with a $1 billion bailout because the routes are unprofitable. If the routes result in business of $10 billion, and alternatives like video conferencing would only produce $6 billion dollars, than the airlines are worth $4 billion to society. In this case, it's a no brainer, because it will also generate over $1 billion in tax revenues. What if alternatives would develop $9 billion? Society is a wash on the decision, economically, but the bailout might still make sense because of the side effect of making people in those states live better by being able to vacation.
We definitely need churning, but you need to look beyond the sum requested by the company, political ideology, and desire for churning. You need to understand what the full economic consequences are before judging an economic action.
Alex