The argument would have to be that the problem isn't a permanent but a temporary 
reduction in demand. That that temporary reduction may make otherwise viable 
businesses insolvent and lead to their dissolution and that that will result in the 
inefficient destruction of their fixed assets that will have to be reconstructed once 
demand rebounds. Such arguments raise the usual questions of why private capital 
markets can't provide the bailouts in terms of loans or why chapter 11 bankruptcy 
isn't an adequate solution to the problem of preserving the business' assets. It also 
raises the question of how to decide when governments should do this sort of thing and 
when they shouldn't and how to avoid the moral hazard problems involved with bailouts. 
- - Bill Dickens

William T. Dickens
The Brookings Institution
1775 Massachusetts Avenue, NW
Washington, DC 20036
Phone: (202) 797-6113
FAX:     (202) 797-6181
E-MAIL: [EMAIL PROTECTED]
AOL IM: wtdickens

>>> [EMAIL PROTECTED] 09/26/01 12:15PM >>>
    The President has authorized some 15 billion dollars to bail out the
airlines and now travel agents and a host of others are asking for help
also.  Question: Is there any economic defense for this sort of action? 
After all, if the demand for air travel has fallen then isn't the
optimal response to reallocate resources from the airline and related
travel industries into other industries?

Alex
-- 
Dr. Alexander Tabarrok
Vice President and Director of Research
The Independent Institute
100 Swan Way
Oakland, CA, 94621-1428
Tel. 510-632-1366, FAX: 510-568-6040
Email: [EMAIL PROTECTED]

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