If the government is responsible for airline defence and thinks "private capital markets" who could "provide the bailouts in terms of loans" are overestimating the risks well... Basically the government is in the best position to know the risks, but can't be trusted to state those risks honestly for political reasons. They can also respond quickly for political reasons. However this is merely an arguement for the government acting as a temporary insurer at what it guesses is a reasonable rate. Smoothing out market risk from a position of knowledge/responsibility. Risky political interference I know but a lot better than cash grant bailouts. You could also assume that the bailouts are a preemptive settlement for damages for government incompetence. If they don't say that though, it looks suspiciously like corporate welfare... Honestly I think it is a case of corporate welfare and lack of faith in the stability of capitalism. Capital risks are assessed by humans who are often known to panic and act with the herd. The problem is none of this is admitted by government, so stabilising is mixed in with welfare for the big boys.
-----Original Message----- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]]On Behalf Of William Dickens Sent: Thursday, 27 September 2001 4:03 AM To: [EMAIL PROTECTED] Subject: Re: Airlines 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] _________________________________________________________ Do You Yahoo!? Get your free @yahoo.com address at http://mail.yahoo.com
