The True Cost of Airline Bailouts
Veronique de Rugy on the stealth wealth transfer from taxpayers to sharefholders
We all remember the bank bailouts of 2008, but almost nobody talks about the more recent COVID bailouts. $50 billion here; $25 billion there – pretty soon we're talking about real money. The airlines were one of several industries that enjoyed special treatment from the federal government on the grounds that they constituted an "essential business." What would happen if the airports shut down completely? Sounds scary.
But the airline industry was never at risk of disappearing, notes Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University. In a series of policy briefs co-authored with air travel guru Gary Leff, de Rugy shows the colossal waste of taxpayer dollars that took place while no one was paying attention. Rather than re-organizing under Chapter 11 bankruptcy laws, as businesses do all the time, inefficient airlines were able to keep paying dividends to their shareholders while less privileged businesses went under permanently.
Now, politicians like Bernie Sanders are criticizing Southwest airlines for the debacle of its holiday cancellations (and he has a point):
But what else should we expect from an industry that makes money whether it performs well or not?
The Bob Zadek Show is the country's longest running libertarian broadcast – nationally streamed at 8 AM PT Sundays. Subscribe for weekly transcripts, book summaries and additional resources:
Veronique de Rugy is a nationally syndicated columnist who has frequently testified before Congress on the effects of the fiscal stimulus, debts, deficits, and the regulation of the economy — aka crony capitalism.
Veronique and I discuss the underreported—almost stealth—but massive bailout of the airline industry, which was part of the in aptly named COVID relief legislation. Veronique will explain the Faustian Bargain, which the airline industry has made with Washington, whereby the airlines sold to Congress—and for a substantial amount of money—voting control of their boards of directors. You thought it was immoral or if not illegal to buy the right to vote? Think again.
Links and Resources
Veronique de Rugy, Reason Archive
Moral Hazard: Airline Edition | National Review June 3, 2021
The Economic Case against a Second Airline Payroll Bailout, Mercatus Study
Bob Zadek: Veronique, welcome to the show this morning.
Veronique de Rugy: Thank you for having me.
Bob Zadek: Now, Veronique, the bailout, as I said in my introduction, has been underreported. I dare say, if you were to do a search bailout of the airline industry, you would not immediately find all of the legislation that was embedded in and an important part of the various Biden administration democrats only voting for it, COVID relief legislation. I don't recall ever hearing about the airline bailout. First of all, tell us the headline of how the COVID relief legislation amounted to a bailout of the airline industry and the magnitude, and then we will drill down and take it apart and see if it made any sense.
Veronique de Rugy: Yeah. So, the only thing I will correct from what you've said is that actually, it was quite bipartisan. Unfortunately, when it comes to bailing out and cronyism, Republicans are as terrible as the Democrats. They do it for different reasons, but the result is the same. So, as part of the Care Act, which was the first big, massive COVID relief bill, there was a $25 billion bailout which took the form of-- There were some tax relief, there were some loans, and there were some grants. They were done in a name mostly like the payroll protection program, if you remember, for companies in the name of actually trying to give an incentive for airlines to not furlough or fire their workers. And so, we got this massive bailout. And then, it was going to be for six months. It was an enormous amount of money for six months.
There were two other ones. Another $25 billion and another one was $15 billion, I think. Each time they were done, again, in the name of companies, airlines saying, "Well, the money you gave us was all great, but it's been six months now and the economy hasn't recovered, it hasn't reopened, people are still not flying as they used to, and we think we're going to be bailing out. We're going to be furloughing or we're going to be getting rid of people."
Another argument that was used and I suspect we're going to cover this later on, is the argument for keeping all these workers employed. Even though no one was flying or very few people were flying, was this notion that when the economy would recover, then the airlines would be ready to go. There'd be no gap between not flying and flying full time. That would help the economy recover. So, that's pretty much the layout of the land. I think altogether, it was close to $70 billion going to airlines. By the way, it is a tradition now almost that at every emergency, every crisis, the airlines are almost the first one with their hands out asking for a bailout.
How much did we spend per job saved?
Bob Zadek: Now, an interesting statistic. You probably have it at your fingertips. If not, we can pass over it is, if we start with the premise, this was done, so that there is continuity of employment. Of course, they could have laid off the workers and then pulled them back, but the workers would have found other jobs, different careers. And building an airline from scratch from a labor standpoint would be a challenge. So, there is something to be said for continuity. And the context I want to put this in, one can calculate how many jobs were preserved and how much did it cost. And then, with the complex device of long division, we can then calculate how much we spent per job to save the job. Do you happen to have that relationship handy?
Veronique de Rugy: So, it's complicated only because there were three different bailouts and each time the numbers were different. Also, the airlines are not super transparent about what they ended up doing. What I can tell you, the second bailout, for instance, the companies were saying, “If you don't give us a bailout, we're going to be furloughing." I think it was like 30,000 people or something like this.
Now, if you look at the average salary, actually, if you just assume like, let's say $100,000 a year, which I think is a little high. It's a little high for an average. But pilots make a lot of money and then there's a lot of people who don't make a ton of money. But to be conservative, let's say, $100,000 a year, this was a bail out for six months. So, $50,000 per employee to prevent furloughing them. And you multiply by $30,000 and then immediately you can see the $25 billion is at least 10 times more than what the airlines needed.
In the study that my colleague, Gary Leff and I wrote, we explain why airlines shouldn't be bailed out or, at the very least, certainly not bailed out from the get go. And then, we explain why the second bail out was just complete nonsense. In part, we were making the argument and we had the correct numbers. Basically, if you did this calculation, the bailout that would have been needed to actually keep these people employed would have been something like $2.5 billion and they ended up getting $25 billion as opposed to $2.5 billion. So, that means that basically, they were getting a lot of money in order for the companies to continue paying employees that they had no intention of furloughing. Hence, this is why we always say bailout of shareholders, it has nothing to do with employees.
The Nonexistent Crisis
Bob Zadek: Now, it's interesting that you mentioned bailout of shareholders, because that was exactly where I was about to go, as I was going to ask you the question where the answer, I think, would be a bit obvious to our listeners, but I'd like to hear it from your point of view as an economist. So, you're quite right. The money is a wealth transfer from the government, from all of us to the shareholders. Now, when shareholders invest in an airline, presumably, at least the theory is, you invest in a company, because you know there are risks and there are rewards. You have made or somebody has made for you a calculation that buying stock in Delta Airlines, the benefits outweigh the detriments, the risks. To some degree, either specifically or generally, one of the risks is, something could happen existential that will affect the airline's performance. It's built into the equation, more or less. Those of us who would like to think we have faith in the allocation of capital through the capital markets, we say, "Why are we bailing out shareholders since all that's happened is a risk that, whether they knew it or not, they were assuming it happened?" And so, there's a bailout.
Now, speak a little bit more about that about what that does, that kind of a bailout. And, of course, Veronique, I suspect you're going to mention moral hazard along the way. But I'll start with a question for which you will give, I think the audience will profoundly benefit. What's wrong, as a matter of policy, putting aside the fact the math doesn't work, as a matter of policy, our government trying to protect the airlines from this existential threat that nobody caused? Isn't there a public benefit that "justifies" the expenditure?
Veronique de Rugy: Yes. The answer is no. Let me answer your question and why I think it is no. First, it is not the role of the government at a principal level to actually go and bailout private companies, big or small. In the case of airlines, they had a lot of options that were available to them in case they hadn't been bailed out before they would have to actually close the airline altogether. In fact, they did, but they would have been able to tap into their enormous assets to tap into the capital market. By the way, the capital market was functioning quite well because of the intervention of the Fed. They could have actually filed for bankruptcy and they can still fly during bankruptcy. Airlines have done it many times and got out on the other side stronger.
They could have tapped into their enormous mileage program, which basically would have allowed them to, again, tap into an enormous amount of capital. There were a lot of things that could have been done by the airlines. And in fact, it should have been done by the airlines, who, by the way, I had had the 10 years before the pandemic. Their best profit ever. And so, they were flushed. And the capital market was, again, thanks to the Fed, was ready to lend. They were able to tap into those capital assets, use their own assets, declare bankruptcy. There's just a lot of things they could have done.
Now, the other thing is, this notion that somehow any airlines who cannot sustain an emergency like this one would come to disappear, means some sort of catastrophe for the US that justifies the government stepping in. By the way, I checked the number, and it was $54 billion over the course of three bailouts. It was supposed to be $75 billion, but in the end, it was $54 billion that justified that enormous amount of money for really, actually, really big in rich companies is nonsense. When a company has to close down, it doesn't mean that there won't be any planes to fly in the US. This company is going to be bought by another company. Their assets are still going to be there and bought by other. A new company will emerge and all will be fine. The disappearance of a weak airline, that certainly does not mean that Americans won't be able to fly, there will be no more American Airlines. It's nonsense.
Now, I think there's a much more credible case, at least, for some level of bailout originally, simply because the government shut down the economy. But still in this case considering how many different steps were available to airlines before they had to really sustain any source of real damage, I still think that even that argument is weak. I would say that, again, arguments for bailouts are always done in the name of workers. "Oh, we need to do it to preserve workers." But all that it's doing really in the end, because it is stepping in. The government is stepping in in place of the shareholders who, as you've said, are calculating risk and investing in the airlines. For the most part, they're actually doing pretty well with their investments and it's their job when you invest somewhere, it's not just in an asset. It's not just for when times are good. It's also when times are bad. That's the assessment of the risk because the government steps in and basically takes the burden away from shareholders, effectively what you're really doing is you're bailing out the shareholders from their basic responsibility. By the way, it is worth saying that the government is also bailing out creditors. Everyone compromises in light of the emergency about how much they're going to get, one, from what they're due, and the other one in order to save a company they have shares in.
The Beauty of Bankruptcy
Bob Zadek: Now, you said bankruptcy. Probably some, perhaps not a whole lot, but some. To some of our listeners, bankruptcy sounds scary. There's an air of finality to it. It sounds like something will go away. You were quite clear in your statement of a few minutes ago that the bankruptcy of an airline itself doesn't mean the airline goes away. That would be extreme and profoundly unlikely. Remember, General Motors went bankrupt. There wasn't an interruption of even five minutes of anybody being able to buy or do business with General Motors. No one even knew about it in their daily life. And that was wow, General Motors. So, a bankruptcy is kind of invisible to the public. The public would not have a flight cancelled. Some uneconomic flights may be cancelled, that's a good thing. But the audience should not be intimidated or frightened by the threat, threat being the wrong word, of a bankruptcy. It's an adjustment.
Veronique, as you have pointed out, all it means is creditors who extended unsecured credit to the airlines, they made a credit judgment that the sale was worth the risk. Well, they bet wrong, and they will get less, maybe a lot less than what they are owed. But their customer will survive and the customer will place more orders. So, bankruptcy is just the jiggling around of losses--
Veronique de Rugy: Yeah, especially in this case. There are two types of bankruptcies. There's the one that are like the final terminated-- [crosstalk]
Bob Zadek: Chapter 7 liquidation.
Veronique de Rugy: Yeah, Chapter 7. And then the Chapter 11 is one where basically, a company declares bankruptcy and the point of declaring bankruptcy is to be able to restructure the company that at this point is not effective. It has problem, it is not making profits for whatever reason and to restructure it. So, it comes out of this fire stronger. That's the whole point of the bankruptcy. You go through bankruptcy, because you've made some bad business decisions. Sometimes you have to go through bankruptcy, because there's a pandemic, a one in a hundred years pandemic and no one is flying. Even though, by the way, it was one of the most frustrating thing about the no one is flying thing is that actually the safest place to be indoors was actually in a plane, because it had the best air purifying.
Actually, I flew a fair amount during the pandemic, and I was really impressed about how safe it felt. So, yeah, people are really worried. Even if you were to go through a bankruptcy, for the purpose of actually closing down the airlines. So, this happens a lot. There are a lot of airlines in the US-- Who remembers Pan Am? Who remembers Frontier?
Bob Zadek: Eastern.
Veronique de Rugy: Eastern. There's just a lot of companies.
Bob Zadek: TWA.
Veronique de Rugy: Exactly. It does not mean that those assets still exist. Are going to be picked up by existing companies or new companies. It doesn't mean usually you're totally right. Consumers will see nothing. It certainly doesn't mean that all of a sudden, the US doesn't have an airline. It certainly, by the way, even assuming that there are disruptions to consumers, ultimately, it beats sending taxpayers money to this airline in order to preserve it, in spite of the fact that obviously it's not working out. Preserving airlines for the sake of preserving airlines is actually a money losing endeavor.
Bob Zadek: As you have pointed out, when an airline goes into bankruptcy, even if a bunch of them go into bankruptcy, the big loses ought to be management. They were the ones who didn't properly plan and the ones who ought to lose their job and sometimes do are existing management. So, the bailout done under the name of protecting workers. The workers are the least at risk. Of course, somebody will buy those assets. They are capital intensive. Somebody's going to buy the planes and the gates and the repair facilities and the hangars. Somebody is going to buy them as a going concern. And they are going to keep the workers, of course, without the workers, there's no company. So, the bailout protecting the workers, that gives political cover. They're not protecting the workers, they're protecting management.
Veronique de Rugy: Yes. In fact, also we haven't talked about moral hazards, which you mentioned earlier on, but that's another thing that ends up-- What happens when airlines are bailed out over and over again without ever having to try to navigate through an emergency on their own. It means that the managers and the presidents of these airlines actually will run the airlines during good time as if they will be bailed out the next time around. In fact, there was a very telling press conference, I blogged about it at some point at National Review of the head of Delta, who was telling investors-- There was an investors meeting and he was telling investors, he said, "Here's what we've learned during this pandemic. Effectively, what we've learned during the pandemic is that airlines are worth investing in, because government will always bail us out."
When you think the government is always going to bail you out, it means that you never need to plan for times of emergency. It means you never need to put money aside. You just don't need to have a plan. What it means is effectively, you are privatizing all the benefits and the gains from running a business like an airline, but you are socializing the cost, since the airlines will not be the one having to shoulder whatever happens in the bankruptcy and whatever cost emerges from an emergency, because taxpayers will pick up that tap. That is not just unfair, it creates real distortions in behaviors that are just incredibly unhealthy.
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The Money Always Comes with Strings Attached
Bob Zadek: When I introduced the topic this morning, I mentioned what I described as the Faustian bargain that the airlines made with government and how they sold. The statement I made was, they in effect gave the government a seat on the board of directors. So, the government always, if they put money in, they get to call the shots. It's true in health are. Since the government in effect provides healthcare, the government gets to decide who lives and who dies, because it's their money. Okay. Now, tell us what the airlines from a management standpoint gave up. What they gave up or what they lost as they sold out to the government? Give us some of the headlines of how the government now took control over management decisions on the airlines.
Veronique de Rugy: So, for some of the bailouts, if I remember correctly, some of the shares of the airlines were turned over to Treasury. But Senator Warren wanted way more. She wanted, basically, a much bigger control of government over the airlines. She wanted to make sure that airlines were going to cap executive pay that there'd be no stock buyback. There were just a whole progressive list of things that she wanted. I'm against the bailouts, but I'm also against government taking over and telling companies how to run their business, if only because this is a very dangerous spiral with the worst of both world where you end up with not just the company being bailed out, but also the government calling the shots at just very fundamental level. And so, it was just super unhealthy as always, but she didn't get what she wanted.
Bob Zadek: Now, just to expand upon that, I believe the bailout did contain some restrictions on buybacks, as you had mentioned. Buybacks are sort of jargon, just so our listeners understand what that's all about. Buyback is a very simple step. A corporation makes a decision for business reasons that this is a good time for it to use some of its money to go into the stock market and buy its own shares and put it in Treasury. It does so to prop up the share price, it does so, so that existing shareholders get a higher dividend, it's easier to sell stock in the future, but it's a business judgment that the directors make. But it's part of managing a company. To the progressives, that's nothing other than, in their narrow tunnel vision, a transfer of wealth to people who don't need the money. So, they say no-- [crosstalk]
Veronique de Rugy: What they would prefer is that money-- if the company has money, which is part of the belief is that companies are always sitting on an enormous amount of money that they won't share with workers. What they would want with that money is that the company pay worker more, give more benefits, and all of that. They always see stock buyback as something that is taken away from workers. Of course, workers' wages and total compensation is set mostly by productivity, but Democrats just don't want to hear this. They think that, if there's money left independently of the productivity of workers, they should be getting more. And so, everything else that this money is used for, no matter what the reason, they see it as going away as-- basically, some unfairness to workers who they assume all the time are unfairly treated.
Bob Zadek: Veronique authored with Gary Leff, a name Veronique mentioned earlier. A series of three installments of a thorough policy brief. It was written for Mercatus Center where Veronique teaches part of GMU, George Mason University. It's very current. It was written in September. The last installment was in September. It was entitled "The 2020 Bailouts Left Airlines, the Economy, and the Federal Budget in Worse Shape Than Before." If you are interested in this topic and what we are talking about, I commend that quite readable three installment paper. It will tell you so much, not only about the airline industry, but beyond that the relationship between private business, government and bailouts, and Veronique's conclusions apply equally well to the bank bailout. Indeed, it's a mirror image. Everything we're talking about could have been discussed with the bailout of the banks in 2007, 2008. It was the same bargain.
Moral Hazard & the Socialization of Losses in a “Free” Market
The banks gave up control of a lot of their business. They gave up Dodd-Frank, big banks like it, small banks don't in exchange for in effect a guarantee that they will never fail. Now, the same bargain is made by the airlines. Veronique, you use the phrase socializing losses. I want to build upon that a little bit, because how profoundly an anti-free market that concept of socializing losses is. It's a phrase you and I use all the time, but help the audience understand a bit, what that simple phrase of socializing losses means to all of us who would prefer there to be a free-er market?
Veronique de Rugy: Um. [pause] Ugh, it's a big question, right?
Bob Zadek: Right. [chuckles]
Veronique de Rugy: What do you want me to start with, because we can take-- [crosstalk]
Bob Zadek: Well, just explain the concept, what that means to socialize losses and the big picture effect, the negative effect upon investing allocation of risk in the capital markets and the like.
Veronique de Rugy: Not even talking about airlines, talking about any company operating in the marketplace. What they're trying to do is to maximize their profits. And in order to guide them, in order to do this, they basically have to produce something that consumers want. That's the goal. That's the basic thing. Guiding a lot of their decisions is basically the ability to actually look at prices, the prices that emerge in the market. These prices are just a remarkable reflection of millions of pieces of information about scarcity, about demand, about supply of all sorts of things. And so, companies use this. If they fail to deliver, they will go under. That actually is part of the free-market information cycle, if you want. The assets will be redirected towards, actually, activities that are less likely to fail. People who are investing and looking at what's happening are saying, "You know what? I'm not going to invest in this company, because prices are falling for the goods that this company is selling. Maybe it means this is a no brainer." When a company fails, it's a clear indicator that actually resources could be used somewhere else.
The problem when the government steps in and says, "You know what? It doesn't matter that consumers don't really want to buy this good. It doesn't really matter that investors that this company is actually doing such a poor job that it's going to fail, but we're going to bail them out." It's keeping a lot of this capital, a lot of these resources, it's keeping them in an activity that is just not effective.
The other thing that it does that very few people think about is that, effectively, when the government invests in a particular activity, that alone sends a signal that this is maybe actually a safe investment. What you end up seeing with subsidies and loan guarantees to different activities, you end up seeing capital that would have not actually gone to these areas suddenly shift and go to the subsidized company. Basically, it distorts the essential signal that everyone is looking at, that's the price system for all sorts of things. Basically, it create a lot of mal investments. Basically, signaling to company, to investors, "Oh, we should invest in this," even though without the government, actually that company would be failing. Or, it's preventing other company to come in and compete with that company and provide consumers with better product.
Bob Zadek: As you were explaining it, Veronique, I imagined a very simple hypothetical. Two homeowners living side by side on expensive real estate, expensive homes right on the coastline. One homeowner says, "I have to protect my investment and my family, and I will buy flood insurance. It's very expensive, and it means I don't get to go on vacation quite so much and maybe my lifestyle is a bit lower, because I'm spending money on insurance." The neighbor says, "What a fool? I'm not going to waste money on flood insurance. The government would never allow me to lose money. They will come in as they have in the past." So, therefore, I ask you between those two homeowners, which homeowner is the one whose behavior you would respect more? Who is a better money manager?
Well, you would like to think the homeowner with the insurance is more prudent. But in reality that homeowner is punished for making the right economic decision, because he has less money, while the homeowner next door who makes an imprudent decision, a bad decision on theory that there will be a bailout. Take that very simple example and say, which one would you rather have managing your airline?
Veronique de Rugy: But you can actually go a step further. You can go a step further, which is now that the government has bailed out those homeowners without insurance, what it signals for future homeowners is that actually, it is worth not only taking the risk to build a home in a flood zone, but that they shouldn't be taking insurance either since the government is going to bail them out. You have a double whammy of bad decisions that are being made. It goes on and on and on to the point. And, of course, builders are excited about this. They lobby the government to say, "Please do bail out people, because we want to be building big homes in flood zones." And then, it reaches a point where effectively for the government to step away and let all these irresponsible homeowners face the consequences of being in a flawed zone, now that the government is not going to bail them out is so big that no politicians will dare doing it. And you have a bad system that is maintained in perpetuity. That's a lot of the problem that come with government bailing out or government interfering with the market place in the first place.
Certainly, all of these intervention, they distort that price signal that tell people whether it's risky, whether it's safe, whether it's worth investing, whether it's worth consuming, whether it's worth building, whether it's worth hiring, all of this. By the way, the government does it with the labor market and wages. The government interferes everywhere. Ultimately, what it does, it distorts the price system and it distorts this essential signal that allows a complex economy made of exporters-importers, consumer, producers, often those people are the same, and investors, and stock owners, and all of this to actually function.
Bob Zadek: When you were describing all the things that are wrong with the bailout, what I also found myself thinking about, and because it's in the news again is our relationship to farming. When I say "our" I mean our government's relationship to farming. Whenever farmers suffer losses due to an existential natural disaster or whatever, the government is right there with a farm bailout, because it is an essential industry. The reason I thought of it is because just this morning in The Wall Street Journal was an article about wheat prices are high because of Ukraine, whatever it is, and farmers are raking in the money. I didn't see that government was saying, "Okay, since we socialize your losses, and we'll bail you out with a farm bill--" Why doesn't government take the excess profits when times are good? It's a ratchet, which is only one way and the same thing happens.
You mentioned in the beginning of our show how the airline industry had come off a decade of monumental profits. They were loaded with money. Well, one of the things to do with the money is to either buy insurance or do whatever you have to do as a planner to say to yourself, "It's not always going to be this good. Let's put some money away." They didn't see the need to do it because of the hope realized by the bailout.
Now, you took a lot of time, you and Gary Leff in putting together this three-installment policy brief. As we start to reach the closing part of our show, is the country worse off because of the bailout only, because the federal government has $54 billion less or are there other residual detriments in addition to the pure loss of $54 billion? Not that that's not a lot of money. Of course, it is. But how else are we worse off as a country economically big picture by dint of the bailout besides simply the money?
Veronique de Rugy: The money is bad, because especially since we don't have the money, it means that basically, they borrow the money. Borrowing the money, especially as interest rates are going up is a problem. We have $31 trillion in debt right now. All of this is a problem. In my opinion, the biggest problem is one that we've talked about and that is the moral hazard that it creates. Basically, airlines have learned that from now on forever and ever-- By the way, they're not the only ones. Individuals have learned that next emergency they're going to be getting a check from the government, no questions asked, whether they work or not. They'll be getting a check in the mail. The companies that are non-airlines are going to have learned that it's very likely that they are going to be giving them the ability to borrow money either at very low cost or then the money will be forgiven whether they needed to get rid of their workers or not.
Then, airlines will learn, once again, that the government will step in and they will be able to make an enormous amount of money during good times precisely, because they will tell their shareholders and investors, "Invest in us, because you will never have to shoulder the cost of us during the next emergency." These type of expectations of government bailout, in my opinion, not only is it corrupting the corporate moral, honestly, where basically companies think, and shareholders and investors think that it's totally normal for them to line their pockets when times are good and they're going to be bailed out when times are bad. So, that's the problem. But it is really changing effectively the behavior. And I have to say that we run the risk of this type of behavior is one of the reasons why people are upset about capitalism. When people don't like cronyism, they don't turn against the government, which really is the one responsible. If the government didn't give the money, companies could ask for it and ask for it, it wouldn't happen. So, ultimately, the government is the source of the bailout, the one we should blame. But they blame companies for being greedy and that's a real problem. Corporate welfare, cronyism, however you want to call it is the biggest threat. [crosstalk]
Is Lending Better than a Blanket Bailout?
Bob Zadek: I live my life in the world of business credit. That's my world. It's been my world for half a century. Therefore, I jump to, given that the government can't stop itself from giving $54 billion to the airlines. Let's assume that. Stop me before I give again. They can't stop. It's baked into the system. This is very rhetorical, Veronique. Why couldn't you accomplish all the goals and lend the money to the businesses, make loans under terms that the governments sort of a lender of last resort and at market rates? Now, if I say that, then a corporation would probably say, "Might as well borrow it from my bank," which is exactly the answer I want them to say. So, all of these grants, if the government feels compelled for whatever reason to give the money to business, why can't it be a loan? Now, that's my last question I was looking forward to asking you. Would you be a tiny bit happier if the money was lent or does that not do anything to fix the problem?
Veronique de Rugy: No, I think any government involvement means moral hazard, no matter what form it takes. Look, there's just a lot of government loan guarantees program, where actually a bank lends the money, but in case the company can't pay-- [crosstalk]
Bob Zadek: Student loans.
Veronique de Rugy: Yeah. Even like you take the Export-Import Bank, so the bank extend the money to a foreign company and the taxpayers are backing that loan.
Bob Zadek: SBA loans.
Veronique de Rugy: Yeah. SBA is the same way and then the company will buy US products. So, what ends up doing is that the decision to who gets those government loans, who get those loans that are subsidized, that are better terms, that are-- If you default, taxpayers are paying for it. First, the banks are much less careful about how they lend the money. And second, the government picks winners and losers. Listen, there's a reason why it's always the airline being bailed out. At the time where they were talking about the second bail out or maybe it was the third bail out, now I can't remember. Do you remember? So, they were something like it was something 30,000 employees that were going to be furloughed with the airlines? Congress was all up in arms that this needs to be prevented. Meanwhile, all the movie theaters employees were getting fired. That was something an enormous amount, like four times or five times more than anyone in the number of reported number of airline employees that may be furloughed. And no one cared about this. Why is this? Because the airlines have a relationship with politicians.
So, ultimately the government decides which companies live and die. It's totally unfair. It's done for political reason. It means that you have to be involved and have some sort of lobbying branch and be always sure that you're pleasing politicians, so they will be there for you when times are rough. [crosstalk] No, I'm not.
Bob Zadek: That's the system. We have run out of time, Veronique. Thank you to Veronique de Rugy for sharing with us the results of her research on the 2020 bailout by the federal government. I hate even to say the word of the airline industry and all the evils that befall us as a result.
Veronique's paper, The 2020 Bailouts Left Airlines, the Economy, and the Federal Budget in Worse Shape Than Before is available at the Mercatus Center at George Mason University. Veronique, thank you so much for returning to our show and for sharing your thoughts. And thanks to Gary as well. Thank you so much.
Veronique de Rugy: Thank you. Thank you so much, Bob.