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Coronavirus Aid Should Go to Citizens, Not Corporations

Joe Nocera

(Bloomberg Opinion) -- The most infuriating aspect of the government’s response to the 2008 financial crisis was the contrast between its generosity to companies and its lack of generosity to citizens.

Congress passed a $700 billion bailout for the banking industry. AIG Inc. received $180 billion worth of loans from the Federal Reserve. The auto industry received nearly $81 billion in taxpayer funds. Yet people who either lost their jobs or were in danger of losing their homes received little or nothing in the way of federal assistance. The result was a great deal of avoidable suffering.

Based on recent remarks by President Donald Trump and administration officials, I fear we’re headed down the same path as the coronavirus crisis brings the economy ever closer to a recession. On Friday, for instance, the president’s chief economic adviser, Larry Kudlow, told Bloomberg News that the administration was looking at ways to help the airline, hotel and cruise-ship industries, perhaps by deferring taxes. And while he also said that the administration wanted to help taxpayers, he added, “We don’t want to willy-nilly throw $300-$400 billion, with a thousand-dollar check to every American.”

On Tuesday, the administration added oil and natural gas producers to the list of industries it was concerned about after the net worth of energy mogul Harold Hamm, a Trump supporter, dropped by $2 billion in the wake of the collapse in oil prices. (Hamm confirmed to the Washington Post that he had reached out to the White House.)

As for the rest of us, the main proposal coming from the Trump administration is a payroll tax holiday. In classic Trump fashion, he told Republican senators on Tuesday that he wanted the tax holiday to last through the November election so he wouldn’t be accused of raising taxes while he was running for a second term.

In 2008, you could at least make the case that the industries the government was helping were in serious danger of imploding. If the banking industry hadn’t been saved, it could have brought down the world’s financial system. AIG was propped up by the federal government because officials feared that its collapse, too, could have devastating consequences on the financial system. As for the auto industry, the Obama administration concluded, correctly, that the country could not let General Motors and Chrysler fail, which would have cost hundreds of thousands of middle-class jobs.

Can you really say that this time around? Let’s start with the industry that has been hit the hardest: cruise ships. To begin with, the vast majority of them aren’t even registered in the U.S. By registering with foreign nations, cruise liners are able to circumvent U.S. regulation. As one study put it a few years ago, “those nations whose open registries have become the most popular also tend to be those who possess the most lax labor, safety and environmental codes.” One favored nation is the Bahamas; maybe they should ask that government for a bailout.

And cruise lines are hardly a vital American industry. If they all went out of business tomorrow, Miami would be hit hard, but that’s about it. There is simply no public policy rationale for bailing out the cruise-ship industry.

There is a public policy rationale for saving airlines, of course. There is hardly another industry that is as critical to the U.S. economy, not only because of the number of people it employs but for the way it enables so much economic activity.

But since 2013, when American Airlines Group Inc. took over U.S. Airways Group Inc. in the last of the big airline mergers, the industry has generated hundreds of billions of dollars in profits. Delta Air Lines Inc., for instance, has recorded nearly $37 billion in adjusted earnings since 2016; at the end of last year, according to Bloomberg, it had almost $3.5 billion in free cash flow.

The Trump tax cuts were a great boon to the airlines, just as they were to many industries. And, like many industries, instead of reinvesting that money, or saving it for a rainy day, the airlines used some of it on stock buybacks. Delta was chief among them; last year it announced it was borrowing $1 billion to “accelerate” its buyback program.  On Tuesday, however, Delta announced that it was suspending the buyback as well as reducing capacity, instituting a hiring freeze and deferring $500 million in capital spending.

In a note posted on the Delta website, Chief Executive Officer Ed Bastian said:

Over the last 10 years, we’ve transformed Delta by strengthening the balance sheet, diversifying our revenue streams and enhancing operational and financial flexibility. The environment is fluid and trends are changing quickly, but we are well positioned to manage this challenge and are taking actions to ensure that Delta maintains its leadership position and strong financial foundation.

Does that sound like a company that needs a bailout? I think not. The other big airlines are making similar moves, and the industry long ago learned to weather difficult travel environments, such as after 9/11 in 2001 and the financial crisis in 2008. Yes, governments may have to step in sometimes to save industries, but in a capitalist economy, they should never be in the business of ensuring profits. That is exactly what the Trump administration would be doing if it aided the airlines.

Hotels? I’ll simply note that should Trump bail out the hotel industry, among the recipients of government aid would be … himself.  

What will inevitably happen as the coronavirus continues to hurt the economy is that workers will be laid off. And it won’t just happen in the industries most affected, like airlines and cruise lines; it will happen across the board. A payroll tax holiday may serve as a mild economic stimulus, but it’s pretty obvious that it won’t help anyone who doesn’t have a job.

That is why the focus of any government aid should be on those who don’t have jobs, not on those who are still employed. In a press release issued on Sunday, Senate Minority Leader Chuck Schumer and House Speaker Nancy Pelosi called for the government to cover paid sick leave, extend unemployment insurance and expand food programs. The Trump administration should also demand that banks give some mortgage forbearance to people who lose their jobs because of the coronavirus crisis.

Of course, the administration could always just send people a check for $1,000. Larry Kudlow might not like it, but it makes a lot more sense than bailing out cruise ships.

To contact the author of this story: Joe Nocera at jnocera3@bloomberg.net

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast "The Shrink Next Door."

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