April 17, 2020

Coronavirus Bailouts

“Some large U.S. passenger airlines are close to accepting the terms of a $25 billion offer for government coronavirus payroll aid… Airline industry officials expect all major airlines to accept the grants in coming days, and U.S. Treasury Secretary Steven Mnuchin said on Monday he expects decisions to come out ‘very quickly.’” Reuters

“In a digital briefing before the House Oversight Committee last week, Postmaster General Megan Brennan told lawmakers that the agency would ‘run out of cash’ by the end of the fiscal year in September without help from Congress and the administration, in part due to extreme losses being suffered as a result of COVID-19.” ABC News

“Lawmakers struggled Thursday to break a stalemate over President Donald Trump’s $250 billion emergency request for a small-business program… Democrats want money for hospitals burdened under COVID-19 caseloads and additional funding for states and local governments straining as the economy slides into recession.” AP News

Many on both sides are skeptical of bailing out the airlines:

“Airlines provide a network that moves people, goods, and mail around the country and overseas — essential to a prosperous and growing economy. Surely, it is in the national interest to see that they continue to operate. But that goal can be accomplished without bailing them out of the predicament they have created for themselves by returning 96% of their free cash over the past decade to shareholders rather than shoring up their balance sheets…

“Under the supervision of the bankruptcy courts, airlines’ shareholders and lenders would be poorer, and labor unions might be required to negotiate new contracts. But the carriers would be able to pay for fuel, meet their payrolls, cover maintenance and other costs necessary to keep them in the air… Help the innocent workers, but let the culpable investors and managers rely on the bankruptcy [process] that they have relied on during past troubles.”
Irwin M. Stelzer, Washington Examiner

Dated But Relevant: “There is no danger that the airlines are about to disappear, leaving the flying public grounded after the coronavirus crisis passes. Without a bailout, the air carriers would renegotiate their terms of credit with their lenders outside court, or they would file for Chapter 11 bankruptcy protection. Either way, they would keep flying… Between 2002 and 2011, American, Delta, Frontier, Northwest, United and US Airways all filed for Chapter 11. All kept flying throughout, and all emerged intact

“Workers from any industry idled during the coronavirus crisis would qualify for unemployment insurance, which Congress can augment as it sees fit. Given this option, there is no good reason to favor airline employees over other workers hurt by the crisis. And a large portion of federal outlays to airlines would end up in the pockets of bondholders and other investors, not employees.”
Richard Squire, Washington Post

Other opinions below.

See past issues

From the Left

“The Postal Service cannot be allowed to crumble in the midst of a national emergency. Though organized as a self-sustaining quasi-governmental enterprise, run without taxpayer funding, it is not just another business. Even in an increasingly wired world, the agency’s mandate of ‘universal service’ provides a lifeline to remote areas. As this pandemic rages, its 600,000-plus employees are working to ensure that Americans receive their prescriptions and protective equipment and other essential items, no matter where they live. Nearly 500 postal workers have tested positive for the virus, with hundreds more suspected of having it…

“Compounding its current problems, the service is saddled with financial obligations not imposed on other enterprises, private or public. In 2006, Congress passed a bill requiring the agency to set aside around $5.5 billion per year to prepay health care benefits for future retirees. This has put the Postal Service at a competitive disadvantage. Absent this burden, the agency would have turned a profit in each of the past six years.”
Editorial Board, New York Times

“Businesses like FedEx and UPS don’t build offices in remote rural areas, like deep in Wyoming or in the mountains of Colorado, because it’s simply not profitable. They often rely on the Post Office for last-mile delivery; the agency delivers mail for them from major transportation hubs to the final delivery destination… This ultimately means that without the USPS, FedEx and UPS won’t have the resources to deliver to remote rural areas, nor will they likely make investments to do so since they’ll lose money in the process. Instead, people will have to bear the burden of traveling to the companies’ offices in larger towns to meet their mailing needs…

“18 percent of Americans still pay their bills by mail, according to an ACI Worldwide report; meanwhile, 20 percent of adults over 40 who take medication for a chronic condition get those pills by mail order... Then there are the several small towns around the country that vote only by mail because they’re not populated enough to open up polls. In Minnesota, for example, 130,000 [people] receive a mailed ballot every election because they live in a town with fewer than 400 people.”
Catherine Kim, Vox

“Yes, the agency is premodern — in a good way. When the electricity goes out, the cell tower is down or the Internet isn’t working (all of which could easily happen during a natural disaster or enemy attack), the Postal Service and its employees are the nation’s vital link, as befits a publicly held resource. One emergency plan not (yet) in use is to have postal workers quickly deliver to each American an antidote like Cipro in the event of a wide-scale biological attack. Who else would be able to do that? As a recent Wired article notes, the plan could quickly and easily be retooled for a pandemic…

“[Congress] should properly fund the Postal Service to keep it serving us in normal times and to keep it ready for times like now.”
Editorial Board, Los Angeles Times

“Aside from being an essential part of our nation’s life — even more than usual in these times, when mail deliveries have become an essential lifeline to families sheltering at home — the post office employs 600,000 workers… [Similarly] Hospitals obviously play a vital role in dealing with the pandemic; but they also employ more than five million people — and they’re facing financial crisis thanks to the pandemic. State and local governments, which in general are required to balance their budgets, have seen revenues plunge and expenses rise — and they employ almost 20 million people, a majority of them in education…

“The Trump administration refuses to aid hard-pressed institutions that employ around 25 million Americans… The economics of dealing with a pandemic were never going to be easy. But Trump and company are almost surely going to make things even worse than they had to be.”
Paul Krugman, New York Times

From the Right

“Unsustainable wage and benefit costs, along with unaffordable and inefficient service requirements in light of reduced demand—not the new coronavirus—are the real reasons for the Postal Service’s financial troubles… In fiscal 2019, a time when the overall economy was still thriving, the Postal Service lost a whopping $8.8 billion. It has suffered an operating deficit for 13 years in a row…

“Cost efficiencies for the Postal Service could include streamlining the number of post office locations to better fit in-person demand, changing delivery schedules to be in line with a lower volume of mail, and responsibly adjusting compensation levels… Lawmakers should not put taxpayers on the hook for tens of billions of dollars in bailouts to put off politically inconvenient reforms. USPS needs real, structural reforms—even after the COVID-19 crisis abates.”
Romina Boccia, Daily Signal

“Last summer, long before anyone had even heard of a new viral outbreak on the horizon, the Post Office was already informing Congress that it would be out of money within five years… Before Congress even considers tacking on another $75B for the USPS in the next financial aid package, the Post Office needs to open up the books for a thorough inspection…

“If we want to help the Post Office out, it shouldn’t be through taxpayer-funded grants. They’re supposed to operate on their own profits. Congress could do this by allowing them an early increase in the price of stamps. Let’s face it, stamps are ludicrously cheap when you consider what you’re getting for your money. And in the era of email, how many stamps do you actually go through in a month? Let them jack up the price by a quarter and see if they can turn a profit that way.”
Jazz Shaw, Hot Air

Regarding hospitals, “they have received $100 billion in coronavirus bailouts from the federal government, and they can draw on the $349 billion in rescue funds for businesses. At the same time, they have the gall to sue the government — to block new federal rules requiring them to come clean about their opaque prices… While front-line heroes deserve our utmost gratitude, economically vulnerable taxpayers are more than handsomely rewarding the hospitals that employ health workers. In return, hospitals can show their ­appreciation by dropping their lawsuit against an eminently fair policy: price transparency…

“The Trump administration has (rightly) announced that the government will shoulder the cost for coronavirus treatments for the ­uninsured. Congressional Democrats want a similar guarantee from health insurers for those in the private market. But when payment is mandatory and prices are opaque, providers can jack up rates without repercussions… Americans should demand that hospitals restore patient and taxpayer trust in health care by posting real prices online in real time.”
Editorial Board, New York Post

Finally, “If the speaker gets her way, the coronavirus assistance may turn into a federal bailout of states and municipalities that have mismanaged their finances for decades, and of the bond investors that made money while they did it. The federal government has already taken very significant steps to prop up state and local government finances during the crisis… These amounts should have been sufficient if states handled their finances properly. The problem is that many of them do not…

“Consider the colossal gaps between the retirement pensions that states promise public employees like teachers and police, and the money they set aside to meet those promises. These unfunded liabilities grew from $2.6 trillion at the end of 2009 to $4.1 trillion at the end of 2019, despite a historic bull market. Many states under-contributed to pension plans, failed to achieve their hoped-for investment returns, and refused to reform their unsustainable benefits. Surely the federal government should not pick up this tab.”
Joshua D. Rauh, Fox Business

A centrist take

“Assistance to the larger companies should be carefully targeted, with preference given to companies that were financially sound when the crisis hit… As brutally Darwinian as it might sound, the cleansing effect of recessions will cause inefficient firms to fail, likely at a higher rate than they do during normal times. While preventing a wave of bankruptcies is important, artificially propping up companies that were in trouble to begin with will deprive sounder companies access to resources and hurt the economy as a whole.”
Krishna Kumar, Shanthi Nataraj and Jonathan Welburn, CNN Business

On the bright side...

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