Covid-19 aid should go to citizens, not corporations

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 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 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. 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.”
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.
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 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 US. By registering with foreign nations, cruise liners are able to circumvent US 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 labour, safety and environmental codes.” One favoured 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 US 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 US 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. Delta announced that it was suspending the buyback as well as reducing capacity, instituting a hiring freeze and deferring $500 million in capital spending.
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. 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.

— Bloomberg

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