Flying the Unfriendly Skies
June 6, 2002
by Irwin Stelzer
Look around Washington, D.C., and you see scores of office buildings under construction. Ask a beaming real estate agent about property prices and she will tell you that houses at the high end of the market are selling for almost 7 percent more than they were a year ago. Little wonder. Government is once again a growth industry. The growth is noticeable not only because of the building cranes and the hot housing market. This column is being written at 35,000 feet, on a flight from hot (84ºF) and humid Washington to hotter (110ºF) and dryer Phoenix, Arizona. I have just been screened by several of the 25,000 airport security personnel who have been moved from the private sector onto the government’s payroll. If bigger government means more security, the price is worth paying. But the government’s refusal to allow the security staff to use “profiling” to distinguish between the 90+ year-old, wheel-chair bound woman selected for an extra search as she boarded my flight, and young Arab males travelling on Saudi passports, makes one wonder about the efficiency of a government operation run by politically correct bureaucrats.
Somewhere on this airplane, in an aisle seat in the front cabin, is an air marshal (either the guy on my left, wearing the Hard Rock Cafe T-shirt, or the one behind me, scanning the in-flight magazine, is my guess). He is one of thousands who have been added to the federal payroll to cope with terrorists who might try to emulate the assaults on the World Trade Center and the Pentagon—all part of what most see as a necessary expansion of government. Not quite so necessary is its expansion into the airline financing business. The America West plane on which I find myself is kept aloft by a $380 million government loan guarantee, ostensibly to help the airline cope with the added costs and reduced revenues resulting from the September 11 attacks, and the subsequent fear of flying that gripped Americans.
America West is not the only carrier struggling. Extravagant wage settlements with unions powerful enough to disrupt schedules merely by “working to rule,” the business slowdown that keeps investment bankers twiddling their thumbs beside quiet telephones rather than flitting about in first class cabins, penetration of the business traveler market by low-fare carriers, and enormous excess capacity were bleeding the entire industry long before Osama bin Laden’s Saudi hijackers pounded a few more nails into its coffin.
Nowhere is the plight of the industry more apparent than in the state to which I am headed. Arizona is the home of the 1,600-acre desert compound that houses some of the 800 airplanes that have been grounded for lack of passengers. Some older aircraft will be chopped up for scrap, but other, newer models are already being recalled to active duty.
The industry is gambling that traffic will recover as business activity and the summer travel season combine to put more buns on seats. Indeed, business is already picking up.
Nancy Paul, one of Washington’s top travel agents, says that her bookings in April were well above those in April of 2001, and Matty Colla, who operates a New York limousine service for executives living in and coming to New York, says the same about his bookings.
But whether more bookings will turn red ink into black is uncertain. Bargain-hunters scour the web for low fares; businessmen increasingly see the low-fare carriers as tolerable alternatives to full-service airlines; and unions remain intransigent.
So look for other carriers to make claims on the $15 billion honey pot that the government has set aside for them. U.S. Airways is preparing to ask for a $1 billion loan guarantee, and United Airlines may be next in line. But the road to the Treasury may prove to be a rocky one. Last week the federal Air Transportation Stabilization Board turned down a request from Missouri-based, low-fare Vanguard Airlines for $13.5 million in loan guarantees because the board doubted Vanguard’s ability to repay the loan. This may be a signal that the Bush administration is trying to put a damper on further government involvement in the air transport industry, and to hold the line on government spending after its disastrous climb-down on the farm bill. Administration spokesmen like to point out that even with increased spending on the military and on “homeland security,” and with the billions headed into the coffers of the agribusinesses that will benefit from new farm subsidies, federal spending in 2002 and 2003 will remain below 20 percent of GDP.
Politicians believe that when the government claims a larger share of national output, voters turn against the administration. So the Bush people are drawing a line in the sand—or so they say. But Washington-area property developers and real estate agents don’t worry about anything as arcane as portions of GDP. They are seeing what may be the largest absolute expansion of government spending since Lyndon Johnson’s Great Society hit town.
And not all of it can be laid at the door of the war on terror. Vito Tanzi and Ludger Schuknecht, economists at the International Monetary Fund and the European Central Bank, respectively, studied the increase in public expenditure across industrialized countries over 126 years. They conclude that “the most rapid expansion” occurred not during wartime, but when “attitudes towards the role of the state” favored such expenditure growth. This may be such a time.
But with the November congressional elections around the corner, the president’s veto pen has remained in its holster as Congress finds new ways to dispose of taxpayers’ hard-earned money. Bush’s conservative supporters are hoping that if Congress pierces the alleged 20 percent-of-GDP-ceiling, the president will unholster his most potent weapon. The White House political advisors who persuaded him to put tariffs on imported steel and sign the farm bill will undoubtedly tell him that bigger government isn’t such a bad thing, so long as he remains in charge of it. The betting around town is that politics will trump conservative ideology.
This article originally appeared in London’s Sunday Times on June 2, 2002, and is reprinted with permission.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.