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May 14, 2005

A Libertarian for bailing out United

I don't know if it is bad form to drag an on-going debate to a guest blog, but here it goes. Jane Galt took exception to my characterization of the United Airlines pension bailout by the Pension Benefit Guarantee Corp as corporate welfare. In fact, she went on to write lengthy posts defending the decision to let United offload their pension obligations onto the PBGC. Shouldn't somebody take her libertarian card away?

Jane's objections:
1) It's not exactly corporate welfare

The PBGC, while it is grossly underfunded, isn't exactly "corporate welfare"; it's a government-chartered pension insurer, which forces pension plans to pay it premiums (the worse shape their pension/company is in, the higher the premium), and in return regulates the hell out of the pension plans. It is not incorporated for the benefit of the corporations, who do not like either the premiums or the regulation; it is for the benefit of the workers.

I guess I have a broader definition of corporate welfare than Jane. Any time the profits remain privatized but the costs are paid for with taxpayer's dollars, that's corporate welfare in my book. And is there any doubt that the PBGC is not self-sustaining and would eventually need to be bailed out from the general fund? As for the assertion that the PBGC benefits the worker rather than the company, I'm sure United were able to obtain lower wage conditions with the unions in return for their pensions. Thus they made a promise they benefitted from, and now wishes to discharge the obligations incurred on the taxpayer's dime so that they can continue to operate. Not cool.

2) Forced liquidation would be bad for everyone

UAL is insolvent--can't meet its debt payments or its pension obligations. Does she think that bankruptcy law should force liquidation? Hard luck for the workers, suppliers, and so forth, no? It's pretty generally recognized that Chapter 11 bankruptcy is one of the great strengths of the American economy, allowing companies in hard times to restructure rather than expire, salvaging something for workers, creditors, and the company.

I agree with Jane that in this particular case, there probably isn't much in United that could be auctioned off to pay down the pension plan. So why am I so adamant that it should not be allowed the carcass to limp along, since one way or another taxpayers are going to have to pick up most of  the pension tab? Three reasons: First of all, the paradigms in the airline industries have changed. JetBlue and Southwest are here to stay, and sooner or later, they are going to have United for lunch. It is one thing to use Chapter 11 to allow a company stricken by an unforeseen and one-time only catastrophe to rise from the ashes, it's another to use it in the vain hope of resuscitating a company that in all probability will never be viable again. Secondly, the airline industry is crowded already. To let United temporarily gain an artificial competitive advantage over other ailing airlines by discharging it's debts through bankruptcy would put more airlines on the path to bankruptcy themselves. Third, it's a bad example to set. With teetering giants like GM and Ford around, it's important to not to send the message that they don't have to worry about their pension liabilities since they can always count on the PBGC. Now, you can argue that by this point this is closing the barn door after the horse have bolted, but we have to do what we can before the PBGC turns into a savings-and-loans magnitude disaster.

I have to say I give Jane credit for recognizing that "the market is not some abstract entity, a platonic capitalist ideal that exists independant of human thought or action." Which is exactly why I am for many of the social programs she's dead set against. However, what I do think the market is good for is determining which companies should continue to exist. And when it comes to United, I think it's pretty clear that the market has spoken.

(John Cole has a pretty thorough and appropriatly disgusted summing up of this whole situation, for those who wants more details.)

--Battlepanda

May 14, 2005 | Permalink

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Comments

Nonunion? Southwest? You're kidding, right? Southwest is heavily unionized, they just get along with the unions very well, with give and take from both sides.

Jetblue, it is true, does not have unions, but they do have profit sharing, averaging 17% of salary for most workers. If you don't try to screw the workers, they don't need to unionize. Jetblue looks like they try to do the right thing, and it's working for them for now. It worked for FedEx for a long time too, until they tried to boost quarter over quarter profits on the backs of the workers.

Posted by: bunny | May 14, 2005 11:53:43 AM

Bunny,
Thanks for the info. That's absolutely great to hear. I will fix the post so that it no longer conveys misinformation, but I fully apologize for maligning Southwest and JetBlue here. I did hear about JetBlue being non-union, but did not know about the profit sharing scheme. For so long I have heard all of the airline industrie's ills blamed on the unions I assumed that their newer, sleeker competitors must be non-unionized.

Posted by: Battlepanda | May 14, 2005 12:01:28 PM

Megan McCardle (aka Jane Galt) is an idiotic partisan hack who pretends to be a liberatarian. Read her posts -- she even defends Bush on gay marriage and has posted some long idiotic post about how being against Gay Marriage is the right thing because we should be hesitant to change the institution. If you remember her during the election she pretended to be undecided up until around Oct. 30. All the while, she criticized Kerry like hell buying into all the Swift Boat nonsense, but kept saying "now I haven't made up mind yet" as if to make her criticisms more valid. Then when she "endorses" Bush it reads like what Glenn Reynolds has been writing for the entire elections season -- bullshit she was "undecided." She is an intellectually dishonest partisan hack in libertarian's clothes -- even worse than instahack himself.

Posted by: Jane Groult | May 14, 2005 2:57:44 PM

She does have the quaint and attractive trait of being irony impaired.

She'd reach her "Peter Principle" level if she became the book reviewer at the Washington Times.

Posted by: The Dark Avenger | May 14, 2005 4:41:04 PM

United ain't gonna die; its international routes are far too profitable. It's going to get a lot smaller domestically, but once it can find a market for its surplus airplanes (or its leases on some of them run out), it'll pull out.

My two cents.

Posted by: Kimmitt | May 14, 2005 7:22:38 PM

I enjoyed your exchange with Jane Galt so much, I had to update my post over at Angrybear (title: Crony Capitalists of the World - Unite).

Posted by: pgl | May 15, 2005 8:19:40 PM

...she even defends Bush on gay marriage and has posted some long idiotic post about how being against Gay Marriage is the right thing because we should be hesitant to change the institution.

Imagine that! Aligning with the vast majority of the voters! How dare her (the bitch!).

Posted by: Robert Zimmerman | May 17, 2005 9:39:17 PM

Robert Zimmerman wrote, Imagine that! Aligning with the vast majority of the voters! How dare her (the bitch!).

Uh, the point is that it's particularly hypocritical for a supposed libertarian to be voicing anti-gay views, regardless of the resonance of those views with the "vast majority of the voters."

Posted by: liberal | May 18, 2005 8:29:05 AM

I'll wager that Jane, like most so-called libertarians, is actually a Royal libertarian and hence despises true freedom.

Posted by: liberal | May 18, 2005 8:30:35 AM

I didn't defend Bush on gay marriage -- I've been quite critical on all of the actions the Bush administration and the congress have taken on gay marriage, which strike me as both futile and non-conservative. The post about gay marriage was about a specific sort of argument that is very common in the debate about gay marriage, which I don't like: to wit "the fact that my friends and I cannot imagine a behavior change means it is therefore impossible, and anyone suggesting that it isn't is a stupid bigot". This is an argument against gay marriage to teh extent that this sort of argument is the mainstay of gay marriage advocates, which apparently it is, since everyone arguing for gay marriage pretty much seemed to think that an argument against fallacious reasoning is de facto an argument against gay marriage.

But onto the topic of Chapter 11 and the PBGC. I've made what I think is a pretty clear argument that the PBGC is not corporate welfare--to wit, because it protects the workers, not the corporations, who get no benefit from insuring their worker's pension payments after they have declared bankruptcy, and is therefore labour welfare.

You haven't even attempted to mount a coherent explanation of how United can be a case of corporate welfare, when United is not getting any money from the government; United's workers are. United's workers are the beneficiaries of a government-mandated benefit, that United had no part in setting up. There's no particular reason that United should have to pay for this benefit; there are efficiency reasons for arguing that the money should come from general tax revenues instead (since actual risk-rating on pension benefit insurance would have the perverse effect of pushing borderline companies into bankruptcy when their premiums skyrocketed), although I can't say that I particularly care one way or the other. But corporate welfare is normally defined as either getting money from the government, or getting a special release from normal obligations to the government, neither of which applies here.

Nor have you made any sort of satisfying argument as to why Chapter 11 protection for United is corporate welfare. You've made it clear that you think that United should be liquidated, but that has nothing to do with corporate welfare. The judge is not conveying government assets, or any other benefit from the commonweal, to United; he (I think it's a he) is presiding over an orderly reorganisation, with the full agreement of the creditors. There are all sorts of arguments about the proper shape of bankruptcy law, but they're technical arguments about practical outcomes, not moral arguments about the ideal moral content of the law, which is what a "libertarian" norm about bankruptcy would have to spring from. No one's property rights are being violated here, except perhaps the "right" of United's competition not to be competed with, a right that libertarians take a very dim view of indeed. The creditors are getting no less, and quite possibly more, than they otherwise would; likewise workers and suppliers. Stockholders are screwed, but they'd be equally screwed in a liquidation. There's no "free market" issue here.

But the undertone of much of the opposition to Chapter 11 from the left seems to me, at least, to come from the fact that not all of the managers are getting the sack. I simply can't find another way to explain this rather desperate desire to put companies out of business, even though none of the actual stakeholders want a liquidation. I'd say it's quixotic, at the least, for a person of the left to be pushing for tens of thousands of people to lose their jobs in order to punish a few senior managers.

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