Pork Barrel Or A Kick-Start?

Until Sept. 11, Washington seemed to have only one gear: neutral. Squabbling over the Social Security "lockbox" was the order of the day. The lockbox may have been a little silly, but it did keep spending and tax cutting under some sort of control. Since the assault, though, Washington has gone straight from neutral to overdrive without bothering with any intermediate gears--and while totally ignoring the brakes. Now it looks as if Washington will blow through the entire $176 billion surplus the Congressional Budget Office had projected as recently as Sept. 5 for the current fiscal year, which started Oct. 1. The major reason: Congress and George W. Bush both seem willing to spend almost endlessly for anything that falls under the rubric of "homeland defense" or "economic stimulus." Broadly defined. Very broadly defined.

Bush and Congress are talking in terms of a $60 billion to $75 billion package of "stimulus" spending and tax cuts. There's disagreement on whether to focus on spending or tax cuts--so we'll probably end up with plenty of both. That's what they call "bipartisanship." Some of the items that seem likely to become part of a stimulus package--mass transit, home-heating assistance, extra aid to education, building highways--may well be good social policy. But they're not exactly what comes to mind when you think of quick-hitting economic boosts. As for business-tax cuts, it's more than a little likely that some businesses will get extra goodies for making investments they were going to make anyway. And, finally, you can bet that when details emerge, the $18 billion of added defense spending in the pipeline will include plenty of items that look more like traditional pork-barrel spending than money we need to root out foreign terrorists or defend the United States against them. Remember that all of the proposed new spending and tax cutting is on top of the $38 billion in tax refunds currently being paid, the $40 billion recovery package, a $15 billion bailout for airlines, the tax cuts scheduled for next year and nine Federal Reserve cuts that have brought short-term rates to their lowest levels in 40 years.

The poster child of how not to handle the post-Sept. 11 world is the airline bailout, which is a classic example of what happens when pols panic. Pre-Sept. 11, everyone hated the airlines for combining high fares, wretched service and incredible corporate arrogance. But suddenly, airlines became a beloved national treasure. So with little debate, Congress gave them $5 billion in cash and $10 billion in loan guarantees.

It's perfectly fair to compensate the airlines for the days they couldn't fly because the government shut down the air-transportation system as a security measure. But it turns out they're getting more than triple what the shutdown actually cost them. Here's the math. The industry testified that the grounding cost $340 million a day in lost revenues for four days. That's $1.36 billion, not $5 billion. The extra $3.64 billion is to compensate the industry for doing much less business through Sept. 30 than it would have before the terror attack. But this means that taxpayers are being hit up not only for what the airlines lost but for their secondary pain as well. No other industry is getting that. Second, about a nanosecond after the bailout bill passed, airlines fired more than 70,000 workers and canceled hundreds of flights. So the airlines are getting money for flights they canceled and to cover expenses such as salaries and fuel they will no longer incur.

"We're giving the airlines three times what they actually lost," says Sen. Peter Fitzgerald, Republican of Illinois, who was on the short end of the 96-1 vote approving the bailout. "It's a bailout for shareholders and lenders. Where's the bailout for the skycaps?" The conservative Fitzgerald, a former banker, teamed up with liberal Sen. Jon Corzine, Democrat of New Jersey, the former chairman of Goldman Sachs, to give the government a chance to get cheap stock in return for guaranteeing loans. This means that stronger airlines may not use the guarantees if they can borrow elsewhere without diluting their stock. Weaker ones, some of which were bankruptcy candidates (or even in bankruptcy) before Sept. 11, may end up taking Uncle Sam's money down the tubes with them. "We just shoveled money at a problem with significantly less discipline than I'd like to see," Corzine says.

The loan guarantees are supposed to help the airlines offset cash shortfalls they expect to incur next year, after including the $5 billion. They projected a $12.5 billion decline, but settled for $10 billion.

The airlines' response to these criticisms? "We've never viewed this as a bailout,'' says Michael Wascom of the Air Transport Association. "The financial condition of the airline industry or individual airlines prior to Sept. 11 was never on the table for discussion. It's a matter of just stabilizing the industry."

Airlines worldwide clearly have problems. Swissair, for example, grounded its planes last week before getting a loan from the Swiss government. Airlines now have huge insurance problems--would you cover a $100 million plane against terrorist action?--that it's fair for the government to help with. But for the most part we're dealing with political clout here. House Minority Leader Dick Gephardt is from St. Louis, home of TWA, now part of American Airlines. House Majority Whip Tom DeLay is from Houston, home of Continental Airlines.

How can I be thinking such small thoughts about money at a time when the economy is in trouble, patriotism reigns and bipartisanship and civility are making a comeback in Washington? Because it's important to retain perspective. And to remember that all of the long-term graying-of-America problems you've heard about for years are still out there.

You can laugh at former president Bill Clinton's attempt to protect Social Security surpluses by having the government use them to buy back Treasury securities. But that was making it easier for the government to be able to meet its obligations 10 or 12 or 15 years from now, when Social Security begins running big cash shortfalls. Now we're back to confiscating the Social Security surplus--more than $170 billion in the current fiscal year--and spending the money.

We have to keep long-term problems in mind even as we deal with short-term needs. You can gun a car's engine and stress its gears and get away with it for a while. But it catches up with you in the end. Even if it's in the name of homeland defense and economic stimulus.

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