This is written a week before the presidential election. Much will change before publication, but one thing will still be true: we are now, and will be then, in one helluva mess. I certainly don’t need to point out that aviation does participate in economic messes, be it fuel prices, tight credit, or — perhaps most of all — uncertainty about the future.
I well remember the excellent businessperson who told me, back when prime was 20 percent and I was trying to sell him a cabin-class twin, “Ralph, I wouldn’t buy anything at all today that required borrowing money.”
Many aviation purchases can be put off ‘til another day. The company that was considering a new jet may often decide to fly the old airplane for awhile until the uncertainty decreases.
There is another fact that scares me right now: so many people blame this current disaster on the free market. They ignore the guvmint’s role and use this as proof positive that the free market “doesn’t work.”
Folks, this happened during the “big” depression in the 1930s and we are still paying for that misconception, even though it has long since been proved and accepted that guvmint actions aggravated and prolonged the depression. The idea that the market alone was to blame gave us decades of guvmint intervention and income tax rates as high as 60 percent (yes, 60 percent).
Quite often, problems start when the guvmint decides that the market is wrong. In this case, the market had, in effect, been deciding that some people could and some people couldn’t buy a house. The market also decided that many people could buy a house, but not a mansion. I, the market decided, could only afford a modest house. This is also the way it works with cars, airplanes, and everything else we buy.
The guvmint, however, didn’t agree with the market. The guvmint believed that everybody should be able to buy a house, and a damned nice house at that. Fannie Mae, Freddie Mac and a myriad of other guvmint programs set out to make this come true. Banks were encouraged to lend these fine people money to buy a home, a better home, or a second home.
It didn’t work. The market, not the guvmint, was right all along.
Another example: The insurance market decided that it was bad business to insure houses on the beach. The guvmint decided the market was wrong. People have the right to build on the beach. Now this was in spite of the fact that these houses were typically second homes owned by wealthy individuals.
The guvmint provided insurance for these fine people. The guvmint (that’s us) lost over $20 billion on just two hurricanes. The market was right; the guvmint was wrong. You and I pay, and so do our customers.
Another decades-long period of “the market doesn’t work, so the guvmint has to take care of us” will hurt aviation and the country far more than a few years of recession.
Much of the confusion and disagreement regarding the economic mess occurs because nobody can understand it all. Some say it was caused partially by the sale and purchase of mortgage...
A Problem with Subsidies By Ralph Hood November 2000 Ralph Hood is a Certified Speaking Professional who has addressed aviation groups throughout North America. A pilot since...
On Monday of this week the cover story of USA TODAY "exposed" the fact that the guvmint "pays a few small airlines $110 million a year" to subsidize flights in and out of small markets. Many of...