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.)