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Politicians as Investors

Writing in today’s USA Today, Rep. John Mica (R-FL) justifies federal-government loan guarantees to airlines. He insists that

loan guarantees issued by the administration have provided a backstop for a severely damaged industry.

In the next paragraph he writes that

It is the federal government’s responsibility to regulate our nation’s airspace, and that becomes more urgent at a time when airlines are predicting a 10% increase in passenger traffic this summer.

If airlines’ predictions of increased traffic are accurate, then private capital markets would have been eager to lend money, without government loan guarantees, to efficient but cash-strapped carriers. So why are we to suppose that the airlines that received these loan guarantees were appropriate recipients — firms that were efficient, smart, and right for the industry — firms lacking only sufficient liquidity to weather the after-shocks of 9/11?

Government officials surely are not especially skilled at distinguishing good investments from bad ones. Or, at any rate, these officials are not as good at this task as are people who devote their lives and their own money to it.

Why would anyone assume that firms that can efficiently use borrowed funds will not get those funds on an unsubsidized basis from people whose business it is to lend funds? Why would anyone assume that people who specialize in getting elected to political office possess more acumen and wisdom at assessing the state of the market and the prospects of particular firms than is possessed by people who specialize in assessing the state of the market and of firms operating in markets?


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