Should taxpayer’s money be used to bailout super rich? : Bailout or Policy Improvement

Author: - Rishabh Lalwani

3rd Year B.Com., CA Final Year, CFA Level II
S.S. Jain Subodh P.G. (Autonomous) College, Jaipur

 

During this COVID-19 pandemic, many of the industries are facing huge losses, especially Aviation, Hotel & Tourism. In the United States, Government has announced a bailout package for Airlines and other industries which are severely affected by this pandemic. So, the question arises whether the bailout is the ultimate solution to any crisis. In 2008, there was a similar crisis in the banking system which we know as Global Financial Crisis (Fall of Lehman Brothers) where the government didn’t save Lehman Brothers, the 5th largest bank in the United States than with assets around US$600 Billion. Instead, there was a silent message from US Parliament (Congress) — “Why small taxpayers’ money be used to bail-out super-rich.” In my opinion, a bailout is not always a good solution because it prevents the industries from innovating and tackling the new systematic crisis in a disciplined manner. A crisis will always lead the world to innovation, where start-up will lead in the front, as we saw after the Dotcom Bubble burst in 2000-01, and systematic discipline in the global banking system after the fall of Lehman Brothers. In 2008, there was a statement which became very popular on Wall Street — “Too big to fail”, now in 2020 ‘everyone is failing.” Of course, due to bankruptcies, there will be distressed in real economic activity, unemployment will rise but the best thing will be that Human Intelligence would play their part to lead the industries and economy to next level. Now, focusing upon Airlines, US and Euro have both, have announced bankruptcies package for Airline companies, and many have also filled up for the same. The question arises — What if the government let the Airline Company fail and fill for bankruptcies? Aircraft will not vanish, rather they will be purchased by someone else who will run them more efficiently. Going back to the case of Kingfisher Airlines, another question that arises is: Whether the airline companies are right about asking for bailouts? In my opinion, no. The simple reason being that tomorrow if the company was to make to record profits, would it be willing to share them with the taxpayers? Certainly not! How can it then expect to be bailed out using the same taxpayers’ money? Nevertheless, there is a section of society out there that favours bailout to the embattled firm. Now that in India where Government thinks it is trying to avoid contagion effect on financial system by bailing out Yes bank, putting in 20,000 crores of capital but what it actually doing by helping it to survive is saving super rich who mismanaged depositor fund. Instead, Government should let Yes bank to file for bankruptcy and someone who is more capable to purchase it at its fair value, purchase it, like what Congress did in the United States in case of Lehman Brothers. In 2008, when General Motors, an automobile giant operating all across the globe was facing financial stress, Congress bailed it out by granting $13.6 billion funds and General Motors is still incurring huge losses and eroding the majority of its capital. My suggestion would be to implement strong policies, so that, taxpayers’ money is not misused to save super-rich. Now, I would like to touch upon an agreement that was signed in 2016 and does not favour bailouts in this COVID-19 pandemic. It is the Paris Agreement. It is an agreement within the United Nations Framework Convention on Climate Change (UNF CCC), dealing with greenhouse-gas-emissions mitigation, adaptation, and finance. The aim of the agreement is to decrease global warming and prevent climate change.

Due to COVID-19, there is huge improvement in environment. In terms of lesser pollution and decreased global warming signals. Jennifer Kaiser at Georgia Institute of Technology in Atlanta and Elena Lind at Virginia Polytechnic Institute in Blacksburg are examining the pandemic’s impact on air quality related to reduce airport traffic. “People are looking at COVID-19 impacts and seeing better air quality with less traffic. They might wonder if this is what the future could look like if we relied more heavily on electric vehicles than we do now. Yet, airplanes are not going to be electric anytime soon”, Kaiser said. “Airports are usually some of the hottest spots for nitrogen dioxide.” Nitrogen dioxide is released when we burn fuel, either in airplanes or cars. When first released into the lower atmosphere, or the part of the atmosphere that we breathe, nitrogen dioxide reacts with other nearby chemicals and forms ozone. Airplane exhaust also forms formaldehyde, which is an indicator of ozone formation and another air toxin. Breathing in ozone can cause chest pain, coughing and throat irritation. Now that global environment is improving due to COVID-19 pandemic, then why should these Airline Companies need to be bailed out? If governments bailout Airlines then it will be a violation to the above agreement as it seems and which is true that Government is providing support to such activity.

 

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