Re: Neoclassical bizarreness!!!

["David B. Shemano" <dshemano@xxxxxxxxxx>]

Did someone mention my name?

I agree that the article was quite good.  However, I did not follow why the story supports the notion that deregulation did (does) not work.  Why is bankruptcy evidence of systemic failure?  Why should the shareholders of airlines, as opposed to any other industry, be guaranteed a rate of return?  Why should the employees of airlines, as opposed to any other industry, be guaranteed employment and a specific level of wages and benefits?

It seems to me that the airlines were a coddled oligopoly for 50 years and the unions (and shareholders) were able to share in the benefits of the oligopoly at the expense of the flying public.  Deregulation changed all of that and, like the Hebrews who had to wander in the desert for 40 years to work off the slave mentality, it is taking a generation for management and the unions to adjust.

I do agree with Robert Crandall that the ability of carriers to operate in chapter 11 does have a prejudical effect on the other carriers.  I am not sure of the solution to that problem.  There are specific provisions in the Bankruptcy Code that give aircraft lessors and secured lenders special rights -- they can take back their aircraft unless the airline cures any defaults and agrees to perform all obligations within 60 days after the bankruptcy is filed.  However, like the old joke that if you owe the bank $5 million you are in trouble, but if you owe the bank $500 milion the bank is in trouble, lessors and lenders are reluctant to take back their equipment and would rather work out a deal.


David Shemano




--- Original Message---
 To: PEN-L@xxxxxxxxxxxxxxxx
 From: Charles Brown <cbrown@xxxxxxxxxxxxxxxxx>
 Sent:  9/20/2005  9:30AM
 Subject: [PEN-L] Neoclassical bizarreness!!!

>>  We have a list expert on bankruptcy.
>>
>> Charles
>>
>>
>> *       From: Eugene Coyle
>>
>> On Page one of the WSJ, today, Sept 19th, there begins a story on the
>> airline industry.  About 50% of the capacity of the top airlines
>> operates under bankruptcy protection.
>>
>> The Journal's story comes close (the Journal has been coming closer) to
>> conceding that airline dereg doesn't work.
>>
>> But Severin Borenstein of the Univerity of California Energy Institute,
>> with the insight and confidence provided by his neoclassical economics
>> training, is quoted as follows:
>>
>>
>>
>> > "There's nothing wrong here," says Severin Borenstein of the
>> > University of California at Berkeley, an economist who studies the
>> > dynamics of airline deregulation. "From a consumer perspective, prices
>> > are low. Levels of service rebounded quite nicely after 9/11. There's
>> > no sign of inadequate investment. We should stop worrying and learn to
>> > love bankruptcy, which is simply the transfer of assets from equity
>> > holders to debt holders."
>>
>>
>>
>> The story is worth reading.  Borenstein overlooked, by the way, the
>> transfer of pension obligations to you, the taxpayer.  And you can add
>> other bits to this.
>>
>> Gene Coyle
>>
>>