Government Economic Intervention

The following is a guest post from Mike O’Connor (the first of a series). Mike is one of the original USIH bloggers and a founder of the Society for U.S. Intellectual History. He is the author of A Commercial Republic: America’s Enduring Debate over Democratic Capitalism, which will be published in May by the University Press of Kansas. The book’s Facebook page can be found here, and information from the publisher is available here.

Even before the terrorist attacks of September 11, U.S. airlines had been facing tremendous economic difficulty. The prior decade had seen several of them lose astounding amounts of money, file for bankruptcy or disappear altogether. But the 2001 strikes against Washington, DC and New York City dealt a seemingly insurmountable blow to the industry. The Federal Aviation Administration (FAA) responded to the attacks by immediately grounding all commercial planes. When flights resumed three days later, the airlines had lost five billion dollars of anticipated revenue, and they found that their insurance premiums had become quite expensive. Perhaps the most troubling development for the airlines, however, was that Americans had become afraid to fly. In December, normally a busy month for air travel, monthly flown passenger miles declined to 47.4 billion, down from 67.5 billion in August.

Given the unprecedented nature of the attacks, the need for a functioning national airline infrastructure, and the fact that part of the airlines’ woes were directly caused by FAA orders, the federal government quickly acted to bail out the ailing industry. Both houses of Congress promptly passed an aid bill by overwhelming margins, and President George W. Bush immediately signed it into law. The Air Transportation Safety and System Stabilization Act provided for some $15 billion of government aid, in the form of loan guarantees, direct cash payments and the assumption of liability both financial (in the event of future incidents) and legal (for suits brought against the airlines for the prior attacks).

Despite the bill’s popularity in Congress, it engendered criticism from all quarters. From the left, some attacked it as a handout for a number of large corporations. A small minority of Congressional Democrats opposed the bill on the these grounds, and Republican Peter Fitzgerald of Illinois, the only senator to vote against the bill, called it “a huge bonanza for airline shareholders,” claiming that the government would be “compensating them for many times the losses from the order not to fly last week…And by what principle do we agree not to compensate other industries?” Opponents from the pragmatic center castigated the bill as an example of wasteful government spending and fiscal irresponsibility, as when USA Today editorialized that the “industry got too much money with too few mandates requiring it to pitch in and save itself,” and that the bailout went “way beyond providing the stabilization that was needed for this vital part of the economy.” Those on the right characterized the bill as a violation of free market principles. Business journalist Wendy Kimbrell, for example, wrote that the responsibility for passengers’ safety rested with those operating the flights rather than with the government. In her libertarian utopia, “[a]irlines offering the ultimate in check-in and on-flight security systems will supply the consumer demand for peace of mind, and those airlines will thrive. Airlines that don’t, will go out of business.”

Thus even in an atmosphere of national emergency, Americans found much to criticize in the 2001 airline bailout. This negative reaction nonetheless reflected more than the specifics of a particular government action. Instead, it touched a deep-seated anxiety about federal intervention in the workings of the private economy. Upon learning that the Salt Lake City Deseret News had supported the bill, one angry reader registered his opposition. In decrying the “socialistic” motivations of the paper’s editors, he no doubt expressed the anxieties of many Americans. “Whatever happened,” asked Daylan Darby, “to capitalism?”

Darby’s question implies a wistful paean to a prelapsarian period in which laissez faire was the dominant national philosophy. This image is a powerful one, especially for conservatives. But it is nonetheless mistaken: the federal government has exerted a significant influence on the U.S. economy since the dawn of the republic. Those who object to the government “picking winners and losers” on the grounds that such activities are foreign to the nation’s history invoke a tradition that simply does not exist.

But the fact of government economic intervention does not provide a conclusion so much as suggest a premise. An economy can be an instrument for liberty, efficiency, equality, oppression, identity, productivity, ideology, or any number of other things. If the federal government has continually inserted itself in the nation’s economy, what principles has it followed in doing so? My book is an answer to that question. I argue there that the nation’s intellectual and political history has long been characterized by a series of competing visions of the appropriate scope and purpose of government economic intervention. The true meaning of American democratic capitalism is to be found not in the largely rhetorical back-and-forth about the existence of government economic intervention, but in the continually shifting purposes to which this stewardship is adapted. The book traces the major intellectual trends in this ongoing story. In future blog posts, I will describe the commitments that have defined several specific eras of American political economy.