The War Economy

THE AIRLINES have too few passengers and too many seats, and so go to the government for an immediate $15 billion bailout. Amtrak has too many passengers and too few seats, and goes to the government for an immediate $3 billion bailout. The airlines want subsidies so that they can fly more empty seats; the railroad wants subsidies so that it can build more seats. Both were losing gobs of money before their managers ever heard of Osama bin Laden.

Shareholders lucky enough to hold shares that have appreciated in value want relief from capital gains taxes. Shareholders unlucky enough to hold shares that have depreciated in value want relief in the form of the right to deduct more of those losses from their usual tax bill.

In short, the feeding frenzy is on. Or, to mix a metaphor, there are more holes in the dike than budget director Mitch Daniels has fingers. "The dogs of war are not the only critters who have slipped the leash," he moans. "Under the guise of fighting terrorism, repairing damage, fighting recession, you could fit almost anything."

Daniels is right. Among the benefits of Washington’s new seriousness must be counted the end of the Social Security lockbox—the fiction adopted by the Republicans to prevent the Democrats from spending the surplus, and by the Democrats to prevent the Republicans from making even deeper cuts in taxes. With the disruption caused by the terrorist attacks likely to push the economy into at least two quarters of negative growth—the economist’s definition of a recession—bipartisanship extends to fiscal policy, at least to the extent of a broad agreement that the surplus should be spent.

That, of course, is progress of a sort. Until September 11, the politicians had locked themselves into the ludicrous position of running a tight fiscal policy as the economy slowed, offsetting some of the stimulative effects of Alan Greenspan’s repeated cuts in interest rates. The terrorists’ gift to both Democrats and Republicans is an excuse to spend that does not require them to confess past error. Closet Keynesians are now free to declare their fiscal preference.

But here comes the hard part. The administration and the Congress immediately voted $20 billion for relief and reconstruction, upped to $40 billion in a brief meeting at which the junior senator from New York reported that "Chuck and I" persuaded the president to double the ante. Which encouraged the senior senator from New York to ask for still more, this time for Amtrak. "It is of fundamental importance," claimed Chuck Schumer, "that Amtrak is provided with the tools [read, "money," rather than "good management"] to continue to handle additional capacity in a safe and efficient manner during this crisis." Don Young, the Alaska Republican who chairs the House Transportation and Infrastructure Committee, thinks $71 billion in government aid is about the right figure.

Why Bush proved susceptible to Hillary’s charms remains a mystery; perhaps with the World Trade Center still smoking, "no" was not among the available answers. But it should have been. For if anything has become obvious after the disaster in New York, it is that the private sector is more than willing to make ample resources available to the victims of the attack.

Left-wing entertainers who have spent a good part of their political lives calling for cuts in the military budget donated their time to a telethon that raised more than $150 million; the Red Cross is donating $30,000 to each of the families of those killed; and various funds are raising hundreds of millions more. If the government were to provide further billions, with the usual ostentatious announcements of its generosity (with other people’s money), private givers might decide that their relatively puny contributions either can’t matter very much or are unnecessary.

Relief is not the only function served by the private sector. In addition, we have private sector plans for rebuilding the devastated area, in which some 25-30 million square feet of office space were destroyed—more by far than exist in the entire Washington, D.C., central business district. Some real estate entrepreneurs are talking about four 50-story towers; private donors are talking about funding a memorial park; the Guggenheim Museum is reportedly considering building a new Frank Gehry structure on the site of the former office buildings. It is too early to tell which of these plans, if any, will capture the imagination of the powers-that-be in New York. But it is not too early to worry that, as with relief funding, federal aid for reconstruction might prove counterproductive.