Right and wrong ways for the state to intervene

Share

As the world assesses the cost of last week's terrorist attacks, the economic price to be paid comes a long way below the human suffering inflicted on an unprecedented number of people. But the financial impact will be substantial, and will produce predictable calls for government intervention to stabilise the economies of the US and the world.

As the world assesses the cost of last week's terrorist attacks, the economic price to be paid comes a long way below the human suffering inflicted on an unprecedented number of people. But the financial impact will be substantial, and will produce predictable calls for government intervention to stabilise the economies of the US and the world.

The federal authorities in the US have taken steps to try to ensure that there is no catastrophic loss of confidence in the markets when they re-open this morning. Meanwhile, some American airlines are already asking the government to rescue them from impending bankruptcy.

The first form of state intervention in the "new war" economy is entirely sensible; the second should be treated with suspicion.

It is reasonably well understood now that markets, although they are a better way of allocating scarce resources than any other system, are volatile. They can overshoot, or suffer from irrational losses of confidence which can become self-reinforcing and which can drag down the so-called real economy. At moments like these it is quite right for the state to use its ability to act as a lender of last resort in order to limit any possible damage.

When it comes to subsidising particular sectors of the economy, however, policy-makers should proceed with extreme caution. There is no doubt that Tuesday's tragedy will depress demand for US domestic air travel in an already highly competitive market. That effect may be temporary, but the new security measures being brought in will make flying – both within the US and internationally – permanently more expensive. Even so, the additional cost of locked double doors to the cockpit, and of thorough searching and screening of passengers cannot be that great. And it would be quite wrong for the taxpayer, either in the US or elsewhere, to pick up that bill for better security. The cost must be borne by air travellers themselves through the price of their tickets.

We should not feel too sorry for the US domestic operators. After all, they blocked attempts by the American government to tighten security on internal flights on the grounds that it would damage their commercial interests. In the end, they and their customers must bear the costs of that mistake.

There is, however, a case to be made for limited one-off assistance for airline companies, just as there was for farmers in the wake of the foot-and-mouth outbreak here. The three-day grounding of flights was ordered by the federal government, which should share the cost of that immediate response.

Equally, if as we report today British Airways is forced into cutting large numbers of jobs as a result of a sudden fall in world air travel, the British Government should look sympathetically – but very sceptically – on the case for limited, short-term support.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Junior Web Designer - Client Liaison

£6 per hour: Recruitment Genius: This is an exciting opportunity to join a gro...

Recruitment Genius: Service Delivery Manager

Negotiable: Recruitment Genius: A Service Delivery Manager is required to join...

Recruitment Genius: Massage Therapist / Sports Therapist

£12000 - £24000 per annum: Recruitment Genius: A opportunity has arisen for a ...

Ashdown Group: Practice Accountant - Bournemouth - £38,000

£32000 - £38000 per annum: Ashdown Group: A successful accountancy practice in...

Day In a Page

Read Next
 

Riyadh is setting itself up as region’s policeman

Lina Khatib
Ed Miliband and David Cameron  

Cameron and Miliband should have faith in their bolder policies

Ian Birrell
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor