Rep. Alexandria Ocasio-Cortez believes not one dime of bailout money should go to corporations unless Congress reimposes a ban on stock buybacks.
96% of airline profits over the last decade went to buying up their own stocks to juice the price – not raising wages or other investments.
If there is so much as a DIME of corporate bailout money in the next relief package, it should include a reinstated ban on stock buybacks.
— Alexandria Ocasio-Cortez (@AOC) March 17, 2020
The notion that wages did not go up at any American corporation for a decade is ludicrous. But we’re used to that from AOC.
More to the point, should airlines and other corporations have been “better prepared” for a pandemic?
Businesses usually can’t plan for the world economy going into hibernation. Consider some of the impacts businesses are facing: Bars and restaurants, for example, have been forced to shut down entirely or transition to delivery-only service in major cities such as New York City and San Francisco. Restaurateurs are expecting sales to drop by about a quarter nationwide. That’s catastrophic compared to how the industry was affected during the 2008 recession, when restaurant sales still grew, just at a slightly slower rate than the year before.
No business, large or small, could prepare for that sort of disruption. The same goes for large corporations.
Another example of the drastic consequences even larger businesses are facing comes from the hotel industry. The industry reported that hotel occupancy rates dropped by nearly 25% to just over half-full in just a one-week period from March 8-14. All in all, the United States could lose as much as half of its hotel industry jobs, which translates to approximately 4 million layoffs.
And what about the airline industry and all those stock buybacks? AOC says that “96 percent of airline profits” went to stock buybacks.
But the report is misleading. To begin with, Ocasio-Cortez mistakenly interprets this as 96% of profits, not free cash flow. There’s a big difference: Free cash flow is essentially profits minus capital investments. Ocasio-Cortez says that the data shows that airlines spent money on buybacks and “not raising wages or other investments,” but both increased wages and investments are not part of free cash flow. In other words, free cash flow refers to dollars left over after those expenses, meaning that any excess dollars airlines spent on them would only push the 96% number even higher.
“Profits,” “free cash flow,” what’s the diff, right AOC?
Basically, the argument being made by slightly less hysterical socialists is that the airlines, hotels, aerospace, and other big corporate entities should have had some kind of “rainy day fund” to prepare for trouble.
How can you prepare for a pandemic and a cessation of business activity?
And even this ignores the inherent silliness of expecting airlines to have prepared for a situation in which thousands of flights needed to be canceled and those that do run are often nearly empty ghost flights. The unfortunate reality is that individuals and businesses alike are entering uncharted territory that few are prepared to handle.
How much less of a bailout would the airlines have needed if they didn’t buy back their stocks? Considering the length of the “stay home” orders by governors, no amount of a “rainy day fund” would have helped. They’d still need billions, as would other corporations.
AOC is not making a rational argument. She is lecturing. And, of course, playing to her ignorant base who believe that socialism can work — despite 100 years of proven failure.