Monday, October 10, 2011

Airline deregulation

Via Mark Perry

The following are some highlights on airline deregulation from the excellent The Declaration of Independents. Let's first look at just how much existing regulation benefited the established airline players -- a classic case of regulatory capture and example of why regulation for many industries is little more than being thrown in the briar patch:
How much did federal regulations cement into place the airline status quo? This much: Three of the four main airlines operating at the time of the 1938 Civil Aeronautics Act had basically the same market share thirty-four years later. In 1972, United Airlines had gone from 22.9 percent of the market to 22.0, Eastern from 14.9 to 11.6, and TWA from 15.1 to 11.9. Only American Airlines saw a substantial change, but it too was still going strong with 15.0 percent market share after dropping from 29.6 percent in 1938.
The book also details how many on the political left supported deregulation, realizing that government intrusion came at a detriment to consumers and was the friend of big business (such people are sadly few and far between in the modern Democratic Party):
Not everyone interested in improving air travel by reducing government's role in it was an Ayn Rand fan. In 1971, a Cornell University economics professor and liberal Democrat named Alfred E. Kahn came out with an influential book called The Economics of Regulation. Kahn, after surveying the landscape of how the best intentions so frequently produced unintended consequences, concluded that the solution for the airline industry was deregulation. "If the regulators could be omniscient, then regulation could work perfectly well, but the essence of the case for the free market is unknowability...Anybody who is a strong antitruster ought to be opposed to regulation." 
That this sounds like a strange argument to be coming from a liberal Democrat in 2011 is a testament to how much liberal Democrats have forgotten their own recent history. Though the academic case for airline deregulation had been building up since eocnomists began studying the question in earnest after World War II, the early 1970s were a high-water mark for a broad-based, left-of-center distrust of authority.  
...Fertile antiauthoritarianism led many on the left to question the alleged enlightenment of government regulation across a variety of stodgier areas, from "urban renewal" schemes that bull-dozed entire neighborhoods of low-cost minority housing to arcane regulations that roadblocked interstate trucking. As Kahn explained, "So it was the convergence of the free-market people and the antitrust tradition, in which [John F.] Kennedy is very strong. We had a most interesting political alliance of the National Association of Manufacturers and Ralph Nader. We had Common Cause and we had the National Federation of Independent Businesses. We had the Ford Motor Co. and we had the Consumer Federation of America."  
That deregulatory coalition had at its center Teddy Kennedy. "Senator Kennedy's decision to hold oversight hearings on the CAB was the crucial factor in the emergence of airline deregulation as a politically visible and important issue," Stephen G. Breyer and Leonard R. Stein claim in Instead of Regulation. If the name of the first author sounds familiar, it should: Not only was Breyer special counsel to the Kennedy-run Senate Committee on the Judiciary from 1974 to 1975, but he was also appointed two decades later to the U.S. Supreme Court, where he holds down the liberal end to this day. 
Breyer comes from the Alfred Kahn school of deregulation-as-antitrust. "Government intervention intended to serve the public interest proved to be working to the serious detriment of the American consumer," he and Stein write.
So how has it all worked out? While the accompanying chart tells us all we need to know, the book provides a few more facts and figures:
Study after study has concluded that Americans save around $20 billion per year due to lower airline prices. As noted at the outset, the average American today flies three times as often as in 1970, and yet, despite the congestion, accidents and fatalities are down across the board by 30 to 40 percent.
And let's not kid ourselves that this is the only sector of the economy in which deregulation has helped the consumer, or in which further benefits could be realized from additional moves towards liberalization.

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