Deregulation was a good idea

Robert W. Poole, a founder of the libertarian reason magazine and its director of transportation issues, comes full circle after nearly 50 years and again writes about airline deregulation. The U.S. government’s Civil Aeronautics Board used to set prices and restrict entry into the industry, on the chronic assumption that, without regulation, airlines would be eager to kill their customers, undaunted by the threat of lawsuits and boycotts, and unconcerned about their reputations.

The take-aways here:

  • Repeal of the Civil Aeronautics Board was achieved by Democrats, notably Teddy Kennedy. He was no deregulator, and his death became an extra impetus for hyper-regulation of health insurance.
  • The text of the repeal was inserted in an unrelated bill by a Republican who did not want the bill to pass. The pro-business Republicans never honestly try to close a regulatory agency; this month’s Trump “victories” do not end harmful regulation but merely provide an escape valve for mid-size banks and for terminally ill patients. The Secretary of Energy, who as a Presidential candidate vowed to eliminate the agency he now heads, has merely shifted it from favoring solar and wind (because they are “sustainable”) to oil and gas (because you can store them up against natural disasters, or something). Picking between these values should be the job of the individual citizen and Rick Perry should know it.
  • The predictions of the effects of CAB repeal were all exactly wrong. No epidemic of plane crashes or airlines skimping on safety to pad executive salaries. No long-term shrinkage of airline employment. It was not all smooth sailing; many airlines went bankrupt, some by overexpanding and some by being unable to adapt to stiffer competition.

One of the predictions at the time was that prices would skyrocket without government oversight — the same fallacy that was thrown around between Ronald Reagan’s election and Inauguration Day, when one of his first acts was to end the era of gasoline price control. Science got it ass-backwards again. Regarding airfares, Poole entitles his article, If You Can Afford a Plane Ticket, Thank Deregulation.

The bureaucracy has been removed for 40 years from the price of air fares, but the supply is still limited. Air traffic control in the U.S. is still a federal bureaucracy, although the U.K. and Canada use private corporations with no disastrous results. There are some decisions that could be made in the cockpit rather than with a system of centralized prior restraint; moreover, greater use of computers could fit planes closer together than the current standard.

The supply of airports and landing gates will probably continue to be controlled by local, parochial politics. But Poole suggests, instead of the current state where Air Traffic Control serves joy-riders and jumbo jets on a first-come, first-served basis, a free market for the price of takeoff and landing slots. He says the U.S. has allowed congestion pricing since 2008, but government-run airports have not adopted it. Private pilots are well-organized and know their hobby depends on special rights from Washington.

There is much more that begs to be deregulated, notably medical care and insurance. The easier obstacle is the “science” that predicts catastrophe by starting with false choices, and the stale rhetoric that the freedom to let diverse things happen could only be favored from a macabre desire that the worst of all those things should happen. It is wrong every time. The more intractable obstacle is putting our faith in the supposed party of deregulation and expecting results this time.

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  1. The UK air traffic outfit was a customer of mine both before and after privatisation. Not much changed, you could have thought it was still a state monopoly. I used to tell them (down in the computer rooms among the engineers) that their monopoly ought to be taken away and other ATC firms should have been allowed to compete in the same airspace, so pilots/airlines would pick a controller and take instructions from him and be able to negotiate the fees. They didn’t think it was a good idea for some reason.

    • True, a government-regulated monopoly is little different from a government monopoly. In fact, a non-monopoly that government regulates in detail still moves at a sloth’s pace, like New Hampshire insurance companies, where there is a single product and state government is the author. Poole faults American air traffic control for “Outdated technology, grindingly slow bureaucracy, and a politicized funding structure.” You hope that a private corporation would be different, at least with respect to federal union work rules, but I never believe a politician whose plan includes a law commanding an agency to be more efficient.

      You are also right that ATC is a product, for which the model should be businesses competing to offer the product. However, like a city with multiple competing police forces, I’d want to know beforehand what happens when, assuming ATC makes actual decisions, what happens when competitors resolve a potential collision in different ways. A first step could be multiple ATC firms with a monopoly over different airspaces, like the Baby Bells, such that a really expensive one could be avoided by choosing a different route.

  2. The biggest problem with US commercial aviation is that it isn’t open to the free-market. So customers are still being screwed on price and service because the large US owned airlines are protected from better run and better managed competition from overseas.

    The US should go totally open skies; anybody from anywhere can fly any route at any time. Emirates may want to base some crews and aircraft in the country and fly domestically; easyJet fly people from Newark to Orlando Sanford etc.

    If they want they can still ensure that the airlines operate under FAA rules with US licensed crews etc; but not allowing overseas owned airlines to set up is protectionist and distortionary – and greatly harms the consumer experience.

    • The US has a patchwork of country-by-country agreements for the overt purpose of protecting the American companies already in the business. Some countries get to operate flights between US cities, sometimes with the proviso that the flight technically originates in the airline’s home country.

      Telephone and automotive are industries that, in the US, once stagnated and gave customers poor value until consumers finally out-shouted the industry itself and gained access to non-US providers. It could happen with airlines too. There are arguments for licensing various people and processes before a passenger jet is allowed in the air, but there is no good argument (beyond the protectionist one) for requiring a federal license merely to set up a new airline business.