Appointed “inflation czar” in late 1970s, Alfred Kahn is most famous for deregulating the airline industry. At the time this seemed to make sense, although in retrospect I’m less a fan of consumer-driven policies than I used to be. When I was a kid we subscribed to Consumer Reports and so I just assumed that everything that was good for the consumer–lower prices, better products, etc.–was a good thing. Upon reflection, though, I think it’s a mistake to focus too narrowly on the interests of consumers. For example (from my Taleb review a couple years ago):
The discussion on page 112 of how Ralph Nader saved lives (mostly via seat belts in cars) reminds me of his car-bumper campaign in the 1970s. My dad subscribed to Consumer Reports then (he still does, actually, and I think reads it for pleasure–it must be one of those Depression-mentality things), and at one point they were pushing heavily for the 5-mph bumpers. Apparently there was some federal regulation about how strong car bumpers had to be, to withstand a crash of 2.5 miles per hour, or 5 miles per hour, or whatever–the standard had been 2.5 (I think), then got raised to 5, then lowered back to 2.5, and Consumer’s Union calculated (reasonably correctly, no doubt) that the 5 mph standard would, in the net, save drivers money. I naively assumed that CU was right on this. But, looking at it now, I would strongly oppose the 5 mph standard. In fact, I’d support a law forbidding such sturdy bumpers. Why? Because, as a pedestrian and cyclist, I don’t want drivers to have that sense of security. I’d rather they be scared of fender-benders and, as a consequence, stay away from me! Anyway, the point here is not to debate auto safety; it’s just an interesting example of how my own views have changed. Another example of incentives.
Regarding airline deregulation, a lot of problems have been caused by cheap flights. And, even though I’ve personally benefited from the convenience, maybe overall we’d be better off with the old system of fewer, more expensive flights. Or maybe expansion was going to happen anyway, in which case it was probably a good idea to try to do things right.
Anyway . . . I never met Alfred Kahn but I heard a lot about him because he was my mother’s adviser in college. She studied economics at Cornell and had only good things to say about Kahn, (She also took a course with Feller, the famed probabilist, but she didn’t get so much out of that.) We were all very excited in 1978 or whenever it was when Kahn was in the news as the inflation czar. In a slightly different world, my mom would’ve been doing something like that, rather than staying at home with the kids and getting a mid-level job later in life.
P.S. I’m not claiming any expertise on airline deregulation! My point in bringing this up was to just indicate how my thinking (and that of others too, I’m sure) has changed since the 1970s. When the name of Alfred Kahn comes up, I’m immediately sent back in my mind to 1948 and 1978, so it’s interesting to reflect upon intellectual and cultural changes since then.
I think the argument that sturdier bumpers give people a feeling of safety and therefore makes them more reckless is basically wrong. People were reckless back in 1959 when they were driving Bel Airs and they are reckless now when they're driving Chevy Malibus, but the two are completely different in engineering not just the bumpers. see here:
http://www.youtube.com/watch?v=joMK1WZjP7g
Dan:
I agree that cute ideas of risk compensation are sometimes overstated, but . . . what do you think about those people who drive around with bumper protectors on their cars (or, worse yet, those taxis with huge metal exo-bumpers on the outside of their regular bumpers)? People who go to the trouble to outfit their cars in this way must be somewhat worried about what might happen to their bumpers, and I bet they'd drive a bit more carefully if their cars were "naked," so to speak.
To put it another way, I don't know that the public interest is served by people being able to get into 5 mph crashes and not have to get their cars repaired. Maybe it's not such a bad thing if, when you crash your car, there's some personal cost to you.
Whats wrong with cheap flights? more flights?
if the problem is delays, could there be way to fix that while maintianing price and quantity?
Andrew: Surely you see the difference between mandating a five MPH bumper because Ralph Nader thinks it's what consumers want and freeing companies to create whatever it is consumers want, rising or falling depending on how well they do so. To the point that you personally would have benefited from higher fares and less crowded planes, you are probably right, but every time an airline created a plane for you (Maxjet, Eos) they have gone out of business, so there aren't enough of you relative to the people who don't mind getting stuffed into a plane. Isn't that exactly what we want? If some people wanted to produce cars with sturdier bumpers, nothing stopped them, as you point out.
Fred Kahn was a great man who was still working up until a week before his death on issues of net neutrality and electricity pricing, all on the basic anti-Naderian insight that, where possible, even imperfect competition usually works better for people than bureaucratic decisions of what they would probably like.
I'm having a bit of trouble with what significant problems have been caused by cheap flights. What I'm coming up with is aircraft configurations with less space per passenger and longer lines. But people who want those things can pay more for first class or NetJets. Delays are a problem, but in a counterfactual regime without cheap flights there would presumably have been less capacity built over that past 30 years so that scenario may also have delays….
WHY would we be better with more expensive flights?? Do you really think the world would be a better place if we re-established the CAB, which decided (1) the maximum price on a route; (2) the minimum price on a route; and (3) which carriers could offer service on a route? Why would this be better?? Sure, the regulated regime was nice if you were wealthy — very luxurious, since carriers competed on nonprice dimensions; but during that era flying was beyond the reach of all but minority of the population. Beyond that, there are a host of other issues (e.g,. safety: when you price people out of flying, many will substitute driving, a far more dangerous transport mode). I find this point of view just bizarre.
Jonathan:
1. I recognize that airline deregulation was an impressive technical feat, given the complex web of rules and constraints, and I have no doubt that Kahn deserves lots of credit for carrying it out well.
2. Not only do I not want cars to be mandated to have extra bumpers, I actually would like bumper protection to be illegal. I find it scary to think of people driving around with cars that are so well armored that they don't even have to worry about the consequences to their bumpers, if they are to get in a crash! (Students from my Decision Analysis class in the 1990s will recall that I proposed replacing bumpers with steering-wheel spikes.)
3. In general, I agree with you that it's better to reduce regulations. My point in the blog above was that thinking of people solely as "consumers" is limiting. And that's true both for libertarian consumer activists and regulatory consumer activists.
Gabby, Brent:
My problem with deregulation is not with delays or crowded planes, it's with all the extra flights, which are causing so much pollution.
Mike:
See comment to Brent above. Regarding safety, I see you're point, but it's not quite as bad as a simple per-mile calculation would show, because when people fly, they take longer trips than when they drive.
'My problem with deregulation is not with delays or crowded planes, it's with all the extra flights, which are causing so much pollution.'
Wouldn't it be better to object to inefficient organic agriculture (or trade barriers) as a source of pollution?
It drives the greens crazy that it takes less carbon dioxide to grow and ship lamb from New Zeland to Britain than it does to grow it in Britain.
http://www.freerepublic.com/focus/f-news/1844143/…
"cute ideas of risk compensation are sometimes overstated"
What do you think about John Adams?
http://john-adams.co.uk/
Isn't airline pollution one substitute for another form of pollution (automobile pollution)? Of course, this assumes that consumers would not take other forms of public transportation, such as trains or buses.
So, the question might be whether how much automobile pollution (congestion included) is prevented by the existence of air travel, and how much pollution is caused by the existence of air travel.
If you are worried about pollution, tax aviation fuel (or emissions, or carbon, etc.). Or even regulate output of pollutants directly (e.g., emissions controls). You don't create a bureacracy to set minimum prices and regulate entry and capacity. Lots (most; all?) industries create pollution. We don't address pollution problems in those industries by establishing a government-administered cartel — what makes commercial aviation different?
The (nominal) rationale for the CAB (as well as the ICC, which imposed similar regs on rail and motor transport) was the supposed tendency of those industries to "ruinous" competition (i.e., there couldn't be a stable competitive equilibrium in those industries for some unknown reason). Experience (in unregulated intrastate markets) as well as 30 years of post-deregulation experience has shown those arguments to be groundless. So don't search for other ex post rationales to maintain this inefficient regulatory structure. If there's a pollution problem, address it directly.
Mike:
I agree about "you don't create a bureaucracy" and I agree, at least in theory, that a carbon tax would be a better idea. But airline regulation was already in place. It might be that removing regulation and instituting appropriate pollution taxes and user fees would've been the best option. What I was saying was that I suspect that what was actually done–deregulation without taxes or caps on the pollution–was quite possibly worse than the status quo.