Alan Reynolds

Federal regulation of business is often described naively, as if regulations were intended to rein in companies rather than bail them out. In reality, however, regulation has often coddled inefficient companies by keeping competition down and prices up. Protectionist regulation, like protectionist trade policy, is just a disguised subsidy from consumers to politically favored businesses.

 The New York Times provided a revealing example of who really lobbies for government regulation and why. The article "Coffee, Tea or Regulation?" was about political efforts to get the government back in the business of regulating airline fares and routes.

 "Representatives of labor unions and some consumer groups," it explained, "long for the stability of the time, before 1978, when the government decided fares and determined where airlines would fly. ... These groups say it is time to consider reregulating airlines. ... Because the Democratic Party, a traditional ally of organized labor, is out of power, Congress could easily turn a deaf ear. But that is not stopping union leaders and others from floating ideas, like asking the government to require airlines to charge a flat fee per seat mile. ... Some people have even suggested forbidding companies to start new airlines."

 Asking the government to ban discounts and new competition is blatant special interest group pleading, rebuked by all objective economists. The article quoted Clifford Winston of the Brookings Institution, who calculates that since the Civil Aeronautics Board (CAB) stopped dictating air fares and routes, "fares have dropped by more than 30 percent, on average, and as much as 70 percent."

 Replacing regulation with competition also resulted in more choices in more cities: "American ... flew to just 50 cities in 1975; it now serves more than three times that number. Southwest, which started in 1971 with a single route in Texas, now flies to 61 cities."

 Although The New York Times suggests deregulation "irritates consumers" or nameless "consumer groups," few consumers object to more carriers offering more flights at lower fares. While it existed, the CAB worked hard to battle low fares (although charter flights and intrastate airlines were outside CAB control). The CAB had nothing to do with safety, nor with any of travelers' current complaints about baggage handling, meals, overbooked flights and the like.


Alan Reynolds

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