How a thirty-year-old policy of deregulation is slowly killing America’s airline system—and taking down Cincinnati, Memphis, and St. Louis with it.
To be sure, any regulatory regime can degenerate and wind up stifling competition, and the CAB of the late 1970s did become too procedure bound, ruled, as it came to be, by contending private lawyers rather than technocrats. It would have helped, too, if the country had not largely abandoned antitrust action after the Reagan administration. But even strong antitrust enforcement wouldn’t have helped that much, because airlines— just like railroads, waterworks, electrical utilities, and most other networked systems—require concentration both to achieve economies of scale and to enable the cross-subsidization between low- and high-cost service necessary to preserve their value as networks. And when it comes to such natural monopolies that are essential to the public, there is no equitable or efficient alternative to having the government regulate or coordinate entry, prices, and service levels—no matter how messy the process may be.
This is easy to see in extreme examples. It would be outrageously inefficient if each city had scores of waterworks and sewers, and also needlessly unfair; millions of Americans would still be waiting for indoor plumbing, just as millions had to wait decades for telephone and electrical service, until the government stepped in to enforce interventions like the New Deal’s rural electrification program.
Transportation in all its forms is not much different, as most people can see easily when it comes to highways. If we had a “deregulated” private interstate system, we’d have lots of high-quality toll roads running straight and fast between the largest population centers—indeed, probably far more than we need. And from time to time, exuberant entrepreneurs might try to make a profit by constructing a new artery road here or there as well. But the high fixed cost of building roads would mean that most smaller cities either would remain off the network or would have to pay such high tolls that they would never stand a chance of growing. Either way, owners of major highways, seeking to avoid competition, would gradually buy up owners of lesser highways, and then each other, until everyone was paying outrageous tolls and the whole economy suffered.
That was the lesson previous generations learned from railroads; the current generation has to learn it all over again, from our experience with deregulated airlines. Why have we become so passive and reluctant to face up to the hard task of governing ourselves and our markets? We don’t need to recite “The Serenity Prayer.” We need to get out from under the thrall of the false prophets of deregulation, conservative and liberal alike, and make the benefits of true capitalism work for us once again.
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