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Special Report
Needed: An Alfred Kahn for Health Care Reform
He deregulated airline travel. Who will deregulate health insurance?
In the annals of progressive thought, there was a fleeting moment when Ted Kennedy, Ralph Nader and other left-wing icons sang the praises of unfettered free-market capitalism. This happened with the passage of the 1978 Airline Deregulation Act during Jimmy Carter’s presidency.
The recent passing of Alfred E. Kahn is a reminder of that remarkable moment — when leaders on both sides of the political and ideological spectrum agreed to deregulate the U.S. airline industry. In 1977, incoming President Carter appointed the flamboyant and outspoken Kahn as chairman of the Civil Aeronautics Board, the agency responsible for setting airline routes, schedules and fares. Kahn set out on a mission of writing himself and his agency out of a job — opening the industry to real competition for the first time. Kahn gave airlines the freedom to enter (and exit) domestic markets and to price as they pleased. He also allowed new low-cost, low-fare airlines to challenge the incumbents.
With the exception of United, all of the established airlines were adamantly opposed to deregulation, as were the unions representing airline pilots, flight crews and baggage handlers. But as Kahn recognized, this was a classic instance of the capture of the “regulators” by the “regulated” — to the disadvantage of the traveling public.
For four decades, going back to 1938, the CAB had presided over a closed system that provided the airlines with guaranteed profits, while underwriting generous wages and pensions and cushy working conditions for their heavily unionized workforces. While earning six-figure incomes, airline pilots routinely worked second jobs, knowing that they needed to fly only two or three days a week.
“Whenever competition is feasible,” Kahn wrote, “it is, for all of its imperfections, superior to regulation as a means of serving the public interest.” In simpler language, he bluntly stated, “Where competition is feasible, the government should get the hell out of the way.”
In chairing the CAB, Kahn, an economics professor from Cornell, put together an amazing coalition that included everyone from Milton Friedman and Barry Goldwater to Kennedy and Nader. It helped considerably that two states — Texas and California — had served as laboratories in demonstrating that no-holds-barred competition between existing carriers and the first no-frills airlines had resulted in lower fares and greater choice.
For the first eight years of its existence — from 1971 to 1979 — Southwest Airlines flew only inside the state of Texas. It was, therefore, outside the CAB’s purview, because the agency regulated fares and routes only on an interstate basis.
Throughout the 1970s, there were wild fare wars inside Texas (and to a lesser extent California) as the upstarts battled with the incumbents for market share. Air fares fell by more 66%, and the number of flights per day between Dallas and Houston and other city pairs multiplied. At one point, much-larger Braniff tried to drive Southwest to the wall by dropping its Dallas/Houston fare from $26 to just $13. But Southwest had a good answer. It gave its customers a choice: They could pay the new $13 price — or they could pay the old $26 price and receive a free bottle of whiskey at the end of the trip. Under this promotion, Southwest became, for a time, the biggest liquor distributor in Texas.
Beginning in 1975, Kennedy held U.S. Senate hearings that showcased the fact that the cost per mile for an inter-state air ticket from — say — New York to Washington, D.C. was several times higher than it was for trips of comparable distance inside Texas. Roused by this evidence, Kennedy thundered on the Senate floor: “Regulators all too often encourage or approve unreasonably high prices, inadequate service, and anti-competitive behavior. The cost of this regulation is always passed on to the consumer. And that cost is astronomical.”
Exactly. The first two decades of airline deregulation replicated the successes seen earlier in Texas and California. Nationwide, enplanements more than doubled and, in inflation-adjusted terms, airline ticket price fell by about 50%. The lowered cost, expanded choice and rapid growth in air travel helped to stimulate further growth in many other fields.
IN RECENT YEARS, many critics have held airline deregulation to blame for everything they dislike about air travel today — from overcrowded planes and poor service to the abysmally poor financial record of the U.S. airline industry. Kahn responded both graciously and forcefully to such critics. He noted that some of the problems cited by critics were exposed by deregulation, not caused by it:
Labor unrest and the insecurity and downward pressure on the wages of the preexisting labor force have been undeniable. From the standpoint of the public, however, grossly monopolistic wage levels are no more acceptable than monopoly profits. The fact that these costs have been unusually severe may be just as logically blamed on the regulation that created vested interests in its perpetuation as on deregulation.
Most travelers, he went on to say, were perfectly willing to sacrifice comfort for lower fares:
In the decade before deregulation, domestic flights were, on average, less than 53% full; in 1997 to 2001, they averaged over 70%. But crowding reflects the success of deregulation, not its failure. Competition in the unregulated market has proved… that most travelers are willing to sacrifice comfort for lower fares.
Since 2001, the U.S. airline industry has shed 160,000 jobs. That’s about a third of the workforce — gone. And yet the industry has kept going — even if it hasn’t succeeded in making many people happy.
About the Author
Andrew B. Wilson, a frequent contributor to The American Spectator, writes from St. Louis.
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Bill Hussein O'Stalin| 1.18.11 @ 6:34AM
If what you state is true then the government health care system itself will force prices higher due to a lack of competition. The government would be the driving force behind the scenes controlling prices and forcing some companies out of business with government edicts while others will learn to thrive by offering substandard service levels.
When you state the current Democrats have a different mind set you are correct. They want permanent power and one way to get it is to control something big and it must be something that people need and need badly and health care fits that bill.
The people who deregulated the airline industry are long gone and we are now left with cynical Alinskyite power brokers whose only desire is to turn you into a helpless serf.
If you need medical care you must turn to Big Gov.
If you need a job you will turn to Big Gov.
The American public is well on their way to permanent serfdom and will find a never ending labyrinth of bureaucrats who will all have their say in your healthcare.
Yet, you won't receive health care until you've run the gauntlet and filled out many forms and requests. Even then the person you see will be a medical hack or quack, all the good doctors will have flown the coop, going into lucrative private practices outside government control.
Like all promises by all politicians the end results rarely mirror the promise. So the public sees the big lie for what it is at that point, but it's too late for most of them.
They will become line standers as they wait for alleged health care. As they go through the health care ques, they will learn not to seek health care because it will be too problematic.
At that point back alley medical clinics will spring up offering half way measures to postpone the pain, but eventually all will succumb to the medicine of Big Gov, and you will receive no health care.
What you will receive is a life term ending in a death sentence, and your only crime will have been being born within the confines of a political laboratory.
richard ryan| 1.18.11 @ 8:57AM
Bill, that's a pretty good set of predictions there. My assertion is that the more government controls health care, the higher the costs, because PHYSICIAN PAY is low. There is a direct correlation, and I believe it's a causative effect. 2 examples: Medicaid- difficult to find a doctor because of the laughable doctor reimbursement. Medicaid folks take their cell phones and designer purses down to the local ER to avoid the wait to see a doctor and to avoid the small co-pay. Government EMTALA laws mandate that ERs give care to anyone for any reason. By the way, for a given ailment, care in the ER is 2-4 X more expensive. A study in MD found that it is the medicaid patients who abuse the ER for minor ailments more than the uninsured. Result=much higher cost. #2Medicare: the best model for a medicare-dominated system is Florida. Also low physician pay. How do the doctors make a good living? They spend more federal dollars. The numbers are out the for per patient spending in this state. Physicians simply form large multi-specialty practices and over use specialists (some of them still get reasonable reimbursement). The doctors share revenues because they depend on one another to make this over spending possible. In a malpractice environment like this, it's a recipe for massive wasteful spending.
Shamus| 1.18.11 @ 7:27AM
Monopolies control the medical system. They won't give up control without a fight. Politicians lack both the will and the incentive to take on these powerful interests.
John $ Public| 1.18.11 @ 7:38AM
So when the government takes over lock, stock and barrel your fear of a monopoly will be permanent.
Cathi| 1.18.11 @ 8:28AM
The best retort I have read in months! Great John $!
Shamus| 1.18.11 @ 9:13AM
Most monopolies exist by government fiat.
It's almost impossible to dislodge a monopoly that has government backing. In effect, the government has already taken over, since there is effectively no free market in medical care.
Spoonman| 1.18.11 @ 8:25AM
Why would anyone want the federal government involved in health care. Let's llok at some recent examples where the federal government has become involved:
Freddie Mac and Fannie Mae - bankrupt;
United States Postal Service - bankrupt;
Amtrak - bankrupt;
Social Security - bankrupt;
Medicare - bankrupt; and,
Medicaid - bankrupt.
Why- beacsue of overspending money taken form hard working Americans. When its not your money, it is all to easy to spend more and more of it without regard to who has to pay. That's why we owe trillions to others. Get the government out of things that they have to business being involved with.
Shamus| 1.18.11 @ 9:18AM
In most cases, the private sector is more efficient than the public sector. However, government has some successes to go with its numerous failures. It's true that lately government has failed very badly in the United States.
Nunya| 1.18.11 @ 4:31PM
Shamus, really? Other than the military, what has the government succeeded at?
They have failed at everything they do, and at a higher cost than if it was done in the free market. You want DMV style healthcare? I give you Obamacare....only with LESS concern for the persons it's supposedly going to help.
One doesn't need to take over an entire industry if they are only looking to help those that have no coverage (as they lied and told us it was for).
Shamus| 1.19.11 @ 3:28PM
Most government successes are in some way tied to the military. Examples are the interstate highway system, the internet, atomic energy, and jet engines.
TC| 1.18.11 @ 9:54AM
Add to your list what is perhaps the best example of the failure of government control - public school systems. A great mix of high cost, low performance, rampant decay, and unionized labor. Our health care system is on the path to the same result.
Dagny Taggert| 1.18.11 @ 4:22PM
Spending OPM* is never done wisely. State-run services are funded by OPM* Thus state-run services don't spend money wisely; hence inevitable bankruptcy.
*Other People's Money
Cromulent| 1.18.11 @ 8:55AM
I thought air, truck and rail deregulation was passed late in Carter's term; fall of '79. Was that just the truck and rail deregulation?
Howard| 1.18.11 @ 11:47AM
One correction; the Airlines tended to not make money during the regulated period under the CAB. While they had route and fare protection; their costs were very high, and the planes had many unsold seats. Eastern, TWA, PanAm and many others lost money in those days. Deregulation put them out of their misery.
Richard Baker| 1.18.11 @ 12:14PM
As a young Soldier in the early '70s, I flew back and forth from my post in Germany on leave via Pan Am on 747s which maybe had 100 passengers aboard. Even then I wondered how in the world they stayed in business. There was so much room that the stewardesses would fold up armrests in the middle rows and give me a pillow and blankets so I could lay out and sleep. I suppose the government subsidy through regulated fares had something to do with that. Yeah, let's hear it for government control of anything. Spoonman is correct.
George S| 1.18.11 @ 1:59PM
Yes, air fares did drop. But look at the prices on those travel websites. The fare quoted in big block text is several hundred dollars lower than the "total price" of the ticket. That extra money is for taxes and fees. It seems that as prices drop, government figures they can sneak in and incrementally add to the bill (the boiling frog theory). The same thing has happened to telephone bills after deregulation -- the costs dropped, there are more carriers but the check you write somehow is still the same. What is to prevent government from doing the same thing after insurance deregulation? Any time there is a bargain to be had, government steps in to take advantage by adding fees and surcharges.
kerry| 1.20.11 @ 9:01AM
Well, I'm all for the free market. But God protect us if the health care system and it's doctors and hospitals treat us like the airlines do. Flying is a very unpleasant experience.
Christian Louboutin | 6.23.11 @ 5:42AM
The recent passing of Alfred E. Kahn is a reminder of that remarkable moment -- when leaders on both sides of the political and ideological spectrum agreed to deregulate the U.S. airline industry. In 1977, incoming President Carter appointed the flamboyant and outspoken Kahn as chairman of the Civil Aeronautics Board, the agency responsible for setting airline routes, schedules and fares.
weddingdress | 7.1.11 @ 1:05AM
Well, I'm all for the free market. But God protect us if the health care system and it's doctors and hospitals treat us like the airlines do. Flying is a very unpleasant experience.
Adidas | 8.11.11 @ 5:30AM
is good
العاب بنات | 4.11.12 @ 2:29PM
thank you ....verey goood