Making Economic Sense
Making
Economic Sense
by Murray Rothbard
(Contents
by Publication Date)
Chapter 52
Airport Congestion: A Case of Market Failure?
The press touted it as yet another chapter in the
unending success story of
"government-business cooperation." The traditional tale is that a
glaring problem arises, caused
by the unchecked and selfish actions of capitalist greed. And that then
a wise and far-sighted
government agency, seeing deeply and having only the public interest at
heart, steps in and
corrects the failure, its sage regulations gently but firmly bending
private actions to the common
good.
The latest chapter began in the summer of 1984,
when it came to light that the public was
suffering under a 73 % increase in the number of delayed flights
compared to the previous year.
To the Federal Aviation Agency (FAA) and other agencies of government,
the villain of the piece
was clear. Its own imposed quotas on the number of flights at the
nation's airports had been lifted
at the beginning of the year, and, in response to this deregulation,
the short-sighted airlines, each
pursuing its own profits, over-scheduled their flights in the highly
remunerative peak hours of the
day. The congestion and delays occurred at these hours, largely at the
biggest and most used
airports. The FAA soon made it clear that it was prepared to impose
detailed, minute-by-minute
maximum limits on takeoffs and landings at each airport, and threatened
to do so if the airlines
themselves did not come up with an acceptable plan. Under this
bludgeoning, the airlines came
up with a "voluntary" plan that was duly approved at the end of
October, a plan that imposed
maximum quotas of flights at the peak hours. Government-business
cooperation had supposedly
triumphed once more.
The real saga, however, is considerably less
cheering. From the beginning of the airline
industry until 1978, the Civil Aeronautics Board (CAB) imposed a
coerced cartelization on the
industry, parcelling out routes to favored airlines, and severely
limiting competition, and keeping
fares far above the free-market price. Largely due to the efforts of
CAB chairman and economist
Alfred E. Kahn, the Airline Deregulation Act was passed in 1978,
deregulating routes, flights,
and prices, and abolishing the CAB at the end of 1984.
What has really happened is that the FAA,
previously limited to safety regulation and the
nationalization of air traffic control services, has since then moved
in to take up the torch of
cartelization lost by the CAB. When President Reagan fired the
air-traffic controllers during the
PATCO strike in 1981, a little- heralded consequence was that the FAA
stepped in to impose
coerced maximum flights at the various airports, all in the name of
rationing scarce air-traffic
control services. An end of the PATCO crisis led the FAA to remove the
controls in early 1984,
but now here they are more than back again as a result of the
congestion.
Furthermore, the quotas are now in force at the six
top airports. Leading the parade in
calling for the controls was Eastern Airlines, whose services using
Kennedy and LaGuardia
airports have, in recent years, been outcompeted by scrappy new
People's Express, whose
operations have vaulted Newark Airport from a virtual ghost airport to
one of the top six (along
with LaGuardia, Kennedy, Denver, Atlanta, and O'Hare at Chicago). In
imposing the
"voluntary" quotas, it does not seem accidental that the peak hour
flights at Newark Airport were
drastically reduced (from 100 to 68), while the LaGuardia and Kennedy
peak hour flights were
actually increased.
But, in any case, was the peak hour congestion a
case of market failure? Whenever
economists see a shortage, they are trained to look immediately for the
maximum price control
below the free-market price. And sure enough, this is what has
happened. We must realize that
all commercial airports in this country are government-owned and
operated--all by local
governments except Dulles and National which are owned by the federal
government. And
governments are not interested, as is private enterprise, in rational
pricing, that is, in a pricing
that achieves the greatest profits. Other political considerations
invariably take over. And so
every airport charges fees for its "slots" (landing and takeoff spots
on its runways) far below the
market-clearing price that would be achieved under private ownership.
Hence congestion occurs
at valuable peak hours, with private corporate jets taking up space
from which they would
obviously be out-competed by the large commercial airliners.
The only genuine solution to airport congestion is
to allow market-clearing pricing, with
far higher slot fees at peak than at non-peak hours. And this would
accomplish the task while
encouraging rather than crippling competition by the compulsory
rationing of underpriced slots
imposed by the FAA. But such rational pricing will only be achieved
when airports are
privatized--taken out of the inefficient and political control of
government.
There is also another important area to be
privatized. Air-traffic control services are a
compulsory monopoly of the federal government, under the aegis of the
FAA. Even though the
FAA promised to be back to pre-strike air-traffic control capacity by
1983, it still employs
19% fewer air-traffic controllers than before the strike, all trying to
handle 6% greater
traffic.
Once again, the genuine solution is to privatize
air-traffic control. There is no real reason
why pilots, aircraft companies, and all other aspects of the airline
industry can be private, but that
somehow air control must always remain a nationalized service. Upon the
privatization of air
control, it will be possible to send the FAA to join the CAB in the
forgotten scrap heap of
history.
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