Government Regulation, or Not

I wrote on April 12, 2010 about safety in the airline industry since deregulation. This article is about the economics of a regulated and deregulated industry.

Justice Stephen Breyer wrote an article in Business Week on Jan 20, 2011, Airline Deregulation, Revisited.” Justice Breyer was an aide to Senator Ted Kennedy and helped pass the Airline Deregulation Act of 1978. Breyer wrote about the increase in passenger traffic since deregulation because of competition, more airlines, and how fares have come down, adjusted for inflation. “No one foresaw the industry's spectacular growth, with the number of air passengers increasing from 207.5 million in 1974 to 721.1 million last year.”

“In 1974 the cheapest round-trip New York-Los Angeles flight (in inflation-adjusted dollars) that regulators would allow: $1,442. Today one can fly that same route for $268. That is why the number of travelers has gone way up.”

Before deregulation the airline cartel was made up of a few airlines that were regulated by the Civil Aeronautics Board, (CAB). If an airline wanted to start service on a new route it had to get permission from the CAB. If airlines wanted to change fares they had to get permission from the CAB. No new airline could just start new competitive service without the permission from the CAB.

If an airline was shut down by a labor strike, the airline’s competitors who flew on the routes of the struck airline had to share some of their revenue with the airline on strike. This was called the Mutual Aid Pact of airlines. During the 30 years before (1947-1977) the Airline Deregulation Act of 1978 there were 117 labor strikes against U.S. airlines. During the 30 years after (1979-2009) airline deregulation there have been less than a third of the prior 30 years, about 35 labor strikes against U.S. airlines. This data shows that government regulating a market causes disruption and above market costs to the investors, employers, and most of all, the consumers.

The medical industry is heavily regulated. Though hospitals and staff are private, you would hardly know it because there are so many government rules and regulations the hospitals and staffs might as well be owned by the government. As soon as the airline industry was deregulated the industry saw spectacular growth. Can you imagine the growth in the health industry if it was deregulated; if Medicare and Medicaid were eliminated, and if the requirement that hospital emergency rooms treat all who enter, and if nurses and doctors did not have to be licensed. You would see prices for health care plummet and the number of persons employed in the health care industry triple. Unemployment would drop to five percent in the country. The advocates for licensing medial personnel would be surprised to know that almost one million people die each year from problems in the regulated medical industry. People tolerate these deaths in a regulated health industry but would become incensed and intolerant if the same deaths happened in an unregulated health industry.

A doctor will spend many years in non productive learning instead of practicing productive medicine that would lower the costs of health care. I read a story about a doctor in India who got in trouble for teaching and allowing his teen age son to perform surgery. As a teen my surgeon also watched his dad perform surgery. My surgeon knew how to perform an appendectomy before he graduated from high school. Yet he had to spend the next eight to ten years learning medicine before he could become productive. Ten years of lost productivity. If the doctor cartel was eliminated and anyone could practice health care there would be inexpensive clinics buying cadavers and training potential surgeons.

The education industry is not only regulated by the government, it is run and owned by the government, except a few private institutions. The government confiscates, by force, funds for its education operation. No wonder it is inefficient. The users have become attached to their community government owned schools, as ‘Our” team won their last game, and other tribalistic feelings. Mothers genuflect before the government priests as the mothers hope, a cheap form of happiness, the government priests will make their children socially acceptable and wise.

The barber schools have lobbied to pass regulations that require all future barbers to attend the barber schools. Without this regulation individual barbers would be training new barbers cheaper and more efficient. The barber schools would go out of business if individual barbers could teach how to cut hair. The increased supply of barbers would lower the cost of hair cuts and provide employment for many unsophisticated citizens.

This is the story of regulations. The regulators and those advocating for regulations always say the regulations are to protect the consumers. The sheep believe these lies. The regulations are actually used to protect the vendors from competition. The doctors’ cartel reduces the number of doctors so their fees go up. The barbers’ cartel reduces the number of barbers so their fees go up. The architects lobby to require you use them for an approved design before the city will approve your building permit, thus creating work for the architects and causing the cost of housing to increase more than in an unregulated free market.

How many people would have died if Edward Jenner and Louis Pasteur had been working under the regulations in place in the United States of today? Clarence Darrow, the noted attorney in the famous Scopes Trial, never finished college. Henry Ford, a farmer and machinist, developed the Ford tractor for farming. This tractor, with insecticides from the early chemistry industry, provided enormous increases in food production that prevented millions from starving. These increases in food production were done before the monstrous bureaucratic U.S. Department of Agriculture reached its zenith in power.

In a NY Times article of January 23, 2011, the government plans to do drug research because the pharmaceutical industry has not brought enough new drugs to market. Regulators at the Food and Drug Administration have issued so many regulations for the pharmaceutical industry it now costs over a billion dollars and years of research before the FDA will approve a drug. Another department, the National Institute of Health, thinks they can do better than the pharmaceutical industry in finding new drugs. The NIH has started a Federal Research Center to compete with private industry in discovering new drugs. The government regulators create a problem, and another branch of the government mob tries to find the solution to the problem by increasing their budget and bureaucracy. “The Party seeks power entirely for its own sake.” George Orwell

If deregulation is so beneficial to consumers and the economy, why is everything from garbage collection to hair cuts regulated? The sheep like these regulations because they believe regulation is in their best interest. They trust in the benevolence of mankind. They actually think the government employees are honest and will provide and protect the citizens. The sheep have the community belief, that they are safer in a community, even if the community is holding back the community by its inefficiency. The sheep believe government power can only be used for good and private power can only be used for evil. Cartels and the government gang exploit this sheep behavior.

Here is a good article by Aaron Everitt about how we are exposed daily to government regulations. http://mises.org/daily/4991

Regulations, whether they be for business and guilds to avoid competition, or just to empower the bureaucrats, or to alleviate the fears of the fearful, regulations have always been a part of social cultures. People have always been afraid of the prostitutes, discontents, and degenerates who want to live life unregulated. Government regulations are presented as rules to protect the proletariat and bourgeois when in fact government regulations are just a disguise for central planning. Government regulations lead the citizens into a false sense of security. The citizens become listless and enervated while the regulators become neurotically energized with their new powers.

Charles Tolleson, Regulated Degenerate