Airline Deregulation and Laissez-Faire Mythology

Airline Deregulation and Laissez-Faire Mythology

Airline Deregulation and Laissez-Faire Mythology

Airline Deregulation and Laissez-Faire Mythology


While much of the literature on airline deregulation praises it as a successful adventure in public policy, Professors Dempsey and Goetz conclude that deregulation has failed to achieve any of its principal objectives: better service, more competition, or lower prices. Divided into four parts, their book assesses (1) the airlines, their corporate cultures, and the men who lead them, (2) free market economic theory and the political movement for deregulation, (3) the impact of deregulation on safety, service, concentration, and pricing, and (4) legislative solutions to the problems that have emerged.


Deregulation is a rather peculiar phenomenon. Its most fervent proponents continue to embrace it, not merely as an abstract economic theory, but with political, almost theological, devotion. No matter what evidence is adduced of widespread failure (and there is plenty), they tenaciously insist such evidence can be reinterpreted as proof of the success of deregulation. Some go so far as to assert that its failures can be attributed to not carrying deregulation far enough. Privatize the airports and let foreign airlines in, they insist, and we will at last achieve textbook levels of perfect competition.

Airlines were among the first of the major infrastructure industries to be deregulated. With the promulgation of the Airline Deregulation Act of 1978, Congress took the unprecedented step of sunsetting a major regulatory agency -- the Civil Aeronautics Board -- which had been established four decades earlier.

Beginning in the Carter administration, and reaching its zenith in the Reagan administration, federal oversight of industries as diverse as airlines, buses, railroads, trucking, telephones, cable television, radio and television broadcasting, banking, savings and loans, and oil and gas was significantly trashed. The transformation and radical shrinking of government proceeded along two, sometimes independent planes. Congress passed major legislation mandating various forms of deregulation between 1976 and 1985, while successive presidents appointed free market theologians to the regulatory agencies with the mission to exceed their legislative mandates and ignore their oaths of office.

The laissez-faire economists who convinced Congress to promulgate the Airline Deregulation Act of 1978 assured us that deregulation would result neither in increased concentration nor in destructive competition. This was true, they insisted, because the industry was structurally competitive, pos-

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