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DEREGULATION BLUES


Doug Dowd

Just

when we’re about to blow our tops at the airlines for the delays and crowding

and lousy service — and rising prices — we get blindsided by blackouts and for

our electricity and rising prices (as also for gas, and water, and gasoline).

How come?

The

architect of airline told us last fall that what’s needed is more deregulation;

Pres. Pudd’nhead (deeply into oil and electricity shares himself) responded to

the California crisis by saying that what is needed is more deregulation, get

rid of environmental protection.

Whatever

else such punditry puts one in mind of, it brings back Vietnam. There, as the

U.S. invasion of Viet Nam settled into an always deeper swamp, the Best and the

Brightest who had fostered and guided that mass criminality argued that what was

needed was more of the same: more troops, more bombs, that would turn the trick.

To paraphrase Marx, "Escalate! Escalate! That is Moses and the

Prophets." For the airlines and the utilities, it’s "Deregulate!

Deregulate!" (That is, when it isn’t "Privatize…!")

I

am happy to say that I have never met Pudd’nhead, and hope my luck holds up; but

I was in the same econ. dept. for 17 years with the wizard of airline

deregulation; indeed, we were friends — for a while; that ended as the war in

Vietnam became more than an itch, as he became a Dean, as I became something

else. He was among the two or three brightest people I have known, and, for an

economist, among the best-informed on the realities of monopoly and competition.

But he never let his knowledge get in the way of his judgment. He had a

mental/political block: he couldn’t turn his thoughts to left, only straight

ahead, or to the right. (That helps, if you want to become a Dean, or head up a

federal agency.)

Now

a short lesson in economics. As mainstream economists are all taught (and most

conveniently forget) "the free market" is safe and desirable only when

all firms have to accept the dictate of the market; that is, when no firm (or

cooperating firms) can dictate to the market. In turn, that can be true only

when there are so many firms that no one of them (or small group of them –

which is called " oligopoly") can, by controlling supply through

restricting production can keep prices from falling (or, more sweetly, increase

them).

Those

"free market" conditions do not now nor have they ever come close to

being met either for the airlines or for the electricity, gas and water (or oil)

companies — nor could they be, given the technology of the industries. They are

all what economists call "natural monopolies" (or oligopolies). Every

economist is taught that a "natural monopoly" such as your friendly

Gas & Electric Company, must be regulated, lest all hell break loose.

In

California there are two such distributors: PG&E and Southern California

Edison (really one for the north, one for the south: each a geographic

monopoly). They were regulated until 1996; then they were deregulated, after

years of pressure on the legislature to do so. You will be surprised to learn

that the utilities in California have considerable political clout (the

strongest understatement I have ever made); as do the banks and the oil

companies (and a handful or two of other industries, in descending order). Now,

in the face of the ongoing crisis, the deregulation of 1996 is being criticized

by (so to speak) friends of "the family" (not your family, you can

bet) only because it didn’t go far enough. And one would like to know just far

they would like it to go, and what their rationalizations for that would be.

Now,

as the ship is sinking, there is a recognition that something — but just what

is not agreed upon — went awry. Bush’s Sec. of Treasury says the dereg plan was

"lunacy…; the legislature thought they could defeat the laws of

economics." It was lunacy, alright; but one may guess that he didn’t wish

there to be less deregulation, only more, or total. And then there the Calif.

state officials. They now grant that "there was a failure to anticipate

ways that energy companies could manipulate the system by withholding

electricity to drive rates up. State authorities also wrongly assumed tht

deregulation would bring new price-lowering competition quickly, which it has

not done, officials say." (Source: Int. Herald Trib, 1-19-01)

Bah

humbug. Sure as shootin’ the utility companies did not "wrongly" make

that assumption — any more than the airlines have done, since they were

deregulated back in the late 1970s by my old economist pal.

So

now we have an onrush of mergers and acquisitions in the airline biz, with the

virtual certainty (among other developments) that American and United will,

between them, control half of all air traffic in the eastern USA. The

price-lowering, service-improving competition is likely to be so fierce,

friends, that it will make your heads spin. Almost as fierce as PG&E and

SouthernCalEd.

Please

tell me, mainstream economists, given the existing (and, worse, emerging)

ownership structure of the airline industry what likelihood is there, in any

foreseeable future, that airlines will provide us with more legroom, fewer

delays, less lost or misplaced baggage, something approaching edible food –

without being forced to do so by governmental regulation? And what likelihood is

there that the producers and distributors of utility services will, in the

foreseeable future, increase (rather than restrict) supply so as to meet the

extraordinary increases in demand over the past ten years and more?

The

likelihood is great, I hear back from them: Just send more troops, more bombs.

Look! See? Down there at the end of the tunnel, there’s a light!

 

 

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