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).
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.
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…!")
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
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
"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.
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.
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)
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.
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
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?
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!