Libertarian principles, economic regulation, and safety regulation

De-regulating airfares wasn’t a far-out libertarian idea; it was a mainstream liberal idea with Ted Kennedy as its key sponsor. A real libertarian would have wanted to eliminate airline safety rules.

In the Blogosphere, Rand Paul’s case of hoof-in-mouth disease has started what may become a serious discussion of libertarianism. Perhaps that discussion might even spread to the real world.

My view, and that of most liberals (e.g. Gabriel Winant, writing in Salon), is that libertarians have elevated some common-sense ideas (for example, that voluntary market transactions have some self-regulating properties not shared by political decision-making and public-sector implementation) into absolute dogmas with very little connection to consensus reality (for example, that taxation is no different in principle that physical violence or enslavement, and that any government that fails to fit their prejudices is therefore implicitly totalitarian). As a result, we have the political equivalent of philosophical solipsism: a position that can’t be refuted in its own terms and has a certain charm in dorm-room bull-sessions, but which can’t actually be believed by anyone intellectually and emotionally mature.

[And yes, I, too, know lots of sane people who call themselves “libertarian” – Eugene Volokh, for example – but their sanity consists precisely in their lack of dogmatic adherence to the libertarian catechism.]

Matt Welch, writing at Reason’s Hit and Run, thinks this is a canard:

The “worldview” of libertarianism suggested, back in the early 1970s, that if you got the government out of the business of setting all airline ticket prices and composing all in-flight menus, then just maybe Americans who were not rich could soon enjoy air travel. At the time, people with much more imagination and pull than Gabriel Winant has now dismissed the idea as unrealistic, out-of-touch fantasia.

John Cole at Balloon Juice scores a “gotcha”: he links to a Frontline story about the way in which, post-deregulation, some airlines have cut safety corners, citing the case of a flight with a Continental Airlines flight number but in fact operated by a firm that might as well have been called Nocturnal Aviation:

An investigation of the crash by the National Transportation Safety Board was recently completed and identified pilot error as a major factor in the accident. But the investigation has also put the spotlight on operations of regional airlines like Colgan Air, where the first officer on 3407 had made less than $16,000 the previous year and the captain had failed five flight tests and received inadequate training on a critical safety system involved in the crash.

I disagree with both Welch and Cole, though at different points in the argument. And it seems to me that airline deregulation is in fact a good case study in the tensions between regulation and unrestricted market activity, with lessons for both sides in what ought to be a reasoned argument but which the right wing has decided to convert into a culture war.

Welch is, I think, right to say that airline deregulation was an idea with roots in laisser-faire economics and that it was, on balance, a good thing. Yes, flying was much more comfortable back when the government kept it artificially expensive; since most of my air travel is paid for by others, I’d be personally better off under the old system, but de-reg substantially democratized flying.

Welch is wrong to pretend that de-regulating airfares was some sort of radical libertarian idea resisted by all right-thinking liberals; in fact and in truth, airline de-reg was a Ted Kennedy special, with Steve Breyer doing some of the staff work and Jimmy Carter signing the bill. Like trucking de-reg, telecoms de-reg, and market-simulating environmental regulations such as cap-and-trade programs, airline de-reg was part of the political worldview identified with the Brookings Institution (back when Brookings was liberal; the key players were Alice Rivlin and Charles Schultze) and sometimes known as “Brookings neoliberalism.” (This was before “neo-liberalism” came to mean the IMF insisting that third-world peasants starve in the name of “getting prices right.”)

But – a vital point – this was all about the de-regulation of pricing, not of safety. The Civil Aeronautics Board went out of business, but the Federal Aviation Administration is still there, still writing and enforcing safety regs. Now it’s true that competitive pressure in truck and airlines creates additional incentive for corner-cutting. But the de-reg bills simply let prices float; they didn’t repeal any of the safety rules or reduce the power of the government to enforce them. The general hollowing-out of the Federal bureaucracy that started under Reagan and continued through Bush the First, the Gingrich Congress, and then Bush the Second has no doubt led to some loosening in practice, but that was a different process.

Now, on libertarian principles the airline safety regulations were no more justified than the government-enforced price cartel. To a true believer in laisser-faire, if someone wants to run a cheap and nasty airline, it’s up to the passengers – at least the consenting adults – to decide whether or not to fly. Just as with employment discrimination, a true libertarian counts on the market to find the right solution.

So, in my view, Cole is wrong to blame libertarianism for the latest crash. But Welch is equally wrong to claim airline de-reg as a libertarian triumph. Ending economic regulation while maintaining safety regulation was a straight-up liberal approach, and not consistent with what libertarians claim to believe.

Which is not to say that I’m convinced that the current level of safety regulation is optimal. I suspect, without having run the numbers, that flying is currently too safe. (It’s well known to be safer than driving, and for the short routes on which the two modes compete, making flying more expensive leads to additional driving.) Certainly the money and effort spent on changing the probability of surviving a water landing from zero to epsilon could be better spent on something else. As long as more safety costs more money, the optimal number of airline crashes is not zero.

But whatever the right number is, the market isn’t going to find it. Crashes are too rare, and safety precautions too technical and hard to observe, for safety to be a plausible locus of competition. We’re going to get on airplanes as safe as they’re required to be by law, and the process of making and enforcing safety rules is necessarily governmental: that is, political. No, the governmental process isn’t perfect, but caveat emptor-plus-lawsuits would almost certainly be worse.

But if you believe what Rand Paul claims to believe, we can’t even have the discussion. If it’s wrong to interfere with “economic relations among consenting adults,” then it’s wrong – immoral – to have licensing requirements for airline pilots or big-government safety inspections for aircraft. Of course that’s an insane position, but it’s straightforwardly the libertarian one, along with eliminating medical licensing and food-safety laws.

Ever since that avuncular con-man Ronald Reagan, the “small-government” crowd has successfully masqueraded as the exponents of common sense as against elitist dogmatism. But their principles aren’t common sense (or common law): they’re simple, self-consistent, and, in practice, utterly bonkers.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com

23 thoughts on “Libertarian principles, economic regulation, and safety regulation”

  1. I submit that libertarianism should be thought of in the immortal words of Niven and Pournelle, in The Mote in God's Eye:

    ——————————

    Renner's Motie seemed to search for a word. Visibly, she gave up. "Renner, I must tell you of a creature of legend."

    "Say on." Renner's image dialed for coffee. Coffee and stories went together.

    "We will call him Crazy Eddie, if you like. He is a … he is like me, sometimes, and he is a Brown, an idiot savant tinker, sometimes. Always he does the wrong things for excellent reasons. He does the same things over and over, and they always bring disaster, and he never learns."

    There were small sounds of whispering in MacArthur's wardroom. Renner's image said, "For instance?"

    Renner's Motie's image paused to think. It said, "When a city has grown so overlarge and crowded that it is in immediate danger of collapse … when food and clean water flow into the city at a rate just sufficient to feed every mouth, and every hand must work constantly to keep it that way … when all transportation is involved in moving vital supplies, and none is left over to move people out of the city should the need arise … then it is that Crazy Eddie leads the movers of garbage out on strike for better working conditions."

    There was considerable laughter in the wardroom. Renner's image grinned and said, "I think I know the gentleman. Go on."

  2. The appeal of libertarianism to the well intentioned is it's simplisity. It's appeal to the non-simple minded is it's usefulness in fleesing the simple minded

  3. I'm sure Alfred Kahn would be interested to hear that a libertarian worldview suggested airline deregulation. He was & remains a (very charming) liberal Democrat.

  4. "Now, on libertarian principles the airline safety regulations were no more justified than the government-enforced price cartel. To a true believer in laisser-faire, if someone wants to run a cheap and nasty airline, it’s up to the passengers – at least the consenting adults – to decide whether or not to fly. Just as with employment discrimination, a true libertarian counts on the market to find the right solution."

    A real libertarian would reason, (As I do.) not merely that "the market would take care of it', but that the simple fact that airliners are extremely expensive assets would drive any rational business to make travel on them quite safe. If not out of concern for the passengers, out of concern for the airplanes. IOW, the hypothetical cheap and nasty airline would not be cheap because, being nasty, it would be burning through expensive assets. It strikes me as a bit strange to be defending government safety regulations at the same time as noting that they have, by rational analysis, produced an excess of safety in the regulated mode of travel, driving people to use more dangerous modes. IOW, have increased the overall level of danger… You're really that fond of regulations that kill?

    There is this to be said for simple reasoning: Complex reasoning has it's advantages when the subject is amenable to rigorous logic or mathematics, so that the cumulative error from each step in the reasoning process can be minimal, leading to the results of a long string of steps being as reliable as the starting points. This is not usually the case. And where it is not the case, you are best off sticking with simple reasoning.

  5. But in making the air travel safe for the airplanes, the airlines would not take into account the externalities, i.e., the costs imposed on the passengers who were injured or killed, and on their loved ones.

  6. I agree that long chains of logic are often likely to fail due to the assumptions one must generally make along the way and the increasing likelihood that one of them is false. I don't think it follows that "simple reasoning" consists generally of short applications of first principles. It consists mainly of small perturbations on existing successful models, maybe with some checks for global consistency with principles to make sure it hasn't wandered too far. Which is to say that except in those rare cases of tremendous innovation, successful reasoning is pretty conservative.

    In the specific case of airline vs. auto safety, so many other issues of how we perceive danger, personal agency, etc., are involved that it's very difficult to say that regulation per se is the issue; I don't think it's obvious that left to individual choices and the courts these properties of human reasoning that appear to deviate from strict utility theory wouldn't come into play in unforeseen ways as well. I don't even think it's obvious that they're "wrong." It's impossible to integrate over the entire future.

  7. King John's oligarch heirs pushing to make our government small, so their power reigns.

  8. "Banks and houses are expensive assets, so I'm sure that someone running a cheap and nasty mortgage company would be unable to do a lot of dangerous deals, simply because that would result in danger to the assets."

    What's a little interesting about this discussion is that, in air safety circles, it's fairly widely believed that "the market" has worked too well even in the presence of regulators. Airlines have regularly pushed back against any safety measure that had an impact on revenue, and most safety measures, after years or decades of infighting, have been adopted only after multiple-fatality incidents highlighting the need for that particular measure.

  9. Mark:

    I'm closer to Cole than to you, but you make a few good point.

    However, the three of you, especially Welch, are missing a key angle: The airlines aren't profitable under the current pricing regime. They were, in fact, bailed out by the Federal government after 9/11 in the guise of "victim compensation," which, btw, is an almost perfect example of "caveat emptor plus lawsuits."

  10. "Crashes are too rare, and safety precautions too technical and hard to observe, for safety to be a plausible locus of competition."

    Aren't crash test results and safety ratings in cars a significant component of people deciding which cars to buy? I suppose an information assymetry argument could be made here, but, in the absence of laws, I doubt too many people would set foot on an airline that refused third parties to inspect their planes or for their pilots to fly without a license. And I suspect Colgan Air is going to lose a lot of money from negative publicity, even if there weren't any government interference. Since you yourself support reducing safety regulations on the airlines, why are you arguing so strongly against people who also support that? But your argument against the dogma that all government activity is bad is fair.

  11. Very excellent post. I was just over at balloon juice. I left a comment mentioning the fact that Jimmy Carter is not a libertarian. It is interesting how Democrats are more devoted to market competition than Republicans, who are pro-business not pro-market. I also said I thought that airlines were plenty safe.

    Of course, you are waaaay ahead of me. Yes too safe. Yes the question is when does additional safety regulation drive up ticket prices and cause people to drive cars (I didn't think of that). Also an excellent explanation of why we need safety regulations.

  12. Mark,

    I'm sorry, but your argument is incomplete. It is missing two very important facts about deregulation. First, it ignores the negative externalities that are born by taxpayers. When major airlines go through bankruptcy they often discharge their pension obligations, which cripples the pension guarantee corporation.

    http://money.cnn.com/2005/09/15/retirement/pensio

    http://marketplace.publicradio.org/shows/2006/12/

    Or the post 9/11 airline bailout:

    http://en.wikipedia.org/wiki/Airline#The_Airline_

    The costs of airline safety is born by taxpayers again, in the form of the TSA as well as the Department of Homeland Security. This is of course omitting all the airports around the country paid by taxes.

    Second, there is considerable evidence that the decline of ticket prices was driven by technology not deregulation. Since 1978 carriers have benefited from more fuel efficient planes; not to mention that fuel prices dropped dramatically in the 80s and 90s. And how much of that technology was derived from government funds for military planes that were later ported into the commercial aviation industry?

  13. "but that the simple fact that airliners are extremely expensive assets would drive any rational business to make travel on them quite safe. If not out of concern for the passengers, out of concern for the airplanes."

    There is not such thing as a "business" that is rational or otherwise; there are only MANAGERS of businesses. Even if you buy into the libertarian worldview, the issue is what is optimal for those managers, not what is optimal for the business. And the way the incentives are ALWAYS structured, Joe Manager will get his bonus this quarter for cutting costs, and will not have the bonus clawed back from him next quarter when the crash occurs.

    As ALWAYS, we see Libertarians telling us that companies would never do things we KNOW they do because of history.

    The response of tobacco companies to learning about lung cancer was not to deal with the reputational effects by immediately coming clean, saying "this stuff is dangerous, we admit that, and in consequence we will immediately stop all advertising, product placement, etc etc — you can interact with us if you want, but we will not do ANYTHING to encourage that". No, it was to lie and stonewall.

    How about reputational effects wrt global climate change and Exxon Mobil — how's that strategy working out for the planet?

    How about Vioxx?

    How about Moodys and S&P?

  14. "As ALWAYS, we see Libertarians telling us that companies would never do things we KNOW they do because of history.

    The response of tobacco companies to learning about lung cancer was not to deal with the reputational effects by immediately coming clean, saying “this stuff is dangerous, we admit that, and in consequence we will immediately stop all advertising, product placement, etc etc — you can interact with us if you want, but we will not do ANYTHING to encourage that”. No, it was to lie and stonewall.

    How about reputational effects wrt global climate change and Exxon Mobil — how’s that strategy working out for the planet?

    How about Vioxx?

    How about Moodys and S&P?"

    A libertarian told you that tobacco companies would respond to lung cancer by voluntarily going out of business? Must have been having you on… They did try to come up with nicotine delivery devices that didn't cause cancer. (Tobacco companies are actually nicotine companies.) Every one of them got shot down by the government, because once you separated the nicotine from the tobacco, (Which is what's actually causing the cancer.) it's a 'drug delivery device', and needed a prescription to sell.

    IOW, the government, the wonderful government, insisted that if the nicotine companies were going to sell their product OTC, it had to be in a form that would cause cancer… The nicotine companies then did exactly what a libertarian would predict; Sold a product that would kill people, while trying to fool them into thinking otherwise. They did this, not because they like killing their customers, (Dead customers don't by cigarettes…) but because they dislike it less than having no customers at all.

    Anyway, "reputational effects"? I wasn't talking about reputation, I was talking about the fact that the freaking airplanes are expensive assets, and it costs a lot of money when they crash. So even an airline executive who places no value on human life AT ALL doesn't want his planes crashing.

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