Friday, August 28, 2009

Tributes are pouring in for Sen. Edward M. Kennedy, who lost his battle with brain cancer late Tuesday evening at the age of 77.

Most tributes to the ” liberal lion” focus on his accomplishments at expanding government spending and regulation. And indeed, those were the bulk of his achievements.

But for a brief, shining moment, in the mid-to-late 1970s, Mr. Kennedy viewed smaller government as the most compassionate answer in one area of economic life: transportation. Mr. Kennedy was the prime mover in Congress behind the airline and trucking deregulation bills signed by President Carter: the Airline Deregulation Act of 1978 and the Motor Carrier Act of 1980.

Mr. Kennedy saw regulation in these industries as protecting entrenched companies from competition, and decided the liberal, compassionate thing to do was to deregulate to give consumers lower prices and more choices.

As news stories search for all the ways Mr. Kennedy’s impact is felt by everyday Americans, one obvious impact is reflected in this headline on AOL News a few hours after his death: “Fall Airfares Starting at $59.”

From the 1930s to the 1970s, the federal government treated interstate airlines as a public utility, setting routes, schedules and fares through the Civil Aeronautics Board. Low-cost carrier Southwest Airlines, which is offering the aforementioned $59 one-way fare and now dominates the airline industry, was confined to intrastate flights within Texas — where the federal government couldn’t reach — for the first eight years after its 1971 founding.

Some folks may have fond memories of the linen napkins and china plates on airlines in the “good old days” before deregulation when airlines aggressively competed on service because they couldn’t do so on price. But millions of middle-class families and small businesses were locked out of flying because of the high fares and limited service.

Think tanks, academics, and even consumer advocate Ralph Nader began to argue in the 1970s that airline deregulation was a good idea. The big airlines, however, fought hard against repealing these controls that had long protected them from real competition. (And, contrary to popular narrative, this instance of businesses championing regulation out of self-interested motives is not unique.)

But deregulation advocates found an ally in Mr. Kennedy, who, with the help of young policy aides like now-Supreme Court Justice Stephen G. Breyer, began to see the egalitarian case for deregulation. Beginning in 1975, Mr. Kennedy held hearings on airline and trucking deregulation as chairman of the Senate Judiciary Committee’s subcommittee on Administrative Practice and Procedure and later the Subcommittee on Antitrust and Monopoly.

Mr. Kennedy’s opening statement at one of these hearings sounds positively Milton Friedmanesque on the detriments of regulation and the benefits of the free market. The senator said, “Regulators all too often encourage or approve unreasonably high prices, inadequate service, and anti-competitive behavior. The cost of this regulation is always passed on to the consumer. And that cost is astronomical.”

Mr. Kennedy’s pragmatic case for this specific deregulation holds lesson for the regulatory debates of today. As much as deregulation is almost a dirty word and wrongly blamed for the financial crisis, practically no one would really want to go back to the bad old days when Southwest could only offer its low fares within the state of Texas.

Competitive Enterprise Institute President Fred L. Smith Jr. and scholar Braden Cox point out in an entry of The Concise Encyclopedia of Economics that fares on flights have fallen 45 percent in inflation-adjusted terms since airlines were deregulated in 1978. Scholars Robert Crandall and Jerry Ellig find that even when figures are adjusted for changes in quality and amenities, deregulation still saves $19.4 billion per year in passenger costs, and these savings have been passed on to 80 percent of passengers.

The lessons of airline deregulation’s benefits to the common man in terms of lower prices and more choices apply even to issues on which Mr. Kennedy was on the other side. Health care consumers would benefit from competition among insurers across state lines, and a federal government bureaucracy that set rates and mandated what insurance companies could and could not cover — even if there were no “public option” — would likely be as bad for consumers as the old Civil Aeronautics Board that Mr. Kennedy fought to keep a rein on.

And as Mr. Smith and Mr. Cox point out, we should also fight to finish Mr. Kennedy’s job of air-travel deregulation by allowing foreign carriers to compete on domestic routes and by privatizing airports and air-traffic control. On this front, other countries — including, ironically, Canada — have gone further than the United States.

Completing this liberalization would help resolve lingering problems such as flight delays and passengers stuck on the tarmac for an inordinate time, as the private sector could modernize aviation facilities just as the airline industry has adjusted.

In tribute to Mr. Kennedy, all lawmakers should look at his accomplishments in airline and trucking deregulation, and they should be Kennedyesque in applying his insights on these issues to the economy at large.

John Berlau is director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute and blogs at

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