Phillip Longman and Lina Khan have a fascinating article in the Washington Monthly about how airline deregulation has not only made flying miserable for all of us, but is having an absolutely devastating impact on some of America’s inland cities.
The authors find a parallel story in the development of railroads during the nineteenth century.
Dealing with high fixed costs is a challenge common to virtually all networked industries, and in one way or another, America has grappled with the problem throughout the country’s history. The Founders understood that private enterprise could not by itself provide broadly distributed postal service because of the high cost of delivering mail to smaller towns and far-flung cities, and so they wrote into the Constitution that a government monopoly would take on the challenge, providing the necessary cross-subsidization.
Throughout most of the nineteenth century and much of the twentieth, generations of Americans similarly struggled with how to maintain an equitable and efficient railroad network, and for much the same reason. During various railroad bubbles, exuberant investors would build lines to the farthest corners of continent, much like start-up airlines in the 1980s. But over time, the high fixed cost of railroading and the basic economics of any networked industry left all but the core of the emerging system unprofitable before it received the benefits of government regulation.
The authors then quote Charles Francis Adams’s Railroads: Their Origin and Problems (1878), in which he observed that Americans came to the conclusion that railroads weren’t like other industries, and government regulation was necessary to smooth out price discrimination and “local inequalities.” The authors continue,
The response was the creation of the Interstate Commerce Commission in 1887—a move that most Americans viewed as essential to preserving free enterprise and their way of life. The ICC took on the task of moderating the price discrimination that railroads practiced, evening out the burden among different regions and classes of passengers and shippers in a way that allowed railroads to earn enough money to cover their fixed costs, improve their infrastructure, and give their investors a fair reward. In effect, the profits railroads earned on some highly trafficked long-haul routes came to be rechanneled by government policy to cover the cost of providing balanced and affordable service throughout the country. Railroads were regulated much as telephones and power companies came to be—as natural monopolies that would be allowed to remain in private hands and earn a profit, but not at the cost of skewing the overall efficiency, balance, and fairness of American economy.
Longman and Khan argue that Americans may have to search for similar solutions when it comes to the airline industry. Anyway, read the whole thing.