Wednesday, December 29, 2010

Alfred Kahn: Hero Economist Dies

Alfred Kahn, the man, who, as head of the Civil Aeronautics Board, pretty much single handidly deregulated pricing and route decisions in the airline industry, has died. Kahn, an economist,was 93.

The deregulation he brought about resulted in plummeting airline prices and the advent of low-cost air carriers such as Southwest Airlines.

Prior to Kahn's deregulation, during the Jimmy Carter presidency, the government approved all flight routes and prices for most tickets (Sort of like what the FCC is trying to do now to the internet with the cleverly named, "net neutrality")

The CAB earned a reputation for bureaucratic complacency; airlines were subject to lengthy delays when applying for new routes or fare changes, which were not often approved. World Airways applied to begin a low-fare New York City to Los Angeles route in 1967; the CAB studied the request for over six years only to dismiss it because the record was "stale." (It was almost as arrogant as today's TSA)

But Kahn was an eccentric and fighter. He had a bad back, and once spoke to a conference of 60 utility lawyers while lying flat on a table.

The CAB was formed under FDR in 1940 and Kahn's deregulation push resulted in it's abolishment.


  1. Deregulation.

    Things were totally regulated before he took over CAB.

  2. Wenzel,

    And they were 100% deregulated afterward? That is, there was no regulation/government intervention left afterward?

    Maybe you don't think "reregulation" is the right word for when a bureaucrat or politician manages to remove some regulation while leaving others in place (or, as I think I remember from previous research on this topic, removed some regulation in return for altering other existing regulation) but I don't like calling it "deregulation" unless it's actual, 100% deregulation.

    Otherwise, you get a bunch of people saying the airline industry is "deregulated" -- like electricity in many states?! -- followed by, "And look what a mess that turned into! Free markets suck!"

  3. Taylor,

    You really need to look up the history of passenger flight pre-Kahn. It was a totally different animal, students didn't fly, families didn't fly. it was strictly for businessmen and very expensive.Ask your parents.

    I didn't fly for the first time until after I graduated from college.It just wasn't done. It was deregulation that changed that and people should become aware of it. Because most don't realize how dramatic the change is between then and now.

  4. Here's Rothbard's discussion:

  5. Wenzel,

    I don't see how your response addressed my point. I am not denying that the rules changed, positively and toward more freedom. I was just asking if calling it "deregulation" is appropriate given that the industry still faces all kinds of regulation and therefore saying it was "deregulated" may give some critics the false impression that it's some pure free market, which they can then launch their "the free market is full of failure" salvos at.

    I fully admit I am no student of the history of the period so I submit to your expertise on this.


    I just read the Rothbard piece. He seems to agree with Wenzel in using the deregulation terminology, while acknowledging that other regulations and regulatory bodies continued to interfere with the industry post deregulation. Again, I find that to be a confusing use of terminology, but maybe it makes sense if you say the airline industry was deregulated, but not all air travel itself.

  6. Taylor, I found that Rothbard piece several months ago after a conversation with some veteran travel industry types. They were blaming financial deregulation and laissez fair in general for the 2008 panic. They cited as evidence the chaos that airline deregulation brought c. 1980. I didn't have the facts to argue against the particulars of that situation. However, after reading Rothbard's essay and some others (not all libertarian), and knowing these people were entrenched in the previous regulatory-supported structure, I believe they took a financial hit as a result of competition. However, "deregulation" remains their cover. Same thing could be said about H.W.'s "deregulation" of the S&L's (which only exist as a result of arcane 1930's banking regulation).

    Words are loaded in different ways to different people. If I were talking to these same travel industry people today, I would be careful to distinguish just what and was not deregulated. It's a judgement call based on the audience, I believe.