When regulators can’t keep up

The Civil Aeronautics Board, which regulated interstate air fares and routes until its statutory demise from 1978 to 1985, was by the early ’70s a hidebound agency with little interest in serving consumers. It declined to approve new route authorities, frequently offered antitrust immunity to airlines when they colluded on scheduling, and generally opposed any effort to reduce fares — even as the technological barriers to lower fares were falling in the jet age. “As the CAB’s regulation of the industry grew more ham-handed, an airline nderground sprang up,” write Barbara Sturken Peterson and James Glab in Rapid Descent: Deregulation and the Shakeout in the Airlines.

Travelers banded together in phony groups that existed only to charter a flight. Authorities became suspicious when organizations like the Czechoslovakian Radio Hour Friendship Club started showing an unlikely interest in globetrotting. The CAB assigned gumshoes to stand at airports and check charter passengers’ IDs. The campaign reached hilarious heights in 1971, when the government’s air fare police raided a plane carrying members of the “Left Handed Club,” a group they accurately suspected included many right-handed passengers in search of inexpensive air travel.

The sad thing was that the CAB did not have to act this way. Congress deregulated the industry in response to the CAB’s relentless refusal to adapt to the changing environment of aviation. I think there’s a lesson here today. The chief regulatory agency in the U.S. aviation world, the FAA, has failed to keep up with increasing and evolving demand for air travel, leaving us with congestion problems that can only be “solved” by external shocks like 9/11 (in 2001) or a recession (very soon). When the regulator can’t keep up, Congress needs to reform it.

The CAB’s lack of interest in promoting competition in the airline industry eventually became so outrageous that it drew Ted Kennedy, Ralph Nader, and free-market economists into the same camp. How bad will our current situation get before similar change will come to pass?

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