Animus that really brings it to life. This is the latest in columbia series on markets where we discuss problems, political economy and how to solve them. I want to start by noting that his book is brilliant, and its brilliant because. It touches on problems that are so implicitly obvious to all of us. Im sure everyone in this room has felt frustration. An airline categorically. It feels like air travel has somehow even worse. Were offered less space and stuffed amidst more seats. Were given less food and charge, more fees. Were extended longer delays and offered less destinations. Everything that should have grown has shrunk and everything that should have shrunk has grown. Our planes have inverted and too often it feels like were flying upside down. And these problems with Civil Aviation emblematic of larger problems with our own country all over our infrastructure feels dysfunctional and our Technology Engine and the conventional interpretation of this fact is these are somehow merely automatic inconvenience, as in ancient and eroding industries. But of course, this isnt True Aviation isnt an ancient field. Its a young one. In fact, for most of human history, it wasnt believed man flight could even be accomplished. It was plummeted precisely because he dared to fly. Nor was this just an ancient prejudice. As recently as 1897, the Washington Post definitively concluded it is a fact that man cannot fly. Well, if that was a fact it wasnt a fact that the Wright Brothers found very convincing and six years later, they emerged the dunes of kitty hawk, half man birds. And for much of the 20th century america, the nation that was the first to spread its wings made dramatic on all frontiers of flight, we saw advances by argonauts astronaut suits and aviators. We watched great people up from earthly stars, people like lindbergh, hughes and armstrong. We built aircraft carriers and launched americans into space. These were years of progress and plenty. These were years of pride. But something terrible has happened. The intervening years. Weve lost our way plans have become ambitions. Ambitions have become dreams. Supersonic has slipped into subsonic. And subsonic has slipped into stagnation. And in december 120 years after kitty hawk, too Many American passengers have their Flights Canceled, delayed and downed. Sometimes it feels as if the Washington Post had it right the first time. Maybe men cant fly, but i hope no one in this assemblage would agree with that sentiment. We can fly. Weve long since accomplished the technical challenge on all we have is a political economy problem, a problem that can be solved by the in this room, a problem perhaps with answers. This book indeed, this book often reminds me of those words from tennyson. Some work of noble note may yet be done. Not unbecoming men that strove with gods made weak by time and fate, but strong and well to strive to seek, to find and not to yield. Thank you so much, everyone. Join me in welcoming our two advisors. Its. Well, thats always a hard act to follow, sir, but thank you for the thank you for the introduction. Im going to lead our discussion. Im tim wilks from here at the law school. And obviously i can ask the author is with us. I wanted to mention that the books are available outside from book culture whos come up with a big bundle them if you wish to buy. There may also possibly be my book there as well but the by the same publisher columbia global reports. So why dont we get right into it you know what you know lot about a lot of things you talked about a lot of topics inspired you to write this book. So im someone who flies a lot and, i think like anybody who flies a lot ive had my share of frustrations and miseries with the Airline Industry. But like tim, you know, im also a law professor and. I write a lot about Economic Policy and regulation and so i was working on a textbook with some colleagues and was writing the Airline Regulation chapter. And as i dug into the history of Airline Policy and law what i realized was that all things just about that make flying miserable, frustrating, irritating, problematic are a function Public Policy choices. And the biggest Public Policy choice in this area was the decision to deregulate the airlines in 1978. And so when i was doing work, it just struck me that this is a story think people dont really know they dont know how we got to where we are today, what really happened. And thats what tried to uncover in the book. Why dont you tell us a little bit of that story . So if people havent the book yet, you know, my understanding of it, i have read the book, but the very brief ideas, of course the airlines were new airplanes were, new obviously not regulated at the very beginning. Then there became to be regulatory system, which was so undone in late seventies. So why dont you walk us through that story little bit . Yeah. Yeah. So so if we put those early years from Wright Brothers into, into the 1920s, theyre really few big eras in history as a country in dealing Airline Policy. The first is from the 1930s to the 1970s. And i like to think of this as the era of stable, Reliable Service and what congress wanted to do the 1930s was ensure that we had air travel everywhere in the country because they saw it as a critical transportation infrastructure that was important to linking small places, medium places and whats geographically a gigantic space that we have. And they also wanted to make that the Airline Business would be competitive, but not so competitive that the airlines all go bankrupt or need subsidies and not so uncompetitive that they would become monopolies or oligopoly in any city or overall. And so they created a federal Regulatory Agency called the civil aeronautics, and they tasked them with managing a system of regulated competition in which the Civil Aeronautics Board or the allocated routes to specific airlines to fly from place to another. So some airlines as an airline, you would get some routes that were too low volume places like alaska and some were on high volume routes to they also regulated the prices of airlines in the early days to try to wean the airlines of government subsidies and then ultimately they tied prices mostly to. So the longer the distance you flew, more you paid and that system worked reasonably well through that time period. There were challenges certainly but during that period more and more people were flying, prices were down consistently and there were some big innovations like the shift from propellers, planes to jets, from jets to wide jets. And then by the 1970s, real competition over service actually, including some kind of service competition, at least as we might think of it today. My favorite example is that there were actually piano bars in some airplanes, not in the airports, in the airplanes themselves. And i dont know where you could fit a piano in an airplane, but i looked at some the pictures and and i say, its crazy. But i was looking at the Economy ClassLike American Airlines lounge. And, you know, on the airplane were pretty good. It made me feel like our civilization, civilization is kind of gone downhill or, Something Like that. But what what drove the impetus for change and towards deregulation . I think youre going to see follows. Yes so i think there are a few things. The first was there was a real economic crisis in the 1970s, a combination of high Inflation Oil prices demand went down for passenger travel. So there was this economic context that shifted. The second thing was there was a set of intellectual shifts that happened in that time period, largely driven by economists who the airlines were not a kind of public utility, a infrastructure. They werent a different kind of business. They were like all kinds of businesses. And as a result, operate like other businesses in a kind of competitive system and the system we had of regulating competition said was more like a cartel and that thats bad and we should get rid of cartels. And so their pitch was we could have a much better system if we Just Airlines fly wherever they want, whenever, want and charge whatever they want. Can interrupt you when you say who was the day and this in this case. Yeah. So its a really Interesting Group of people making this pitch its a mix of conservatives who you know maybe predictably were against Big Government regulation. But a lot of the real driving forces are actually liberals. A combination of consumer like ralph nader and also, you know, kind of classic old school liberals like ted kennedy and his main advisor at the time Later Supreme Court justice, stephen breyer. And so this combination of liberals and conservative economists pushing this idea that, you know, if we deregulated the industry, we could have dozens of airlines operating. One person even suggested up to 200 airlines operating competitive lean and there would be real no no real downsides in this system. And so that was their pitch and it was a good pitch. And so Congress Took it up. And in 1978 deregulated the industry. You know, what was the most charitable version you can give . I know you think deregulation has not gone as hoped, but what is the most charitable version you think of the goal or what they thought they would accomplish . Im saying that senator kennedy and stephen breyer, when they saw what you know, what they hoping would happened, i, i think the most terrible way we could think about this is that they thought that if we massively increased amount of competition and the number of players in the Airline Industry, we would lower prices because there would be more competition and. We wouldnt lose that much in terms of the quality of service or the Locations Service or congestion or or any of the other downsides that that weve seen over over the decades. I think the challenge with that was in a lot of ways, their assumptions about industry werent right and. And a lot of the people who pushed for deregulation, maybe not a lot, but some at least who pushed for deregulation admitted this years later that they had been wrong in their understanding of the industry in critical ways, and that as a result didnt predict happened afterwards. Yeah. So i guess tell the saga i take as well of relatively wellmeaning. I dont think you think this was a feeble conspiracy to to make seats smaller and. Lets im wrong about that but it didnt go as as well one of the things you say in your book, you say that the american tradition of regulated was built on the understanding that some sectors of the economy were like others. What was it maybe that they got wrong or what makes the Airline Industry different, other industries . Yes. So this idea goes back really hundreds of years in law and policy that some areas business are different than others and the reason theyre different is because theyre unlikely to be very competitive. And so in some areas you have really high costs, which just means its expensive to get into the business. There are effects or economies of scale which basically means that the bigger you are, the better off you are. And the more of a network you have, the better off you are. Easy example of that is, you know, a telephone would not be useful at all if theres no one else who has one. If youre the only person who has one. But if that network is really big, the bigger it is, the more valuable it is because you can call more people, right . So thats a of a network effect. Some areas have barriers to entry. Its hard to get into the business. Cant just start an airline it turns out you also have to have a place to land their limited number airports there are limited number of runways limited number of gates and cant have everybody landing at once. You know you can have 100 restaurants on the same street. Were here in new york. There are really streets. There are lots of restaurants on. They can all compete with each other. You cant have hundred Different Airlines landing their plane at the same on the same runway. They will crash each other. This is a real problem. Its a constraint. So there are these barriers that come up as well. And what people for a long time is in these industries youre highly likely to get either a monopoly or an oligopoly, which is just a of mystic way of saying a small number companies, not just one who are dominant and in those systems, you need a different kind of to prevent all the bads that come from the concentration of power into a very small number of firms. And so thats why they thought regulation was necessary and. What the regulators said was actually they were wrong about some of this, but they didnt think there were economies of scale in, the Airline Industry. They didnt really take seriously Network Effects. They thought that this was an area that didnt really have barriers to entry and that anyone could just start an airplane and i think when you read some of their comments from then, they are wellmeaning, but it just sounds when you them now it seems shocking how wrong they were right so you know, i take it from your book that we have the title, your book, why flying is miserable, so i take it you dont feel this was a Great Success . The deregulatory and you said some of what the assumptions were wrong, but what really went wrong and in practice, whats gone wrong over the last 40 years or whatever time period you want. Yeah. So, so what happened after the deregulation act in 1978 is we didnt end up in this dream world of competition where everything was better. We ended up in something more like the hunger games. It was. Yeah, it was. It was a i mean, it was a cutthroat period of competition right away where. There were a lot of new entrants coming in. There were airlines called new york air and people express and they were offering really cheap fares, no frills, no meals, just peanuts. Thats how we got to peanuts airlines. There was a campaign called just thats what the fares were. And they came not on those low volume routes flying to alaska or to rural places, but in high volume places where they could make, you know, a lot of volume and make money and for these airlines that were coming in, you know, trying to really undercut the big guys on cost, at first that seemed like a good thing. But the big airlines fought back and they had a lot of weapons that they could use, too, in this hunger games. And that meant pricing even below the new upstarts, it meant sandwiching flights. So, you know, imagine you have a flight at 10 a. M. As a new airline. Big airline would come in and have a flight at 958 and 1002 going to the same place and. Who wants to fly the airline that has so few flights when you could fly. The bigger airline for cheaper with Better Service where theres more flights per day. But that meant the Smaller Airlines went out of business. And so you had dozens of bankruptcies mergers in this period. And by the end of eighties, we have reconsolidation back into the same big airlines were dominant in the regulated period but just without regulation and so that was that and i think whats happened over the decades weve gotten even more concentration. I would say now were in Something Like a period of monopolistic capital where you really have very, very little competition, deep concentration in the industry not just overall where the top four airlines have a larger market share. They did in the 1970s, but also, concentration at airports, you know, in some airports in the 1970s, only 20 of the airport would be one airline that would be the most dominant. Now its 70 . Its its huge amounts. So theres less competition even if youre flying to specific places. And thats to some big cities. Atlanta dallas, charlotte. And so think thats where we are now, a place where we have few choices. Well, let me try and pin you down on this and how you feel about competition, because i feel its a key question i feel many members of our audience or people watching might and naturally, instinctively think the competition in airlines is good. You know if you have one carrier on a route or two carriers, theyre going to match prices, charge whatever they can get away with. So, you know, i think the sense competition might be bad is is very counter intuitive. So i guess im trained in the Justice Department right now is trying to stop a merger between jetblue and spirit on the basis that it would destroy competition. So i guess im trying to pin you down exactly what saying about competition, too much competition about. Too much. Where are you really on Airline Competition . Yeah. So this really goes back to this distinction where some are different than others. If were thinking about making coffee mugs or a restaurant, you can have competition where we can expect might be dozens of restaurants, hundreds of restaurants even in a in a city big enough and they can all compete with other but in these sectors where theres a move toward clean solid nation to have really requires a fair bit of regulation in order to maintain it and thats what we had in the regulatory period. There was competition, it was regulated competition, but it was competition, right . We have less competition now than we did then because we deregulated and you dont its these in these areas, choice isnt open competition or regulation. Its actually regulated competition or massive consolidation and no competition. Right. And thats because of these underlying economic dynamics. And so to me, the question is not can we just have competition without regulation its that in these sectors,