Reason Magazine - Topics > Deregulation

Terror at Ten Feet

gillespie@reason.com (Nick Gillespie) — Wed, 16 Apr 2008 08:58:00 EDT

Whenever I see the corporate logo of Northwest Airlines (NWA), I always think of a band that came straight outta Compton all those many years ago.

Anyhoo, NWA and Delta are in merger talks to become the world's biggest, and certainly worst in terms of service and pricing, airline (as it is, they both suck pretty hard right now). The pilots at both joints are lukewarm-to-cold on the deal and various congress critters have spoken out against the deal. Neither will be able to put the kibosh on things, though they can make the eventual outcome more difficult and costly.

A snippet from one article:

"It's not an industry that works," said Mark Cooper, director of research for the Consumer Federation of America, who lobbied Congress against a bid by US Airways for Delta last year.
"We're now getting to the point where there are so few carriers left, and they still can't make money," he said yesterday.
Delta and Northwest said they have no current plans to cut more U.S. flights beyond what they have disclosed separately -- something analysts see as limiting the cost savings or higher fares the airlines could reap from the deal. The carriers also don't plan to close any of their hubs. But they didn't rule out further capacity cuts in the future if fuel prices continue to rise....
The executives said they would like to close the deal by the end of this year, which would be before the merger-friendly Bush administration leaves office.
Several lawmakers already have railed against a Northwest-Delta combination, arguing that the deal will decrease competition and lead to higher fares. But Congress has little power to stop a transaction, and most experts believe the Justice Department will approve it.

I like mergers and I don't fear bigger companies that result from them, even if mergers typically fail when it comes most measures of success. Airline deregulation in terms of pricing of tickets has been an absolutely great thing, though it was never extended to airports and air traffic control, which creates all sorts of problems. The troubles with the airline industry are due to a lack of free markets (including the prohibition on foreign ownership of "domestic" carriers), not their presence. Bailed out after the 9/11 attacks, expect the ailing airline industry to keep going back for more at the government teat on a regular basis. The airline industry is one of the worst when it comes to pushing "free markets" when it benefits them, then crying for government protection/intervention when that will help them out.

Tell your tales of Shatnerian "Nightmares at 20,000 Feet"—or, much more likely, on the tarmac or in the terminal—here.

And go Braniff!

Update: Skip Oliva notes via email, "The other problem that you did not state is that antitrust regulation prohibits most temporary alliances—aka "cartels"—that might make more economic sense than outright mergers.

It's a Bird! It's a Plane! It's a Free Market!

kmw@reason.com (Katherine Mangu-Ward) — Tue, 25 Mar 2008 16:48:00 EDT

Airline deregulation isn't very sexy, but trips to Paris are. And thanks to the former, the latter is about to become a lot easier:

On March 30, the so-called open-skies agreement goes into effect, allowing airlines based in the United States and Europe to fly across the Atlantic between any two airports in each region. Before the pact, trans-Atlantic flights were governed by separate agreements between the United States and individual European nations. The pacts required airlines to take off or land in their native countries, and limited which airlines could serve certain airports.
For example, British Airways flights bound for the United States had to originate in Britain. And only two United States carriers were permitted to land at Heathrow Airport, near London: American and United.

The happy free market results:

When the open-skies agreement kicks in next week, those restrictions will be lifted, essentially letting the open market dictate all trans-Atlantic routes between the United States and Europe.

More sultry airline deregulation stories here and here.

George McGovern Takes on Economic Paternalists

jsullum@reason.com (Jacob Sullum) — Fri, 07 Mar 2008 12:36:00 EST

Former Democratic presidential nominee George McGovern, who has been moving in a libertarian direction for a couple of decades (partly as a result of suffering the regulatory hassles associated with running his Connecticut inn), defends subprime mortgages, payday lending, and interstate health insurance shopping against "economic paternalism" in today's Wall Street Journal:

Under the guise of protecting us from ourselves, the right and the left are becoming ever more aggressive in regulating behavior. Much paternalist scrutiny has recently centered on personal economics...
Since leaving office I've written about public policy from a new perspective: outside looking in. I've come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society.
Why do we think we are helping adult consumers by taking away their options? We don't take away cars because we don't like some people speeding. We allow state lotteries despite knowing some people are betting their grocery money. Everyone is exposed to economic risks of some kind. But we don't operate mindlessly in trying to smooth out every theoretical wrinkle in life.
The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.

Michael Lynch delved into the controversy over payday loans in the April 2002 issue of reason. Recent reason coverage of subprime mortgages here.

[Thanks to John Kluge for the tip.]

Fly the Fleshy Skies

gillespie@reason.com (Nick Gillespie) — Wed, 30 Jan 2008 10:43:00 EST

Reuters, via MSNBC, reports on one of the most stomach-turning airborne spectacles since the Hindenburg explosion:

German nudists will be able to start their holidays early by stripping off on the plane if they take up a new offer from an eastern German travel firm.
Travel agency OssiUrlaub.de said it would start taking bookings from Friday for a trial nudist day trip from the eastern German town of Erfurt to the popular Baltic Sea resort of Usedom, planned for July 5 and costing 499 euros ($735).

Thank heaven for small favors:

The 55 passengers will have to remain clothed until they board, and dress before disembarking, said Hess. The crew will remain clothed throughout the flight for safety reasons.

More here.

Needless to say, I support totally deregulated air travel, including the right to do this. But suddenly flying coach on U.S. Airways got a lot more comfortable.

The other great German fashion faux-pas analyzed here.

Info on 2003 Naked Air Flight originating from Miami (pictured here).

Mail Privatization in Europe

jsullum@reason.com (Jacob Sullum) — Thu, 12 Jul 2007 06:47:00 EDT

The European Parliament is taking on a libertarian bête noire that Congress so far has been afraid to attack. Under legislation it approved this week, all postal monopolies in member states must be abolished by 2011 (two years later than the European Commission wanted, but who knows how many years before the U.S. has an open market in all forms of mail delivery). Britain, Finland, and Sweden already have opened up all aspects of the market to competition; Germany and the Netherlands are expected to follow suit soon.

Nightmare at 20,000 Feet: Crazy Bob Kuttner Is Hungry for a Meal...and Airline Reregulation!

gillespie@reason.com (Nick Gillespie) — Tue, 08 May 2007 11:37:00 EDT

You may know Robert Kuttner as the sober co-editor of The American Prospect. Or you may recall him as the Capt. Queeg of doctrinaire liberalism who adopts the persona of "Crazy Bob," a maximum--and fearless--leader who is ready to don a fright-wig if and when the moment calls for such bold action.

But after reading this recent Boston Globe column by Kuttner, you'll think of him as the next likely perpetrator of that air rage that used to be all the rage a few years ago. But it's not just crappy service and all those Becker reruns wot's driving Crazy Bob crazy these days. It's the sheer insanity of the semi-free market that's making Kuttner pull a Shatner at 20,000 feet (plus or minus 16,000 feet):

I am writing these words at 36,000 feet, where Delta, another malefactor, no longer provides complimentary meal service on its six-hour nonstop Boston-to-Seattle route. Delta doesn't even offer meals for purchase. (On the shorter, but competitive, Boston-to-London flight, it manages to serve two.) Delta, which emerged this week from bankruptcy, pinches pennies in other ways, with sardine-like coach seats.

The other menace of today's deregulated flying experience is the crazy quilt of fares. Deregulation allows airlines to adopt any pricing scheme the traffic will bear. The object is to fill all seats, with the maximum total revenue. This is said to be economically efficient. But this chaos is not the only way of optimizing revenue. Indeed, the proof of its failure is the epidemic of airline bankruptcies. In most years since deregulation, the airlines have lost money.

Submitted for your approval: A system that allows airlines to charge different prices for tickets is not a "menace"; nor does it represent "chaos." And the deregulation of ticket prices has been a boon for travelers by cutting prices phenomenally. As the Government Accounting Office reports, since deregulation,

Airfares have fallen in real terms over time while service-as measured by industry connectivity and competitiveness-has improved slightly. Overall, the median fare has declined almost 40 percent since 1980 as measured in 2005 dollars....
However, fares in shorter-distance and less- traveled markets have not fallen as much as fares in long-distance and heavily trafficked markets. Since 1980, markets have generally become more competitive; with the average number of competitors increasing from 2.2 per market in 1980 to 3.5 in 2005.

More here. And while it's true that airline prices had started to decline before deregulation, "deregulated fares have been 10 to 18 percent lower, on average, than they would have been under the previous regulatory formulas" (more on that here).

This isn't to say everything is rosy in the friendly skies. That's partly because the deregulation was never completed (opening up airports to true competition has been painfully slow in coming, as has spinning off the air-traffic control system to a private or semi-private entity, and foreign-ownership rules means that domestic airlines aren't as competitive as they might be otherwise, etc). Flying is more like riding the bus these days, which offends snobs even as it's proof that more people can afford to fly than ever before. But Jesus H. Christ, has any policy--pushed back in the '70s by a bunch of Democrats such as Ted Kennedy, Alfred Kahn, and Jimmy Carter--been as clearly beneficial as airline deregulation (maybe the dereg of interstate trucking, which happened around the same time)?

Back to Kuttner, who among other things, bitches and moans about flyers getting discounts if they book their tickets ahead of time (as if basically every other industry doesn't do something similar):

If you want to fly nonstop from Boston to Seattle, there's Delta . . . or Delta. The two shuttles to Washington National mysteriously charge identical, exorbitant fares. Nor are there options of price and quality. You can suffer steerage; or plunk down a month's pay and go first class.

This is simply wrong: A quick scouting of fares at Travelocity shows that, at the very least, JetBlue and Alaska Airlines offer nonstops between those Boston and Seattle (and a bunch other airlines say they offer direct service). And in any case, since when is it the birthright of Bob Kuttner or anyone else that they get direct service between any two given cities? While you're complaining, don't forget to bitch and moan about ice cream that's not fattening, too. The injustices we all suffer in this world are too great to bear! And then he says there are no options "of price and quality" immediately before complaining about the option between coach and first class. WTF? Another quick scan at Travelocity for flights from Boston to DC's National airport (leaving on May 15 and returning on May 17) show four airlines doing nonstop service for prices ranging from $371 to $449, which strikes me as a decent swing (nonstops range from $290 to $449, not including all the goddamn taxes and fees that I'm sure Kuttner is generally in favor of).

In the end, Kuttner remains a medieval thinker about prices: There is a fixed and fair price to any given good or service, independent of context, the subjective valuations of individuals, etc. Indeed, he even trots out the labor theory of value to say why it's wrong that airlines charge different prices for the "same" seat:

Fares bear little relationship to airlines' costs. In principle, it's possible that every person on the same flight was charged a different fare. Some paid less than others, not because they booked early but because they got discounts negotiated by a corporate employer. Yet it costs the airline the same to fly the passenger in seat 21A as in 21B. These corporate discount deals produce few if any economies of scale, since seats are still mostly booked one at a time. So why should different passengers be charged different fares for the same flight?

Last question first: Because different passengers will pay different prices for the same ticket.

I'm curious if Kuttner charges a fixed rate for all of his writing? If the Globe offers him, I don't know, $200 for an op-ed and someone else offers $500, does he turn down the offer that bears less relationship to his "costs"? After all, why should he charge different prices for the same op-ed (and let's be clear: he's not coming up with any original thoughts; indeed, he can't even be bothered to pull a George Jetson and hit a couple of buttons to research airfares)? Does he get more (or give more, as an editor at The American Prospect) for someone who turns in a piece overnight on a very time-sensitive subject? Yet it costs a newspaper or magazine the same to run each letter of print, doesn't it?

I fly a lot--every week, in fact. I wish airline prices were cheaper still, that the seats were bigger, the planes faster, the food better (or that there even was actual food on flights, rather than "snacks" that seem scrounged up from the backseats of a 1968 Ford station wagon). I wish that the airline industry was fully open to competition, that the government doesn't bail them out anymore, and that foreign companies can openly own controlling interests in domestic carriers (not because I hate America but because that would certainly benefit you and me). But it's not such a stretch to see that air travelers are in a much better situation now than they used to be. Or that fluctuating airfares are a sign that something is right with the world.

I'm just glad the Kuttner isn't flying the plane.

Let the People Build

jwalker@reason.com (Jesse Walker) — Tue, 27 Mar 2007 14:26:00 EDT

Andrés Duany is one of the leading New Urbanists; Randal O'Toole is one of New Urbanism's sharpest critics. But when it comes to rebuilding New Orleans, they're singing similar tunes. From O'Toole's blog:

Many of New Orleans' low-income neighborhoods were built decades ago, when building codes were not as strict as they are today. Rebuilding them to meet modern codes will cost far more than their former occupants can afford....

Duany [writing in Metropolis magazine] has a solution: Create an "an experimental 'opt-out zone': areas where one 'contracts out' of the current American system, which consists of the nanny state raising standards to the point where it is so costly and complicated to build that only the state can provide affordable housing."

"For three centuries Americans built for themselves," adds Duany. "They built well enough, so long as it was theirs. Individual responsibility could be trusted. We must return to this as an option."

O'Toole is actually less eager than Duany to deregulate, arguing that "if homes in the opt-out zone do not meet minimum building codes, banks may not be willing to give their owners home equity loans, which are a major source of funds for small businesses. This poses the danger of a two-tier society: one of poor people who can afford minimal housing but have little upward mobility, and one of wealthy people who can afford housing in highly regulated areas." So instead of a two-zone system, O'Toole calls for a more complex arrangement with

* A totally deregulated area, with no building codes, zoning, or other rules;

* An area of the minimal building codes and other regulations needed to get banks to provide mortgages and home equity loans;

* An area with building codes and simple zoning setting maximum densities and some setbacks but no minimum densities and no other design standards;

* A fully regulated area with strict design standards.

These zones would not be oriented around people's incomes but around their desire for order and planning. Perhaps neighborhoods could vote on which zone they want to be in.

Update: On a related note, Sanford Ikeda says New Orleans could use a little neighborhood secession.

Ugly vs. Bush: Ugly Wins!

kmw@reason.com (Katherine Mangu-Ward) — Wed, 17 Jan 2007 11:24:00 EST

Tasty, wrinkly tomatoes win a battle against bureaucracy in Florida:

The Florida Tomato Committee, which controls most of the $500 million industry in the state, [previously] refused to allow Procacci Brothers to ship UglyRipe tomatoes out of the state. The committee was established by a federal agreement in 1937, and is one of many such groups that regulate agricultural products in several states.

The rules govern the looks of tomatoes. "Flavor is not a factor because, in the committee’s view, it is too subjective," reports the Times.

Hilariously, opponents claimed these little wizened-looking tomatoes would have an unfair advantage:

Florida governor Jeb Bush, opposed the change on the grounds that it would give an unfair advantage to the grower of UglyRipes. “Every grower has some percentage of its crops that is flat, elongated, ridged, etc., yet they are still required to adhere to the minimum grade requirements,” the governor’s letter said....
The tomato committee, which guarantees the consistency of Florida tomatoes, said that the new ruling could create a precedent that might allow inferior tomatoes to get to market.

Apparently, only the Florida Tomato Committee is able to detect "inferior tomatoes." I wonder what all those people are doing in the grocery store when they pick one up, squeeze, sniff, and put it back in the bin and walk away?

UglyRipes, marketed as Santa Sweets, will start shipping tomorrow.

Jacob Sullum tracked the Ugly wars for the magazine in 2005.

SarbOx: Not Just Dumb, But Unconstitutional?

bdoherty@reason.com (Brian Doherty) — Wed, 20 Dec 2006 16:27:00 EST

The U.S. District Court in D.C. is scheduled to hear arguments tomorrow in a lawsuit challenging the constitutionality of the Sarbanes-Oxley corporate finance reform law, filed by the free-market think tank the Competitive Enterprise Institute, the Free Enterprise Fund, and Beckstead and Watts, an accounting firm.

From the CEI press release, the plaintiffs are

asking the Court to declare [SarbOx] unconstitutional under the Appointments Clause of the Constitution. That clause requires major government officials to be appointed by the President and confirmed by the Senate. However, the five-member accounting oversight board is virtually a quasi-private organization with no accountability to the President or the Congress that created it. It has the power to micro-manage companies’ accounting procedures, impose taxes, and fine companies up to $2 million. Complying with the Board’s rules cost the economy more than $35 billion in its first year alone.

Full CEI study on the topic of Sarbanes-Oxley's unconstitutionality.

Full text of court filing by the plaintiffs. (This filing, despite the CEI press release, does not seem to specifically name CEI as a plaintiff.)

My Reason feature roundtable of interviews from various professionals coping with Sarbanes-Oxley's effects, from our January 2006 issue.

Closing the Grocery Gap

bdoherty@reason.com (Brian Doherty) — Tue, 28 Nov 2006 16:02:00 EST

You may have heard of the "grocery gap" between suburbs and the inner city--the more limited availability of access to big grocery stores in urban areas. Continuing my dig through some sadly neglected, but very useful, old magazines and professional journals that have been piling up, I came across this article on the topic from the April issue of Governing. While mostly concerned with a Pennsylvania state House members attempts to gin up government money and public-private partnerships to get more grocery stores in the inner city, and other state and local governments trying to emulate him, the article does point out:

What’s become increasingly clear in the past few years is that the problems of running an urban supermarket aren’t a result of things going wrong after the store opens. The issue is the myriad obstacles that stand in the way of getting the store built.

As obvious as the needs are, and as well-documented as the opportunities for profit may be, it takes forever to get an urban supermarket deal done — 10 years in the case of the first Pathmark in Newark; nearly as long before Publix opened its doors in the inner-city Atlanta neighborhood of East Lake. One reason is simple bureaucratic clumsiness. “Urban environments have an arcane development process and a lot of companies don’t have the stomach for it,” says Buzz Roberts, who has run a supermarket assistance program for the nonprofit Local Initiatives Support Corp. “You can do two or three stores in the suburbs in the time it takes to do one in the inner city.”

Whole article here.

Wise Up, Stupid Party

pbasham@cato.org (Patrick Basham) — Fri, 27 May 2005 00:00:00 EDT

"It seems a barren thing this Conservatism—an unhappy crossbreed, the mule of politics that engenders nothing." British statesman Benjamin Disraeli's nineteenth-century description rings eerily true following the British Conservative party's third straight defeat in this month's elections. The irony is that the Conservatives are without influence at a time when the fusion of free market economics and individual freedom should be putting them in the catbird seat.

Latter-day Conservatives have made every effort to conform to John Stuart Mill's categorization of them as "the stupidest party." It's a generation since Margaret Thatcher poured revitalizing ideological juice into the Conservative bottle; since then, the party has wandered intellectually naked across the political landscape. The Conservative party can only become relevant again if it becomes a party of ideas.

The good news is that the Tories can do this fairly easily—by returning to their principles and filling an intellectual vacuum in contemporary UK politics. An ineffectual, tax-and-spend Labour government was reelected by default. For many voters, there was no alternative. Despite the Conservative party's 200-year history of reinvention (usually after losing office), most British voters, with good reason, consider the party out of touch.

The bad news is that, in their post-election positioning, the Tories have shown a passion for bickering but only sporadic interest in ideology. Conservatives don't need a tedious set of detailed policies, but they do need a serious, radical manifesto that speaks to a grown-up electorate. Above all, Conservatives need to pen a philosophically coherent narrative that explains the connection between economic and social freedom. It's time for the party to embrace the spirit of liberty in the British body politic.

Consider economic policy. Following 66 tax increases and a one-third rise in government spending (in real terms), the Conservatives responded with fiscal me-tooism: promises of targeted, trivial tax cutting and spending that would have increased at a slightly slower rate than Labour's. Britons are grossly overtaxed and overregulated, yet the party's miserable goal is to replace Labour as the manager of a bloated welfare state.

The problem isn't that the Conservatives had a secret agenda to shrink the welfare state. The problem is that they did not. This Big-Government Conservatism concedes wide swaths of ideological ground, from spending to taxation, from health care to education. Yet, for all the squishiness, the party still attracts just one in three voters.

By holding onto their principles, by sticking up for public service consumers rather than government functionaries, the Tories can only improve their chances. No more "Bush Lite," government-first solutions. Britain needs to subject its public services to radical market-based reform—ending Labour's regulatory death grip on the private sector, defending competition and deregulation that reward risk-taking and wealth creation, and empowering patients and parents through large-scale, not piecemeal, restructuring of the health care system.

In the contest between personal responsibility and government paternalism, Conservatives should back the anti-nanny state. Stop appeasing the finger-wagging social engineers, the food fascists, and the anti-smoking, anti-gambling zealots who seek to micromanage every facet of life. Conservatives should treat voters as grown-ups. Opposing Labour's innate illiberalism will enable the Conservatives to plant their flag upon vacant, yet fertile, classical liberal territory. The Tories are fortunate that, unlike America's Republicans, they are unencumbered by the religious right.

With Conservative party leader Michael Howard heading for the exit, the prospects for a renewal in the party are mixed. David Davis, the current front-runner to replace Howard, has come on strong by opposing plans for a national ID card, laying out a law-and-order platform that speaks as much about habeas corpus and presumption of innocence as it does about getting tough on crime, and starting a new trend toward pols identifying themselves as "low-tax Tories." (The implication that there can be any other kind of Tory is a dismal comment on the party's ideological bankruptcy.) But even Davis' ID card comments seem to focus more on budgetary and technical concerns than on the essential right not to be under perpetual government scrutiny. Still, it's a hopeful sign that the Tories are at least asserting individual liberty as a core belief of the party.

The Conservatives can choose to govern based upon the principles of freedom and liberty, or they can choose to sustain the political establishment's cozy consensus, thereby continuing their descent into political irrelevance. The right choice will serve both their partisan and the national interest.

Another Yellow Revolution?

info@reason.com (John Vaught LaBeaume) — Thu, 05 May 2005 00:00:00 EDT

Voters in the United Kingdom headed to the polls Thursday, and if you watch C-SPAN's feed from the BBC's fantabulously frenetic election night coverage, you might spy the notoriously frenzied election analyst Peter Snow darting about a giant map of the UK, washing away swaths of Labour red and some of the last redoubts of Tory blue. Opinion polls are pointing to unprecedented gains for the Liberal Democrats, the UK's historical "third party," and each constituency that Snow points to, magically lighting it up in brilliant yellow, will indicate another gain for the LibDems.

The Liberal Democrats' potential lies in deftly exploiting a gaping hole in British politics by campaigning with a positive, consistently liberal platform rooted in the party's Classical Liberal tradition. They stand to reap gains by fighting a campaign with its most coherent platform in decades, offering a fresh contrast to the dour, illiberal agendas proffered by both Prime Minister Tony Blair's "control freak" New Labour and an aimless Conservative Party, obsessed with cracking down on immigration and imposing "school discipline."

Tony Blair swept the Conservatives from eighteen years of uninterrupted power in 1997 by re-branding his party as "New Labour," jettisoning its "Loony Left" image and renouncing its devotion to centralized state planning. This audacious strategy met fierce resistance from the unions that comprise the historical base of the Labour Party, but it convinced the British middle class that Labour was ready to govern again. While it has rejected socialism, New Labour continues to advocate a technocratic hyper-management of the UK's relatively free post-Thatcher economy.

New Labour's interventionist impulse extends from the economy to the personal sphere. In 2001, Blair proudly declared in a Labour Party TV broadcast that he isn't "some 1960's style libertarian." This week, Blair took to the pages of The Sun, a racy, populist tabloid, to smear the Liberal Democrats' as "soft on drugs." This record prompted Liberal Democrat leader Charles Kennedy to reassert his party's historic defense of English civil liberty at this year's party conference, decrying New Labour's "authoritarian instincts," denouncing the government's plan for a compulsory national ID card and condemning its proposals for unprecedented curbs of the rights of the accused in the name of the War on Terror. Kennedy also noted, with glee, that Her Majesty's Official Opposition, the Conservative Party, has either endorsed each "reform" or failed to challenge Blair's Labour government, leaving the Liberal Democrats as the only voice of dissent.

While their economic policy might fail to satisfy a Chicago School economist, this election has seen the Liberal Democrats stake out the most explicitly liberal economic policy in a century. The party's website pledges to get the British government "off the back of businesses" and assures voters that the LibDems "want to cut the red tape that stops businesses from growing." Press releases during the campaign have excoriated "Labour's business record" as "complex, interfering and over regulating" and have promised that "Liberal Democrats will set business free." And though they would shift many of its current powers to other agencies, the LibDems propose abolishing the Department of Trade and Industry, claiming it would constitute "the biggest single act of deregulation in history." In contrast to the LibDems' exploration of economic liberalism, this year's Conservative Party platform marks a meek retreat from the party's Thatcherite tradition.

If the negative reaction it has incurred from both right and left is any indication, the LibDems' distinctly liberal message seems to be paying off. The Conservative-friendly Telegraph has felt it necessary to editorialize to its readership that the LibDems aren't sincere in their embrace of the market. George Monbiot, columnist for the lefty Guardian, warns left wingers that a vote for the LibDems will not only signal opposition to the war in Iraq and the Labour government's abysmal record on civil liberties, but they will also be a vote "for the further deregulation of business." And when the BBC's website pondered where the LibDems stand in this election, it threw up its hands: "The question of whether the Lib Dems are now to the left of Labour is in the eye of the beholder."

When he took the helm of the LibDem leadership, Kennedy resurrected the traditional Liberal "equidistance" between Labour and Conservative that his predecessor had abandoned, wisely determining that policy to be a strategic miscalculation. Cozying up to Labour offered immediate, limited rewards in the form of more seats won from the Tories, but the policy marked a set back for the party elsewhere, stunting its ability to enlarge it parliamentary caucus by winning seats from Labour.

A cadre of "Young Turk" MP's and advisors recognized that the Liberal Democrats no longer had the luxury of complacently contrasting itself from a Labour Party saddled by militant labor unions and academic central planners and had to forge an economic policy that didn't merely parrot New Labour's line. With the publication of The Orange Book in the fall of 2004, this group of reformers issued a manifesto that called for modernizing the party by reinvigorating Liberal Democrat policies through a reclaiming of the party's Classical Liberal heritage. Indeed, the first paragraph of the book's introduction invokes the names of some of the great lights of Britain's liberal tradition: John Stuart Mill, Jeremy Bentham, and Adam Smith. The Orange Book's authors joined party colleagues in Liberal Future, a pressure group founded in 2002, as exponents of complementing the Liberal Democrats' recently emboldened defense of personal liberty with a more explicit economic liberalism.

While some commentators have wondered aloud if Kennedy's affable demeanor is too "relaxed," it belies Kennedy's canny political instincts. He understands that his unhurried attitude has immense popular appeal as the antithesis of a scheming, grasping politician. He is also savvy enough to recognize the potential value in the reformers' explicitly liberal agenda.

Under Kennedy's watch, a Liberal Democrat party that positions itself as the lone defenders of English civil liberty and peace, while unabashedly embracing a market economy, has scored phenomenal by-election upsets, snatching away safe Labour-held seats once thought to be impregnable. He sounds like a sincere convert. In a Guardian profile, Kennedy summons language to explicate his party's core values that would stir any Classical Liberal heart: "The first guiding principle is a mindset, I think—a gut philosophical instinct—to see society in terms of the individual, first and foremost, rather than the interests of the state."

Tune in to C-SPAN tonight to see how much of the UK, inspired by the Liberal Democrats' resurgent liberalism, turns bright yellow.

A Cold Shower for World Water Day

Fredrik.Segerfeldt@svensktnaringsliv.se (Fredrik Segerfeldt) — Tue, 22 Mar 2005 00:00:00 EST

A global water crisis is looming. More than a billion people worldwide lack access to clean and safe water. Some 12 million people die annually as a result, and millions more are struck by diseases associated with the lack of sanitary water. Last year, more people likely died from lack of water than from armed conflicts.

Today is World Water Day and the launch of the United Nation's international water decade, aimed at promoting the UN Millennium Goal of halving the number of people without access to clean, safe water. This is not the first time the UN has made bombastic declarations about water for everyone. It did so in 1977, when governments of member states promised to provide their populations with water. In fact the first international water decade actually took place in the 1980s, to little practical effect.

There may be a solution to what had been an insoluble problem. In recent years, a small number of developing country governments have turned to the private sector for help and have introduced market-oriented reforms in the water sector. Overall, the results have been encouraging.

The reforms have had limited scope—97 percent of all water distribution, after all, is still in government hands—but millions of new households in such diverse locations as Argentina, Cambodia, Guinea, Morocco, and the Philippines have been connected to water networks as a result of private investment. In developing countries with private investment in water infrastructure, 80 percent of the population now has access to an improved water source. Countries that don't allow private investment in water distribution have lagged behind their entrepreneurial rivals.

The attempts at privatization have met vociferous resistance. A coalition of non-governmental organizations, trade unions for public employees, and international organizations such as the United Nations have done all they can to limit the role of the market and the business community. And they have had some success. The pace of privatization has slowed down, and the World Bank, one of the major advocates of privatization, has gone on the defensive. Global water companies are less and less inclined to invest in developing countries, for fear that their efforts may be nationalized.

This is a tragic development, and all the more so since the anti-privatization lobby is wrong on almost every count. What they denounce as "privatization" is not at all about complete deregulation and liberalization of services. Rather, what we have seen are different forms of tightly regulated cooperation between cash-strapped developing country governments and skilled and experienced water companies.

The most common argument against privatization is that it will lead to rate hikes, making it impossible for the poor to pay for their water. This is a gross oversimplification: There are cases where prices have gone up after privatization, but there are also cases where rates have been lowered.

But grant the point for a minute. Artificially low prices are one of the main causes behind the shortage of good water. When operators know that they are going to lose money on each new household that they connect, they have no incentives to extend networks. If water companies do not get enough capital to lay down new pipes or to maintain the infrastructure, people suffer.

Millions of women and children therefore spend many hours per day (the estimate is 10 million man-years per annum) fetching bad water from remote sources. They cannot work or go to school during this time, which helps to keep them in poverty. Too-low prices also lead to waste and misallocations in agriculture, where most water is used—and generally used inefficiently.

Most importantly, the billion people who are not connected to any water network are forced to buy water—usually of bad quality—that costs on average 12 times more than network water. These people will gain, not lose, from higher prices, when operators get capital and incentives to reach them. Since the poor are not connected to the networks, they do not gain from subsidized water; they pay for it with their taxes, financing cheap water for the better off.

Members of the anti-privatization movement claim that water is a human right that only governments can provide. The problem is that, for whatever reason, many governments simply will not provide this water. It is not surprising that water companies with skills, incentives, capital and technology are far better equipped to provide water. No matter how many documents declare that access to water is a fundamental right, people can't drink paper or rights; they need actual water.

Some people also argue that since water is necessary for life, it needs to be distributed "democratically"—i.e., by the government. That is nonsense. Food is also necessary for humans to survive. And in countries where food is produced "democratically," there tends to be neither food nor democracy.

There is a solution to the water crisis. Companies and markets can save millions of lives—if they are allowed. Let us hope that the United Nations recognizes this today.

Four More Years!?!?!

Tue, 01 Feb 2005 00:00:00 EST

As Maureen McGovern memorably sang after another Most Important Presidential Election Of Our Lifetime, "There's got to be a morning after." And just like in 1972, Democrats woke up humiliated, Republicans rose jubilant, and advocates of limited government cast their eyes anxiously at a secretive second-term White House with a spotty track record on liberty.

Much has changed for the better these last 32 years, but the Morning After 2004 was still filled with unanswered questions about the legacy George Bush will leave. reason asked a variety of pundits, pols, and profs to tell us their biggest hopes and fears for the next four years. Their answers, given in late November, follow.

I Hope...We'll See Democracy in the Middle East

Michael Young

It's probably a relief that the Iraqis, or most Iraqis, will be around in the months ahead to remind the second Bush administration of its democratization promises. Although the United States has focused on creating an auspicious climate for Iraqi elections at the start of 2005, creating an open society in Iraq has been decidedly lower on the list of American priorities since security in the country has gone south.

Will Bush in his second term stiffen his back and again insist on making Iraqi democracy (assuming that phantom comes alive) a linchpin for regional pluralism, helping undermine the Islamist militancy that caused 9/11? One must hope so, since otherwise the Iraqi adventure will have been a spectacular waste of life. Echoes of Arab democracy can still be heard in Washington, even if the advent of Condoleezza Rice as secretary of state promises the inert realism that allowed so many Arab autocrats to prosper--unless Bush orders the pliable doctor (who would rather call a duck a rhino than jeopardize her relationship with the president) to place democracy at the top of her lexicon.

Why should Iraqi democracy matter? Because, as Bush has haltingly recognized, liberty is not solely an American or Western concept; because in the Arab context it will mean more security for the U.S.; and because many Americans and many more Iraqis have already died in an endeavor that can yet be salvaged, unless the conviction of defeat grabs us by the throat first.

Contributing Editor Michael Young is opinion editor of Lebanon's Daily Star newspaper, which is printed and distributed throughout the Middle East.

I Fear...We'll See Empire in the Middle East

Ron Paul

Without any change in the principles that currently guide United States foreign policy, the shuffling of per-sonnel from this post to that means little. As long as Congress and the American people continue to allow the president to ignore the constitutional requirement that Congress declare war, further military interventionism is inevitable. The only questions are how much further we can stretch our military without a draft, and how long before we go broke.

Without a reorientation of our foreign policy toward that envisioned by our Founding Fathers, the only thing that will end the current policies of preemption, foreign aid, and interventionism will be national bankruptcy. We cannot afford to maintain an empire, and all empires eventually fall.

Ron Paul is a Republican representing the 14th congressional district of Texas.

I Hope...the Constitution Will Make a Comeback

Jacob Levy

Once appointed, federal judges aren't part of an administration, so they're not vulnerable to an administration's particular dysfunctions. Bush's court appointees won't be prone to getting fired for telling the administration things it doesn't want to hear, or for sticking to a principle rather than bending with Karl Rove's interpretation of the political winds. We have more reason to expect competent and successful change that accords with stated intentions in jurisprudence than in ordinary policy.

Those stated intentions aren't unambiguously welcome, of course. I neither want to see the 11th Amendment expanded further nor Lawrence v. Texas overturned. But there is a silver lining in the real chance that the Commerce Clause/10th Amendment revolution will continue and finally come to its overdue fruition. One to four Bush Supreme Court nominees could lead to some genuine supervision over whether Congress is usurping responsibilities of the states and exceeding the bounds of its Commerce Clause power.

This will not lead to the overthrow of the New Deal or of the intrusive federal state; the Supreme Court does not willingly move so far ahead of the political culture. But it could reinvigorate a public, political, and constitutional discourse around the idea that Congress is not a plenary legislature, and that it needs to exercise its authority within constitutional bounds.

Jacob Levy is an assistant professor of political science at the University of Chicago and author of The Multiculturalism of Fear (Oxford University Press).

I Fear...the Constitution Will Be Shredded

Nadine Strossen

My biggest worry is that fundamental constitutional freedoms will be eviscerated, either directly through constitutional amendments or indirectly through legislation that strips federal courts of the power to enforce such freedoms. My biggest hope is that we will continue to see bipartisan resistance to provisions in the PATRIOT Act and other post-9/11 measures that unjustifiably sacrifice civil liberties without adequate countervailing national security gains. I am optimistic that libertarians, conservatives, and liberals will continue to work together effectively to resist the steady stream of proposals to expand unwarranted government power even further; and that we'll enact reform measures, such as the Safety and Freedom Ensured Act, to bring the PATRIOT Act into line with constitutional checks and balances.

Nadine Strossen is president of the American Civil Liberties Union and a professor at New York Law School.

I Hope...Regulations Will Be Restrained

Virginia Postrel

New regulations come from two places: new legislation, often in response to some sort of momentary panic (think Sarbanes-Oxley, the extraordinarily costly response to turn-of-the-century corporate scandals), and continuous bureaucratic rule making. In its first term, the Bush administration exercised unusual restraint in producing new regulations.

"Since the younger Bush took office, federal agencies have begun roughly one-quarter fewer rules than Clinton and 13 percent fewer than Bush's father during comparable periods," The Washington Post reported in mid-August. Around the same time, The New York Times ran a remarkable chart showing that the Bush administration had imposed new regulations costing an average of $1.6 billion annually, compared to $6.2 billion for the Clinton administration, $8.5 billion for Bush 41, and $8.1 billion for the last two years of the Reagan administration.

The newspapers framed their reports as criticisms. Journalists and legislators tend to treat regulation as feel-good symbolism, a cheap way to demonstrate right-thinking attitudes. Its costs, in both out-of-pocket expense and foregone benefits (including never-explored innovations), get far less scrutiny than the taxes and spending that constitute the usual view of "economic policy."

Less new regulation isn't deregulation, but the Bush administration's low-profile focus on regulatory costs represents a real challenge to bureaucracy as usual. My hope for a second term is to see this approach continue--and to push back against the current drive for tighter Food and Drug Administration restrictions. My fear is of new legislative panics, leading to new regulatory laws, particularly in biomedicine.

Virginia Postrel is the author of The Substance of Style, recently published in paperback by Perennial, and The Future and Its Enemies (Free Press).

I Fear...Spending Won't Be Restrained

John Berthoud

By the time the books are closed on the current fiscal year, federal spending will have risen by roughly 20 percent in real terms since the last budget signed into law by Bill Clinton. This four-year spending explosion has not been limited to the areas of defense and homeland security. Spending at the Department of Agriculture will have risen in real terms by an estimated 19 percent, at the Department of Labor by 40 percent, and at the Department of Education by 74 percent.

The entire eight years of the Bush administration are thus unlikely ever to be seen as a landmark in the fight for smaller government. At best, a concerted effort at spending restraint in the second term will make a difference between a so-so record and a historically disastrous one.

The Bush administration has spent no political capital in the fight against big government in the first term. Instead, it has opted to focus on spin (talking about how Washington has ratcheted down spending growth to 1 percent--true only if you exclude 82 percent of the budget). Bush may have no greater desire to use political capital on this important fight in a second term. But continuing to turn a blind eye to congressional spending will jeopardize the president's tax agenda. Given that taxes were one area of substantial domestic policy differentiation between Republicans and Democrats in 2004, if that distinction evaporates much of the Republican voting base may find better things to do when the next election rolls around.

John Berthoud is president of the National Taxpayers Union.

I Hope...We'll Keep Taxes Down by Eliminating Corporate Welfare and Entitlements for the Rich

Tyler Cowen

Commentators frequently refer to the Bush "tax cuts," but this is a misnomer. Government spending has risen sharply, so our taxes are going up in the future, especially once you consider the implicit liabilities from Social Security and Medicare. Bush has given us a "tax shift," combined with a long-run net tax increase. We simply haven't yet been told which taxes are going up and when.

To keep American taxes at reasonable levels I would eliminate all farm subsidies, tariffs, quotas, and price supports, along with other forms of corporate welfare. More important, I would repeal the Medicare prescription drug bill, slowly raise the retirement age for Social Security and Medicare, and introduce means testing for benefits.

Tyler Cowen is an economics professor at George Mason University, director of the James Buchanan Center and the Mercatus Center, and author of the forthcoming Markets and Cultural Voices (University of Michigan Press).

I Fear...Deficit Worries Will Bring Tax Increases

Grover Norquist

The one mistake that could cripple a second Bush term is to accept the campaign promise to "cut the deficit in half in four years" as a central goal of the administration. The deficit is an uninteresting and unimportant number that is the difference between two very important numbers: total federal government spending, and total federal taxes.

The true cost of government--and the correct target--is total federal spending as a percentage of the Gross Domestic Product. To reduce government spending as a percentage of the economy, Republicans should first cut taxes to increase economic growth and then restrain the growth of federal spending below the growth of the economy. Democrats cannot compete on a political field of battle dominated by pro-growth tax cuts and spending restraint; they are against both and have no alternatives.

But if the ghost of Dick Darman wafts through the White House and convinces the administration to focus on the deficit, then tax cuts are a problem, not half the solution, and Democrats have an equally valid solution: raise taxes. A fixation on the federal deficit--rather than spending as a percentage of the economy--destroyed the presidency of the first Bush. I fear it could happen again.

Grover Norquist is president of Americans for Tax Reform.

I Hope...We'll Hear More About Ownership

Charles Murray

Even though George Bush has no commitment to limited government, the right rhetoric can have a power of its own. The task is to come up with a proposition that a large proportion of the electorate will hear and instinctively say, "Damn right." For years, libertarians haven't had one. We have tried to reinfuse words like freedom and rights with the power they once had, but they have become too degraded by overuse. Ownership may still have that power. To say that the money we spend on Social Security is for our own retirement and that we ought to have ownership over it sounds to me like the Damn Right proposition that could catalyze a political majority.
Charles Murray is W.H. Brady Scholar at the American Enterprise Institute and author of Human Accomplishment (HarperCollins).

I Fear...We'll Hear More About God

Heather MacDonald

"Talk about your faith!" That is the punditocracy's resounding consensus following the Kerry defeat. It will usher in a new level of political hypocrisy.

Even before the election, Kerry was trying desperately to retool himself according to the emerging wisdom. It was a losing battle. He could never match Bush's easy recitals of faith. "My faith plays a big part in my life," Bush said in the third debate. "I pray a lot. And I do. And my faith is a very, it's very personal. I pray for strength. I pray for wisdom. I pray for our troops in harm's way. I pray for my family. I pray for my little girls."

Remember those words; they are the future.

But I am puzzled by what exactly we learn from such recitals. Several hypotheses present themselves:

1. When a candidate parades his faith, he reassures voters that he is a good, moral person who will not do bad things. This, however, is a dubious assumption in light of history and experience.

2. It guarantees that the candidate will always make the right choices because God will direct him. But what if both candidates are praying for guidance? Who will trump whom?

Unlike a policy proposal, a profession of faith is a conversation stopper. It can't be challenged. And nothing follows from it. Moliere might have believed that the public display of piety is ground for a sound thrashing, but such cynicism is not in America's blood, at least not now. We are bound to assume that the self-confessed believer is utterly sincere.

My only hope for ending the upcoming rush to religious declaration is a candidate who announces that his is the one true faith, to which unbelievers must convert or face damnation--a venerable faith position with a much longer pedigree than our current bland tolerance. It will be a nice test of the country's appetite for religious fervor.

Heather MacDonald is a fellow at the Manhattan Institute and author of Are Cops Racist? (Ivan R. Dee)

I Hope...Bush Will Learn the Right Lessons From Alaska

Vernon Smith

One of the last actions of the Clinton administration was to prohibit oil and gas exploration in the Alaska National Wildlife Reserve (ANWR). Since directional and other new drilling technologies enable sensitive areas to be developed without environmental damage, the main damage here was to the full development of U.S. energy potential. With more Republican seats in Congress, Bush's support of ANWR development legislation is likely to pass.

Administration action on an Alaskan gas pipeline is also likely. I fear, however, industry pressure for federal subsidies or guarantees of the pipeline, which should not be granted. If industry truly sees the pipeline investment risk as too high, that means it's too soon--energy prices are not high enough--to justify the investment.

These developments are also likely to lower energy costs within Alaska enough to enable major new mining and industrial developments to occur. Since the Alaska Permanent Fund has already set the precedent that public assets belong to the citizens and not just the government, there is the prospect that existing and future Alaskan citizens will benefit directly. May the lower 48 and the rest of the world follow this important precedent.

Vernon Smith is an economics professor at George Mason University, author of Bargaining and Market Behavior (Cambridge University Press), and 2002 winner of the Nobel Memorial Prize in Economic Sciences.

I Fear...Bush Will Learn the Wrong Lessons From the Election

Glenn Reynolds

"Great election, kid. Don't get cocky." That could be Han Solo's advice to President Bush. But it's not the advice he's getting from either the left or the right. Eager to explain away Kerry's defeat in a way that lets them feel morally superior, many on the left are saying that it was all about "moral values," particularly gay rights and abortion. Eager to expand their power in the second term, advocates for the Christian Right have been swift to agree.

Listening to them would be a big mistake for Bush. There's no question that incidents like the Janet Jackson breast episode have angered a lot of Americans who feel that the entertainment industry doesn't respect their values. And gay marriage polls badly even in the bluest of blue states. But there's little reason to believe Americans eagerly cast their votes in November in the hope that busybodies would finally start telling them what to do.

In their book The Right Nation: Conservative Power in America, John Micklethwait and Adrian Wooldridge explain how the Republican coalition could go wrong: "Too Southern, too greedy, and too contradictory." Taking the advice of advocacy groups left and right is likely to send the Bush administration in that direction. Is Karl Rove smart enough to realize that?

Glenn Reynolds, a law professor at the University of Tennessee, runs the popular weblog InstaPundit.com.

I Hope...Trade Will Be Freer

Daniel Drezner

Let's be blunt: The steel tariffs were an abomination. The increase in farm subsidies was a travesty. In Bush's first term, his administration's trade policy was hardly a paragon of virtue. But it was good enough for stalwart free trader (and Democrat) Jagdish Bhagwati to admit during an election year that between Bush and Kerry, the Republican had the more responsible trade policy.

The record reflects Bhagwati's assessment. The administration jump-started the Doha round of World Trade Organization talks in the wake of the September 11 attacks. After the debacle at Cancun, when a clash between the developing and developed world dashed any hope of progress, it was U.S. Trade Representative Robert Zoellick who got the process back on track. And the only reason there is a WTO round at all is that President Bush fought for and (barely) won trade promotion authority, something Bill Clinton was never able to do. I haven't even mentioned the spurt of bilateral and regional free trade agreements, including pacts with Australia and Central America.

The administration should also be praised, in true classical liberal fashion, for what it has not done. The Bush team has not taken steps to block offshore outsourcing, despite intense bipartisan pressure to halt the newest forms of trade.

And finally, remember those steel tariffs? They're gone now.

Daniel Drezner is an assistant professor of political science at the University of Chicago and the author of The Sanctions Paradox (Cambridge University Press).

I Fear...Society Will Be Less Free

Bob Barr

The last four years have not been kind to privacy in America. In fact, the first administration of George W. Bush was the most anti-privacy administration in history. While the post-9/11 fight against terrorists has been the excuse given for virtually all of the anti-privacy measures instituted since that fateful day, many of the powers granted to or assumed by the administration have less to do with a clear-cut, narrowly crafted "war on terrorism" than with a general desire to gather as much information on the American citizenry as possible, as easily as possible.

The next four years are likely to be even worse. The newly re-elected president is certain to use the "political capital" of which he boasts to reauthorize all those provisions in the USA PATRIOT Act that are scheduled to sunset in 2005 and to dramatically expand the law's scope. Even more than outgoing Attorney General John Ashcroft, Attorney General�designate Alberto Gonzales appears to support virtually unlimited executive branch power to gather evidence on the citizenry.

Bob Barr, a former Republican congressman from Georgia, is the American Conservative Union's 21st Century Liberties Chair for Freedom and Privacy.

The Regulator Who Loved Markets

athierer@cato.org (Adam Thierer) — Wed, 26 Jan 2005 00:00:00 EST

The free market lost a friend last Friday, and believe it or not, it's a regulator.

Federal Communications Commission (FCC) Chairman Michael Powell announced that he is stepping down in March after a turbulent, controversial tenure in office. He will be sorely missed, because he is the rarest of species—a rational regulator who genuinely believes in the superiority of markets over mandates and capitalism over central planning.

After all, how many bureaucrats make a habit out of quoting the works of Fredrich Hayek, Joseph Schumpeter, Ronald Coase, and Adam Smith? But Powell did more than simply give these thinkers lip service; he integrated their teachings on markets, incentives, and human liberty into almost everything he said or did during his tenure at the FCC. "The market is the best vehicle designed by mankind for innovation, for technology change, and evolution. I would caution we review fully the lessons of economic history to deepen our appreciation of that fact," he noted in an October 2001 speech.

In a speech a few months earlier before members of the Federal Communications Bar Association—some of the Beltway's biggest proponents of "public interest" regulatory intervention—Powell declared, "Contrary to the classic bugaboo that markets are just things that favor big business and big money, market policies have a winning record of delivering benefits to consumers that dwarfs the consumer record of government central economic planning. Thus, if you are truly committed to serving the public interest, bet on a winner and bet on market policy."

More impressively, this is a man who once stood before a hostile group of telecom industry service resellers who were clamoring for more government-mandated infrastructure-sharing and told them, "There is no upside, in the long run, being dependent on your primary competitor for your key assets, or in relying on the government to protect or subsidize your service. Wherever and whenever possible build facilities. Only by controlling your own essential facilities do I believe you can differentiate your service. And, the more you possess your own assets, the less you need to look to the government for salvation." Needless to say, they didn't appreciate that. But that's the way Powell worked: no pulling punches; no need to capitulate to appease an audience; no need to sell out freedom for short-term political gain.

In fact, when asked at his very first press conference after becoming Chairman about the existence of a supposed "digital divide" in America he famously said, "I think there's a Mercedes divide—I'd like to have one; I can't afford one." The self-anointed "consumer advocates" went after him with a vengeance for that one. But he has never recanted those remarks; rather, he has repeatedly stressed in his subsequent speeches the amazing and unabated diffusion of computer and communications technologies and services throughout our society.

Rhetoric aside, Powell worked hard to translate his market principles into action, occasionally meeting with some success, but more often being greeted by overt hostility from special interests and other status quo–oriented policymakers. One area where Powell's vision yielded tangible results was spectrum policy, where his leadership helped give rise to a veritable public policy revolution at the FCC. Powell formed a Spectrum Policy Task Force that issued an amazing report containing a sweeping indictment of the agency's past record. As a result, remarkable changes are underway at the agency that will unleash the wireless sector from the shackles of the command-and-control central planning techniques that have hindered it for over seven decades.

When it came to telecom and broadband policy, Powell's vision was equally clear: "I believe strongly that broadband should exist in a minimally regulated space." He attempted to push through numerous reforms to achieve that vision but was directly thwarted on one important deregulatory initiative by fellow Republican Commissioner Kevin Martin, who cast his vote with the Commission's Democrats in favor of expanded regulatory oversight by state regulators. Of course, it doesn't help that Powell's superiors in the Bush Administration have never lent any serious support to the reforms he has proposed. The Bush team was content to talk a big game when it came to broadband deployment and telecom deregulation but then let Powell take all the heat when it came to the controversial steps needed to get us there.

Finally, despite the hysteria generated by the opponents of efforts to relax archaic media ownership regulations, Powell pushed through some limited relaxation of existing rules. Warning of the dangers of government overreach on the this front, Powell noted, "[W]hile we are right to concern ourselves with Citizen Kane, we should not use that concern to justify the resurrection of King George. Our founding fathers said little about commercial owners of news and print, but they reserved the top spot on the bill of rights to condemn the government from foisting its values, preferences, viewpoints or tastes on a free people."

Will history judge Mr. Powell kindly? It depends who writes that history, of course. But for those who cherish liberty and limited government, he should be remembered as a man who fought to reverse the widespread presumption held by his fellow regulators that market failure is everywhere and that only incessant intervention by benevolent bureaucrats can protect the amorphous "public interest." Michael Powell's legacy is that the regulation is not synonymous will consumer welfare; government failure is the bigger concern. Let's hope his successors heed that lesson.

Michael Powell's Invisible Legacy

jd@well.com (J.D. Lasica) — Wed, 26 Jan 2005 00:00:00 EST

Poor Michael Powell.

During his four years as chairman of the Federal Communications Commission, Powell strove mightily to carve out a reputation as Captain Deregulation, a would-be poster boy for letting loose the hounds of private enterprise, championing innovative new technologies, and enabling a digital revolution destined to sweep away entire industries stuck in the analog swamp.

But Powell's legacy is a bit more muddled. Following his announcement Friday that was quitting the FCC, most press coverage centered on two things: his crusade against broadcast indecency and his push to relax rules against media ownership. As the FCC steps up its effort to serve as the bluenose police, the silliness of big government as national nanny is now becoming apparent. Last week Fox Network President Gail Berman explained why the network pixilated a baby's butt on a rerun of the animated cartoon Family Guy to avoid a possible FCC fine (even though there were no viewer complaints when the show first aired five years ago): "We have to be checking and second-guessing ourselves now."

Censorship doesn't slip easily into our national cocktail. After we stop snickering—or perhaps after the threat to free expression becomes more readily apparent—we'll soon boot the Puritans out of power, and normalcy will return to the land in the form of naked cartoon baby butts, if not naked Desperate Housewives. There's no going back to Leave It to Beaver land, despite the fantasies of the right, and the FCC's lust to become the modern-day equivalent of the Hayes Commission will be seen as the colossal folly it is.

Media consolidation may turn out to be a big deal, but is it really tombstone-epitaph material? I doubt it. Instead, look to the FCC's telecommunications policy as Powell's most notable long-term accomplishment. His hands-off approach to broadband telephony will help send some of the telecom giants into the tar pits as Skype and VoIP upstarts run circles around the dinosaurs.

In telecom policy, Powell lived up to his deregulation rhetoric. But there's another legacy Powell is bequeathing us, one that has been scarcely mentioned in the press: the FCC as Federal Computer Commission.

On July 1, 2005, new FCC-mandated regulations will kick in that will make it illegal to sell or distribute any device that can receive certain digital TV streams unless it includes government-approved copy protection. Not just in digital TV sets, but embedded into personal computers, laptops, handhelds—any gizmo with a digital TV tuner card.

In this handout to Hollywood and the entertainment giants, the FCC approved a "broadcast flag" that seeks to prevent the indiscriminate redistribution of copyrighted digital TV programs on the Internet. But it will do no such thing. We already know the pirates of Darknet will continue to capture digital television shows and release them into the underground. Instead, the public will bear the brunt of the costs of the FCC's intervention.

Chris Murray, legislative counsel for Consumers Union, points out that more than 75 million DVD players in viewers' homes today will not be able to play flagged programs recorded with DVD machines sold after mid-2005. A show you record in your living room may not play in the den.

The abandonment of the plug-and-play tradition—the idea that newer technologies should be backward-compatible—is only one of the broadcast flag's flaws. The larger problem is that Powell and the FCC are treating us as consumers rather than users. The federal agency has essentially endorsed Hollywood's line that digital televisions, personal video recorders, DVD recorders, and computers are no more than playback devices for Big Entertainment content rather than intelligent machines that can store, alter, remix and share digital bits.

In spring 2004, the political group TrueMajority mashed up video of NBC's The Apprentice with news footage of President George W. Bush. In the resulting video, Trump fires Bush. Such political speech is protected under fair use, but if the broadcast flag were set, commentators would never get the raw materials to create their parodies. Similarly, the American Library Association worries the broadcast flag will prevent the use of TV clips in the classroom and prevent digitally recorded TV shows from being streamed to students in long-distance learning classes.

Today, a high school student can compile a multimedia report on the prevalence of violence on prime-time TV, complete with short examples from network telecasts. An office worker can e-mail a TV clip from her workplace to her home. Viewers can burn a TV show to a standard DVD that works in any player; they can watch TV recorded on a PC using any software; they can play TV on any device that supports MPEG-2; they can transfer the show over any kind of network; and they can record TV shows with any video capture card.

"All of these possibilities go away with the broadcast flag for digital television," says Seth Schoen, staff technologist for the Electronic Frontier Foundation.

"The FCC is now regulating the equipment, which is something they've never done before," adds tech lobbyist James M. Burger. "What's troubling is that you're ceding control of the devices in people's homes to the movie studios."

The FCC isn't stopping there. Last year the agency announced it would consider fashioning a similar muzzle for digital radio. The "audio broadcast flag," pushed hard by the Recording Industry Association of America, would be included in the digital radio transmissions of terrestrial AM and FM stations. It would likely prevent users from sending copyrighted radio programs over the Internet. But it could also hamstring legitimate uses by preventing a digital radio program from leaving the device on which it was recorded.

If the broadcast flag for video and audio worked, that would be one thing. But it's obvious even before the rule takes effect that the flag will do nothing to stop Internet piracy. A simple digital-to-analog conversion will defeat the flag. But the flag will clamp down on fair use rights, stifle innovation, turn hobbyists and tinkerers into criminals, create inconvenience, raise prices, impose new regulatory burdens—and infuriate law-abiding citizens who no longer control the technology in their own homes.

Is it any wonder that Powell is skipping town a few months before the public begins howling?

Fly the Frugal Skies

matt.welch@reason.com (Matt Welch) — Sat, 01 Jan 2005 00:00:00 EST

Every Friday afternoon at a Heathrow Airport bar, there is an informal gathering of the "Pojkv�n Club"--a group of London men who jet off every weekend to visit their far-flung girlfriends. (Pojkv�n is Swedish for "boyfriend.") "Of my six closest friends from Glasgow University, four of us now have European partners," Pojkv�n Club member Fraser Nelson wrote in The Scotsman last April. "The low-cost airline revolution has changed lives."

In Prague, where just about the only foreign languages spoken 15 years ago were German and bad Russian, there are English-language signs in the windows of bars all over town warning: "No stag parties." In Bratislava, where traveling to next-door Vienna was verboten until 1989, Slovaks who still can't afford the 200-mile train trip to Salzburg are now excitedly comparing notes on their recent weekend forays to Venice and Mallorca. In the lovely southwest France region of Dordogne, locals now refer to the area as "the Dordogne-shire," due to all the Brits buying up local vacation homes. Every summer, Spanish golfers swarm the Welsh countryside to enjoy their sport away from the hometown heat. Dreary industrialized corners of Europe--Stansted, England; St. Etienne, France; Hahn, Germany--have become improbable boomtowns, while secondary travel destinations such as Edinburgh and Cardiff have been transformed into sizzling tourist magnets, with boutique hotels, Irish pubs, and youthful commerce galore.

In less than a decade, the Southwest Airlines revolution has swept through sclerotic Europe like a capitalist hurricane, leaving a fundamentally altered continent in its wake. Low-cost airlines have grown from zero to 60 since 1994 by taking Southwest's no-frills, short-haul business model and grafting on infinitely variable pricing, aggressive savings from the contemporaneous Internet revolution, and the ripe, Wild West opportunities of a rapidly deregulating and expanding market. Europeans, fed up with costly train tickets, annoying motorway tolls, and Concorde-style prices from national "flag carriers" such as Air France and Lufthansa, have defected to the short-hoppers in droves--200 million, nearly 45 percent of the entire E.U. population, took a low-cost flight in 2003 alone.

These airline upstarts are run by swaggering young CEOs whom the European press treat like rock stars, living up (or down) to the billing by issuing manly predictions of price war "bloodbaths" and pulling off daring publicity stunts, such as Irish carrier RyanAir's post�September 11 sale of 1 million tickets for "free" (before taxes). Their companies have been rewarded with dot-com-bubble-like stock valuations--and the volatility that comes with them--while their long-haul counterparts dodder toward cutbacks, bankruptcy, and worse. (Switzerland became the first European country to lose its national airline when Swiss Air and Sabena folded in 2001.) In less than a generation, one of the Western world's most notoriously regulated and distorted markets has become a poster child for unified Europe's 21st century �lan.

In the process, Europeans have changed not only their travel choices but the way they behave. "We aren't just teaching our customers about our brand," says Stanislav Saling, the twentysomething Slovak public relations director of SkyEurope, a new Bratislava-based low-cost carrier. "We're selling tickets to people who have never flown before, and showing them how to use the Internet." Brits, who have led the low-cost charge with RyanAir and easyJet, are now the world's biggest owners of foreign second homes as a percentage of population. Across the 25-country, 458-million-resident European Union, marriage between different nationalities is at an all-time high. Residents of post-communist countries, who not long ago were more than happy to take any handouts from their far richer Western neighbors, are now leveraging the low-cost revolution to compete with them instead. Old Europe's postwar business culture, in which CEOs of highly regulated "National Champions" were virtually interchangeable with their schoolboy pals in government, has been battered by entrepreneurial mavericks of hard-to-define provenance, such as easyJet's 37-year-old founder Stelios Haji-Ioannou, who was born in Greece, owns houses in four countries, and (as The New York Times put it in April) "feels Greek when he is in London, English when he is in Greece, and European when he is in America."

Amazing what a little deregulation can do. And as Europe's low-cost flood reaches what analysts are predicting will be a high-water mark in 2004, it's worth marking how dynamically even statist societies can react when given the chance--and wondering how the United States, with its 19-year head start, has squandered its lead in airline innovation.

Set My Prices Free

The U.S. airline market was deregulated in 1978. The virtues of the move, though long debated, had become more than self-evident by the mid-1990s: With the government no longer dictating ticket prices and in-flight menus, airfares dropped 40 percent in real terms between 1978 and 1997, saving travelers an estimated $20 billion a year and more than doubling the total number of passengers. (Accident rates, meanwhile, were cut in half.) Hundreds of new entrants flooded the market, and though most eventually failed (or were bought out), one folksy little Texas operation called Southwest Airlines became emblematic of the deregulation era.

Southwest--which actually jumped the gun on deregulation by seven years, taking advantage of Texas' enormous size to avoid onerous interstate commerce regulations--ushered in the low-cost revolution with four revolutionary insights:

1) Flying just one type of aircraft will save a company millions on maintenance and bulk purchasing.

2) Point-to-point flights between smaller airports, rather than hub-and-spoke operations centered on a single large airport, allow each airplane to be used for several more flights a day, and more cheaply.

3) Passengers will appreciate the elimination of perks such as business lounges and free meals if the savings are passed on directly to them (and with a smile).

4) Air travelers will flock to the lowest prices, period.

By the late 1990s, Southwest was the world's richest and most profitable major airline, inspiring successful copycats (such as JetBlue) and even forcing money-bleeding behemoths like United Airlines to launch low-cost hopefuls like TED.

Despite these two decades of happy evidence, it took Europe until 1997 to deregulate its own air travel. Countries much smaller than the U.S., with single, dominant, state-owned airlines (not to mention a more statist version of capitalism), had a much harder time visualizing the benefits of exposing their National Champions to the cruel winds of competition. As in just about every other major European industry, it took the creation of the European Union in November 1993 to pry loose the stranglehold of government interference and introduce the radical new concept that National Champions can, and sometimes should, fail.

Like most decisions in Brussels, airline deregulation was telegraphed years in advance. The pre-E.U. European Commission laid out a three-stage liberalization process in 1993, with the final step--opening up domestic routes to foreign competitors--coming on April 1, 1997. So entrepreneurs had plenty of time to prepare, which is precisely what Haji-Ioannou (known on the continent as "Stelios") did. The son of a Greek shipping magnate, the London School of Economics�educated Stelios vowed to out-cheapskate even Southwest (by, for instance, charging money for peanuts and water) and add a strong dose of Richard Branson�style flamboyance to build his bright orange brand. With an initial investment of just $7.5 million, Stelios engineered a series of publicity stunts: convincing British television network ITV to launch a reality show called Airline; wearing a comical orange jumpsuit and handing out free easyJet tickets on the inaugural flight of the British Airways�backed low-cost competitor Go (since swallowed by easyJet); offering free flights to anyone who would come down to a Greek courthouse to support his legal fight with local travel agents; and so on.

Stelios' showmanship, combined with a few of his low-cost maxims ("Consumers behave in a rational way when confronted with a value judgment; give them a product at the right price and they will take it"; "Think how can we transfer the workload to the customers"), helped turn easyJet into the fastest-growing of the top 150 airlines in the world, according to Airline Business magazine, and even introduced a new word into the lexicon. "On 28 April, Ljubljana joins easyJet's destination list for an irresistible �80 return," London's New Statesman noted in April. (Travel features on new airline destinations have become a staple of British newspapers.) "All over the capital, Slovenes are bracing themselves for the onslaught of British weekenders. The easyJetters, it is acknowledged, will drink too much and talk loudly about how cheap everything is."

Stelios has stepped back from the day-to-day management of the airline, and now the self-styled "serial entrepreneur" is taking his low-cost "easy" brand and online purchasing model into car rentals, Internet caf�s, cruise ships, and even pizza delivery. "I think easyJet was instrumental in convincing people it was worthwhile to understand how the Internet works," he told The Independent in April. "It's been a watershed decade, an amazing period," he told the Times of London in May.

If Stelios and easyJet were the John the Baptist of European low-cost air travel, RyanAir and Michael O'Leary are Jesus himself--or perhaps the Antichrist. O'Leary, a foul-mouthed, jeans-wearing college dropout of an Irishman, took over RyanAir a decade ago, when it was a minor if profitable Irish airline serving 700,000 passengers a year, mostly between Dublin and London.

In business since 1985, RyanAir got the low-cost religion in 1991 and started aggressively hitting the newly liberalizing European market soon after Stelios popularized the no-frills concept to the masses. Unlike easyJet, however, RyanAir refused to take on popular routes at congested and expensive airports, sticking to a strict diet of cheaper regional flights to keep its prices the lowest in Europe. And unlike Stelios, who projects a friendly, go-getting cosmopolitanism, the 44-year-old O'Leary is a street brawler who has alienated swaths of the U.K. by brashly banning unions, hounding the Irish government to break up its state airport monopoly Aer Rianta, cadging subsidies from desperate airport towns, routinely referring to the European Commission as "the Evil Empire," and responding to his critics with a blanket "bollocks."

RyanAir is notorious for finding inventive ways of "penalizing" its passengers, such as setting absurdly low 15-kilogram (33-pound) baggage limits and charging four euros (nearly $5) for each additional kilo. (I once observed--and suffered heavily from--this practice at sleepy St. Etienne airport in France, where every penalized passenger I talked to said the limit had not been enforced on the flight out from London, where they could have easily switched airlines.) Even wheelchair users were charged an extra �18 ($33) fee, until a British court ruled the practice discriminatory in February. (RyanAir, which says it was simply passing along the standard British Airports Authority surcharge, announced that all tickets would be raised a half-pound to cover the difference.)

Still, the company makes up for customer grumbling by leading Europe in flight punctuality and keeping prices at absurd lows, which it (unlike most of the new low-cost competitors) can afford because of its massive cash reserve. Since O'Leary has taken over, RyanAir has become the most profitable major airline in the world (it had a 19 percent margin in 2003) and has the fourth-largest market capitalization ($4.7 billion as of June 3, just behind British Airways' $5 billion and Lufthansa's $5.5 billion).

From 1998 to 2003, thanks in part to RyanAir and easyJet, low-cost air traffic grew by 600 percent in Europe, compared to just 10 percent growth for full-service airlines, according to Tourism News. Forty new airlines have debuted since the September 11 massacre alone. (More than 100 have been launched in the last decade, but many of those have disappeared.) Europeans who not long ago used airplanes only to cross the ocean are now taking them to visit girlfriends, scope out real estate, and turn the E.U.'s theoretical freedom of movement into a reality.

Doing It for Themselves

A Slovak actor/playwright friend of mine marvels at his industrious college graduate son, who works a good white-collar job in the booming industrial belt adjacent to the Bratislava airport and spends as much free time as possible abroad. "He just flies to Spain or Western Germany like it's no big deal," my friend says, laughing.

Slovaks' freedom of movement has been no laughing matter since Czechoslovakia split up in 1993. Bratislava, whose city limits (and cheap domestic prices) end less than 20 miles from the borders of Austria, Hungary, and the Czech Republic, has been ill-served for decades by the microscopic Stefanik Airport, which makes JetBlue's home in Long Beach, California, look like O'Hare in comparison. "There was no major scheduled airline operating in Slovakia," Saling, the P.R. director for SkyEurope, says. "There was not a single carrier that would connect Bratislava with major European destinations."

No more. SkyEurope, founded in 2001, has brightened Stefanik's dark little corner, operating flights to 13 international destinations for as low as 17 euros. "It's a business, but at the same time it's a mission," says Saling, who did P.R. for three years in the Slovak prime minister's office. "We are giving the people the opportunity to fly. Many of our passengers are going to their destination for the first time. And on the other hand, we've put Bratislava on the map of the low-fare destinations, so people from London, Paris, Milan, and the other cities are flying to Bratislava for the first time."

For the first time in the 13 years I've been visiting Bratislava, there is a year-round presence of tourists, noticeable even in the bleak days of early January. The spruced-up Old Town is teeming with good restaurants and live music venues where a few years ago there were none. Locals are palpably proud of their city, whereas a few years ago they were embarrassed. (A friend of mine once remarked that if Prague was the Left Bank of the '90s, Bratislava was surely the Cincinnati of the '70s.) And everyone I met wouldn't stop talking about how packed the caf�s were with foreigners in the summer of 2003. "It was really a boom of foreign tourists," Saling says. "It was very different than other years."

SkyEurope is not only doing well for itself. The company is making Stefanik in Bratislava a legitimate low-cost alternative to Vienna's nearby Schwechat Airport. (Airport traffic at Stefanik has nearly doubled since 2001.) SkyEurope is hoping to do for Central Europe what easyJet and RyanAir have done for the West. "It is a low-cost airline based in a low-cost country," Saling says, "which means it has an advantage over any airlines based in a Western country, whose cost base is higher."

There are now 10 SkyEurope flights a day out of Budapest (where it competes with the energetic new entrant Wizz Air); two new regional hub airports, probably in Poland and the former Yugoslavia, will be selected sometime soon. Meanwhile, Austrian Airlines and Lufthansa recently have moved into Stefanik, and Slovaks who rarely used credit cards or the Internet are getting a crash course in both.

"Part of our everyday work is the revolutionizing of the local market," Saling says. "To tell people what are low-cost airlines, how they can bring value to their lives, and change the way they travel."

When Good Markets Go Bad

The financial pages on Fleet Street were filled all last spring with ominous talk of a low-cost market collapse. Fuel prices, already one of the largest fixed costs in the airline business, are going through the roof, just as the price-slashing "bloodbath" RyanAir's O'Leary warns of drives tickets ever closer to free. A competitive shakeout, predicted by the experience in North America, has long been forecast. But there is a new threat on the horizon: the E.U.'s stifling bureaucracy.

Early last year, the E.U.'s Airline Commission, after hearing complaints about suddenly canceled flights, thin compensation, and poor customer service, passed regulations forcing all European airlines, low-cost or otherwise, to compensate stranded passengers with up to 250 euros per canceled flight, in addition to providing hotel, meals, drinks, and taxi service. The rule, currently scheduled to take effect in February 2005, is being challenged at the U.K. High Court in London. "This would be a disaster for the industry and for consumers," warns Wolfgang Kurth, president of the new European Low Fares Airline Association, a group that includes RyanAir, Sky Europe, and Wizz. "The prerequisite of our business model --namely, low operating costs--is at risk." Mike Ambrose, director general of the European Regions Airline Association, estimated that the ruling "will add 1.5 billion [euros] a year to air fares." EasyJet estimated its damage alone would amount to 120 million British pounds a year.

This is not the only threat facing Europe's most dynamic sector. Residents near the booming low-cost hub of Stansted, England, are hopping mad about a major planned airport expansion, and similar protests are being heard in communities that 10 years ago would have begged for the problem of overcapacity. Complaints of noise and air pollution abound, putting more draft regulations on the table in national capitals and in Brussels. "The skies above Europe," Newsweek warned in May, "are getting dangerously congested," and all it takes is one major crash (see ValuJet) for a "hot" airline or sector to go cold overnight. EasyJet and RyanAir are constantly battling state-owned airports to privatize and/or reduce fees, while attempting with limited success to protest the preferential treatment some regional airports give national airlines (especially in strike-addled France). On the other side of the coin, staggering flag carriers like Italy's Alitalia continue to be propped up by taxpayers' money instead of being left to die in the wilderness. "It is high time," International Air Transport Association Director General Giovanni Bisignani said at the organization's annual meeting in Singapore last June, "that European Union regulators took the trouble to learn about the industry they are busy misregulating."

Of course the same meddling push has been felt in the U.S. for decades, deregulatory success be damned. Congress holds hearings on tinkering with ticket prices usually once per session, and the important job of finishing deregulation--most notably, by privatizing airports (which England did back in 1987) and opening the domestic market to foreign competition--has been left undone. Meanwhile, 9/11 ushered in a new round of security rules and a whopping $15 billion airline bailout, which, notably, low-cost airlines like Southwest and JetBlue didn't even need.

"Evidence in Europe and the U.S. indicates that the leading LFAs [low-fare airlines] fared significantly better than their full-fare rivals in the wake of the terrorist attacks on the U.S.," wrote Thomas Lawton, author of Cleared for Take-Off: Structure and Strategy in the Low-Fare Airline Business, in the November 2003 Irish Journal of Management. "While established rivals cut staff, grounded aircraft and even collapsed into bankruptcy, the LFAs continue to open new routes and order new aircraft....LFAs are more resilient than traditional airlines to market downturns."

Which is why they should be enabled, not blocked. Yet blocking them is precisely what U.S. lawmakers have done. American negotiators have failed to budge in a series of "Open Skies" discussions with European trade officials, scotching the two sides' intention to announce a major new deal at a June 26 transportation summit in Dublin, and postponing any further substantive discussion until after last November's presidential election.

Would this endlessly delayed agreement allow RyanAir and other upstarts to finally fly purely domestic routes, a liberalization that Alfred Kahn, the architect of deregulation in Jimmy Carter's administration, told reason in 1998 is "our main hope" for greater competition? Alas, no. The only reform the Bush administration has even contemplated is increasing the cap on foreign ownership percentage of domestic airlines from 25 percent to 49 percent, thereby perhaps allowing Virgin's Richard Branson to launch his long-awaited American carrier, and not much else.

Sen. Trent Lott (R-Miss.), chairman of the Senate Commerce Committee's aviation subcommittee, told Aviation Daily last February that he had "security concerns" about foreigners owning domestic airlines, while the Transportation Trades Department of the AFL-CIO claimed, in a zero- sum flourish, that competition "would devastate an already ravaged U.S. aviation industry and its work force." The House Aviation Committee, meanwhile, is trying to extend the government's $700 million annual "war risk" insurance subsidy for another five years, and United Airlines is sniffing around Washington for yet another bailout, which analysts have warned could be the largest since the Savings and Loan scandal of the 1980s. And with no Open Skies deal in the offing, the struggling American carriers may face a future ban from operating between European capitals, which current bilateral agreements allow.

As painful as it may be to admit, it looks like the United States, which blazed the global trail of airline deregulation nearly three decades ago, will be choking on the exhaust of Old Europe for years to come, denying Americans the benefits that have transformed the way Europeans behave. Amazing what a little political cowardice can do.

Coffin Break

jsullum@reason.com (Jacob Sullum) — Fri, 31 Dec 2004 00:00:00 EST

Creators' Syndicate

Memorial Concepts Online sells an oak coffin for about $2,000, compared to an average of around $4,000 at funeral homes in Oklahoma, where the company is based. By separating the purchase of caskets from the purchase of funeral services, Memorial Concepts can offer substantial savings, not to mention a shopping environment free of hovering morticians. But in Oklahoma, which allows caskets to be sold only by licensed funeral directors, such competition is illegal.

Kim Powers and Dennis Bridges, the founders of Memorial Concepts, are fighting to overturn Oklahoma's casket cartel, arguing that it violates their rights to due process, equal protection, and economic liberty under the 14th Amendment. Last August the U.S. Court of Appeals for the 10th Circuit rejected their arguments in a decision Powers and Bridges have asked the Supreme Court to review.

Since the 10th Circuit's ruling conflicts with a 2002 decision by the U.S. Court of Appeals for the 6th Circuit that overturned similar restrictions on casket sales in Tennessee, there's a good chance the Supreme Court will intervene. If it does, the case could help re-establish the principle that people have a right to pursue a livelihood without arbitrary interference by the government.

The 10th Circuit did not pretend Oklahoma's rules for selling caskets make sense. "As a result of the substantial mis-fit between the education and training required for licensure and the education and training required to sell caskets in Oklahoma," it noted, "people who only wish to sell caskets...are required to spend years of their lives equipping themselves with knowledge and training which is not directly relevant to selling caskets."

Qualifying as a funeral director in Oklahoma requires two years of college courses, graduation from a mortuary science program, a one-year apprenticeship that includes the embalming of at least 25 bodies, and two exams. After all that, the applicant is deemed qualified to sell boxes.

The state also mandates that caskets be sold from a "funeral establishment" that includes a "preparation room" for embalming, a "selection room" for displaying casket options, and "adequate areas for public viewing of dead human remains." These requirements leave no room for an online business such as Memorial Concepts that sells caskets directly to the public and never handles bodies.

As the 10th Circuit noted, the Oklahoma State Board of Embalmers and Funeral Directors "concedes that its licensure requirements do not perfectly match its asserted consumer-protection goal." Rather than accepting the idea that fewer choices and higher prices are good for consumers, the court ruled that even if the whole point of the regulations was to protect funeral homes from competition, that would be OK.

To survive a challenge under the 14th Amendment's Due Process and Equal Protection clauses, a regulation has to be "rationally related to a legitimate government purpose." But if, as the 10th Circuit ruled, "intrastate economic protectionism constitutes a legitimate state interest," there's little doubt that Oklahoma's restrictions on casket sales satisfy this test.

"While baseball may be the national pastime of the citizenry," the court wrote, "dishing out special economic benefits to certain in-state industries remains the favored pastime of state and local governments." Such protectionism may be unfair and inefficient, the court said, but that doesn't make it unconstitutional.

The upshot of this argument is that almost anything goes when it comes to rigging the game in favor of special interests. "The 10th Circuit gave a judicial green light to unlimited backroom deals and cronyism by legislators," says Chip Mellor, president of the Institute for Justice, which represents Powers and Bridges.

If it hears Powers and Bridges' appeal, the Supreme Court will have an opportunity to explicitly reject the idea that protecting certain businesses from competition represents a "legitimate state interest." More important, it will have an opportunity to revisit the part of the 14th Amendment that says "no State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States."

Those "privileges or immunities" originally were understood to include the ability to make an honest living free of official harassment, which is all that Powers and Bridges want to do. But in an 1873 decision upholding a slaughterhouse monopoly granted by Louisiana, the Supreme Court essentially read the Privileges or Immunities Clause out of the Constitution. Now it has a chance to correct that error and restore to Americans some of their lost liberty.

Soundbite

jsanchez@reason.com (Julian Sanchez) — Thu, 01 Apr 2004 00:00:00 EST

As head of the Civil Aeronautics Board in the '70s, Alfred Kahn, once an interventionist, opened air travel to competition. In Lessons From Deregulation: Telecommunications and Airlines After the Crunch, published last year by the AEI-Brookings Joint Center for Regulatory Studies, Kahn assesses the deregulatory legacy. He spoke with Assistant Editor Julian Sanchez in January.

Q: Why did Consumer Reports claim in 2002 that deregulation failed?

A: The benefit of deregulation has been the direct savings to consumers. Airline consumers have saved over $20 billion per year, which has brought air travel within reach of people of modest means.

Consumer Reports didn't deny that rates had fallen. They just argued that rates had already been falling before deregulation. But you had had huge technical innovation then, especially during the '50s, when the propeller engine was replaced by the jet engine, and nothing of comparable magnitude later. All you have to do is look at the introduction of discounting in the '70s and '80s. Before, maybe 15 percent of air travel was discount fares. After, it was about 90 percent. You have to be willing to deny the nose on your face not to see that it was competition that created this revolution.

Q: What do you make of Howard Dean's call for a massive "reregulation" of American industry?

A: I'm distressed, particularly since I'm sympathetic to Dean. He's responding to a general revulsion against competition, especially foreign competition, which puts pressure on high wage earners. The isolation from competition in the airlines, for example, led to wages high above what the competitive level would have been. Monopoly profits can be earned not just by companies but by workers -- not so much the flight attendants but the mechanics and pilots. I've heard a pilot express regret that I had recovered from a recent car accident!

Q: Do we need regulation to prevent network infrastructure owners from controlling online content?

A: I'm sympathetic to the argument that control over access to the Internet might be abused. But we've got a severe dilemma: The industry is confronting costs of tens of billions per year in infrastructure deployment. The introduction of regulations requiring them from the outset to make their facilities available to competitors at ridiculous rates threatens to kill the goose that is laying the golden egg. And you've got real competition between DSL and cable. It seems to me that government should be very cautious about entering markets where so much innovation is going on.