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AIRLINE DEREGULATION

Long recognized by economists as the enforcer of an airline cartel, the Civil Aeronautics Board (CAB) is now in a fight for its political life. In addition to the usual contingent of free market economists, its opponents now include Ralph Nader (who thinks the agency should be abolished altogether), Sen. Edward Kennedy (who has become an advocate of deregulation), the Departments of Transportation and Justice, the Federal Trade Commission, and the White House. All point out what libertarian economists have been saying for many years: that cartelization of the airline industry results in high fares and poor service, a situation of benefit only to the bureaucrats and the protected airlines. (Even some of the airlines disagree with present CAB policies: small, aggressive Continental has requested the CAB to "stop trying to save the carriers from themselves and let free enterprise and competition operate to a greater degree.")

Realizing that its bureaucratic back is to the wall, the CAB has responded with a rapid-fire series of changes:

• In February it hastily withdrew its previously announced plan to set a minimum floor price for air charters, in the face of criticism from Congress, the Justice Dept., and operators of air-travel tours, and a Federal appeals court stay order.

• Also in February, the agency ended its five-year moratorium on awarding new routes, while denying that it had ever had such a policy. This move was in response to a strong attack on the policy as illegal, by Sen. Kennedy.

• In March the Board approved the new 35 percent-off "No-Frills" fare proposed by National Airlines, and the subsequent similar discount fares of Eastern, Delta, and Continentaldespite strong criticism from advocates of the status quo such as Business Week.

• In April, the Board took under advisement an even more radical proposal: the application by World Airlines for permission to provide coast-to-coast scheduled service for an unheard-of coach fare of $89, including meals and beverage service (versus the current fare of $189). Far more than just a low-tare proposal, World's application represents a bid to gain entry as a certificated carrier into the membership of the trunkline cartel.

But the CAB's fancy footwork has not deterred the Administration from preparing a legislative package that would introduce substantial amounts of deregulation. Among the concepts being planned for inclusion in the bill are free entry of new airlines into the air transport system, and price competition to allow market forces to dictate air fares, rather than the CAB. Other elements being considered include a prohibition on "capacity reduction agreements," modifying or eliminating the airlines' antitrust immunity, allowing an airline to exit from a route if it is not recovering its costs, and amending the Air Commerce Act to force the CAB to "promote competition" rather than "foster sound economic conditions" in the airline industry.

Many airline managements are aghast at these proposals, given the companies' lack of experience in competing. Robert Oppenlander sees free entry and exit as leading to "the destruction of the nation's air transportation system." Aviation Week reports that airlines are "flabbergasted" at the thought of free entry and price competition. The weeks and months ahead are likely to see much more of this hysterical rhetoric, as the cartel members and the CAB fight to retain their special privileges. Hopefully, by now the advocates of deregulation are strong enough to overcome such special pleading. The fight to reform the CAB is an acid test of whether meaningful change towards laissez-faire can be accomplished within the system.

SOURCES:
• "Hearings Spur Broad CAB Policy Review," Aviation Week, Mar. 3, 1975, p. 23.
• "Overflight," Alan L. Otten, Wall Street Journal, Apr. 24, 1975.
• "CAB Scraps Plan to Use Minimum Prices for Air Charters as Means to Raise Fares," Wall Street Journal, Feb. 12, 1975.
• "Route Moratorium Ends; Board Denies It Was Policy," Aviation Week, Feb. 24, 1975, p. 25.
• "National Airlines Bets That 'No Frills' Will Fill Seats," Robert E. Dallos, Los Angeles Times, Apr. 14, 1975.
• "Insanity Comes to Air Fares," Business Week, Apr. 21, 1975, p. 126.
• "$89 Coast-to-Coast Fare Plan Is Test for CAB," Harold D. Watkins, Los Angeles Times, Apr. 4, 1975.
• "The CAB and Airlines Run Into Heavier Flak," Business Week, Mar. 17, 1975, p. 25.
• "Administration Solidifies Attack on CAB," Aviation Week, Feb. 10, 1975, p. 33.
• "Bill to Reform CAB Negotiated," Aviation Week, Apr. 7, 1975, p. 20.
• "Airlines Take Dim View of Deregulation," Ibid., p. 21.
• "Can Airlines Be Free?" Robert Oppenlander, Ibid., p. 7.

REDUCING SCHOOL COMPULSION

One of organized labor's early political triumphs was the passage of laws to prevent young people from competing with union members: child labor laws and compulsory school attendance laws. These laws have long been among the most hallowed of sacred cows—anyone proposing their repeal was castigated as a heartless beast. But the past decade has seen a new appreciation of the harm done to many children by compulsory attendance, especially past junior high school, when many would be happier and better off learning a trade. To the humane voices of education critics like John Holt and Ivan Illich has now been added that of U.S. Commissioner of Education Terrel H. Bell.

In a speech in March, Bell attacked the present practice of forcing teenagers to remain in school: "Since many young people are more attracted to the seeming freedom of work than they are to school during adolescence, it would seem right to give them the opportunity to work, with the expectation that they will return to school as the spirit and their needs move them." Bell advocated the concept of "life-time learning and recurrent education," whereby people obtain education when and as they need it. He urged that society deemphasize official credentials such as high school diplomas, in favor of demonstrated competence, and added, "If we remove the bureaucratic barriers to our education institutions, I think we will see some truly creative self-education taking place."

Bell is not alone in his views. Lowering the compulsory school attendance age has recently become a hot topic in New Mexico and California. In the former state, the House passed by a 40-23 margin a bill to end compulsory education at grade 9, and action is pending in the State Senate. The bill's sponsor contended that compulsory education was not taking place anyway, since so many students were merely marking time until they turned 17 and could quit school; many legislators of both parties agreed. In California the Reform of Intermediate and Secondary Education Commission came close to endorsing a change in the compulsory school attendance age from 18 to 14. The measure had been supported by a majority of the group's members until the time of the vote on final recommendations, at which point it was replaced by a proposal to allow "furloughs" for those who want to leave school for a limited period of time. Both the original age-change proposal, and a companion measure to eliminate teacher tenure, received widespread publicity and a backlash from those favoring the status quo, whose influence led to them being dropped from the final recommendations. The fact that the proposals were seriously considered is a possible indication of things to come.

SOURCES:
• "School to Grade 9 OK'd," Albuquerque Journal, Mar. 6, 1975.
• "Education Issue Clash Looms," Kenneth J. Rabben, Copley News Service, Mar. 26, 1975.
• "School Attendance Age Plan Rejected," Jack McCurdy, Los Angeles Times, Apr. 3, 1975.

LICENSING UNDER ATTACK

One of the worst frauds perpetrated upon the consuming public is the well-ingrained belief that occupational licensing is necessary to protect the public. As Milton Friedman pointed out years ago in Capitalism and Freedom, government licensing is simply a means by which an occupational group uses the power of the state to restrict entry and limit competition, thereby deriving higher prices for its members' services. Among the groups benefitting from this type of cozy arrangement are midwives (licensed in 23 states), exterminators (19 states), well diggers (13 states), excess-hair removers (Connecticut), lightning rod sellers (New Hampshire), tattoo artists (Hawaii) and horseshoers (Illinois). Every state has at least 10 such boards and some have as many as 40.

But the days of unquestioned acceptance of licensing are over. Federal Trade Commission Chairman Lewis A. Engman has added occupational licensing to his list of anticompetitive, anticonsumer government practices to be reformed. Engman cites an FTC study of TV repair licensing, comparing Louisiana (which has mandatory licensing), California (which requires mere registration, without restriction on the number of people registered), and the District of Columbia (which has no controls at all). The study showed that there was less TV repair fraud in California, but no difference at all between Louisiana and D.C. But prices in Louisiana, with its restricted supply, were 20 percent higher than in the other two areas.

Among those joining the expose of licensing is syndicated columnist Jack Anderson, who recently detailed case after case of cooperation between "professional" groups and state licensing boards to freeze out potential competitors: general contractors and physicians in Florida, optometrists in Alabama, accountants in Arizona, lawyers in Virginia and California. In each case, those who would provide new services, or charge less for existing services, or advertise are found guilty of violating "professional ethics" and prevented by law from practicing.

Change is on the way, however. The DuPage County Medical Society, in the Chicago suburbs, recently decided to allow new doctors to advertise in newspapers that they are opening an office. The Illinois State Medical Society is considering publishing consumer directories listing doctors' names, addresses, hours, specialties, education, and special information (whether the doctor takes Medicare patients, gives immunity shots, or speaks Spanish). The Los Angeles County Medical Society, however, recently reaffirmed its opposition to such practices as unethical.

A similar directory in the legal field was planned by Consumers Union in Virginia. The proposed directory was to include lawyers' names, addresses, qualifications, specialties, and fee practices. Lawyers responding to CU's questionnaire, however, were advised that providing this type of information violated professional ethics and subjected them to disbarment. As a result, CU has filed suit against the Virginia State Bar, the American Bar Association, and the Virginia Supreme Court, charging that their rules prohibiting publication of fee information violate the 1st and 14th Amendment rights of consumers. The suit asks the court to declare the rule unconstitutional and to issue a permanent injunction against its enforcement by the bar associations. CU acknowledges that publication of the directory was intended to promote price competition and to help consumers shop for a lawyer, as they shop for other services.

What is at issue in this case, as with licensing of "professionals" generally, is the notion that somehow lawyers are not really engaged in business, but are a class apart. Fairfax (VA) County lawyer Lewis T. Booker claims that the legal profession "performs a service and is not a mere money-making operation." This kind of sophistry ill suits a profession concerned about its credibility in the wake of Watergate, and is unlikely to be persuasive to the Supreme Court. The Court is currently deliberating the issue of whether lawyers' price-fixing (called "minimum fee schedules") is really price-fixing. If it is, it will be subject to the antitrust laws and ruled illegal. Advocates of liberty would not wish the antitrust laws on anyone, but cannot fail to note the beneficial effects of ending the legal profession's collusion with the state to protect its members from competition. If the Supreme Court rules against the profession, the way will be cleared to challenge the state-enforced bans on advertising and competitive bidding of doctors, engineers, and accountants, as well as lawyers.

SOURCES:
• "Some State Trade Laws Hurt the Public," Carole Shifrin, Pittsburgh Press, Jan. 3, 1975.
• "How State Laws Rip You Off," Jack Anderson, Parade, Apr. 6, 1975.
• "New Physicians Allowed to Advertise," Chicago Daily News, Apr. 4, 1975.
• "Consumers Union Files Suit Challenging ABA Rules Against Advertising Attorney Fees," Antitrust and Trade Regulation Report, Mar. 4, 1975.
• "Bork Maintains Law Fee-Setting Is Price-Fixing," Linda Mathews, Los Angeles Times, Mar. 26, 1975.

COMPETITION IN BANKING

In 1971 the President's Commission on Financial Structure and Regulation (known as the Hunt Commission after chairman Reed Hunt) proposed a sweeping reform of banking legislation, aimed at increasing competition among commercial banks, mutual savings banks, and savings and loans (S&L's). The response to these proposals was underwhelming; the Nixon Administration submitted implementing legislation in 1972, but representatives of various vested interests which felt threatened by increased competition succeeded in keeping it bottled up in committee, where it has languished for several years.

This year, however, spurred on by the current recession, the Treasury Department is making a major push for the legislation. Among its significant features:

• Repeal of "Regulation Q" which limits the interest payable on savings accounts and time deposits of small depositors.

• Allowing S&L's to make consumer and construction loans in all states, and to offer interest-paying checking accounts.

• Allowing mutual savings banks to offer a full range of construction loans in all states, and allowing them the option of obtaining a Federal, as opposed to state, charter.

The reforms would thereby eliminate most of the current regulations which prohibit the different types of institutions from competing, on the premise that increased competition would benefit consumers more than any kind of government allocation of credit.

Lending support to these proposals is Jeffrey M. Bucher, one of seven members of the Board of Governors of the Federal Reserve System. Speaking in Los Angeles earlier this year, Bucher supported the Hunt Commission reforms, especially repeal of Regulation Q. Bucher argues forcefully for "removal of each and every impediment to the free formation of prices and interest rates." Consequently, he also favors repeal of all state usury laws. Bucher thinks a good share of the blame for the current economic situation is that "Our normal system of competition was turned off for two and a half years in favor of a scheme of wage and price controls.…What is needed is a gradual but steady transition toward a free economy." Bucher strongly opposes any role for the Fed in monitoring bank loans or otherwise forcibly allocating credit, saying that the result of such a policy would be "a complete dictatorship of money." Nothing is as efficient and as equitable as our free enterprise system, Bucher maintains.

SOURCES:
• "Taking the Lid Off Savings," Business Week, Feb. 24, 1975, p. 36.
• "Bucher Would End Interest Ceilings," John Getze, Los Angeles Times, Jan. 7, 1975.

BUREAUCRATIC HERO

The Council on Wage and Price Stability shows signs of turning into an ally of those who would prevent further growth of Federal controls, and support a return to the free market. Three recent COWPS actions typify the small agency's encouraging outlook:

• Airbags: When the National Highway Transportation Safety Agency tried to nail down an Aug. 31, 1976 deadline for compulsory installation of airbag passive restraint systems on all new cars, COWPS instead urged an extensive testing program to establish the costs versus benefits of the program (which it is estimated would add $260 to the cost of each new car). COWPS' action will further strengthen growing Congressional opposition to the airbag and other costly Federal auto safety requirements.

• OSHA: This rapidly growing agency has been interfering in the operation of companies across the country in the name of industrial safety. A recent government policy requires the preparation of "economic impact statements" on significant bureaucratic rulings, so that Congress can assess whether the benefits are worth the costs imposed on taxpayers and businesses. OSHA is attempting to gain exemption from this requirement for its job-safety rulings—precisely the kind of action most in need of cost-benefit review—but COWPS is strongly opposing any such exemption.

• Airlines: COWPS has urged the Civil Aeronautics Board to approve the application of World Airways for permission to institute a new low-cost scheduled transcontinental service (see previous story). COWPS says the airline has "presented a convincing case" for its proposal.

SOURCES:
• "Another Deflation for the Air Bag," Business Week, Apr. 28, 1975, p. 24.
• "National Notes," Ibid., p. 32.
• "Shortlines," Aviation Week, Apr. 21, 1975, p. 35.

MILESTONES

Privacy. President Ford has signed into law the Privacy Act of 1974, a new law which restricts the operation of government data banks—Federal, state, and local. The new law was passed unanimously by the House and by 77-8 in the Senate. It allows individuals to have access to their files and to obtain copies and correct inaccuracies by mail. The Federal Government is required to publish annually a complete listing of all Federal data files. Of particular interest to libertarians, the law prohibits all levels of government from withholding any right, benefit, or privilege from a person who refuses to disclose his or her Social Security number. It also prohibits Federal agencies from renting or selling mailing lists based on names in its data banks. The law does make exceptions to its provisions for law enforcement records and certain military and civil service records. Nonetheless, it's an important step forward in the struggle to prevent the world of 1984 from coming into being. (Source: "Ford Signs Compromise Privacy Bill," Computer Decisions, Feb. 1975, p. 8.)

NEXT: Inside Ronald Reagan

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  1. But the days of unquestioned acceptance of licensing are over. Federal Trade Commission Chairman Lewis A. Engman has added occupational licensing to his list of anticompetitive, anticonsumer government practices to be reformed. Engman cites an FTC study of TV repair licensing, comparing Louisiana (which has mandatory licensing), California (which requires mere registration, without restriction on the number of people registered), and the District of Columbia (which has no controls at all). The study showed that there was less TV repair fraud in California, but no difference at all between Louisiana and D.C. But prices in Louisiana, with its restricted supply, were 20 percent higher than in the other two areas.

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