Tuesday, August 4, 2009

The Prescient Posner

In an essay published at the dawn of the decade, Judge Richard Posner wrote:

[I]t is worth pointing out . . . that regulation, deregulation, and reregulation are all favored by economic distress.  The Great Depression of the 1930s led to an enormous expansion in the scope of public utility and common carrier regulation, and the "stagflation" (inflation accompanied by a slowdown in economic growth) of the 1970s set the stage for the deregulation movement.  Should the nation encounter serious economic distress in the future, regulation may be reinstituted, confirming the existence of a regulatory cycle.  This possibility makes it all the more important that we understand the economic consequences of regulation and deregulation.

Richard A. Posner, The Effects of Deregulation on Competition: The Experience of the United States, 23 Fordham Int'l L.J. S7, S19 (2000).

Without a doubt, "the nation [is] encounter[ing] serious economic distress," i.e., a depression.  See Richard A. Posner, A Failure of Capitalism: The Crisis of '08 and the Descent into Depression (Harvard Univ. Press, 2009); Paul Krugman, The Return of Depression Economics and the Crisis of '08 (W.W. Norton, 2008); George C. Cooper, The Origin of the Financial Crises: Central Banks, Credit Bubbles, and the Efficient Market Fallacy (Vintage, 2008).  In the face of this distress, is regulation being reinstituted?  With respect to the aviation industry, the answer appears to be, "Yes."

Since 2007, House Transportation Chairman James Oberstar has led the charge to "protect" U.S. airlines by imposing new strictures on their business operations and entrepreneurial ingenuity.  Elements of the 2009 FAA Reauthorization Act, H.R. 915,111th Cong. supported by Oberstar could potentially foreclose foreigners from holding middle and upper management positions in domestic carriers, see id. sec. 801, and likely spell disaster for the present alliance system by sunsetting their antitrust immunity, see id.sec. 426.  The legislation also contains so-called "passenger rights" provisions which would force carriers to establish "Emergency Contingency Plans" in accordance with government-promulgated "minimum standards" to allow passengers to deplane following delays, with civil penalties attached for compliance failure.  See id. sec. 407.  Though this isn't the first time in the last decade the U.S. has moved toward tightening its control of the airlines, see, e.g., Brian F. Havel & Michael G. Whitaker, The Approach of Re-Regulation: The Airline Industry After September 11, 2001, [2001-04 Transfer Binder] Issues Aviation L. & Pol'y ¬∂ 10,051, at 4101, it is potentially the most impacting.  As history has borne out, once the government snarls itself in industry oversight, it's a long time coming before the detangling process begins.


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