Dec 23, 2019

The 12 Economists of Christmas: Alfred E. Kahn

Thanks to airline deregulation, more can be "home for the holidays"

Several of our “Twelve Economists of Christmas” are by now household names. Many people are familiar with the work of well-known intellectuals like Milton and Rose Friedman, Friedrich Hayek, and Adam Smith. Fewer people have heard the name of today’s economist of Christmas, Alfred E. Kahn, but his life’s work has perhaps had more of an impact on our everyday lives than anyone on this list.

Today, so many of us hop on a flight to get home for the holidays that we don’t think much about how different air travel was as recently as the late 1970s. Indeed, at one point, flying was a luxury reserved largely for the well-to-do and business travelers. The idea of taking a flight across the country to be with loved ones for the Christmas season was simply unimaginable for most people.

The problem was that airline fare regulations kept ticket prices too high. The culprit was the Civil Aeronautics Board (CAB), which was founded in 1938 and was intended to help coordinate flight schedules and investigate crashes and other incidents. But the CAB eventually came to control routes and prices in a way that protected incumbent airlines at the expense of consumers. The CAB’s pricing rules kept fares so uniformly high across the industry that airlines could only compete on things like food and the look of cabin crew uniforms.

Kahn, who became an expert in the economics of regulation, penned a seminal study on the subject, not surprisingly titled, The Economics of Regulation. When he was tapped by President Jimmy Carter to lead the CAB in 1977, the economist knew that deregulation was necessary to “dismantle [the] anti-consumer cartels that had been sustained by government regulation.” And that’s precisely what he did.

Kahn worked with fellow CAB chairman John Robson and Sen. Ted Kennedy (D-MA) to craft and pass the Airline Deregulation Act of 1978, which dismantled the CAB’s public utility regulations of air transport routes and put an end to the fare- and schedule-setting which protected entrenched airlines. As a result of deregulation, the CAB would be shut down in 1985, and its remaining investigatory and coordinating functions were transferred to the Department of Transportation. 

Air travel deregulation has democratized air travel. Airlines offer much cheaper fares and more flights, with the result that more Americans are flying than ever before. With his famous reindeer and sleigh, Santa doesn’t need airlines to do his job on Christmas Eve. But it’s nice to know that the rest of us also now have the chance to fly during the holidays.

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