The Wonders of Deregulation
It has benefited many Americans and harmed very few.


Decades of deregulation and economic liberty, President Obama argues, have endangered and impoverished Americans.

He has told voters in recent weeks that “we tried [the] theory” of deregulation, and it “hasn’t worked.” Further, today conservatives “keep telling us that if we’d just strip away more regulations, and let businesses pollute more and treat workers and consumers with impunity, that somehow we’d all be better off.”

But the problem for the president is that, thanks to deregulation, we actually are all better off.

Of course, almost everyone agrees that the government should play a role in regulating certain segments of the economy, and certain risks cannot be mitigated by the market alone. But the president pretends that Americans have been, on balance, ill served by greater economic liberty. He often argues his case by conflating consumer, environmental, and financial regulation (most prominently using the investment-banking financial crisis to justify the Consumer Financial Protection Bureau). Deregulation may well have played a role in the 2008 financial crisis, but claiming that deregulation of all sectors has made Americans worse off is extremely deceptive.

In fact, one of the most beneficial macroeconomic developments of the past few decades, in the U.S. and abroad, has been the huge benefits provided to consumers by the repeal of government regulation. In most industries, government regulation raises costs and reduces choice without providing tangible benefits or protections.

As a national industry, transportation — including trains, buses, and airlines — has historically been a target for interference and market distortion by the federal government. Perhaps the most striking story of deregulation in the American economy is the radical transformation of the airline industry, which went from being a luxury to a regular component of our national transportation system.

Since the industry’s inception in the 1930s, interstate airlines were heavily regulated by the Civil Aeronautics Board, which determined which routes they could fly, how much they could charge, and when they could schedule flights. Consumers were ill served by limited routes and schedules, and many were locked out by high fares.

In 1978, the federal government began dismantling this byzantine system, which had allowed airlines to generate steady but unimpressive profits for decades. As a result, airlines began flying to destinations they hadn’t served, at greater frequency, and, most important, at dramatically lower costs. One estimate by the Air Transport Association suggests that ticket prices today are 44.9 percent lower in real terms than they were in 1978. Millions of Americans who had effectively been priced out of the market for air travel could now afford to fly.

Deregulation also freed airlines to provide new services; with much more leeway in their cargo policies, overnight and same-day delivery of packages became more common and affordable. Notoriously, the industry has stripped away nearly every enjoyable passenger amenity, but it has done so in response to consumers, who have decided that they prefer lower prices instead of in-flight cuisine. Before deregulation, the federal government’s shackles had made their decision for them.

In fact, customers have won such an overwhelming victory that airlines’ prices are now sometimes too low — most so-called legacy carriers are either defunct or in dire financial straits. But this has just opened up the industry to new entrants providing lower costs or serving previously underserved routes. (The only real downside to this for the taxpayer is that the older airlines have represented the largest pension accounts transferred to the Pension Benefit Guaranty Corporation.) The human cost of lower compensation and more unpredictable employment has been obvious, but evidence suggests that the older airlines’ promises were too generous in the first place. The churn of creative destruction isn’t entirely to blame for airlines’ failures, but it is definitely the source of lower prices.