Plane Common Sense

by Don Boudreaux on April 10, 2011

in Competition, Regulation, Risk and Safety, Seen and Unseen, Travel

Here’s a letter to the New York Times:

William McGee argues that F.A.A. budget cuts will make airline travel excessively dangerous (“Forcing the F.A.A. to Fly Blind,” April 10).  The only evidence he musters for this claim is the obvious fact that airlines prefer to pay lower prices, rather than higher prices, for inspections and maintenance of their planes.

Contrary to Mr. McGee’s presumption, however, this fact doesn’t remotely mean that airlines operate safe fleets only because the F.A.A. forces them to do so.  No one has stronger incentives to keep multimillion dollar airplanes from crashing in flames than do the airlines themselves.  It’s naïve to suppose that a privately owned airline will put its billions of dollars of investments in aircraft, ground equipment, pilot training, and reputation for safety at undue risk simply to save a few dollars.

Of course, it’s possible that the F.A.A. compels airlines to supply more air-travel safety than the public would willingly pay for without government regulation.  But if THIS is the case, the resulting higher costs of flying (safety, after all, isn’t free) might divert enough travelers into automobiles that the total fatality rate of traveling is higher than it would be with less strict F.A.A. regulations.

Either way, count me as one frequent flyer who isn’t in the least worried about F.A.A. budget cuts.

Sincerely,
Donald J. Boudreaux

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{ 32 comments }

nailheadtom April 10, 2011 at 12:26 pm

Insurance carriers are much more concerned about airline safety than federal bureaucrats. After all, they pay the damages when a jet falls out of the sky. FAA employees get to spend a year or more investigating the crash.

Krishnan April 10, 2011 at 12:26 pm

I think the FAA should demand that 1 trillion dollars of additional monies must be spent to make sure that there will be no accidents whatsoever – on the ground, or in air. These funds will be used to monitor pilots in all planes, several satellites to monitor planes all over the country and so on. And if 1 trillion is not enough, they need to spend 2 trillion – keep spending whatever needs to be spent to keep the air safe. Any cut in the FAA budget is dangerous.

If 2 trillion is not enough, they should ground ALL planes till is becomes safe to fly – when there is sufficient money to monitor all planes, all pilots, all passengers, the entire air mass over the US.

(What? Someone may ask – where do we get the money? I say – Remember Zimbabwe, Germany, Argentina … Keep printing those pieces of paper till everyone has enough … What? Will that work? Why not? There are some in this administration who believe that the real problem is not enough money for “poor” people to stimulate demand – the people who produce and innovate and create are real suckers and will keep taking as much abuse as thrown at them – and keep demanding even more abuse)

Joseph K April 10, 2011 at 12:56 pm

If you think that government regulation makes flying safer, you should look at the safety ranking of state-owned airlines. Cuban’s airline Cubana and China Airlines has some of the highest rates of fatalities per flight in the world.

Charles Twardy April 11, 2011 at 10:34 am

The premise at issue is not “Flying will be safer with any form of government involvement or regulation.” (Nor does your comparison prove that Cuba’s airline is worse with whatever regulations they have than it would be without.)

DG Lesvic April 10, 2011 at 1:27 pm

Did this common sense come from some other culture, and is there some other in which it would not be common sense?

Don Boudreaux April 10, 2011 at 1:56 pm

DG: You refuse to understand the context and nature of what Deirdre McCloskey writes. So please stop with your tiresome questions of this sort. They reveal only your lack of understanding.

DG Lesvic April 10, 2011 at 2:44 pm

Your words, not McCloskey’s:

“If culture does play a role in human society, we economists must include it in our theories.”

DG Lesvic April 10, 2011 at 3:08 pm

And, by the way, if McCloskey is such a powerhouse, why does she shy away from the give and take here? Why just drop in for a few meaningless homilies rather than show us what she’s got?

DG Lesvic April 10, 2011 at 3:40 pm

It’s not for me to tell Prof. McCloskey or anyone else what to do, what discussions to join, blogs to participate in, nor books to read. Nor is it for anyone else to tell me. You may recommend whatever you like, but if you want me to take your recommendation you’re going to have to convince me. And if Prof McCloskey wants to sell me her book, she’ll have to participate in this blog, because this is the best, the one that combines the highest level with the greatest freedom of discussion. All the others I know of at the highest level do not have the freedom. Only at good old Cafe Hayek do you have both the highest level and absolute freedom. This is where it’s at, and where any real economist must earn his spurs.

Argosy Jones April 11, 2011 at 8:02 am

why does she shy away from the give and take here?

Can’t you just deduce that, DG?

Krishnan April 10, 2011 at 3:26 pm

With apologies …

In the context of this story, are there cultures that would rather see planes go down than remain flying? Not that I know of.

Are there cultures that invite punishment and ignore rewards? I cannot imagine they have survived

Are there cultures that believe that wealth is money printed by Government? Oh yes, the current administration in Washington DC – a “culture that is indeed unique”

Are there cultures that believe that humans progress by driving economies into the ground and self immolation? I imagine there are people who believe that – but no one culture has a monopoly on stupidity …

Are there cultures that believe that the world will be safe for humans only by eliminating humans? (except a few, chosen few – the wise and the all knowings?) – Oh yes, they are called the envirowhackos and they exist in ALL corners of the world – including this place called “District of Columbia”

E.G. April 10, 2011 at 2:09 pm

A Boeing 737 only costs an average of $60 million, and I’m sure operating costs and insurance costs and litigation costs are peanuts for airlines, which are mostly fly by night operations anyway. Boeing capital and GE capital also don’t care all too much if their leased planes crash or are returned in decrepit conditions. Why should they? Thank God the FAA makes them realize that breaking planes and killing people is not a good idea.

Its funny the article would open with the 737 incident of a few days ago, and then say “the FAA will stop these things from happening”. Wasn’t there an FAA a few days ago?

What does the FAA do anyway, that costs $37 billion?

E.G. April 10, 2011 at 2:28 pm

Ok the author of the article gets it wrong. The FAA’s budget for FY2012 is $18.657 billion, not $37 billion. Of this, by their own admission 49% is used for safety programs. The rest is a used for grants and “investments”.

At 1,100 inspectors, that comes out to roughly $17 million per inspector and supporting staff, per year. I don’t think even Inspector Gadget costs that much.

Krishnan April 10, 2011 at 3:31 pm

Amazing way to make money – by killing consumers as quickly as the businesses can … Now, why did I not think of that?

“Come one, come all – fly with us – We guarantee that you will die since we have no incentive in growing our business – All we want to do is kill people because it is cheaper for us”

Ofcourse the Republicans – and anyone that calls for budget cuts to ANY PROGRAM (defense excluding) have been killing old people, poor people, minorities and others for years … and now with this cut in FAA funding, I imagine they want to kill as many people as possible

Seth April 10, 2011 at 5:29 pm

Reputation is far more valuable an asset than a single plane.

Ed Bosanquet April 10, 2011 at 2:16 pm

Don,
You seem to miss the fact that without the FAA, airlines would need to compete with each other for safety. If carrier X has a reputation of having it’s aircraft fall out of the sky, carrier Y would only need to advertise that they are safer and they would have a direct and large competitive advantage.

Of course, at the same time they would be competing on price, service and punctuality. An person or carrier would be able to decide to fly in adverse conditions and weight the consequences for themselves. In the same fashion a car diver may decide to venture out during a snow storm based on specific personal information. A doctor may decided to take additional risk to take care of a patient but a person on vacation may choose to extend the vacation until conditions become safer.

Thank you,
Ed

Ken April 10, 2011 at 2:38 pm

Ed,

“You seem to miss the fact that without the FAA, airlines would need to compete with each other for safety.”

You seem to miss the fact that this is Don’s ENTIRE point. As anyone can tell you, it is NOT profitable to kill your customers. Competing for safety up till customers are unwilling to pay for the extra safety is something Don explicitly talks about in this post with the comment “the F.A.A. compels airlines to supply more air-travel safety than the public would willingly pay”.

The argument for the FAA is that customers are stupid and that regulators, and only regulators, are smart enough to figure out what’s good for consumers. Of course, this is absurd on the face of it. No one wants me to live as much as I do. And even a cursory look at the history of the last couple of years will show that regulators are just as clueless as everyone else.

Regards
Ken

Ed Bosanquet April 10, 2011 at 4:10 pm

Ken,
Don’s post covers airlines wishing to protect their capital. And while this is certainly true, I believe the larger more driving factor will not be the capital protection aspect but the consumer preference aspect. I’m not disagreeing with him about the outcome that airlines will choose to be safe, I’m pointing out there are other (more important) reasons for the outcome.

Thank you,
Ed

Ken April 10, 2011 at 8:02 pm

Ed,

“I’m not disagreeing with him about the outcome that airlines will choose to be safe, I’m pointing out there are other (more important) reasons for the outcome.”

What other reasons? From the sentence preceding this you agree that it will be customer preference. This is something Don explicitly mentions and I pointed out in my previous comment.

If you don’t mean customer preferences, what are the other (more important) reasons?

Regards,
Ken

Damien April 10, 2011 at 5:20 pm

I think that in the interest of discussion it is best not to set up straw men or resort to gross exaggerations such as “The argument for the FAA is that customers are stupid and that regulators, and only regulators, are smart enough to figure out what’s good for consumers.”

This has nothing to do with customers being stupid or intelligent. I don’t see myself as more stupid than the next person but I know very little about air safety because it is not my area of expertise. Just like the average person (and the average economist) is not well-equipped to understand what exactly how mortgage pools work, what value-at-risk is, etc. And even if I *did* know something about planes and what keeps them safe, what exactly would I do to make sure that the company I pick is *truly* safe and that it’s not just an act? Surely there must be some information asymmetry there.

Yes, airlines have an incentive to keep their planes in the air and their customers alive and happy. And restaurants have an incentive not to make their customers sick. And that’s why nobody has ever been sick after eating out, there’s never been any restaurant that’s ever been busted for preparing food in appalling conditions, etc. If I were in the market for strawmen, I’d say that market will automagically make them disappear before anyone gets hurt!

I’m not convinced that the FAA makes things safer. However, I don’t necessarily assume that government = bad and useless. It seems to me plausible that we would want some way to make sure that airlines don’t cut corners too much. Are we supposed to believe that private companies never make mistakes and never take too much risk, misjudge how dangerous something is, etc.?

The big question is whether government is the right tool for the job or not. It might not be. But even if it isn’t and we still have the FAA, I fail to see the downside there. It’ll make us slightly worse off as taxpayers and flyers, but the added cost must be a minuscule fraction of the airfare. Maybe Don is right and some people will switch to using cars, etc. But this short letter is not enough to show that since there it contains no data on this.

Ken April 10, 2011 at 7:58 pm

Damien,

“I think that in the interest of discussion it is best not to set up straw men or resort to gross exaggerations such as “The argument for the FAA is that customers are stupid and that regulators, and only regulators, are smart enough to figure out what’s good for consumers.””

Tough.

” I don’t see myself as more stupid than the next person but I know very little about air safety because it is not my area of expertise.”

But I bet you know enough to read consumer reports and customer feedback on airlines. I also bet you know enough to NOT get on a plane that is controlled by an airline that regularly causes damage or even kills its customers. The wonderful thing about the private sector is that it removes the need for customers to know these things and why branding is so important in all industries.

” And that’s why nobody has ever been sick after eating out, there’s never been any restaurant that’s ever been busted for preparing food in appalling conditions, etc. If I were in the market for strawmen, I’d say that market will automagically make them disappear before anyone gets hurt!”

Looks like you know a lot about using strawmen.

“However, I don’t necessarily assume that government = bad and useless.”

Why? Name one industry where products get better once the government gets involved.

The burden of government regulation should ALWAYS lie with the government. First the government should show that it has legal authority to regulate whatever they are trying to butt into. Second, is it needs to identify a real problem, not some hypothetical that may occur at some time and place. Thirdly, it should show that the government CAN fix the problem. Fourth it should have to show that it can fix the problem better than the private sector.

Finally, if it can meet all the above conditions, it may proceed to regulate. Then, this regulation should be checked yearly to see if it is actually solving the problem and see what other problems it is causing and to make sure that the cure isn’t worse than the disease.

“Are we supposed to believe that private companies never make mistakes and never take too much risk, misjudge how dangerous something is, etc.?”

You mean the way public regulators managed the risk so well in mortgage pools? Or the way the FED regulators caused the high tech bubble and the housing bubble? No, wait, you must mean how government regulators gave billions of dollars to GM to keep it from failing only to see it fail, right? Or the trillions dollar “stimulus” that guaranteed we wouldn’t have unemployment go above 8%?

“The big question is whether government is the right tool for the job or not.”

Wrong. The big question is whether the federal government has the constitutional authoritiy to create an FAA.

“It’ll make us slightly worse off as taxpayers and flyers, but the added cost must be a minuscule fraction of the airfare. ”

Are you kidding? The added cost is tremendous. The most technologically antiquated industries in the country are control towers and power grids. Guess how much control the federal government has over both, then guess how much pressure governments face to reduce costs and waste.

ALL the additional costs I see in flying over the last few decades are government imposed. Energy prices are increasing due to government intrusion. “Security” measures have been taken that do nothing but increase the cost, in money, time, comfort, and privacy.

The list goes on as to how much the government screws over the public when it comes to flying.

Regards,
Ken

Martin April 10, 2011 at 3:07 pm

Interestingly the FAA themselves seem to understand that driving up the cost of flying with specific safety rules may push people to drive instead. It’s their stated reason for not implementing the NTSB’s recommendation that children under 2 should have their own seat (currently they can ride for free in an adult’s lap, saving the cost of a ticket).

Incidentally, with General Aviation the insurance companies play a huge role in safety – insurance requirements (for experience and training) for coverage in a given aircraft type are typically far more stringent than any FAA requirements.

vikingvista April 11, 2011 at 2:42 am

Your last point is the best. In most cases, and at its best, government regulation is completely worthless. It is a costly procedural matter to document for government bureaucrats what would have been done anyway.

Don April 10, 2011 at 4:05 pm

Actually, if the Beech Starship project is any indication, the FAA is one of the largest impediments to safety in air travel. Beechcraft built a plane that was much safer (and faster, and more economical) than all it’s competition, but because it could not perform a controlled full stall (no Canard configured aircraft can, it’s designed to NEVER STALL the main wing!) they could not receive FAA approval of the design. The battle (which lasted YEARS) put Beech into bankruptcy where Raytheon bought it for next to nothing. The FAA finally OKed the design after they’d literally killed the company.

Hundreds of other good ideas that exist on “experimental” aircraft (i.e. homebuilt) are not allowed on production aircraft because of the millions of dollars it would cost to certify the technology. It’s a ridiculous system which drives the cost of aviation to ridiculously high prices.

E.G. April 10, 2011 at 4:26 pm

Sorry but this story isn’t true. The Starship failed because it didn’t sell, and Beech was bought by Raytheon long before the Starship even existed.

Not in defense of the FAA…but lets not make up stories.

Don April 11, 2011 at 10:49 am

From the Starship Diaries (the official history):”Further delays came from unexpected complications: correcting a pitch damping problem and developing a stall warning system, at the FAA’s insistence, for an aircraft inherently designed not to stall.”

But you are correct re: Raytheon, that was 1980, shortly after the Starship program started (’79). Thanks for the correction, I should have fact-checked that.

DG Lesvic April 10, 2011 at 8:21 pm

Krnishnan,

I tried to post a “well said” to you above, but it didn’t take.

John Dewey April 11, 2011 at 10:09 am

Private firms such as Underwriter Laboratories (UL), Good Housekeeping, ETL (Edison Testing laboratory), and NEMKO are examples of why the FAA is not needed. No one is compelled by law to use the services of UL and the other firms that monitor consumer product quality. Not positive, but I’m pretty sure that insurance companies require manufacturers to obtain some form of certification.

Charles Twardy April 11, 2011 at 10:49 am

“It’s naïve to suppose that a privately owned airline will put its billions of dollars of investments in aircraft, ground equipment, pilot training, and reputation for safety at undue risk simply to save a few dollars.”

It’s naive to suppose a dairy farmer would put their reputation at risk by watering down their milk, but progressive watering wars do occur with some frequency.

Or, since fatalities are so rare, there is strong pressure for short-term profits at the expense of long ones. I’ve known a pilot who left an airline for skimping on safety. As a passenger, I’m not comforted by knowing that if left long enough, the catastrophic crashes will weed out such airlines. And I know enough population dynamics and game theory to realize there are plenty of environments where it takes an external coordinating force (regulation, insurance, something) to move everyone to the globally optimal solution.

Finally, as a passenger or home buyer or…, I don’t want to have to sort through the data on every purchase all the time. I’d like to know that all companies with a seal of approval have met a minimum standard. That seal can come from an independent agency like UL, but it’s not automatically better just because the word “government” isn’t on it.

John Dewey April 11, 2011 at 11:12 am

Charles Twardy: “but it’s not automatically better just because the word “government” isn’t on it.”

I disagree.

Private companies have a strong incentive to produce a quality product – and that includes those companies whose product is certification. If UL was not performing quality testing, insurance companies would not require certification by UL, and manufacturers wouldn’t bother to spend the money for UL’s services. Without funding from manufacturers, UL would be out of business in short order.

The FAA is funded through taxes. The FAA has little incentive other than political pressure – a cumbersome feedback loop – to produce good results.

Anyone who believes a government organization can be as effective and as efficient as a private company is ignoring evidence to the contrary – such as the relative reliability of the participants in the package delivery industry.

Nemoknada April 12, 2011 at 7:47 am

” It’s naïve to suppose that a privately owned airline will put its billions of dollars of investments in aircraft, ground equipment, pilot training, and reputation for safety at undue risk simply to save a few dollars.”

Tell that to Arthur Andersen and the financial ratings agencies. What’s naive is the idea that someone who has an incentive to behave well WILL behave well.

Deirdre McCloskey April 13, 2011 at 10:29 am

Dears,

I don’t want to be seem to be “shying away” from discussion, which is not how most people would describe me, I reckon. But I do have a life, and duties, such as teaching and research.

I have lost track of what [Mr., I infer] Lesvic is exercised about, but if he will tell me, here or at deirdre2@uic.edu, I will be glad to respond briefly. If he will undertake to read what he is attacking, that will be even better.

Regards,

Deirdre

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