Headline of the Day

15 May 2009 at 10:17 am 2 comments

| Peter Klein |

Sandy Ikeda gets the prize for his blog entry on the Obama Administration’s decision not to auction landing slots at NYC airports: “Coase, but No Cigar.” 

I wasn’t nearly as clever when I wrote about this problem a while back. I’m still wondering about the question I posed then: Is the political resistance to using prices to allocate scarce resources best explained by public-choice concerns, or by ignorance of how the price mechanism works?

Entry filed under: - Klein -, Institutions.

Debt, Relationship-Specific Investments, and Boundaries Bad to Awful?

2 Comments Add your own

  • 1. Per Bylund  |  15 May 2009 at 10:51 am

    I would say it is the former – public choice, but in combination with a great deal of ignorance. But the ignorance, even though it is significant, doesn’t matter much, I think.

    If I may elaborate on this, the overall aim in politics is control for the sake of personal benefit. Politicians do of course want to get rich in monetary terms, but an even stronger motive power for them is usually the appearance of “doing good.” A politician does not generally strive for power for the sake of power, but for the sake being able to “do something” about apparent problems and – especially – of showing that he or she has “done something.” From this follows that if they do have the power they can, at least rhetorically, show that all that is good is really thanks to them. My personal (and theoretical) experience is that politicians in general strive for having us all feel we are indebted for all of society’s goods to their omniscient leadership. The feel-good factor of politicians is not to be underestimated.

    It is true that politicians are in general utterly ignorant of how the price mechanism works, but it is equally true that they do not want a price mechanism (regardless of how it works) – simply because that would relieve them of control and therefore they cannot cash in on any benefits that might emerge (and there should be a few if the market set its own prices). Since the politicians do not bear the costs of their actions but do profit from any benefits (rhetorically defined), they should not want market pricing of landing slots.

    I see two possible scenarios that politicians most likely consider in questions such as this one. Scenario (1): the landing slots are allotted according to an auction scheme or “market pricing.” This means that politicians cannot buy indebtedness through handing out services to preferred airlines and it also means they cannot punish whoever does not follow their guidance. Market pricing means political problems; if something gets better it is not easily shown that it is the direct result of political decisions.

    Scenario (2): landing slots are politically priced and distributed according to immeasurable criteria making any follow-up or transparency impossible. The bureaucracy is kept in perfect control through maintaining an internal structure of reciprocal services (“I scratch your back, you scratch mine”), and the bureaucracy guarantees influence even after potentially lost elections – which therefore could provide a basis for future reelection. Who suffers from the absence of market prices? Only big corporations (publicly established as bad-guys) and consumers (a disorganized interest suffering from a huge collective action problem).

    It is important to note that scenario (2) allows any flight of “national importance” to be easily squeezed in without much trouble, which means politicians’ travel is not much affected. Scenario (1), on the other hand, necessarily comes with market checks and balances making it more difficult to “fine-tune” the market through adding special benefits for political travel (politicians want to travel when everybody else wants to travel, i.e. when it is more costly).

    Or maybe I am just cynical.

  • 2. Warren Miller  |  15 May 2009 at 12:58 pm

    Per seems to come down on the Buchanan-Tullock public-choice side, as do I. These political hacks would rather play politics than markets any day.

    In fact, I made a post yesterday over at ThnkMarkets in response to “Coase, But No Cigar.” In it, I made some strong comments about executives in the U.S. airline space. As a man with > 1,000,000 miles on American Airlines (I’m complaining, not bragging), it’s a space I know all too well, unfortunately. With the exception of the street-drug industry and, perhaps, healthcare, I know of no other business where the best customers pay the highest prices.

    This morning I got a weekly email from The Travel Insider with a link to an interesting article. Check it out. It amazes me that these people are paid to be this inept.

    And, no, Per, you’re not cynical. This is the reality of American business in 2009.

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