Ganesh Sitaraman joins us today to discuss his new book, Why Flying Is Miserable And How to Fix It. Air travel has become an increasingly frustrating experience, with countless horror stories of cancellations, delays, lost baggage, cramped seats, and poor service. For most of the 20th century flying was luxurious and fun, so it’s especially baffling that air travel is plagued by these problems in the 21st century. Sitaraman delves into the reasons behind this dismal state of affairs, tracing it back to a deliberate choice made by elected leaders in the 1970s to roll back regulations, supposedly in order to increase competition and improve the experience of flying for everyone. After enduring half a century of turbulence caused by deregulation, people are fed up with the state of air travel, and Sitaraman gives us some insight into how we can begin to fix it.
Ganesh Sitaraman is a law professor and the director of the Vanderbilt Policy Accelerator for Political Economy and Regulation. He was previously a senior advisor to Senator Elizabeth Warren on her presidential campaign and is a member of the Administrative Conference of the United States and the FAA’s Commercial Space Transportation Advisory Committee. Sitaraman is the author of several influential books, including “The Crisis of the Middle-Class Constitution,” “The Public Option: How to Expand Freedom, Increase Opportunity, and Promote Equality,” and his most recent book, “Why Flying Is Miserable And How to Fix It.”
Twitter: @GaneshSitaraman
Why Flying Is Miserable And How to Fix It
https://bookshop.org/a/101360/9798987053584
Book Website
https://globalreports.columbia.edu/books/why-flying-is-miserable/
More from Ganesh Sitaraman:
The Atlantic – Airlines Are Just Banks Now
https://www.theatlantic.com/ideas/archive/2023/09/airlines-banks-mileage-programs/675374/
The Crisis of the Middle-Class Constitution https://bookshop.org/a/101360/9781101973455
Website: https://pitchforkeconomics.com
Twitter: @PitchforkEcon
Instagram: @pitchforkeconomics
Nick’s twitter: @NickHanauer
Nick Hanauer:
The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
Joe Biden:
It’s time to build our economy from the bottom up and from the middle out, not the top down.
Nick Hanauer:
Middle out economics is the answer.
Joe Biden:
Because Wall Street didn’t build this country. Great middle class built this country.
Nick Hanauer:
The more the middle class thrives, the better the economy is for everyone, even rich people like me.
Speaker 3:
This is Pitchfork Economics, with Nick Hanauer, a podcast about how to build the economy from the middle out. Welcome to the show.
Goldy:
So I got to admit, Nick, that when you first asked me to come work for you, I was a little wary of whether you’d be just another narcissistic, arrogant billionaire, and I don’t want to compliment you too much, but I was pleasantly surprised you turned out to be incredibly well-read, well-informed, curious, flexible, and just a much better thought partner than I could have hoped for. And that is why today I am so excited to finally talk about something that you know nothing about, and that is the misery of flying commercial.
Nick Hanauer:
Yeah, there you go. Happily or sadly, I don’t have to do much of that anymore.
Goldy:
No, you don’t.
Nick Hanauer:
No. I do occasionally, though.
Goldy:
Yeah, in first class. What, international? Which is-
Nick Hanauer:
Yes.
Goldy:
Yes. Solar surface eye. When was the last time you flew economy on a domestic flight?
Nick Hanauer:
Recently I flew economy on a domestic flight just a couple of months ago… Three weeks ago.
Goldy:
Oh, my God. What, private jet in the shop?
Nick Hanauer:
No, no, no. I just had it get from one place to another quite quickly and did.
Goldy:
Okay.
Nick Hanauer:
And it was not that miserable.
Goldy:
Well, here’s the thing. I’ve been in your plane and-
Nick Hanauer:
Which is not miserable.
Goldy:
It’s not miserable, but for the most part… For people who want to know what it’s like on a private jet, if you think like there’s bikinied flight attendants serving as champagne, it doesn’t work that way. It is a tube in the sky. The seats are very comfortable. There’s plenty of room. Nick is a gracious host, who actually loves to serve airplane food to us himself. Takes the plastic wrap off the [inaudible 00:02:49] tray and puts it out there. Nick famously not much of a drinker, so it’s not a boozy flight, but there are a nice soft drink concession. For me, the best part about it is I drive five minutes to the north end of Boeing Field and park my car and get on a plane, and don’t have to deal with all the airport crap. But I make this point because flying, really the physical experience of flying really hasn’t changed much in the past 60 years. If you were flying in the seventies, before deregulation-
Nick Hanauer:
The technology hasn’t changed in the last-
Goldy:
The technology.
Nick Hanauer:
Yeah.
Goldy:
Yeah. I mean the avionics have gotten more sophisticated.
Nick Hanauer:
The experience has changed.
Goldy:
Right. The physical hardware has not changed all that much. You are basically strapped in a seat, in a tube, in the sky, in a pressurized tube in the sky. And you might think that over 60 years the experience will get better. You’re not flying any faster because really you’re up against that speed of sound. Once you go supersonic, it’s a whole other thing. So you’re flying at sub supersonic speeds in this giant tube, and yet the whole experience is so much worse now than it was when I was in my twenties, when I was a kid, before deregulation at all. It’s like they go out of their way to make it miserable at every moment, starting in the airport.
And a lot of it is the post 911 TSA security theater crap that makes you have to get to the airport two hours before your flight leaves, just in case there’s some kind of delay at security, and taking off your shoes and your belt and all the scanning and waiting in line. Forget about the airport stuff. It’s how little legroom there is. I resent the fact, my father was 6’1 and I resent the fact that I’m not even 5’10, no son should be shorter than their father. This explains may be a little bit about me, but whenever I’m flying, man, I am so happy. I’m not like 6’1, 6’2. It must be miserable for these people because it’s tough for somebody my size, the whole where they make you fight for overhead luggage space now, because they started charging you to check your bags.
So now everybody wants to carry on, and that means everybody wants to board first so that you don’t get your bag gate checked and then have to wait for your luggage forever at the carousels. The way they nickel and dime you over everything, whether you’re going to get a little crappy food on the flight, or wifi, which you think should be free everywhere because it costs them nothing basically to have, there’s wifi on the flight, they’re feeding you movies and stuff, why not let you have a little bit of texting or internet when you’re on the flight? But worst is the fact that you pay, what is still, a significant amount of money to get to a certain place at a certain time, and yet the airline has absolutely no responsibility whatsoever to meet that contract. You show up at the gate 15 minutes before it’s supposed to close and you can lose your flight, and that’s your fault for not being there early.
But if they just don’t… There’s a storm in Boston and you’re trying to fly from Florida to Seattle, and because of that, their system is delayed and you don’t make your connecting flight, and you’re left in Chicago, well that’s on you. It’s not their problem. They’ll get you there eventually, maybe two or three days out, they’ll find a spot for you. But that’s not your problem unless you want to go and buy yourself another ticket on another airline. And this happens all the time. And so you can tell I’ve had some of these experiences, Nick. It is a whole different system than it was when I was a kid, where if your flight was delayed for whatever reason, the airline would put you on the next flight out regardless of the airline. You could take your, back then, your Pan Am ticket and use it on TWA. It was a time, Nick… I don’t know if you know this, but the airlines, they used to treat you like customers instead of those things they store in that space above the luggage compartment.
Nick Hanauer:
Yeah, I vaguely remember. It used to be better. It used to be better. But today we’re not just going to hear you rant about how shitty the services and the experience is. Today, we get to talk to one of our favorite people in the whole wide world, who’s a law professor and director of the Vanderbilt Policy Accelerator for Political Economy and Regulation. And Ganesh is just one of the smartest, most creative people we deal with in our policy world. He was a senior advisor to Elizabeth Warren, done so many things, wrote one of our fate favorite books, the Crisis of the Middle Class Constitution.
And he has a new book out that should be music to your ears or music to your eyes or whatever it is, Goldy, I know you’ve read it, Why Flying is Miserable and How to Fix It, which details the arc of the development of the airline industry in the United States, the way in which it grew, the role the government played, the long history of regulation and then deregulation and where we went wrong. It’s such an interesting story and I think the story of the airlines actually is extensible to other parts of our economy too, which is why this conversation is so relevant. So with that, why don’t we chat with Ganesh, hear his views on why flying is miserable.
Ganesh Sitaraman:
I’m Ganesh Sitaraman, I’m a professor at Vanderbilt Law School, director of the Vanderbilt Policy Accelerator, and my new book is Why Flying is Miserable and How to Fix It.
Nick Hanauer:
I love it.
Ganesh Sitaraman:
Now, this is something Nick is not very familiar with, the idea that flying is miserable. Because he flies way above the rest of us. But I got to tell you, Ganesh, this has been a pet peeve of mine forever because I am slightly old enough to remember what it was like flying before. We went on a few family vacations in the 70s before deregulation, and it was totally different than flying today. And that’s not even taking into account all the TSA misery post 911.
Nick Hanauer:
So as quickly as you can, give us the lay of the land, Ganesh.
Goldy:
Yeah, the thesis of the book. Yeah, why is flying miserable now?
Ganesh Sitaraman:
Let me do two parts to that. Let me do first a little descriptive account for anyone who hasn’t been paying attention to the news in the last handful of years or has taken a flight, which is, flying is miserable. And it’s miserable for individuals, for passengers who are on these planes, where we go to the airport and, like you said, after you get through TSA, even often you’re in a giant hub, there’s thousands of flights going out, maybe all run by one airplane or maybe there’s a couple of others. You get on these planes which have smaller and smaller seats. You’ve also paid all these extra fees to check your bag or get a meal on the flight. Maybe you’re lucky and the person in front of you doesn’t put their seat back. God to help you if you’re traveling with a stroller or if you have a wheelchair.
It’s a real hassle. And if you zoom out from the passenger experience, which has gotten frustrating, there are just a lot of problems in the industry. We had a period of massive, massive profits for the industry in the 2010s. And then COVID happened. People didn’t want to fly, and the airlines came rushing to Congress asking for taxpayer support. Same thing happened, by the way, 20 years earlier, we had lots of profits in the airline industry in the 90s, 911 happened, big demand shock, and the airlines came running to Congress asking for bailouts. So we have a problem on the kind of boom and bust cycles in the industry. We have a real concentration problem in the industry too. We’ve got four big airlines, and those four big airlines now have a larger market share than the biggest four airlines had under regulation in the 70s.
Now, part of the pitch of deregulation was we were going to have more competition. We actually have less competition now under the so-called unregulated competitive market system. And that’s not just at the level of the biggest airlines overall. You really see it in airports. There are some airports now, take Detroit for example, Delta has 70, 80% of Detroit. During regulation they only had 30% of Detroit airport. So there was a lot more competition at the airport level instead of having a small number of these fortress hubs. And then all of this is a problem for you only if your city actually has air service. But 74 cities have lost service since COVID from at least one big carrier, and a number of cities have now lost all major carrier service. So if you live in Dubuque, Iowa, if you live in Toledo, Ohio, there’s no more big carriers coming to your town and offering flights.
And that’s a huge change from the past. And so if you think about this from the perspective of economic growth and opportunity in different parts of the country, if you think about the resilience of our airline system, if you think about competition and what that means for prices, and then of course you think about the cost-cutting on the part of the airlines, when you think about safety concerns that we’ve seen in recent times, but also the broader things like smaller seats. The whole process of flying, the industry itself is in, I think, a really problematic state. This is not a sector that’s covering itself in glory at the moment. And all of this, in my mind, goes back really to deregulation in the 1970s. And the reason why is because in the pre deregulation period from the thirties to the seventies, Congress decided that we wanted a stable, reliable airline system.
And what they recognized is that airlines are not a business like any others. They’re not the same as starting a restaurant or manufacturing coffee mugs. It’s not going to be totally competitive where there’ll be hundreds of players. And that’s because there are network effects, there’s economies of scale, there are barriers to entry. And all of these things, basically, we can get into the economic details, but they’re all fancy ways of just saying bigger is better. And the more scale you have, the bigger you are, you’re going to do better. And so in an unregulated environment, what that means is you either end up with monopolies and oligopolies, or you have so much competition that there are price wars, airlines are going bankrupt, they need subsidies to stay alive. And if you let them go bankrupt, you then just have massive consolidation and then you go back to having monopolies or oligopolies and all the downsides that come with that.
And so that was obvious in the 1930s to people, that this was a different kind of business. And so they set up a regulatory system that was designed to navigate all of these challenges, ensure access around the whole country, have some amount of regulated competition, not too much, that airlines would need subsidies, not too little, that there would be monopolies. And they did this pretty successfully for 40 years. And in that period, more people were flying, prices were regularly going down and consistently, and there were big innovations, like the move from propeller planes to jets. And then in the seventies, a number of folks said, “This is a terrible thing and we should actually just have pure market competition. We should let the airlines fly wherever they want, whenever they want, charge whatever they want, and everything will be better. We’ll have dozens, maybe even hundreds of competitors in the airline industry.
Prices will be cheaper. There’ll be no downsides to service quality or geographic access or safety or labor or anything else.” And that was just a failed pitch. They were wrong. And we can look at our system today and see that on a whole bunch of those metrics that they predicted they just weren’t right about it. And I think that’s why we are where we are, is that big shift, which was really a policy change. It wasn’t something natural. It wasn’t God-given, on how to set up an airline system. It was a bunch of policy choices, and they really messed up this industry for a lot of us.
Nick Hanauer:
Yeah, interesting. It’s worth just noting though that the deregulation push coincided… When I read your book, it was really interesting in tri-part crises in the industry at that moment too, right? You had a demand problem, and then you had the doubling or tripling of the fuel costs. They were all losing money and stuff. There was a moment there that created the energy around deregulation. Isn’t that true?
Ganesh Sitaraman:
Yeah, exactly. I think there was a perfect storm that opened up the opportunity to dismantle this whole system that had worked pretty well for 40 years. And what that was, was I’d say a combination of a few factors. On the economic side there was, in the late 60s and early 70s, really in the early 70s, a major economic shock. You had the oil crisis, you had rising inflation. And what this meant was not only higher costs for airlines, but also lower demand, fewer people flying in that period. At the same time, in the late 60s, the airlines had just bought whole new fleets of these wide bodied jets, which was a big capital investment. And under-
Nick Hanauer:
This was the beginning of 747s, right?
Ganesh Sitaraman:
Yeah. These huge jets, which can be really efficient, especially for doing long haul flights. And so this was a great technological advancement, and the airlines said, “Let’s invest in this new technology. It’s great.” And the challenge, though, is under the way that regulation worked, the way airlines would make money as they would be able to cover their capital expenditures and their operating expenses, and then they would get a revenue amount on top of that, they would get some benefits on top of that for being in the industry. And that was the regulated profits of the sector. Of course, regulating profits, regulating rates meant that competition was really all about service, which is why, as Goldy started, you had all these great experiences flying because they were competing on service to make it a good experience for you when you were flying. That’s how they were going to win your business.
Goldy:
Oh man, Ganesh, that 747 from Philadelphia to San Juan, we weren’t flying first class, but the entire upstairs was a lounge. You could go up that spiral staircase and you sit at a table and there’s a bar up there, and they give you a deck of cards, and as a kid you get these model planes and pins and stuff. It was really a thing to fly.
Ganesh Sitaraman:
It was totally different. And that service competition was because of regulated prices. But when they had this big expense of all these jets and were facing lower volumes and were facing higher costs, they went to the regulators and said, “Well, we need to cover our costs,” and this is just standard stuff in this time period. And so the regulator said, “Sure, we are going to have to change the pricing a little bit to address that.” So that was going on at the same time. And so you see lower demand, higher prices because of these changes in investments in the rate regulation at the time. And that’s combined then with this intellectual environment in which the Chicago school economists on the right had been pushing for many years to basically say that we should run all these businesses the same, and we should think primarily about marginal cost pricing as the way to do that.
We shouldn’t have regulation even in sectors that might look like they are oligopolies. Let’s let the market just be the market. And you had people on the left like Ralph Nader saying that these systems of government regulation are really forms of industry capturing government in order to harm consumers and to help the industry. And so the left-wing Naderite, supported in the political process by Ted Kennedy and Steven Briar, who then wasn’t a Supreme Court justice, but was a Stafford to Kennedy, and the kind of right-wing economist energy plus the general Republican view of being against big government, those things merged with the economic context and created this opportunity for… It was really a radical transformation of a huge sector of the economy all at once.
Goldy:
Now let me do the typical pushback because I have had… This has been… Like I said, it’s been a pet peeve of mine for years, how terrible flying is, and that it doesn’t need to be this way in that it’s mostly a consequence of deregulation, and I get the pushback, “Ah, but flying is so much cheaper today than it was back then. If it wasn’t for deregulation only the rich would be able to fly.”
Ganesh Sitaraman:
Yeah. This is one of these persistent conventional wisdom myths that I think really, really needs to be blown up. And I do it in the book, but I’ll… For everyone listening, here’s the version that I’ll tell you, why that’s not right. And there’s a bunch of reasons. So the first one, which is the most obvious, is people will say, “Well, prices went down after deregulation.” And often they’ll even show you a chart that starts in like 1978 when the deregulation act was passed, or 1980, and it’ll show prices going down. That’s true. Average prices have gone down since 1978, 1980, since deregulation. If you pull that chart back and go all the way to 1950, it turns out prices were going down the whole time before that too, and at the same rate that they were going down just about afterwards.
So there’s no big discontinuity where prices were higher before by some crazy amount, and then it sharply declines at deregulation. It’s actually a consistent decline for the entire period of the history of airlines after World War II. So that’s the first point. It’s not obvious deregulation did this. The second thing is that that’s average prices. And in part when we talk about average prices, we’re a little bit comparing apples and oranges here, because, Goldy, when you were flying and traveling in the lounge with your playing cards and probably getting if you weren’t old enough at the time, but if you were probably getting free drinks and all other kinds of things-
Goldy:
Well free soft drinks, but yeah, no- [inaudible 00:21:37]
Ganesh Sitaraman:
Not alcoholic drinks. Yeah.
Goldy:
My father loved the free drinks-
Ganesh Sitaraman:
Exactly.
Goldy:
… let tell you.
Ganesh Sitaraman:
So you were actually getting a different product than today where you have to pay for your drinks. Obviously no one’s giving you playing cards. You’re checking your bag, you’re going to pay extra for that. All of those things you’re paying extra for now. So all those additional fees are not built into that structure. So we’re comparing a little bit different things. So that’s the second problem. A third problem is that one thing that’s happened is we’ve seen the real reshaping of fees… Sorry, of prices overall. So in the late era of regulation, the way they regulated prices is they basically required the airlines to charge equal fares for equal miles. So the price of a flight was tied to how far you were flying, which makes sense. And they wanted equal fares for equal miles so that if you were flying between a small town and a big city, maybe lower volume, that would still be affordable and it would be the same price as flying between two really big cities.
And why that’s important is because we are a gigantic country. And if you want to have economic growth and opportunity in places that aren’t just New York, Washington, LA, San Francisco, Chicago, you need to actually have people be able to get to other cities, and to be able to go there and for businesses to be there and have their customers fly or their suppliers get there. And you need airlines and you need transportation infrastructure for that to work. And so if you want that ability for there to be growth, communication, commerce, tourism and everything in a lot of different places, you need to have flight access. And so the equal affairs for equal miles ensured that you had affordable flights, even in places that might have a little bit lower volume and were a little bit smaller.
Goldy:
So in a sense, the system was subsidizing the smaller cities. You were paying a little more on those busier routes in order to keep airfare affordable on the less busy routes.
Ganesh Sitaraman:
That’s right. And in technical terms, this is called a cross subsidy. And you could call it a cross subsidy, you could also just call it uniform pricing, is another way to think about it. And where on the backend this stuff gets worked out, but it’s not about… You don’t set the price related to the cost of providing the specific service. And this is important because another way to think about it is you don’t have to conceive of the service as a specific point to point flight, but you conceive of the service as national air network and service to lots of different places. And so if you think about the post office, this is where this idea comes from. You pay it the same price on a stamp to send a letter from New York to Washington or San Francisco to Seattle that you pay to send that stamped letter from New York to Minneapolis or New York to Alaska or New York to Birmingham, Alabama, or Seattle to any of those places.
And the reason was that the founders of the country wanted to make sure that in our gigantic country there would be access to communication everywhere. And so the post office always had this principle built into it. And that same idea applies in airlines. And the theory is what we’re not buying is a specific flight or a specific postal stamp, like sending a mail. What you want to provide as a service, as a country, is an infrastructure that is accessible in a lot of different places. And so you got to think about it as a system, not just as a particular point-to-point service. And so what happened after deregulation, though, is when you deregulate that system and let airlines fly wherever they want, they’re going to drop all the places that are smaller, they’re going to cut back service in those places, and they’re going to consolidate operations in the places that are the highest volume, the biggest cities.
And that’s what happened. And that reshaped prices in a couple ways. First, it meant that if you live in these really small places, you might pay a lot more for flying because there’s a monopoly and there’s low volume in those places, if you have access at all. And then the second thing it did is it pushed airlines to create these big hubs where they would have a lot more efficiency in their operations if everyone has to fly through, say Atlanta, if you’re on Delta, or Dallas, if you’re an American. And when that happens, they drop service from mid-size hubs, they drop service from smaller places, potentially. And as that happens and they consolidate, now you’ve got these fortress hubs where one airline has 70, 80% of flights in that area. And they’re effectively monopolies there too. So prices go up if you live or are going as a destination or departure point from one of these big places.
And so what you see now is in some places prices are much higher, even if in other places where there’s competition, they’re lower. And here’s the real kicker. Even the proponents of deregulation, 10 years later, admitted that this is what was happening, that there was actually a reshaping of prices, and prices had not gone down across the board. So the smoking gun, you don’t have to take my word for it, Alfred Kahn himself, the father of deregulation, 10 years later, admitted that prices had gone up in some places and had gone down in others. And so I think it’s a real myth that is perpetuated just for too long.
Goldy:
I think a nice comparison on this idea that average prices have gone down, that’s true, but that’s like working Nick’s average income into whether average incomes are going up or down for somebody like me. If you’re flying between Los Angeles and New York, my God, are prices cheaper than they used to be. If you’re flying between say, Cincinnati and pick some other mid-size city, it’s a lot more expensive, if you can get a flight at all. And of course, I picked Cincinnati for a reason because that’s a city that really suffered under this.
Ganesh Sitaraman:
That’s right. Cincinnati used to be a big hub, and is no longer a hub. And that’s a real problem. You think, again, as I mentioned about economic growth and opportunity. Who wants to start a business in a city that doesn’t have an airport?
Nick Hanauer:
With no… That’s right.
Ganesh Sitaraman:
Yeah.
Nick Hanauer:
You wonder why people feel left-
Ganesh Sitaraman:
You wouldn’t start a company in a place that has no air service.
Nick Hanauer:
No.
Goldy:
Or keep a company there because I think it was Cincinnati famously that was the headquarters for United Fruit, now the Chiquita company, whatever they call themselves. And they moved their headquarters because they couldn’t fly people in and out on direct flights anymore.
Ganesh Sitaraman:
Yeah. And you see that, and you also see things like you want to host your national convention somewhere, maybe there’s a great convention center, but if there’s no flights to your city from all over the country-
Goldy:
No, forget it.
Ganesh Sitaraman:
…you actually don’t want to have your convention there because everybody’s got to connect once or twice, and that’s a real hassle. So that’s devastating to economies if that happens. That has secondary and tertiary effects, because when you don’t have the businesses, you don’t have managers, you don’t have all the restaurants that people go to, you don’t have all the shops. It’s a huge hit on economies when they lose these kind of basic infrastructures.
Nick Hanauer:
One of the great challenges in the country right now, of course, is the agglomeration effect that we’re seeing in the super cities. Basically all of the economic action happening in fewer and fewer places. And there’s a bunch of things that make that so, but I guess I’d never thought through the effect that the airline consolidation and deregulation had on it too.
Ganesh Sitaraman:
The story you hear from economists is it’s all just the benefits of co-locating and it’s cheaper, there’s more talented people, that kind of thing. But we forget that…. And it’s not just airlines, it’s regulation in a bunch of other ways too. When you think back to the progressive era and new deal regulatory system, that then got dismantled in the late 20th century, airline deregulation was part of that story. Railroad deregulation is also part of that story. I recently read a paper that was making the point that railroad regulation helped expand economic access in a bunch of places, because what the railroads would do is they would charge cheaper prices for longer hauls between big cities than they would to the shorter hauls where the same railroad was going to stop along the way. And so they were charging farmers more for a subset of the rail line, and that made it harder to live in those places.
And when they regulated and prevented that, that helped. So there’s railroad deregulation, there’s airlines. You could think about telecommunications. We have regulations in that area. Today the biggest, I think, example of that is the absence of a provision of service in rural places on broadband. And that’s another version of how do we provide these basic infrastructural goods? Are we going to do it by just subsidizing the biggest telecom companies? Or do we have a system that says you get access to this whole area, but you have to provide service not just to the big city, but also to the rural places around it?
Goldy:
And we famously did that with the old AT&T Monopoly, where we city dwellers were paying this fee to provide rural telephones, help subsidize rural telephone service so that everybody had access.
Ganesh Sitaraman:
And electricity, another example. Across the board in a bunch of areas where we have geographically spatial networks, the common theme is it is more expensive to provide service to some areas than others. And we have to decide as a country, are we giving up on those places, and it’s just going to be too expensive to live there, or do we actually care about the whole country and want people to be able to live in different places? And the policy of the United States, really from the founding through the 1970s, 200 years, was we want to encourage people to be able to live and have infrastructure access to basic goods and needs in lots of different places. And in the 70s, people turned against that. And I think we’ve been seeing the effects in geographic inequality and economic outcomes and health outcomes and all other kinds of things too, in part, not completely, but in part because of these regulatory changes.
Nick Hanauer:
We’re doing it hospitals now.
Ganesh Sitaraman:
Yeah.
Nick Hanauer:
We’re doing it to hospitals now. We’re letting private equity do to the healthcare system what deregulation did to the airline system.
Ganesh Sitaraman:
You roll up all the healthcare providers, get rid of all the hospitals in rural areas, they’re all in cities now. And that’s a huge problem, because where do you go to get care if you live in those places? You have to drive in an ambulance a few hours or get airlifted out. It’s a challenge all around and it’s a fundamental problem, but it’s a solvable problem. And I think that’s the real point, is this is a policy choice to decide how we want to govern ourselves and how we want to shape economic opportunity in a way that works for a broad group of people or only people who live in a few places.
Goldy:
That’s a good segue because your book is titled Why Flying is Miserable and How to Fix It. Let’s get to How to Fix It part.
Ganesh Sitaraman:
Yeah.
Goldy:
Reregulation?
Ganesh Sitaraman:
Well, so the way that I think about this is that we have moved into a different place now than we were 1978. I’m not sure you can just say, “Let’s just re-pass the 1938 Civil Aeronautics Act and it’ll operate just fine right now.” I think we have to learn from both systems that we’ve had. I think we need to try to find ways to do things that are new and fresh, but that learn from the fact that this isn’t a purely competitive industry, that a whole bunch of parts of it have not been working. And so to me, there’s really three principles, and I’ll give you one idea in each, though I talk about others in the book, and in a new white paper that I’ve just published also. The first principle is no more flyover country.
I don’t think we should have a system where we don’t have access to a lot of different places in the country. We should have service in a lot of places. The idea there is what I call a draft pick system. And you can imagine this as like an NFL Draft or NBA Draft, whatever your favorite sports franchise or system is, and you imagine they have big airlines as the teams and the cities as the players. And you’d have a category of cities that don’t get serviced that are a little small or lower volume. They’d all be on the list. And the teams, the airlines, would pick one by one until all the cities are used up, and they’d have to serve those cities with affordable rates with a certain number of flights per day and per week. And that would be the deal. And part of the deal is you don’t just get to start an airline.
It’s a privilege that the public gives you to be able to fly over our common airspace. And with privileges come obligations. And so you have a duty to also engage in some public service, and that’s going to mean serving those places at affordable rates, and you’ll make the cost work. Maybe you want to change the prices on this route, maybe you want to pay your CEO a little bit less, maybe do fewer stock buybacks. You’ll figure out what you’re going to do on your end, but you have to serve these places at these affordable rates.
Second principle, no more bailouts, no more bankruptcies. We should have a stable, reliable system, even when there are crises. And the easy idea here is let’s start just by having a crisis management plan where the airlines actually have to put together pen and paper to say, if there’s a big demand shock like COVID or 911, and we are going to have low demand for six months, for a year, what is our plan? How are we going to do that so that after that crisis, we don’t have tens of thousands of cancellations like we saw in 2022. So we don’t have major staff shortages because we fired everybody or gave everybody voluntary retirements like we saw also in the last few years.
Nick Hanauer:
We’re not going to have to get a 50 billion dollar bailout-
Ganesh Sitaraman:
And that’s the last part-
Nick Hanauer:
… from the public.
Ganesh Sitaraman:
… and you’re not going to come running to us after having made all this money and giving it away to your CEOs or in stock buybacks. What’s your plan for how you’re going to do that? And show us that plan. Have that ready. Because I think that’s an important part of this. They should be thinking about that.
Nick Hanauer:
Yeah, the airline bailout, if I could just interject, that airline bailout is one of the greatest scandals in American history. Every time I think about it, my blood boils. They just gave all that money away to shareholders, and then when times got tough, came to the public-
Goldy:
They didn’t keep that money on reserves.
Nick Hanauer:
Their balance sheets. It’s just unbelievable.
Goldy:
Which Ganesh raises an idea. A lot of people criticize the airlines now for essentially being banks, what with all the credit cards they issue and the frequent flyer miles they sell and so forth. Well, if they’re going to operate like banks, why don’t we regulate them like banks and require them to keep adequate capital reserves?
Ganesh Sitaraman:
And that’s right. Maybe that’s part of these plans is it’s a rainy day fund. You could call it [inaudible 00:36:37] adequate capital reserves or a rainy day fund. But that’s part of the story. What are they actually doing in these places because they are too important to fail as enterprises for us. We actually need airlines in the country. It’s important to our commerce, it’s important to how we function. And so of course, if there’s a crisis, Congress is going to bail them out. Obviously that’s what’s going to happen because of how important they are. But we know that. And so let’s actually do some public policy to prevent that from happening instead of the system we have. And then the last part is I think we need to look hard at fixing our fare structure, and that means fair and transparent prices for people. And I think there’s a lot of reforms in this area.
There’s a bunch of abusive practices in these airline point systems and programs that we should tackle. I think we’ve gone way too far in these junk fees and unbundling all the different elements of flying. We should have some minimum standards of service, which include things like minimum seat sizes, inclusive fares that include very basic things in them. There can be different tiers and they can go higher than that, but we can’t just constantly have this race to the bottom where the seats get smaller and smaller and smaller and smaller until we’re all sitting on each other’s laps in order to fly. That’s not a workable system for us. So I think we need to address that as well.
Goldy:
So you’ve been pitching these ideas. What type of response are you getting from legislators, policymakers?
Ganesh Sitaraman:
Well, I think there’s been really two, maybe three sets of reactions that are hopefully encouraging, I think. There’s a small number of people who are just so dug in, invested into the mythology of deregulation and religion of the market working in this area, that they’re just unwilling to see the problems that we face, and admit that policy could actually do something to fix it. And so put that aside. There’s always going to be some of those folks. What’s been really striking to me are the other two groups, which is there’s a lot of people who, I think Goldy will raise the point that you did, “But didn’t prices go down? Weren’t there all these benefits?” And they’ve heard that stuff before. It’s in the air, but they’ve never really thought about it. They’ve never really looked into it. And when you talk to them about the problems, they say, “Wow, yeah, these are real problems.”
And they recognize that there’s a connection here and what’s gone wrong in their lived experience. And I think that’s really important because for change, it’ll be getting those people to move. And then of course there’s the people who are totally on board with it and very excited. But to me, what’s exciting about this moment is the facts are on the right side. Nobody can look out at the airline industry, as it is now, and the experience we’ve had in the last handful of years and say, “My God, this is an amazingly working system. This is the best it could possibly be.” No one thinks that. You’d have to be… I’ve never heard anyone say, “Oh my God, I loved how small my seat was and the extra fees I paid to check my bag. And it was great that I connected through Charlotte and had to run a half mile across the airport just to make my connecting flight.” People don’t say that, because it’s crummy and they don’t like it.
Goldy:
I don’t know, Ganesh, if the market says that it’s efficient to have your door plug blow out at 16,000 feet, who am I to argue with the invisible hand? I know better?
Ganesh Sitaraman:
Well, I think you all do know better. Let me put it that way. Part of the whole point is the model of the market is not working here. This is not how it works. And we see that every day. And I think that’s partly what’s working for people who want change here. The other thing that gives me hope in this area is a lot of the things that are problems have just huge and broad bases of people who could support them. The people who are miserable about small seats are Republicans, they’re Democrats, they’re old, they’re young, they’re of every race, they live in every part of the country. The people who are irritated about losing service in cities, they live in cities, Toledo, St. Louis, Cincinnati. They also live in really small places and rural areas. They live in states like Wyoming and Cheyenne, which Cheyenne actually guarantees the revenue to one of the airlines, which is a fancy way of saying they pay the airline if the airline doesn’t make enough money off of their route.
And when you talk to some of these small places, the way they talk about it is, it’s a shakedown. It’s a gun to the head saying, “We’re going to destroy your city by leaving unless you pay us. And so guarantee that we make enough money off your route or else we won’t be here anymore.” And those are people who are not living in the biggest places and they’re all over the country. And so I think there’s a potential real opportunity for something that would be very popular. Of course, the airlines are going to fight back big time. But I think the way we make changes is we start talking about these things now, and hopefully in the worst case, if there’s another big crisis and the airlines aren’t prepared and they come running to Congress asking for yet another bailout, at that point we say, “Enough is enough,” and there’s actually the coalition to do something about it.
Goldy:
It’s funny. Would the incumbents… I mean at the time of deregulation, a lot of airlines didn’t want it. They had decades of a stable, profitable industry. Regulation worked for them. You’d think there might be some incumbents now who might see the advantages.
Nick Hanauer:
Maybe.
Ganesh Sitaraman:
I think a lot’s changed since then, and part of it is a status quo bias, but part of it today is also, we haven’t talked much about this, but the dirty little secret is that the big airlines don’t really compete with each other either. And so we also all pay higher prices because of that. There’s different components of that. But economists have shown that in part because the biggest airlines have common shareholders, including some big ones, that they really have no incentive to compete on price. And the real price competition really only comes in when you get someone like Spirit, one of these ultra low cost carriers, jumping into the mix. But when it’s just the bigs who are serving the same cities, let’s call it that, they don’t really compete, even though they’re serving the same places. And so you pay higher prices there too.
Nick Hanauer:
So one of the things that I think the issues you raise are extensible to some other industries too, aren’t they?
Ganesh Sitaraman:
Yeah.
Nick Hanauer:
It’s not just the airlines.
Ganesh Sitaraman:
Yeah, that’s right.
Nick Hanauer:
Obviously, telecommunications has been a big problem. Obviously, the lack of broadband outside of major cities is a great example of exactly the same problem.
Goldy:
The trucking industry was the pilot for airline deregulation, and that has been terrible for truck drivers.
Nick Hanauer:
What’s happening to the healthcare system? There are these big industries that people rely on, where if you let the private equity guys have their way, you’ll have one big player serving 25% of the country and getting outrageous returns on capital, and that’s it.
Ganesh Sitaraman:
Yeah, and it’s a big problem. And I think when you look at it, some of the industries that were regulated with similar models to airlines, not exactly the same, because they’re all a little bit different, but similar kind of principles, railroads, trucking, maritime shipping, in the transportation sector. Telecommunications was another one. Energy, pipelines and electricity, another category, banking, another category. And honestly, when you look at these industries, these sectors, these are not sectors that you would say are doing awesome right now in their service to the public. Just think about all the supply chain problems and issues we’ve seen in maritime and rail in the last five years through COVID.
Just think about the energy grid problems that we have, and it’s Texas, but it’s also California over many decades. It’s a lot of different places. As we said, broadband access in rural places has not been stellar, to put it mildly. Banking. It’s not like we haven’t had major financial crashes a couple of times in the last 15 years, including bank failures just a year ago. So we have a lot of different places where this kind of model actually worked to create stable, reliable, basic infrastructure on foundational things that apply to lots of other sectors of the economy, and that are basic inputs, communications, energy, transportation, finance.
These are basic inputs into tons of businesses. And these are sectors that aren’t working. And part of that story is a story of deregulation in these areas that has made them all more fragile, that has increased risk, and that has made them less useful for serving the public. And I think part of our challenge today is both admitting that, recognizing it, seeing the facts that it actually exists on the ground, which is that these are not industries that are working, and then deciding that we have to do something about it. And the good thing is we actually have a playbook. We know how to fix this. It’s not a totally new challenge. We know how to do it. We just have to start building the movement to do it.
Nick Hanauer:
I love it.
Goldy:
Okay. Should we get to the final question, since I think we’ve pretty much covered the benevolent dictator? Go ahead, Nick.
Nick Hanauer:
Why do you do this work?
Ganesh Sitaraman:
Ooh. Good question. There’s a lot of reasons. I guess there’s how far back in biography or psychoanalysis do you go? But let me give you a not too far back version, which is, I think that we as a country have extraordinary freedoms and opportunities and abilities, and we’ve created a atmosphere and an ecosystem here that, while it’s never been perfect, and never will be perfect, to be fair, nothing is, has really just been this extraordinary place for so many people. And that’s why people want to come here. It’s why we’re a great example for so many things. It’s why we’re innovative.
And part of continuing that project of making a country better, of making it have all these opportunities, and be a place where there’s freedom and innovation and opportunity and growth, is having policies that actually do that. And so for me, public policy and working in these areas, and I work in a lot of different areas of public policy, really comes down to that. And I think of it as, the American dream is not just the dream for each of us to have a little bit of better life, but also that our country is better, and that other people can have that too. And so that’s it for me. It’s partly the dream of a continued and better America in addition to a better life for all of the people here.
Goldy:
Thank you for your service.
Nick Hanauer:
Yes, indeed. Indeed. Well, Ganesh, we will be watching this closely. I think it’s a really interesting problem to try to crack, but it is analogous to so many of the other problems that the country faces right now too. And just the consequence of 50 years of neoliberal ideological fervor, and we’re paying the price for a lot of that today. So hopefully we can make it better.
Goldy:
I want you to know, Ganesh, I was sorry to miss you when you were in Seattle, but Paul gave me a book that you signed, and so I made a point in December, over the holidays, I was doing some flying, of reading it in the airport and on the plane.
Ganesh Sitaraman:
I appreciate that.
Goldy:
You made flying just a little bit less miserable.
Ganesh Sitaraman:
Excellent. Well, I’m glad. I’m glad.
Nick Hanauer:
All right, well, thank you so much for being with us, buddy. It’s great to talk to you as always.
Ganesh Sitaraman:
Thank you all. Great to be here.
Nick Hanauer:
The thing about that conversation and Ganesh’s book is how much it reminded me how backwards we’ve gotten the economy, in the sense that… We used to believe that the purpose of markets was to serve the society, and then we decided that the purpose of society was to serve markets. We really should be okay with an industry devoted to transportation that just decides that it’s too much trouble or too expensive to transport people in non-optimal places. Well, that’s just the market, and if those people want to go someplace, they should move to a place where there are transportation choices.
I just think that, as Americans, we have so habituated ourselves to that thought process to being like, “Well, of course there’s not going to be a hospital in your smaller city. If you want healthcare move to San Francisco or New York.” We just have brainwashed ourselves into thinking that, “Well, if it’s not capital efficient, then well, why in the world would you do it?” And it’s just so backwards from how we should think about it, and why I think raising this issue around airlines is so timely and relevant, because it’s everywhere.
Goldy:
It’s also, by the way, not consistent with the American tradition. And Ganesh goes into this in his book. There was a long American tradition of regulated capitalism. That is what we had, partially, starting in the 19th century, but certainly picking up a lot through the New Deal and into the 1970s. But it was throughout our history. The post office, which he brings up as an example, that was a public good, and there were all types of things that were inefficient about it. The fact that periodicals, we still have this remnant of it, media mail, it was cheaper to send a newspaper 500 miles than it was to send a letter down the street. We subsidized shipping newspapers around because the founders understood that a free press was so integral to maintaining a functional democracy. And now, of course, we barely have newspapers.
Nick Hanauer:
We don’t even have newspapers anymore.
Goldy:
Right. It’s one of the things that De Tocqueville remarks upon in democracy in America, that you’d go to some little rural town and everybody’s reading multiple newspapers that are arriving in the mail from all over the country, and debating what they’re reading in these newspapers in the mid 19th century. And so there’s a long tradition, not just in socialist Europe, but here in the United States. That’s how we ran shipping. We ran railroads. We ran trucking. We ran the airline industry. We ran telecommunications. Utilities, et cetera. And it worked really well. It created the largest and most affluent and most stable middle class the world has ever known. It helped build us into the greatest industrial, military, political, economic, and cultural power in the United States. And since the late 1970s, since the onset of the neoliberal era, we’ve pissed it all away, Nick, that’s what we’ve done, and we’ve made our lives so much more miserable than they have to be.
And the other thing I want to point out is that when we talk about reregulating, as Ganesh says, it won’t look like what we had before deregulation, but when we talk about reregulating the industry, to some extent, this idea that it produces inefficiencies, that it will be too costly, it “allegedly” distort the market and all that, that’s just bullshit. That’s not the way markets work. We’ve talked about this, Nick. The market is an evolutionary system. And when you do something like raise the minimum wage or impose some regulations in the airline industry, all you’re doing is changing the fitness landscape, the things that are necessary for business to thrive and turn a profit. And the great thing about the market is it is incredibly innovative. That is the benefit of market economies, the innovation, and the industry will figure out how to make a profit in a slightly more regulated environment than the one they’re in now. And who knows, look, over the long run, it was more profitable before deregulation than it has been after.
Nick Hanauer:
Yeah. At a minimum, I’d like to get to a spot where we don’t have to throw another 50 billion dollars at this idiotic industry during the next downturn. Because they took all of their profits and rather than putting them on the balance sheet for a rainy day, sent them to their shareholders and their executives.
Goldy:
Even now as they’re carrying tens of billions of dollars of debt, they’re doing stock buybacks and dividends, so the various airlines, and so they’re leaving themselves vulnerable to another downturn. But who cares, if you’re just going to get the bailouts? I think that if you do stock buybacks, when things go bad, your shareholders should have to do stock givebacks.
Nick Hanauer:
I agree, a hundred percent. A hundred percent.
Goldy:
Make the shareholders pay for it. Anyway.
Nick Hanauer:
A hundred percent.
Goldy:
Anyway, Nick, enjoy your comfy private jet, and-
Nick Hanauer:
I will.
Goldy:
And meanwhile, the rest of us will work to make flying a little less miserable. Again, the book is Why Flying is Miserable and How to fix It. It’s a short book that, really eyeopening. If you think that flying is cheaper because of deregulation, you’re in for a surprise. You can buy it anywhere, your local independent bookstore, or that big online monopolist if that’s what’s most convenient for you.
Speaker 6:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook @civicaction and Nick Hanauer. Follow our writing on Medium @civicskunkworks, and peek behind the podcast scenes on Instagram @pitchforkeconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.