The new rulings announced by the Department of Transportation to force airlines, among other things, to return the fees for checking baggage if the baggage is lost, to post full prices including taxes, and to raise the compensation for being bumped involuntarily from flights, are not very onerous to airlines. However, they do add to the many rules that already require airlines to post various prices, to compensate passengers for bumping, and to engage in other behavior that is supposed to protect passengers. The new and old rules regarding passengers, and many rules of behavior imposed on companies in other industries, such as the so-called consumer protection components of the Dodd-Frank law on financial regulation, all reflect a fall in government confidence in the ability of consumers to make reasonable choices.
I believe this lack of confidence greatly underestimates the capacity of the great majority of consumers to make forward-looking choices in their own interests. It also underestimates the degree to which the forces of competition protect consumers against the consequences of the bad decisions they do make. I briefly defend each of these claims.
Low cost airlines that provide cheap tickets and minimal services grew rapidly after the deregulation of airlines that began in the 1970s allowed the entry of new airlines. Their growth shows how sensitive passengers are to price, and how many are willing to exchange lower prices for fewer services, such as no meals, or no assigned seats. Southwest Airlines started only in the 1970s after facing much opposition from regulators, and it is now the largest American airlines in terms of domestic traffic.
Or consider whether most passengers know that many airlines now add separate charges for checked baggage, even though these charges are often not displayed prominently in advertising or in passenger contracts with airlines. It is obvious from the fact that many more bags are being carried onto planes since these changes went into effect (and thereby delaying the departures of planes) that many passengers both know about these new checked bags fees, and they have responded to them. For those who may be ignorant of these fees, Southwest Airlines constantly reminds consumers in their advertising (“bags fly free”) that they are one of the few airlines that do not charge for the first or second checked bags.
This is not to deny that some passengers are ignorant of the separate charges for baggage and food, do not realize that sizable taxes add to the full cost of airline tickets, forgot about frustrations due to long and unpleasant flight delays, and are unaware of other aspects of the full monetary and psychic cost of flying. However, if significant majorities of passengers are reasonably well informed about full prices of tickets and other aspects of the flying experience, their behavior helps protect the ignorant passengers. For airlines usually have to make their pricing and other decisions on what the clear majority of passengers know and respond to since they usually cannot separate the more active customers from the passive ones. If that majority is responsive to charges that are not prominently displayed, to taxes, and other aspects of the total cost and experience of flying, airlines will tend to keep prices and charges lower to all, including the more ignorant flyers.
Competition among airlines may be an even greater protection for uninformed consumers than the behavior of reasonably well-informed and responsive consumers. As Posner indicates, if government regulations impose costs on airlines, ticket prices will tend to rise since airlines have been struggling for decades just to earn a decent return on their capital.
Suppose, to illustrate the effects of competition, that one airline discovers its profits increase when some of the costs to passengers are placed in small print on the passenger ticket contract because enough passengers act as if they are not aware of the costs found in small print. Then other airlines competing for passengers will copy the first airline, and also put these costs in small print. Furthermore, their desire to get more of the now more profitable passenger business will induce them to reduce prices on other dimensions of travel, or add to services, such as providing assigned seats when seats were not previously assigned, or adding individual videos for each seat. The end result will be that competitive pressures that lower prices or increase services to passengers will help compensate passengers who do not recognize the costs in small print, although to be sure they may be only partially compensated.
So I clearly agree with Posner that the new regulations imposed on airlines are mainly a mistake. They add to the costs of airlines and to the costs of flying in the mistaken belief that most consumers are easily tricked by airlines. Beyond that, the regulators fail to see that competition is the most effective way to protect even ignorant consumers from the consequences of their ignorance. The competitiveness of the airline industry is evident from the many new airlines that have entered and existed this industry during the past 30 years, and from the low profits during the decades after deregulation. Encouraging competition in this and other industries is the only really effective way to help the great majority of consumers, including ignorant and easily fooled consumers.
It is amazing what passes for an economist these days. The observation is offered that most airlines loose money. From this it is deduced that there is competition between airlines sufficient to protect consumers.
The true alternatives is never considered which is that airlines loose money while not providing the services that consumers want because airline management is captured by agents who are acting for their own interests, as opposed to developing business models that will provide consumers the services they desire at a price that will yield a profit.
Airlines managers have not for years, save SW, managed for the customer or profit.
Southwest Airlines is profitable under all market conditions because it has a focus on why it is in business and has designed a business model that carries out that objective.
A business that charges for baggage handling but won't refund when bags are lost doesn't give a hoot about its customers.
Moreover, there are values equal to or greater than economic. It is unjust for the airlines to retain such fees, which ought to be disgorged under any system of law.
The fact is that airlines are immune from state law claims for this sort of conduct. Were it otherwise, and the common law was vigorously applied, we wouldn't be having these problems.
Posted by: an observer | 04/24/2011 at 07:24 PM
This is a ridiculous stupid post by Becker. I like Becker, I really do, but this post is just lame.
How much cognitive burden do you really want to put on people?
If an airline loses your bag, YES, they should absolutely refund your checked bag fee. They aren't doing you much of a service if they lose your bag, are they? So why should they get to keep your money??
But what is Becker's solution? For people to read all the fine print to figure out whether the airline is reasonable in this regard or not? Give me a break! That IS really really stupid.
It is kind of like cell phone companies. You know that they all thrive off screwing over customers in some way. And switching is usually no help, because the last cell phone company is probably as bad as the one you just left. Only they probably just screw you over in a different manner. So, the end is an equilibrium where these companies all screw their customers, only in different ways.
We need a simpler world for consumers! Not a more complex one. Life is already very cognitively taxing without pushing more bullshit onto consumers, okay. The government should make reasonable rules that fit the preferences of the vast majority. The vast majority want their fucking checked bag fees back if you lose their bags!!! Then airlines can then compete on price and consumers can actually know what they are getting and focus their limited cognitive energies on more important things.
What kind of "innovation" is hampered exactly by letting airlines keep your checked bag fee after they have lost your luggage??? I submit that airlines screwing over unsuspecting passengers when unlucky things happen is not the sort of "innovation" we ought to encourage or allow. This just raises people's blood pressure. You want to lower health care costs? How about not letting companies do things that stress people out!
Geez, I can't believe how very stupid, and I mean stupid, Becker is being. It just is totally unreasonable.
I am getting to where I really can't stand these free market bullshit arguments anymore. They are just too extreme and not reasonable at all. Do the people making these arguments even believe their own bull crap?
Posted by: Anonymous | 04/24/2011 at 07:57 PM
Also, I want to add. If Becker is so extreme, why does he even bother.
He should just say. I do not agree with regulation regardless of circumstances. Because that is what this comes down to.
Why should I take any argument that Becker makes against regulation seriously ever again?? After all, there is nothing particular about a regulation that Becker is REALLY referring to in arguing against it, besides it being a regulation. I mean, he might mention some specific costs here and there to flower up his point, but the issue is that the thing in question is a *gasp* *clench-teeth* regulation! *gasp*
I think Becker could benefit from brushing up on the parable of the little boy who cried wolf.
Posted by: Anonymous | 04/24/2011 at 08:16 PM
As I read Posner's comment, I started wondering about the extent to which informed customers keep airlines' ability to add hidden fees in check, so imagine how thrilled I was to see that was what you addressed!
I agree this is how most markets work, but I wonder to what extent you think it's possible that the high degree of price & service discrimination in the airline industry allows the airline to offer better deals to informed travelers, while charging "hidden" fees to others?
To take bag fees as an example, frequent flyers usually have these fees waived, some airline credit cards allow you to waive the fee if you book on the card, and I'd guess there are other ways to get the fee waived I'm not familiar with.
It's certainly possible that we're going through a period of pricing innovation in the industry, after which things will settle down, but I'm 25, fly 5-6 times a year, and think of myself as a relatively savvy traveler, yet fairly frequently I'm faced with a fee I hadn't anticipated--it's hard to keep track of which airlines charge for seat selection, which charge for priority boarding and stick you in the last zone otherwise, etc.
So yes, regulation like this is often economically misguided, and I'm willing to believe this one is too, but all the same I'm willing to give the DOT some slack here.
Posted by: Aaron | 04/24/2011 at 09:52 PM
An Observer and Anonymous--
If you have a business model that does what you are asking, why not reply to this, and I'll give you my E-mail so you can send me your plan.
Posted by: David W. Drake | 04/25/2011 at 01:07 PM
Ha Ha! I too "luv" the ethic of "for a fee I'll try to carry your bag w/o losing or smashing it".
Aren't our Chicago guys usually for aligning incentives? That faced with having to give a refund on these new "user?" fees won't they try harder?
As for "the capacity of the great majority of consumers to make forward-looking choices in their own interests. It also underestimates the degree to which the forces of competition protect consumers against the consequences of the bad decisions they do make."
.......... after over-hearing a 40-ish fellow mention this was the first flight of his life......... I was a bit surprised to find there are quite a fraction of Americans who've never been on a plane, and would bet the median flights would be LESS than once in a year, with folks NOT being up on the most recent schemes.
....... And what "choice?" On longer trips it seems to come down to one or two that offer reasonable connections. After getting that done we should go back to the spread sheet to check on a batch of minutia?
As for the increase in carry ons being about bag fees? aren't more of us striving to get by with a carry to lower the odds of lost luggage and make a faster getaway?
Second only to our credit card banksters, the airlines would be among my top choices for an improved customer contract. While good stores will refund your purchase for any dissatisfaction once the airlines have your money, and plans change, it's "well you can use it on the same route for up to a year" with changes pretty well wiping out the whole investment.
One poster wants improved biz plan suggestions? Before 'dereg" if we missed a plane they'd put you on first out, even if it was a competing airline..... it likely balanced out over time. If they went back to more of a model of SERVING the consumer needs, I believe they'd get folks to fly somewhat more often.
Posted by: Jack | 04/26/2011 at 12:50 AM
David W. Drake wrote:
If you have a business model that does what you are asking, why not reply to this, and I'll give you my E-mail so you can send me your plan.
Because I have not worked in the airline industry---my experience in business and business modeling is in banking and technology---it is hard for me to do more than outline three or fours areas for attack and thought. As an observer, all I can say is that it is apparent that, except for SW, no serious thought is being given by the industry to business models that work, due to agency problems.
First, on the cost side, by trying to be all things to all people, the major airlines have incredibly stupid cost structures because they have so many planes and so many models of any one plane. The genius of SW has been that it flies one plane, the 737, which doesn't have variations. If asked to put together a business plane, the first thing I would look at is whether I could split up the business into airlines that fly (and service) just one platform. IOW specialization.
This leads to my second observation and that is, "Why?" I have no idea why most airlines are in business. I assume you are familiar with people like Sinek and Hamel who make the case, which I accept, that you must answer the why question and build outward. Airlines are like Dell and Asus, not Apple. Why? Sinek, especially, asks the right questions.
This leads to my last observation---I don't know why airlines just operate planes and why Boeing just makes planes. Boeing, I would argue, should be in the business of building and financing airports, instead of just selling air planes. Since the key driver of growth for Boeing is the number of landing gates, it needs to build airports, roads, and railroads, not relying on the vagaries of local, regional, and national politics.
If I were a US airline, I would look at becoming a part of Boeing and owning my own airfields, local transportation and hotel system.
For example, many vacation areas in the SE are under served by air---the beaches in SC, GA, and FL could absorb a lot more visitors. Now, however, its nuts to fly to Ft. Lauderdale because of the cruise ship traffic. To me, a business model that might make sense would be to build a single purpose runway and terminal in south Florida to handle only Boeing Jumbo Jets coupled with buying up as much as Florida as one can at current depressed prices, the plan being to offer all in one pricing for vacations. The Indian casinos might be the best owners, as they might be the most favored destination.
In sum, there are real business models. I close with this observation. No one thought that Sam Walton could find room at the bottom for billions in profits, but he did. I see the same opportunities for an airline, if it is run for customers who now cannot afford the service.
Posted by: an observer | 04/26/2011 at 05:06 AM
Anonymous
two great posts
Posted by: an observer | 04/26/2011 at 05:13 AM
Observer, you make two great points--specialization and clarity of purpose--but then you lose me or I lose you entirely when you say that "the key driver of growth for Boeing is the number of landing gates." Moreover, having Boeing go into other fields defeats your first point.
Posted by: Xavier L. Simon aka Xavier | 04/26/2011 at 09:51 AM
For a very long time there has been no daylight between the two of you on most issues of significance. The blog has grown predictable and dull (moribund this week) and uninformative. Consider adding a third member, or a weekly guest member, with a different (perhaps progressive) perspective. The discussions and debates would be much livelier.
Posted by: Harris Don | 04/26/2011 at 01:14 PM
Observer -- I don't think many of your (perhaps banker influenced?) suggestions would work very well.
For example our Alaska airline might use a "wide body" to fly large numbers into their major hubs and fill only a much smaller plane for an off-peak run to SEA or SEA to LA. One thing (I think! from observation) is that they've become expert at filling planes and tailoring loads to reduce empty seat losses.
Same with jumbo only air strips at vacation meccas. I typically ride a wide body to HA, and then a smaller plane out to Maui or other. You'd have local traffic near FL too.
Boeing is about the last company that should try to own and operate airports; they've their plate more than full trying to compete for world wide plane mfg biz. I see no edge for them in building and owning airports........ and as air traffic cycles dramatically with recessions, LOTS of downside risk. The boosters of most cities and towns work hard to be up with or even ahead of projected demand, but the lead times, especially for adding capacity or building anew in, typically densely populated coastal areas will be long. Regardless.
As for casinos? That too is a cyclical biz and one that may well be approaching saturation in the US. LV used to make "good biz" from hauling pipeline "rich" Alaskans to LV for "free" (and would invite you along again, if! you dropped a bundle on the first trip). But........ they did it on charter and perhaps playing the "fill the seats" game that Orbitz and others play today. No big investment when the game spiraled to a halt.
As for the majors "not thinking?" I seriously doubt it. SW made a very GOOD move in buying a year or two's worth of fuel ahead, when the speculated on rising prices, that benefit is gone now and they'll be facing the same oil price manipulated head wind as the others.
The "others" do have legacy costs, and ha! some who OWNED their planes (mostly big leasing companies) are paying to have them parked in the desert during the slow years.
Face it; it's a LOT tougher biz than that of the rapidly growing financial sector fleecing us all under similarly confusing, messy, and one sided consumer contracts.
Posted by: Jack | 04/26/2011 at 05:24 PM
Harris! That's a good idea for our award winning economists to invite a challenge from their peers. I like it!
Posted by: Jack | 04/26/2011 at 05:26 PM
Xavier
Airplanes are heavier than air. They have to land. And passengers have to get on and off. Compared to airspace, gates or runaways or "landing rights" or whatever combination of terms you want to use is the "choke point" of the business of selling air planes. Said a little differently, each year, Boeing cannot sell new planes and airlines cannot fly more passengers without an increase in gates or runways or landing rights or all three.
Thus, it naturally follows that if Boeing or an airline wants to gain control over its future the best way to do that is to go into the business of creating, building, making, financing (i.e., whatever it takes) to increase the supply of gates, runways or landing rights. Said differently, the owner of the gates, runways, or landing rights is also in a position to extract "rents" from Boeing or the airlines.
Such a complex business would not be specialized, but that is the beauty of business models. Some people can make a living with one approach while others can work a different angle.
My point is that, when one looks at the range of business models available and one sees, instead, failure, I lay such at the feet of management.
What is especially irksome to me about this blog, and especially Posner, is that the idea of business is not to screw people in the short run, which is what Posner believes. Sure, airlines can use their immunity and cheat customers by not paying for lost luggage. When you do that, in the future, when the airlines need the customers, they will find the attitude is GFYS, face up to the blade. Customers will remember far longer being screwed than the 12 cents they save on a ticket.
This simple lesson is beyond Posner's ken, it is sorry to say.
Posted by: an observer | 04/26/2011 at 07:15 PM
Jack,
Reading you post it is apparent you have no idea what you are talking about and no business commenting on a subject about which you are uninformed.
Southwest now flies only the 737 and all are as close to the same model as possible. This gives SW a huge advantage in costs on parts, maintenance, crew training, and crew utilization. This specialization, combined with the fact that it knows why it is in business, has given it really competitive advantage for many years. Thus, my observation about specialization is proven. People affiliated with Boeing actually explained SW's advantages me.
Beyond that, it is painfully clear that you have no idea how business change or grow, who can be a partner, etc. Take the current situation in Las Vegas. The demand for entertainment has not gone down. LV's problem is that its prices are too high. What LV needs are Sam Walton's who can find a means or method to lower costs, or add value, or both, so as to serve more people.
There are 6 billion people in the World, +/-. There are only 124,270 hotel rooms in LV. That every room in LV is not filled every night is due to the lack of imagination of the owners and managers, which are getting less than 1 out of every 48,000 people on the planet to be a guest, each night.
As Drucker says, the purpose of business is to supply a product or service at a price such that people will buy such.
Read Drucker for three years, then get back to us with whether the airlines have a management problem or not.
Posted by: an observer | 04/26/2011 at 07:39 PM
Observer -- Thanks for responding, but no one poster here is the repository of infinite wisdom. Running an airline takes a lot of savvy that a run of bad luck, like oil price manipulation can render useless.
SW is unique in cherry picking selected, profitable routes largely suitable to that craft; I tried to point out such is not the same for most airlines. For example Alaska or anyone else flies "wide bodies" to HA, but those are hardly suited for their shorter hops. As mentioned some years ago SW cut a fat one by predicting oil prices accurately, since then they've returned to the mean and have lost that temporary advantage.
What LV ...... needs? It seems LV spans the gamut from Circus-Circus mega-buffet to the latest theme hotel. My guess is they know well how to position themselves for the next boom..... which could be a while. They track every dime you spend and mine that data intensively to try to wring out every cent they can.
YOU want to do your "biz plan?" on "all on the planet??" But if you like those formulas perhaps divide the number of casino and convention facilities built in the last 20 years to get a better idea of what LV is up against. In this Mess conventions are a luxury for many businesses and gambling vacations are among the first to go when folks are strapped. Also, you might try to work on "Homeland Security" that makes travel to the US less than fun.
I read Drucker decades ago and he's more to say than the obvious "cutism" about trying to lower prices in order to increase volume which is in the early chapters of beginning econ texts. My guess is that some number of distressed and sleepless airline execs have read him as well as anyone else who might save them from the next Chp 11 excursion.
Airlines have the inherent problem I mentioned. If oil prices remain at these levels for long they will be T R A P P E D. If they raise air fares to cover oil gouging they'll lose too many "price sensitive" leisure travelers. They will NOT gain those revenues back from biz travelers whose numbers are already shrinking. Pulling out of routes? They or their leasing companies will be stuck paying for highly leveraged but unused capacity.
Lastly, perhaps...... there are things management might do better, but along with W. Buffet, who's been skinned the few times he got involved with airlines, and points out that over their entire history the profit has been zero, I'd agree with him that they are one of the most difficult industries to manage.
Posted by: Jack | 04/27/2011 at 01:21 AM
Observer: It's RARE for me to stick up for Posner, but, he, a judge of many years standing is not pro customer "screwing" but argues (ineffectually in my opinion) that the matter of being fleeces on baggage obligations are better left to "the market" than mandated by a government regulation.
I think he's dead wrong and that these Chicago School economists have FAR too much confidence in "the market" and especially so in this case where the typically infrequent traveler has not even nano-power in the airline market, and as his decision on which plane to ride is typically decided by larger issues than baggage fees, there is no way for a "market signal" to be transmitted and heard by the airline.
I wonder where we'd be today if auto safety features had been left to "the market".
Posted by: Jack | 04/27/2011 at 01:36 AM
Jack
Again, read Drucker for 3 years and then get back to us
Posted by: an observer | 04/27/2011 at 02:32 AM
Paragraph 2 begins: "I believe this lack of confidence greatly underestimates the capacity of the great majority of consumers to make forward-looking choices in their own interests."
Someone smarter than me please explain this to me. Because, if the great majority of consumers had the capacity to make forward-looking choices in their own interests, then I do not think the mortgage crisis would ever have occcurred because consumers would not have taken the bait and bought clearly over-inflated homes (yes, it was clear even then) with no money down just because banks were willing to loan the money and the feds were allowing them to do it.
The ivory tower does not seem to me to be a great place from which to assume that, after dealing with the trials and tribulations of putting food on the table and raising families, the masses have the time and energy (not to mention the skills) to navigate every advertisement when it's time to book a flight.
And, how is it any harder for the industry to state the full price for a ticket than it is for them separate everything out the they've done up to now?
Posted by: Confused Non-Economist | 04/27/2011 at 08:06 AM
Observer: Thanks. You inspired a quick review of Drucker from Wiki and think his major tenets worthy of reposting here. Leavening our "Chicago School" blog with a bit of the social and human dimensions seemingly ignored by M. Friedman and successors surely can't hurt!
"Decentralization and simplification. Drucker discounted the command and control model and asserted that companies work best when they are decentralized. According to Drucker, corporations tend to produce too many products, hire employees they don't need (when a better solution would be outsourcing), and expand into economic sectors that they should avoid.
A profound skepticism of macroeconomic theory. Drucker contended that economists of all schools fail to explain significant aspects of modern economies.
Respect of the worker. Drucker believed that employees are assets and not liabilities. He taught that knowledgeable workers are the essential ingredients of the modern economy. Central to this philosophy is the view that people are an organization's most valuable resource and that a manager's job is to prepare and free people to perform.
A belief in what he called "the sickness of government." Drucker made nonpartisan claims that government is often unable or unwilling to provide new services that people need or want, though he believed that this condition is not inherent to the form of government. The chapter "The Sickness of Government" in his book The Age of Discontinuity formed the basis of the New Public Management, a theory of public administration that dominated the discipline in the 1980s and 1990s.
The need for "planned abandonment". Businesses and governments have a natural human tendency to cling to "yesterday's successes" rather than seeing when they are no longer useful.
A belief that taking action without thinking is the cause of every failure.
The need for community. Early in his career, Drucker predicted the "end of economic man" and advocated the creation of a "plant community" where individuals' social needs could be met. He later acknowledged that the plant community never materialized, and by the 1980s, suggested that volunteering in the nonprofit sector was the key to fostering a healthy society where people found a sense of belonging and civic pride.
The need to manage business by balancing a variety of needs and goals, rather than subordinating an institution to a single value.[30][31] This concept of management by objectives forms the keynote of his 1954 landmark The Practice of Management.
A company's primary responsibility is to serve its customers. Profit is not the primary goal, but rather an essential condition for the company's continued existence.
An organization should have a proper way of executing all its business processes.
A belief in the notion that great companies could stand among humankind's noblest inventions.
And especially this that runs counter to "the market" religionists:
He argued in a 1984 essay that CEO compensation should be no more than 20 times what the rank and file make — especially at companies where thousands of employees are being laid off. “This is morally and socially unforgivable,” Drucker wrote, “and we will pay a heavy price for it.”
As for the airline biz, surely they can benefit at the margins by Drucker's tenets, but still it's basically a transportation biz that's highly vulnerable to fuel costs and the effects of deep recession, and your concern of airport congestion at hubs and popular destinations.
Coal may be a means of stabilizing fuel costs over time. There are already sizable pilot projects.
And Ha! turbo props may become a sizable part of the picture. Some years ago Scientific American had a good article on building inexpensive turbos by machining it from a single piece -- as compared to welding all those fins. Turbos are 30% or so more fuel efficient than jets, but that's not the main gist.
The author who flies a lot maintained a log of his actual port to port MPH. On long hauls nothing will beat the new Dreamliner taking me from Anch to SLC, DFW hubs in one jump. The spoke and hub concept will continue.... but with small turbos of 50 - 80 passengers will knit together the rim. That is the return of flying directly to the smaller cities of less than say, two hours flying time.
In fuel and even time spent on costly planes and crew costs, a 300 mph direct flight will be extremely competitive against a trip to a congested hub and often back out on a leg less than 90 degrees from that of the hub flight, plane changing, risk of missed connection.... and! of course the baggage handling issue.
So, one suspects with Drucker's blessings we'll see an airline industry of more diversity in types of planes along with considerable erosion of the hub and spoke system that creates so much congestion at airports we visit only to take another flight.
WOULD that more corpies take Drucker's suggestions! Here in Alaska the cancerous "we're too big to care" blight of W-F bought out our locally owned consumer friendly National Bank of Alaska, and somehow manages to continue mowing their strip of (disaster forming) banking consolidation anyway.
And Ha! after seeing banks "competing" across state lines, our Profs and others, but not Drucker? would have us fall for the same in H/C insurance parasites "competing" nationwide. Ha!
Posted by: Jack | 04/27/2011 at 03:38 PM
Confused: You're hardly a non-economist, and make good point in regular consumers not seeing the Ponzi scheme of housing as the very wonks designing and selling the toxic derivatives -- apparently -- (claimed?) to believe the fiction that US housing prices could not fall across our whole nation, despite pricing curves that look like these:
http://webcache.googleusercontent.com/search?q=cache:51_W7BsWWGsJ:mysite.verizon.net/vzeqrguz/housingbubble/+housing+bubble+graph&cd=1&hl=en&ct=clnk&gl=us&source=www.google.com
And who, surrounded by soaring home prices is to turn down a "banker" giving "loans" for the much desired asset to all with a pulse?
"The ivory tower does not seem to me to be a great place from which to assume that, after dealing with the trials and tribulations of putting food on the table and raising families, the masses have the time and energy (not to mention the skills) to navigate every advertisement when it's time to book a flight."
............. exactly.
"And, how is it any harder for the industry to state the full price for a ticket than it is for them separate everything out the they've done up to now?"
........... But ala carte pricing does make sense. It does cost fuel and handling labor to deal with baggage. With the fees we all figure out ways to travel with less baggage. I'm reflecting on the old 70# days of taking a 15hp outboard motor and inflatable boat as regular luggage that was clearly abusing the privilege. Those days are gone!
Posted by: Jack | 04/27/2011 at 04:01 PM
Jack
readers of this blog need constant reminding of Drucker's greatest insight, "economists of all schools fail to explain significant aspects of modern economies."
As Observer has explained before, economists have little to say beyond Keynes: There is no science to the science, just bias and prejudice (often merely to the highest bidder).
Look at the thesis of these two posts---its doesn't matter had much your screw your customer. How can reasonably intelligent people be so wrong? Answer, they are selling their POV to big corporations for short term profit.
Posted by: an observer | 04/27/2011 at 08:38 PM
Observer: We'll likely find many areas of agreement as I really don't belong on a "Chicago School" blog. No, my understanding of Econ goes back to pre-Friedmanesque, Gspan, Ayn Rand days of providing for the welfare of our citizens by EMPLOYING the tools (and still evolving science) of capitalist econ to our benefit.
There's a not always clear difference between that "old school" of making it all work for the betterment of the highest percentage of the bell curve of incomes that as Drucker sez ought to range, in most cases, up to 20 times the pay of median working folks pay, and as JFK hoped, that the rising tide (of increasing productivity) would raise ALL the boats.
At the low end incomes should begin with something close to a basic living wage for an individual -- as our Profs -- (unwittingly?) agreed in their favoring of subsidizing food costs with direct cash payments in poor nations rather than via the, costly, alphabet soup of transfer programs we've cobbled together in the US.
Indeed, if a family gets a $500/mo housing subsidy, they pretty well have to use in on, certain, housing options. It's in essence a landlord subsidy that short circuits any creativity the family might have if they had $500 in income, and eliminates some of the downward pressure on rental prices were the family able to use less than the $500 on housing and buy food or shoes with the remainder.
And we are agreed that "economists" have become something of a commodity these days. But! in discussing the subject with a sharp young, recent UCLA grad, I find "The Market" as god and arbiter of all social problems is what they're teaching 'em today.
It is, to be sure, a handy excuse for the soaring inequality of the top 1% and even .1% gleaning most of the productivity gains of the last four decades, while the min wage has not kept pace with inflation, much less participate in the "rising tide", and CEO pay having gone from the 50 times working folk's wages that Drucker denounced to over 400 times. But said with furrowed brow and wringing hands "It's "The Market" and we're powerless to intervene".
Aah yes, at working folk level the story is that of our being unable to compete in the globalised for for some, world but when it's CEO pay replete with a fine golden chute for the screw-ups the story turns to the "quest for rare talent". Ummm yeah.
Posted by: Jack | 04/27/2011 at 11:26 PM
The following phrase in Herr Becker's article captures the problem and dilemma in a nutshell, "the ability of consumers to make reasonable choices". As Society and the Marketplace has grown more complex and confounded (as passenger air travel is a classic example), so the consumer has become more and more confused and confounded. Such was the rationale behind the rise of the Pure Food and Drug Act and the rise of the Dep't of Agriculture as "gate keeper". Due to the failure of the "market" to properly regulate itself we have seen the rise of the Sherman Antitrust Act; not too mention the current disaster in the Financial Markets and the rise of Financial Regulatory Reform. Is the confusion and anarchy we are currently witnessing in the passenger air travel industry any different? Such was the reason for the establishment of the D.O.T. and the F.A.A.. Which, unfortunately, have not kept up with the changes wrought by Deregulation and the increased passenger traffic that has occured; along with an out of control competitive market.
To believe that the consumer, any consumer, can come to grips intellectually with an out of control competitive market is disingenous at best. The fact of the matter is, the consumer is a consumer, ignorant and moronic at best. Given the complexity of modern market forces that leads to confounding not only the consumer, but the market place and its mechanisms as well.
Perhaps Regulation is the only thing that can rationalize an otherwise out of control irrational system that no one understands...
The modern consumer? Simply tossed into the raging storm of the uncontrolled market place to fend for themselves. "Cavaet Emptor" at work?
Posted by: NEH | 04/28/2011 at 09:44 AM
NEH:
I don't fault consumers. The fault lies with Judges like Posner who will gut any law that prohibits deceptive conduct, instead of broadly attacking most modern "marketing" which is nothing but deceptive.
For example, HP manufacturers two different computers, one for BestBuy and one for Sears, the differences being inconsequential--one has a hard drive of 250 gig and a DVD, the other has a 350 gig HD and a CD. The purpose is to deprive the individual real choice, comparing the price at Best Buy and Sears. Instead, the Supreme Court has recently rationalize such conduct.
Simon Sinek, a PR expert, does a great job in his talks explaining how this kind of marketing is deceptive and manipulative. Of course, Posner and Becker have never heard of Sinek.
Posted by: an observer | 04/28/2011 at 08:11 PM
Hello Gentlemen. I think what goes missing in this article is the anti trust international game of cold war that leaders of intellect like yourslefs completely have forgotten about. As such, I bloggyed blog for you the thought that the Communist Chinese are following exactly in the Soviets foot steps. From everything from creating a Bloc which is now called the Bric, to trying to implement a single world currency, to literally going on a resource domination campaign.
n Nomeni Patri Et Fili Spiritus
http://rideriantieconomicwarfaretrisii.blogspot.com/
Rider I
I would think the Federal Government dealing with the Communist Chinese resource allocation which destroys the ability of the US and other free markets and Democracies to stay debt free via fair job creation and low unemployment is a major factor. Especially if my theory is correct. As the US has lost way more than 2 million jobs to the Communist. This then ractks up each year we do not regain those jobs to around 76 trillion a year. As there is a flux at about 500,000 jobs we gain or lose that do not even touch the bottom level of over 76 trillion of US jobs that was all taxable stored in Communist reserves, SOE's Sovereign Wealth funds and being used as cold war weapons to gain more control of the world to implement their Soviet Characteristics.
Posted by: Rider I | 04/28/2011 at 11:45 PM