Political Entrepreneurs

The Economic Engine of Political Change

Banning In-Flight Phone Calls: Choosing Government over Market Institutions

August 4th, 2014 by Edward Lopez

The U.S. Department of Transportation is pushing for an in-flight ban on mobile phone calls, saying they are disruptive and unpopular with passengers and flight crews, according to this Wall Street Journal story.

The airlines are pushing to keep control. They would presumably experiment with different rules and situations, converging on the best solution for them and their passengers.

It’s interesting to bear in mind what the valuable good in question is. It’s the audio frequency (i.e., sound that’s audible to most people) within close proximity of other people while aboard a commercial flight. Some people in certain situations value that good for the purpose of making a phone call. With different people or situations, someone might value the good for keeping silence to sleep, read, work and so forth.

An efficient outcome would let the property rights to the good settle with the party that values it the most. In principle, any two people sitting next to each other can negotiate the price of making a phone call. In reality, however, there might be high transaction costs. Like it’s sort of culturally strange to be striking up bargains on board. This is where social norms play a role. There’s no federal rule that says “keep your elbow either toward the front or rear of the armrest, and it’s okay if the adjacent passenger wants to insert their elbow on the portion of the armrest where yours isn’t,” but that’s the way people do it.

So the choice is not between government regulation and no regulation. That false dichotomy forgets the discipline of market competition and social norms, especially their regulating forces on behavior in public. The choice instead is whether to allocate the valuable good through government or through market institutions. Should government agents in centralized bureaucracies decide what is the best use of sound and require airlines to comply? Or should competitive trial-and-error guide the rules toward the preferences that people reveal through experience?

Clearly the U.S. DOT is deciding the former. Perhaps this shouldn’t come as a surprise in an industry where regulators and the regulated have become accustomed to heavy (government) regulation. If anything, it’s surprising to see the airlines pushing to keep control. Often a blanket rule can reduce airline enforcement costs. Just let the regulator choose a uniform policy–for everything! When trying to keep passengers safe and happy, “federal law” packs a stronger and more objective message than “airline policy” does.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.189, ch.7)

The most successful entrepreneurs know what they do well, they know the market and the opportunities within it, and they choose those activities that create the most value. This is true in economic as well as political markets.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.178, ch.7)

[W]hen the right elements come together at the right time and place and overwhelm the status quo, it is because special people make it happen. We call them political entrepreneurs.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.176. ch.7)

While we started this book with Danny Biasone saving basketball, we end it with Norman Borlaug saving a billion lives. These stories are not that different. Both faced vested interests, which were reinforced by popular beliefs that things should be a certain way—that is, until a better idea came along.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.174, ch.6)

Because there was a general belief that homeownership was a good thing, politicians found the public with open arms.... Everybody was winning—except Alfred Marshall, whose supply and demand curves were difficult to see through the haze of excitement at the time, and except Friedrich Hayek, whose competition as a discovery procedure was befuddled... In short, once politicians started getting credit for homeownership rates, the housing market was doomed.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.166, ch.6)

Everyone responded rationally to the incentives before them. In short, the rules that guided homeownership changed over time, which in turn changed the incentives of these actors. And bad things happened.

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The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.153, ch.6)

They understood the economics. The ideas had already won in ... the regulatory agency itself. All that remained to be overcome were some vested interests and a handful of madmen in authority.

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.146, ch.6)

If the idea for auctions of spectrum use rights had been part of the public debate since at least 1959, why didn’t the relevant institutions change sooner? What interests stood in the way?

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.121, ch.5)

When an academic scribbler comes up with a new idea, it has to resonate well with widely shared beliefs, which in turn must overcome the vested interests at the table. Many forces come together to explain political change, even though it may seem like coincidence of time and place.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.120, ch.5)

It’s the rules of the political game that deserve our focus, not politicians’ personalities or party affiliations.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.119, ch.5)

In short, ideas are a type of higher-order capital in society. Like a society that is poor in capital and therefore produces little consumer value, a society that is poor in ideas and institutions will have bad incentives and therefore few of the desirable outcomes that people want.

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