But like the course of true love, the path of legislation is rarely smooth. The airlines and their unions lobbied vigorously against deregulation. Mary was indefatigable, traveling to Rotary Clubs and Chambers of Commerce in communities represented by key members of Congress; touting the benefits of deregulation to business executives whose actions too often belied their free-market rhetoric; refining testimony for administration officials and buttonholing congressional staffs; and working with Anne Wexler, our public liaison leader at the White House, to organize White House outreach sessions around the country at which the president spoke. Mary helped peel off a couple of the airlines to our side: most notably Herb Kelleher of the no-frills Southwest Airlines, and then United, which made a business decision that it could deal more effectively in an open market than its competitors at Eastern and Braniff. United was right; it thrived, and they failed.
Adams continued to be a problem, proposing we support a weak bill out of committee and then strengthen it later, leading me to ask him to stop blocking a strong bill32 in the congressional process against what was sure to be massive lobbying—as if he could beat back the lobbyists or would even try. It was a strategy designed to fail. We overrode him, and Carter promptly reassured our supporters in writing that we had no intention of diluting the Senate bill.33 It took eighteen drafting sessions, called markups, in committee to produce a composite of the Kennedy and Cannon bills, which Mary helped broker. It passed the Senate but almost crashed in the House, weighed down by a last-minute attempt by Glenn Anderson to tack on an antinoise provision that would have given the airlines $3 billion to help retrofit engines or buy new ones. But this giveaway did not have the votes, and a bill approving the most sweeping change in the relationship between the federal government and the airlines literally flew through both houses of Congress over only a handful of negative votes and was signed by a beaming President Carter on October 24, 1978.34
Success demonstrated in almost textbook fashion that a determined president (Carter), a gifted regulator (Kahn), an effective member of Congress (Kennedy), and three highly creative and indefatigable staffers (Schuman in the White House and Breyer and Boies in the Senate) could break Washington’s ingrained interests. But was all this Washington sound and fury worth it? A passenger crammed into the middle seat in row 36 of a packed redeye flight from LAX to JFK might not think so: His seat is an inch and one-half narrower and four inches closer to the one directly in front.35
But without deregulation that uncomfortable traveler might not even be making the trip. Carter’s deregulation democratized air travel. Flying economy may be like riding a Greyhound bus, but it is affordable to more people.36 Delta, originally a fierce opponent, gave Carter and Kahn credit for bringing down fares and boasted that the airline was leading passengers to “flock to airports in record numbers.”37 The number of air passengers leaped from 107 million in 1974, before deregulation, to 721 million in 2010. Before Carter’s victory only one-quarter of the public had ever flown; in 2014 three-quarters had.38
Fares have come down significantly; airline revenue per passenger adjusted for inflation has halved from 34 cents in 1976, the year before Carter took office, to 17 cents in 2015.39 The cheapest inflation-adjusted round-trip fare from New York to Los Angeles was then $1,442; now it is $268.40
Deregulation also belied the concern that small towns would suffer. A 1996 study by the U.S. Government Accounting Office looked at 87 small- to medium-size markets and found that more than half of them had more flights than before deregulation in 1976, and that 65 of them “enjoyed a combination of lower fares and better service under deregulation.”41 While there may be several reasons beyond deregulation, the expansion of the industry has also led to a substantial increase in the number of jobs created by the U.S. airlines. Airlines for America, the industry’s association, reported there were 511,000 full-time and 105,254 part-time workers directly employed by America’s airlines in 2016, an increase of 50 percent since 1976.42
But the flying public has a right to ask why it faces overcrowded airport terminals, persistent flight delays, poor service, an oligopoly of a few major airlines, and limited service to small airports in rural areas, and then only through the commuter-plane spokes from major hubs. In considering deregulation, it is necessary to face the deficiencies squarely, and offset them against the gains. The balance sheet constantly shifts in a dynamic market, reflecting not only the demand for seats but the extremely high fixed costs of providing them. With only a handful of airlines—all flying full planes and publicly signaling one another not to add more seats via the unfortunate buzzword “capacity discipline”—the Justice Department’s trustbusters began investigating under President Obama, as well they might. In the face of the normal business imperative to maximize profits, any government reform of a lopsided market will have only a half-life, just as our own deregulation undid protections that had been designed for an earlier era. The overcrowded airports and flight delays are also due in part to a woeful lack of investment in new terminals and runways, a refusal to spend public money renewing and expanding the nation’s infrastructure that is not limited to aviation.
The industry’s concentration certainly could have been mitigated through more robust antitrust enforcement. But this was impeded by the disappearance of the independent CAB itself, leaving the Department of Transportation in charge of policy, and wedded to its symbiotic relationship with the airline industry through the department’s Federal Aviation Administration. It was derelict in not opposing anticompetitive mergers and indeed “never saw a merger it didn’t like,” Kahn said. Moreover, antitrust policy barely existed as such during the Reagan administration, with a long list of mergers approved at key hubs, squeezing competition. By then the industry had been restructured on now-familiar lines and the megamergers of this century were only a matter of time. Ten trunk airlines have been merged into a virtual oligopoly of four companies carrying 80 percent of all passengers. The mergers may have been more a symptom of the inability of small carriers to survive than the cause of their disappearance, but another was the major airlines’ predatory pricing practices, which were not designed to benefit the consumer but to drive out competition.43
The majors also responded to the new competition in ways that barely existed in the regulated world, with computerized reservation systems; hub-and-spoke models offering more connections through a diversified route structure feeding from one spoke to another through the airline’s major hub and flying full loads; deeply discounted fares for pinpointed seats likely to be left empty at regular prices; and frequent flyer programs to enhance the market power of carriers dominating their hub. Unseen by most passengers are the special override commissions that airlines give to supposedly independent travel agents to sign on to the majors’ computerized reservation services, making their customers virtual captives of the major carrier.
These triple or even quadruple manacles quietly slipped onto their customers by the established carriers have allowed them to offer lower fares than the long-forgotten People Express, even though its costs were lower. Fred Kahn, one of the architects of our airline deregulation, reflected years later that he had not anticipated the turbulence in the industry and the price discrimination that enabled the established carriers to drive away the new boys on the block and keep out all but the most ingenious, such as JetBlue and Southwest, which pioneered low fares, an obsession for efficiency, and consumer responsiveness once deregulation permitted it to jump its Texas borders and fly across the country.44 Even with the dominance of a few major airlines, Carter’s airline deregulation continues to provide opportunities which several start-up airlines are taking for new, low-cost carriers like Spirit Airlines to freely enter the market and provide cheap fares for average travelers, as well as put downward pressure on the fares of the major carriers.45
* * *
One utterly unexpected beneficiary of airline deregulation was none other than the man who helped start it as a Kennedy aide,
Stephen Breyer. A few weeks after Carter’s 1980 electoral defeat, the senator phoned me to ask our lame-duck president to appoint this brilliant former Harvard law professor to a vacancy on the First Circuit Court of Appeals, which reviews cases in New England. Flabbergasted, I said: “Senator, you do not need to convince me of Steve’s qualifications; I think the world of him, worked closely with him, and know we would never have airline deregulation without him.” But I pointed to two hurdles that seemed insurmountable. Kennedy asked me what they were.
First, I said: “There is no love lost by the president for you; he feels that your challenge to his nomination split the party and helped elect Reagan.” Kennedy quickly replied: “I know, that’s why I called you and not the president.” The second was the Democratic loss of the Senate in the election. Strom Thurmond, the archconservative senator from South Carolina, was poised to become the new Republican chairman of the Judiciary Committee. Why, I asked, would Thurmond permit a Democrat to fill a lifetime appellate position just one step below the Supreme Court, when he could wait a few months and confirm Reagan’s choice? “Stu,” Kennedy said, “you take care of the president; I will take care of Strom.”
With some trepidation I went to the Oval Office with all the reasons the president should nominate Breyer written on my trusty yellow legal pad. Before going through my litany, I said: “Mr. President, forget who requested this, but there is a vacancy on the First Circuit, and it would be a tribute to you to nominate Steve Breyer.” I then started reading out the reasons, but Carter stopped me. “I agree,” he said simply. “I will do it.” I called Kennedy to report that I had delivered on my part of the deal—but what about Thurmond? To my amazement he told me that Thurmond would support the nomination and bring the other Republicans along with him. And why, I asked, would he do that? Kennedy explained: “Strom likes Steve and feels he has been fair to him and the Republicans. Even though we are at opposite ends of the political spectrum, we do these kinds of personal favors for each other.” In fact, as long as Breyer worked for Kennedy, he and Kenneth Feinberg—a senior Kennedy aide later renowned as the mediator for the 9/11 claims and other cases—breakfasted almost daily with Emery Sneadon of Thurmond’s staff to discuss upcoming issues and the different positions of various senators “to try to get things to work out smoothly.” They also discussed judicial appointments, and when there were differences, they would also “work out everything” in time for the committee to discuss each nominee in the next closed-door session.46
U.S. Supreme Court Justice Breyer has told me he doubts he would have been picked for the high court by President Bill Clinton if he had not already served as an appellate judge. During both confirmation hearings, Thurmond heaped praise so heavily on Breyer that if I had redacted the senator’s name from the transcript, I might have imagined Kennedy was speaking. That was a political world far from today’s polarized and polluted arena, where what happened to Breyer will be impossible until personal courtesy and congressional comity are restored.
DEREGULATION DOWN TO EARTH
With Jimmy Carter there was no such thing as resting on past achievements. Exhausted by our success with the airlines and the energy wars, we now faced a contentious debate in the Roosevelt Room between the president and the senior White House staff over whether to push to deregulate the trucking industry. This would involve urging the same members of Congress to walk the political plank yet again on another unpopular issue. I argued against it; we already had an overloaded congressional agenda, and we would be facing thousands of trucking firms and the tough and powerful Teamsters Union shaped by Jimmy Hoffa, whose recent disappearance was widely suspected to be revenge by the Mob. His body was said to have been buried in a pillar of fresh concrete at a construction site. The Teamsters were not the equivalent of unions that represented skilled airline mechanics and highly paid pilots. So why risk a likely defeat that would only tarnish our success?
True to form, and fortunately for the country and his legacy, the president ignored our advice. He wanted to maintain his momentum in freeing up the economy, in part because it would help restrain prices at a time of rising inflation. We also had a proven formula of building a coalition of consumer advocates on the left and free-market conservatives on the right, and by appointing a proderegulation chairman of the federal regulatory agency, the Interstate Commerce Commission (ICC). Carter made Darius Gaskins, who had been Kahn’s chief economist at the CAB, the first black chairman of any major federal regulatory body in the country’s history. This put pressure on Congress. If we did not take advantage of our airline success and confront the opposition head-on, we risked being unable to do it for years to come.
Trucking also was inextricably linked to the railroads as both partner and competitor in the nation’s integrated system for moving freight. One was a rising industry rolling its eighteen-wheelers over the newly completed interstate highway system and at the same time loading trailers on flatcars for the long haul and offloading them for local deliveries. The other was an almost bankrupt system that nevertheless carried one-third of the nation’s freight and most of our essential bulk commodities, like coal, grain, and chemicals. It was obvious that one industry could not be deregulated without the other, and that if trucking alone were freed to compete, the nation’s ailing railroads could only continue as permanent wards of the state.
Both industries were tightly regulated by the ICC, which was created in 1887 to rein in the railroads when they were natural monopolies and cut deals with major shippers that squeezed small ones like farmers. It began regulating trucking during the Depression of the 1930s. Prices were strictly controlled as well as entry into new trucking routes, and Teamster-organized firms had long persuaded the ICC to pass along large union pay increases to the public in higher rates, which in turn were buried in everyday prices at the supermarket and the department store. No sweetheart deal was less noticeable or more costly than the “backhaul” rule: The ICC forbade trucks carrying products from one city to another to pick up a new load and take it back. The trucks had to come home empty.
Carter agreed to a package covering both industries and said he wanted to be personally involved in pushing it forward. The rail message went first because, as Carter warned Congress in March 1979: “Without the changes I am recommending, we will face catastrophic rail bankruptcies, sharply declining service, and massive federal expenditures.” This was hardly an exaggeration. Although it was not easy to enact a radical change in railroad operations and pricing—coal companies and their electric utility customers demanded special protection—it was achieved in half a year when the president signed the deregulation law only three weeks before the election of 1980. He crowned it with words not typically found in the lexicon of a Democratic president: “This act is the capstone of my efforts over the past four years to get the Federal government off the backs of private industry by removing needless, burdensome regulation which benefits no one and harms us all.”47
Railroads could set prices and manage day-to-day operations without ICC interference, and they could more easily abandon unprofitable lines; protections were built in for workers dislocated by these shutdowns or by mergers. This led to reduced rates for most shippers. Freight railroads became profitable, eliminating the need for additional federal subsidies. Railroads were also able to access private capital to invest in maintaining and upgrading the nation’s rail system, improving service and safety. The Department of Transportation found that railroad costs and prices were cut in half over a ten-year period. The carriers reversed their historic loss of traffic to the trucking industry and invested almost half a trillion dollars in improving the rail system.48
THE TEAMSTERS KEEP ON TRUCKIN’
Deregulating trucking was an entirely different battle. The immovable object was not management but the International Brotherhood of Teamsters, which had organized about half the workforce of the regulated trucking companies and correctly regarded deregulation as an existential threat. As soon as
the union heard we wanted to strip the industry of its featherbedding protections, I got a call from its president, Frank Fitzsimmons, Hoffa’s successor, who asked me to drop by his office without any staff for a one-on-one meeting so we could get to know each other. A limousine from the White House motor pool drove me to the base of Capitol Hill and the white marble Teamsters building, where I was ushered in—not to Fitzsimmons’s private office, but to a giant conference room with a light mahogany table larger than the one at Camp David, where the Middle East peace accords were negotiated.
Arrayed around the table were the regional Teamster presidents from Chicago, Cleveland, Pittsburgh, and other blue-collar cities. I felt like a small running back facing the front line of the Chicago Bears. Each one seemed to have giant biceps leading to steam-pipe necks, with eyes glowering at me but fortunately arms folded and not cocked. I was sharply cross-examined, but at every turn I told them nothing was set in stone—I carefully avoided saying “cement” in deference to Hoffa’s memory, and imagined myself encapsulated on one side of a bridge abutment on I-95, with Hoffa on the other, or buried under one goalpost of Meadowlands Stadium with Hoffa a hundred yards away under the other.
I emphasized that we were genuinely interested in hearing their concerns. Fitzsimmons summarized their intense opposition: It would allow small, unsafe, independent, nonunion firms to enter the market and compete unfairly. Unstated was that deregulation would also threaten their cozy relationship with the trucking firms, which was blessed by the ICC and had provided the truckers salaries and pension benefits far higher than those of the average American worker. The hour-long meeting seemed to last an eternity, and by the end, all I could think of was getting out into the sunlight alive.
I followed up this riveting session by hosting a series of meetings on safer grounds at the White House with Teamsters staffers, and Bill Johnston of my staff.49 We explored the gap between their 600,000 unionized drivers employed by regulated trucking firms and drivers who were hired as “independent contractors” and could not be unionized. The union regarded the independents as outlaws, and defended the industry’s rate bureaus that fixed shipping prices with the ICC’s blessing as essential to the livelihood of small trucking firms. The Teamsters feared that deregulation would open the way for the big firms to undercut the small ones with predatory prices, driving them out of business and leaving the remaining companies facing less competition in setting their own rates. They were willing to be flexible on rates, but only if our bill contained job and safety protections for the drivers.
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