Advancing a Free Society

Free the Captives

Thursday, October 13, 2011

When government officials become the servants of the companies they regulate rather than the masters, they are “captured.” Political economists who describe this process point out that when regulators are captured, much of what they do is motivated, consciously or not, by a desire to help the industry they are regulating, even when the social goals they should pursue are very different. A famous illustration of capture is the way airlines were regulated under the Civil Aeronautics Board (CAB) from 1940 to 1978. Large airlines of the time, such as American and Delta, naturally had a strong incentive to try to keep new airlines out of the industry. As a compliant ally of the airline industry, the CAB did not approve one new interstate airline during this almost forty-year period. Only after President Carter abolished the CAB did many new airlines enter the industry; some of the old standbys, such as Pan Am and Eastern, ceased operations because they could not adjust to a competitive environment.

Continue reading Gary Becker...

(photo credit: boris drenec)