Tag Archives: airlines

What to do when technology outpaces the law?

The recent cease-and-desist letters from the Virginia Department of Motor Vehicles to taxi alternatives Uber Technologies and Lyft remind me of my first trip to D.C. in 1997. An awkward high school junior traveling alone, I landed at National Airport, followed the signs and hopped into a filthy Virginia-sanctioned taxicab. The heavy stench of stale cigarettes clung to the papers, cups and clothes littering the floor.

En route to my hotel, the driver suddenly stopped and, without explanation, got out of the car. After making a 10-minute payphone call, he nonchalantly resumed our drive. I reached the hotel unscathed, but the unpleasant trip — costing about $15 — seemed second-rate to a first-time cab rider.

A few years later, a freshman econ course revealed that economics can explain the sub-par service I received.

TaxiThat is me, writing in the Richmond Times Dispatch. I make the case that ride-sharing companies Uber and Lyft have solved many of the problems that plague traditional taxi models. But instead of thanking the companies, the Virginia DMV has issued cease-and-desist letters.

The best defense of the DMV is that they were simply following the law. From their perspective, Uber and Lyft look like motor carriers. And in Virginia, motor carriers are required to be licensed. To this, Uber and Lyft can reasonably reply that they are not motor carriers. They do not employ any drivers. Instead, they employ software engineers who create mobile applications used by drivers. Their service is simply to connect those with rides to those in need of rides. In this sense, the companies are no more motor carriers than Kayak or Priceline are airlines.

So what to do in this sort of area where technology seems to have outpaced the law?

My colleague Jerry Brito offers a simple idea:

[H]ow about allowing the innovation to continue apace while the government studies it and gets its regulatory house in order? Public officials like [Commissioner of the DMV] Mr. Holcomb might say that their job is to enforce the law, and while that’s true, public officials also have a responsibility to exercise discretion in the public interest. It’s clear that the Virginia legislature did not anticipate the invention of platforms like Uber and Lyft when they designed their motor carrier laws, so it would be perfectly reasonable for the DMV to work with the legislature to clarify the law without first banning the services.

You can read more of Jerry’s views in his latest column in Reason.

Why U.S. Air Transportation Policy is Anti-Santa

Watch this video:

Now consider the following:

  1. WestJet is a Canadian airline.
  2. This would seem to be yet one more example of a foreign airline providing superior service relative to U.S. domestic airlines.
  3. According to the U.S. Department of Transportation, U.S. law has long-banned foreign air carriers from serving solely domestic routes, thus:

Air France could not carry a Los Angeles-originating passenger on a one-way flight from LA to New York. However, it could carry the passenger from LA to New York if the passenger had a through Air France ticket to Paris and, following a stopover in New York, boarded another Air France flight to Paris.

Ergo, an outdated protectionist measure may be keeping you from the best flight ever.

Do “Indirect Effects” of Regulation Matter to Real People?

Congressional regulatory reformers recently caught criticism from advocacy groups for introducing legislation that would require federal regulatory agencies to analyze the “indirect effects” of proposed regulations. The only thing I’d criticize the reformers for is poor word choice.

The very term “indirect effects” suggests that they’re talking about something theoretical, inconsequential, and unimportant to the average citizen. But to economists, the indirect effects of a regulation are often the effects that touch the average citizen most directly.

Consider airport security, for example. The Department of Homeland Security (DHS) recently sought public comment on its decision to deploy Advanced Imaging Technology scanners instead of metal detectors at airports. The direct costs of this decision are the extra cost of the new machines, the electricity to run them, and the personnel to staff them – which airline passengers pay for via the taxes and fees on airline tickets. Those are pretty obvious costs, and DHS dutifully toted up these costs in its analysis of its proposed rule.

Less obvious but potentially more important are the other, indirect costs associated with airport security. Passengers who decline to walk through the new machines will receive additional pat-downs. This involves a cost in terms of time (which DHS acknowledges) and potentially diminished privacy and human dignity (which DHS does not discuss). The now-classic phrase “Don’t touch my junk” aptly summarizes one passenger’s reaction to an indirect effect of security regulation that touches passengers quite directly.

But that does not exhaust the list of significant, predictable, indirect effects associated with airport security regulation. The increased delays associated with enhanced, post-9/11 security measures prompted some travelers to substitute driving for flying on short trips. An article by Garrick Blalock, Vrinda Kadiyali, and Daniel H. Simon published in the November 2007 Journal of Law & Economics estimates that post-9/11 security measures cost the airline industry $1.1 billion in lost revenue in the fourth quarter of 2002. Driving is also riskier than flying. Blalock et. al. estimated that the security measures were associated with 129 additional highway deaths in the fourth quarter of 2002.

I’m all for making air travel as safe as possible, but I’d like to see it done smartly, with a minimum of hassle and a maximum of respect for the flying public who pays the bills. A full accounting of the indirect effects of airport security might just prompt policymakers to consider whether they are pursuing regulatory goals in the most sensible way possible.

Unfortunately, airport security is not an isolated example. Data from the Mercatus Center’s Regulatory Report Card reveal that for about 40 percent of the major regulations proposed by executive branch agencies between 2008 and 2012, the agencies failed to conduct any substantial analysis of costs that stem from the proposed regulation’s effects on prices or on human behavior – two classic types of indirect effects.

This won’t do. Telling federal agencies they do not need to understand the indirect effects of regulation is telling them they should proceed in willful ignorance of the effects of their decisions on real people. The reformers have a good idea here – even if it has a misleadingly boring name.