Charles Schultze, President Carter's chief economic adviser, told Congress yesterday that the President would like a bill reducing federal regulation of the airline industry on his desk for signature by summer. "My appearance here today should be seen as an indication of the President's personal interest in the passage of an airline regulatory reform bill - and soon," the chairman of the Council of Economic Advisers told the Senate Aviation Subcommittee.
Enactment of the measure would be consistent with two of Carter's top priorities: to improve the effectiveness of government by removing an unnecessary substitution, of bureaucratic decision making for private initiative, and to deal with the continuing problem of inflation, he said.
One reason the country has suffeared from high rates of inflation in the past few years during a deep recession is that prices in many areas of the economy no longer respond flexibly to changing economic circumstances, Schultz said. "When market demands recede, prices are not cut as a means of attracting more customers," he added. "And, in the case of the airline industry, the reason is clear: Government regulations themselves impede competition and prevent price flexibility."
Schultze emphasized that administration support of fare flexibility for the airlines - letting them move their fares up or down within a certain zone without government interference - is tied to provisions that will give existing and new airlines the ability to fly new routes.
"It is entry, or the realistic threat of it, that prevents upward price flexibility from being abused," he said. "It is also entry, or the threat of it, that assures that the opportunities afforded by downward fare flexibility will be utilized.
If Congress decides to phase in entry, it also must correspondingly limit the ability of airlines to raise their fares, he added.
Schultze rejected arguments of some carriers and labor unions that reduced regulation of airlines could lead to increased concentration, with large carriers gobbling up small ones, could lead to the loss of air service by small communities, and could leave airline employees jobless:
Instead of large carriers muscling out the smaller ones, "It seems to me the opposite is true," Schultze said. Not only are larger carriers muscling out the smaller ones, "It seems to me the opposite is true," Schultz said. Not only are larger carriers with vast route systems - like United Air Lines - the most exposed to new competition, but here is no evidence of declining costs as a carrier gets larger so there is no inherent advantage in it, he pointed out.
Current regulation not only hasn't guaranteed air service to small communities, but competition appears to serve their interests better, he said. While regulated airlines dropped 40 small cities served in a recent five-year period, the unregulated commuter airlines picked up 41.
In other testimony, James C. Miller III, resident scholar of the American Enterprise Institute, agreed that a measure with strong provisions, specific goals, and definite time limits is preferrable to a more-open-ended bill. "It is conceivable that under the stewardship of an 'enlightened' chairman and enlightened membership" the board would move even more swiftly and deliberately toward a less-regulated, more-competitive airline system than envisioned in a bill cosponsored by Sens. Howard W. Cannon (D-Nev.) and Edward M. Kennedy (D-Mass.), he said.
"But given the behavior of regulatory agencies over time, given the political pressures to which the board is subject and given simply the difficulty of five people reaching agreement on such important issues, it would not appear to be in the public's interest to take that chance," Miller said.