LESSONS LEARNED #56: “It’s competition in the private sector that makes life better. Not government regulation.” -Old Pithy

Posted by PITHOCRATES - March 10th, 2011

Deregulation makes Air Travel Cheaper and Safer

A lot of people bitched about the deregulation of the airlines.  Mostly union people.  Because before they were deregulated it was very expensive to fly.  Ticket prices were out of the reach of most of middle class America.  But, with those high prices, the airlines made a lot of money.  And the unions got a lot of that money.  Union members warned about safety with deregulation.  If they lowered ticket prices so anyone could fly there wouldn’t be enough money to maintain the highly skilled personnel to fly and maintain the airplanes.  If you put profits before safety planes could start falling out of the sky.

Well, they deregulated the airlines in 1974.  Government no longer controlled the price of tickets, air traffic routes or the number of airlines allowed to operate.  Ticket prices fell.  More airlines began operations.  More cities built airports.  More people were flying than ever before.  All people.  Not just the rich.  Deregulation was a huge success.  Except for unions.  For them it wasn’t quite the gravy train it was before deregulation.  So did safety suffer?  No.  Quite the contrary.

In 1959 there were 40 fatal accidents per million departures (at the beginning of the jet age).  That number fell to about 10 in 1960.  During the Sixties it was at or below 5.  The number fell by approximately half during the Seventies.  It fell to about 1 after the Seventies with a spike of about 1.5 in 1988.

At the beginning of the jet age, few in the government bureaucracy knew anything about jets.  So it was mostly the manufacturers and the airlines policing themselves as they developed jetliner travel.  And they did a pretty good job.  After deregulation air travel exploded with the new jets.  They were safe enough that people weren’t afraid to fly on them.  And they did.

Boeing and Douglas lead the way in the Jet Age

Competition drove early jet travel.  Air travel was growing and the airlines needed planes that could carry more people, fly farther and faster.  If they had the planes they could fly the people.  Two of America’s manufacturers stood up in a big way.  Boeing built the 707.  And Douglas built the DC-8.  This competition produced two jetliners that were safe to fly and they moved more people farther than any propeller plane.  There were some accidents in the beginning but they were less compared to the propeller planes they replaced. 

Air travel continued to grow.  There was a demand for bigger airplanes.  A bigger plane could move more people at a lower cost per person.  This meant even lower ticket prices.  And made air travel more affordable to the less rich.  Boeing rolled out the 747.  McDonnell Douglas (the merger of Douglas with McDonnell Aircraft Corporation) rolled out the DC-10.  The first of the wide-bodies.  The Boeing 747 went on to become a huge success with an incredible safety record.  It still flies today.  Few airplanes make people feel safer.  The DC-10, on the other hand, did not make people feel as safe.  For a period of time.  And that marked the beginning of the end of McDonnell Douglas.

McDonnell Douglas was a very successful company.  They built thousands of DC-9s and MD-80/90s.  Over 2,000.  These are very reliable and safe aircrafts.  The DC-9 had only 0.76 fatal accidents per million departures (PMD).  The MD-80/90s had only 0.31 fatal accidents PMD.  You’ll still see a lot of these flying today.  It has proven to be a very reliable airframe.  The DC-10, though, had a bumpier road with less than 500 built.  It, too, was a good airplane.  But it was involved with some very high-profile accidents.  And it got a reputation as an unsafe design.

A Close Call with the Cargo Hold Door of a DC-10

The cargo hold door on the DC-10 opened outward.  This allowed room for more cargo.  Doors that open in take up cargo space.  Which reduces revenue.  The more cargo you can carry, the more revenue you make and the lower ticket prices can be.  It’s just one in many ways to reduce the cost of air travel.  And it was yet another thing that made the DC-10 profitable to fly.

Airlines bought the DC-10 and put it into service.  It performed well.  But that cargo door would become an issue.  Doors on an airplane typically open inward.  For a good reason.  Once a plane reaches an altitude of 10,000 feet, it has to be pressurized so people can breathe normally.  That places a lot of pressure inside the passenger and cargo compartments.  The only ‘holes’ in the aircraft have doors that seal tighter at these higher interior pressures.  Because they open inward.  The cargo door on the DC-10, though, needed a special latching mechanism to withstand those pressures without opening in flight.  Because it opened outward.

Closed properly there was no problem.  But sometimes it wasn’t.  In 1972, a DC-10 departing from Detroit suffered an explosive decompression as it climbed above 10,000 feet.  The cargo door failed.  The sudden decompression collapsed the passenger floor and damaged the aircraft’s control cables and hydraulics.  The rudder was deflected full left.  The engines throttle levels slammed back to idle.  The tail-mounted engine control cables were severed completely.  The elevator provided little control.  The pilots varied the thrust on the wing-mounted engines to maneuver the aircraft back to the airport.  They compensated for the deflected rudder with asymmetric thrust on the wing engines.  Without a functioning elevator the nose dropped at lower speeds.  So they landed at a higher speed than normal.  As they slowed the force of the rudder declined and the asymmetric thrust took over, pulling the aircraft off the runway.  It was a tremendous piece of flying by the crew that brought that plane back without loss of life.

A Pair of Crashes Threaten the DC-10 and McDonnell Douglas

The rear cargo door was studied and some changes were made.  Issues with floor strength in the new wide-bodies were questioned.  They just started flying.  This was new territory for everyone.   No significant change was made.  Other DC-10s were flying safely.  This may have just been an isolated incident of human error (closing the cargo door incorrectly).  Then, in 1974, it happened again.  In a series of human errors that doomed a Turkish Airlines plane leaving Paris for London.  A different seat configuration put more people over the floor that collapsed on the Detroit flight.  The explosive decompression tore through the cabin floor, causing greater damage to the control cables and hydraulics than on the Detroit flight.  There was nothing the flight crew could do.  The plane was uncontrollable.  It crashed, killing all 346 aboard.  The largest loss of life to date.  And the first crash of a new wide body.

The subsequent investigation painted the DC-10 as unsafe.  Then in 1979 another catastrophic accident at Chicago’s O’Hare airport.  During takeoff.  After passing V1 (the speed the aircraft could no longer abort and stop safely on the runway) the left wing-mounted engine and pylon tore away from the wing.  The pilots had no idea what had happened other that an engine had lost all thrust.  They couldn’t see the wing from the flight deck.  So they followed procedures for a two-engine takeoff.  But the damage to the leading edge of the left wing was severe.  The leading edge slats retracted with the severing of the hydraulic lines.  The left wing now had a slower stall speed than the right wing.  But they didn’t know.  And they had no indication in the cockpit.  The plane was flying.  They climbed out per procedure.  They powered back from take-off power.  And when they did, the left wing started to dip.  In the few seconds they had to understand what was happening it was too late.  The wing stalled.  The plane rolled left and pitched down.  And crashed.  Killing all 271 aboard.

Was this a design flaw?  No.  Again, it was human error.  The maintenance crew did not follow published maintenance procedures.  The left engine and pylon was replaced after routine maintenance.  The maintenance manual called for the engine removal first.  Then the engine pylon.  Some airlines were replacing the engine and pylon as an assembly.  This saved maintenance hours (and cut costs).  And was safer because it reduced the number of fuel, hydraulic and electrical wiring that had to be disconnected and reconnected.  Or so they thought.  Lifting the engine and pylon assembly to the underside of the wing attachment point was a delicate procedure, though.  That’s a lot of mass pressed against the mounting flange.  And in this case, they pushed the assembly up too high into the flange, deforming it and causing a fracture.  No one knew this as they accelerated down that O’Hare runway.  As they approached take off speed the flange broke completely, sending that engine up and over the wing.

Plane Crashes don’t help Sell Planes or Tickets

With these high-profile accidents the DC-10 got a reputation for being unsafe.  Orders fell.  While orders for the Boeing 747 remained strong.  Even though they had similar safety records.  The early 747s had 1.41 fatal accidents per PMD (the later 747-400 had 0.19 fatal accidents per PMD).  The DC-10 had 1.36 fatal accidents per PMD.  It was as safe if not safer as the 747s that were flying during the same time.  But the public relations damage was done.  Boeing sales grew.  McDonnell Douglas sales fell.  The business founded by Donald Douglas in 1921 is no more.  Unable to compete with Boeing (or Airbus) any longer, McDonnell Douglas merged with Boeing.

McDonnell Douglas had a very successful run.  But the Boeing 747 went on to dominate the wide-body market.  And one wide-body paid a lot more bills than a bunch of narrow-bodies.  Commercial planes have only gotten bigger.  The Airbus 380 is a double decker that can carry over 800 passengers.  And is giving the Boeing 747 a run for its money.  Who knows what might have happened if not for these high-profile accidents.  McDonnell Douglas had even floated the idea of a double decker airplane.  By that time, though, it was too late.

Competition between Boeing and Douglas introduced the jet age.  Their continued competition gave us wide-body jetliners.  Average people could fly anywhere in the world.  And air travel got safer through the years.  Government regulation didn’t make this happen.  Yes, the government made some planes safer.  But not until after a crash.  And they were few and far between.  The vast majority of commercial aviation flew safely.  Because manufacturers and airlines have a vested interest in being safe.  For a very good reason.  Plane crashes don’t help you sell planes.  Or tickets.  But they can put you out of business.  Even if they aren’t your fault.  Something McDonnell Douglas knows only too well.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

FUNDAMENTAL TRUTH #56: “It’s competition in the private sector that makes life better. Not government regulation.” -Old Pithy

Posted by PITHOCRATES - March 8th, 2011

Government caused the Greatest Recession since the Great Depression

You hear it all the time from the Left.  If it wasn’t for all those government regulations those on the Right bitch about we wouldn’t have safe food, safe medication, safe transportation, safe merchandise, fair prices, a clean environment, quality education, etc.  It’s rather amazing to hear people in government say this.  And people on the Left say this.  Because people are people.  And people regulate people.  So why are some people better than other people?  Just because they say they are?  I find that a bit specious.

Government caused the greatest recession since the Great Depression.  It was their economic policies that put people into houses they couldn’t afford.  It was Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac that enabled the approval of very risky mortgages by buying them from the lenders.  It was the GSEs that had Wall Street create vehicles to sell these risky mortgages as high yield, low risk investments (i.e., derivatives).  It was Congress that refused to stop this risky behavior of the GSEs because Congress members were getting sweetheart mortgage deals and campaign contributions.  And it was Congress that bailed out the GSEs with our tax dollars after their dirty politics crashed the economy.  If you go down the chain of events you see one constant behind every step in the process that gave us the Great Recession.  Government, government, government.  And yet we are to trust government people every time over the private sector people.

If you remove government from the mortgage picture, though, it’s a different story.  Instead of discrimination it was just poor credit and insufficient earnings that denied mortgages for some blacks, Hispanics, single mothers, etc.  And these people wouldn’t have been in houses they couldn’t afford.  Lenders would have had far fewer risky mortgages on their books.  The GSEs would have bought far fewer risky mortgages.   Wall Street wouldn’t have spread the subprime mortgage contagion worldwide by selling boatloads of their complex derivatives.  There would have been no Great Recession.  There would be no double digit unemployment (U6 – a truer unemployment rate than the ‘official’ U3) today.  And all of this by just removing government from the beginning of this process.  And yet we are to trust government people every time over the private sector people.

A Business must please the Consumer to Survive

Let’s look at another example.  Let’s take food.  The Left say that if it wasn’t government regulation our food would be unsafe.  So let’s imagine a world where there is no government regulation.  And only two meat packing plants.  A devious, archetypical corporate villain (as the Left believes runs all corporations) runs one plant.  Let’s call him Mr. Devious.  A true free market capitalist runs the other.  Mr. Devious reinvests no money into the plant.  Doesn’t even clean it.  Has a rat infestation.  Uses rat poison to control the rat infestation.  Doesn’t care.  And sends out tainted meat that kills hundreds of people.  The true free market capitalist keeps reinvesting in his plant.  Keeps it clean.  Has no rat infestation.  And strives to put out the best quality product.  It’s not tainted and people eat it without dying.

Now suppose you’re putting together your shopping list.  You have meat on your list.  And on the television news is a story about still more deaths that are traced back to Mr. Devious’ plant.  Now, in our imaginary world, there is no government.  No government inspectors to step in to inspect Mr. Devious’ plant.  He broke no law and did not fail to maintain any regulatory standards.  No one files any legal actions against Mr. Devious because he broke no law.  Now tell me, where are you going to go to buy your meat?  Well, if you’re sane, you’re going to make damn sure the meat you buy didn’t come from Mr. Devious’ plant. 

Even in a world that has no government regulation, a Mr. Devious cannot exist.  Because there’s competition.  And the last thing a true free market capitalist wants is bad publicity.  If consumers have an unfavorable view of your company they’ll shop elsewhere.  And if you’re killing people with the food you sell, you couldn’t make a more unfavorable view of your company in the eyes of consumers.  So they won’t be buying what you’re selling.  Ever.  But guess where they will be buying from?  That’s right.  The business that puts out the best quality.  And the best price, of course.  In other words, the one that best pleases the consumer.

Competition Makes Everything Better

Hey, you’re thinking, that makes sense.  So maybe the big corporate giants care about us.  If only for their greed.  Well, greed is a powerful motivator.  You see, a profit is an incentive to do good.  And pleasing consumers it the key to profitability.  So you do everything within your power to please as many consumers as possible.  Before another business pleases them better.  We call this tug of war in the market place competition.  And you win this game by pleasing consumers better than your competitors do.  Because competition makes everything better.

Now think about the things you hate to do.  Deal with the cable company.  A utility.  Getting your driver’s license renewed.  Getting a building permit.  Getting your tax assessment reduced because your house isn’t worth as much as your city says it is.  Filling out your income taxes.  Going through airport security.  Etc.  And what do all of these things have in common?  Little to no competition (although cable companies have competition today but making a change is a pain in the you know what).  There is little need to please consumers.  And it shows.  Customer service isn’t the greatest.  And the processes are often long, complex and exasperating.  Why?  Because they can be.  Where else are we going to go?

These things also have another thing in common.  Government heavily regulates them.  Or they’re simply government itself.  Government people.  Those people we are always to side with over the private sector.  And many of us do.  Despite our not liking to do any of the things we have to do with them.

Competition can even Clean the Environment

Okay, but what about the environment?  There’s no profit in spending more money to keep the environment clean.  Surely that’s something only government regulation can do.  Well, let me ask you something.  Where are you more likely to litter?  In your backyard?  Or in the National Mall after a rally?  The National Mall, yes?  Because we take care of what we own. 

Yes, there have been polluters in the past.  And, yes, government regulations have cleaned them up.  But back when they were polluting, few cared.  Because it was normal.  I mean, once upon a time, human feces used to cover our sidewalks and streets.  And that was normal.  It isn’t anymore.  So we don’t do it anymore.  This is more a process of civilization.  A company today that leeches toxic chemicals into the ground water that kills people who drink well water is going to get a lot of bad PR (public relations, i.e., favorable publicity).  And we know what bad PR does to private companies.  So they are going to try everything in their power to not leech toxic chemicals into the ground water so they can avoid the bad PR.  Before we knew the affect of some of these chemicals, though, some companies did unknowingly kill people.  Now that we know better, they handle their chemicals differently.  In a way that will help to keep consumers as customers.  Not push them away.

BP and Exxon both suffered in the eyes of the consumer after their spills.  And a lot of consumers refused to buy their gasoline anymore.  Not only that, the BP spill shut down all offshore oil drilling in US waters.   At great cost millions of dollars of equipment had to be shipped elsewhere where they could drill.  They would have made more profits without the spill and the bad PR.  So they have a very strong incentive to prevent these environmental disasters from happening.  And considering the amount of oil they pump up from these offshore wells, their environmental record is pretty good.

Companies even look at the little things that add up.  McDonalds used to sell their hamburgers in hard, foam cartons.  They don’t anymore.  Because they felt they could please more consumers by being more environmentally friendly.  Starbucks sells their hot coffee in paper cups to be environmentally friendly.  And the sleeves they use so you can hold those hot cups of coffee contain recycled material.  You can still use foam cups by law.  But they choose not to.  To please their consumers.  So they can keep them as customers.  And be more profitable.

Without Competition Little Changes

Corporations survive on profits.  Maintaining profitability means pleasing consumers.  When something bad happens they have a powerful incentive to act fast.  Before the problem spirals out of control causing bad PR.  Making consumers go elsewhere.  They will act faster than any government bureaucracy in identifying and correcting the problem.  To limit their damages.  Because the more damage they cause the harder it will be to regain the consumers’ confidence.  And lost consumer confidence equals fewer profits in the private sector.

It’s a little different with government.  Without competition little changes.  Fannie Mae and Freddie Mac are still here.  They may go away but there is talk about replacing them with something similar.  To make sure the same housing policies that caused the Great Recession will continue.  To make sure that some people who can’t afford a house can buy a house.  And if it all blows up again, they will just pass the cost onto the taxpayers.  Again.

And yet we are to trust government people every time over the private sector people.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , ,