Alfred Kahn was a true American hero

Susan Dudley Contributor
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For an upcoming three-day weekend, my 17-year-old son and I won’t think twice about hopping on a flight to visit family in Massachusetts. When I was my son’s age, such an excursion would have been an unthinkable luxury; air travel was reserved for businessmen and the wealthy. Alfred Kahn, the person arguably most responsible for the $100 round-trip fare that will make our weekend jaunt possible, died last week at the age of 93.

I had the honor of interviewing Professor Kahn last summer in his offices in Ithaca, New York. He was charming and witty, with a sharp mind and clear memory of the people and events that led to the successful deregulation of airlines (in which he was instrumental as chairman of the Civil Aeronautics Board), as well as telecommunications and electricity (which he helped initiate as chairman of the New York Public Service Commission).

Born in 1917, Fred Kahn finished high school in New Jersey at 15, and graduated first in his class at New York University at the age of 18. In 1942, he earned a doctorate in economics from Yale and in 1947 joined the faculty of Cornell University, where he remained until his death on December 27, 2010.

When we spoke, he admitted that he started off as an “early institutionalist,” influenced by Thorstein Veblen, and skeptical of markets, competition, and consumer choice. What he called his “radical change” came when he realized that “regulation was being used as an instrument of cartelization.” He elaborated on this theme — in two volumes — in his seminal and widely-used text, “The Economics of Regulation” (John Wiley, 1971, 1988).

In 1974, the governor of New York tapped the popular professor to chair the state’s Public Service Commission, responsible for electricity, gas, telephone, and water regulation. Kahn took a leave of absence from Cornell, but remained a teacher at heart. He treated his staff, the media, and the public as if they were his graduate students, carefully explaining the strategy and logic of his efforts to encourage greater competition. His knowledge and intellect were buttressed by his famous warmth, humor, and informal style (he encouraged staff to join him in his daily swims and was known to give interviews in his stocking feet). In 1975, he brought his professorial wit to Washington as a key witness at Senator Ted Kennedy’s 1975 hearings on airline deregulation.

When President Carter asked him to move to Washington in 1977 to chair the Civil Aeronautics Board, Kahn initially resisted, preferring instead to serve as chairman of the Federal Communications Commission. He used a comparative-advantage argument to suggest that he and the president’s chosen FCC chair (Charles Ferris) switch roles, arguing that no matter how little Ferris knew about airlines, it couldn’t be less than himself, but that Kahn must know more about telecom regulation (having served on the NY PSC). President Carter eventually persuaded him to extend his leave from Cornell to head the CAB, an independent agency he eventually succeeded in phasing out.

When he came to the CAB, he knew the Commission was responsible for awarding routes (a power it used to limit competition and entry into new markets), and for regulating service and fares. But Kahn was surprised by how picayune the decisions were that he was expected to make. He once got a call in the middle of the night from a carrier trying to determine whether an arrangement it had made to transport sheep from Virginia to England was approved. “The matter was urgent, because the sheep were in heat!” Alan Greenspan, in his 2007 book The Age of Turbulence, quotes Kahn as saying to a Congressional committee in 1978 testimony, “Is it any wonder that I ask myself every day: Is this action necessary? Is this what my mother raised me to do?”

He was invited to give a talk to airline executives at an exhibition showcasing newly-acquired European planes, but he demurred, saying “I don’t know one airplane from another; to me they’re all just marginal costs with wings.”

Kahn is now called the “father of airline deregulation” but he told me he did not set out to completely deregulate airline rates, at least not right away. It soon became clear to him, however, that limited “regulatory reforms” or gradual, phased deregulation would not be successful. Government “can’t manage the process.” Asked once by a group of airline executives to describe what the industry should look like, he responded “If I knew what was the most efficient outcome, I’d continue to regulate,” adding that a major benefit of competition is that it produces unexpected outcomes. Looking back, he told me “I never felt I knew all the answers but believed in experimental trying and following my instincts. I didn’t come to CAB with a prescribed, pre-determination. I was driven to it by the experiences … and by my belief in the principles of marginal cost pricing.”

He faced intense opposition from most industry executives and labor unions. The pilot unions “hated me,” he recalled. He tried to respond to the “unpleasant letters from pilots” with “great civility,” telling them he was “disconcerted by the pain [increased competition] would bring to some people,” but that “they had a privileged position; they were enjoying benefits of monopoly profits,” and that he “was interested in the public.”

The consummate educator, he argued sincerely that labor would benefit from the expansion of employment opportunities competition would bring, but he admitted that “I myself failed to realize that competing with Southwest Airlines you’re not going to have captains making $400,000 a year for 20 hours of work a month.” He came to recognize that there “was no way of having competition beneficial to the public [while retaining] these restrictive work rules and exorbitant pay.”

Airline deregulation paved the way for other economic deregulation (including trucking, rails, energy, and telecommunication). He suggested in our interview that the “visibility of airfares” was a main reason why airline deregulation came first. It was “easy to condemn the mess of more regulation leading to more regulation.” He also enjoyed a convergence of interests including conservatives (he credited the Ford administration with paving the way for his efforts), liberals (particularly Senator Ted Kennedy, whose 1975 hearings highlighted the perverse effects of airline deregulation and supported increased competition), consumer groups and activists (notably Ralph Nader), and academics.

His personal style certainly contributed to his success. He loved to sing and to perform (self-deprecatingly calling himself a “showoff” and “egomaniac”), and he treated people honestly and openly, as if they were his graduate students (“and you don’t fudge to graduate students”). His candor occasionally landed him in hot water with his colleagues and even the president (like the time a reporter asked him if he could defend the defense budget and he replied in a word, “no”). As the chair of an independent agency, though, he felt less constrained by politics than legislative or executive branch officials. “Look at the power I had,” he remarked to me, “I had the independence to be idiosyncratic.” “I didn’t give a damn. I could go back to teaching. I was unwilling to deceive. All I had was my principles. Well, I also had a sense of humor and I was smart, but I was not going to get into the game of trying to deceive people.”

In our discussion a few months before his death, he did not see himself as an “apostle of deregulation.” He called himself a 20th-century liberal, yet he was not apologetic about the effect of airline deregulation on certain companies or workers because he knew competition in the airline industry has brought huge and, at the time unforeseen, benefits to the American public.

I asked what advice he, a true American hero, would offer young academics interested in public policy. He said “there’s no substitute for grappling with real problems in policy,” adding, “it does help to be boss.” But he refused to be called a “hero.” “I’m just a little old professor, who’s also a performer.” And perform, he did.

Susan E. Dudley directs the George Washington University Regulatory Studies Center. She recently interviewed Professor Kahn as part of the Center’s Oral History of the Economic Deregulation of the 1970s and 1980s.