Responses to Comments on Air Transportation and on the Credit Crunch

There were a number of interesting comments on these two posts, and it was especially interesting to hear from a number of pilots and air controllers with regard to the problem of deteriorating airline service. One controller straightened me out about the financing of the air control system--it is mainly by ticket taxes rather than airline fuel taxes. This is unfortunate, because number of tickets is a very crude proxy for scheduling that causes congestion which in turn increases the costs of the air traffic control system. Compare two airlines, flying the same number of passengers (hence selling the same number of tickets), but one flies large planes infrequently and the other small planes frequently. The second will cause more congestion but will not pay higher ticket prices.

I did not focus on solutions to the problem of air traffic congestion, but the logical solution would be some form of congestion pricing--for example a tax based on number of flights, which would create an incentive for fewer flights (with larger planes). This would be an efficient solution, however, only if consumer surplus would be greater with less delay but also less frequent flights, and that is a difficult calculation which as far as I know has not been made.

One commenter pointed out that my observation that the per-vehicle cost of gasoline is higher than the per-airline-passenger cost of aviation fuel, and that this retards the substitution of auto for air transportation in response to air traffic congestion, is incomplete. The proper comparison is per-vehicle-passenger gasoline cost, since if a vehicle has more than one passenger the gasoline cost per passenger falls.

Turning now and very briefly to the credit-crunch posting, one commenter complains that as a result of other people's reckless borrowing (and lending), he--a conservative borrower and investor--is experiencing a loss of market value of his home and of his stock portfolio; and so wouldn't it be appropriate for the Federal Reserve Board, if it could, to do something to alleviate his loss, for which he is blameless. I think not. Everyone's investments are at risk from unforeseen external shocks, and it would be infeasible for government to compensate everyone who experienced a loss as a result of those shocks. Even when average house prices are rising, the price of a number of houses will be falling; and the stock market gyrates quite apart from the occasional bubble.