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Brooks Wilson's Economics Blog: Boeing Requests Regulation

Monday, May 25, 2009

Boeing Requests Regulation

Bjorn Lomborg, the director of the Copenhagen Consensus, in an op-ed article written for the Wall Street Journal, ("The Climate-Industrial Complex, My 22, 2009) describes the emergence of business seeking to benefit from fear of a carbon based ecological disaster. 
The tight relationship between the groups echoes the relationship among weapons makers, researchers and the U.S. military during the Cold War. President Dwight Eisenhower famously warned about the might of the "military-industrial complex," cautioning that "the potential for the disastrous rise of misplaced power exists and will persist." He worried that "there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties."

This is certainly true of climate change. We are told that very expensive carbon regulations are the only way to respond to global warming, despite ample evidence that this approach does not pass a basic cost-benefit test. We must ask whether a "climate-industrial complex" is emerging, pressing taxpayers to fork over money to please those who stand to gain.
The day after Lomborg's article was published, Scott Carson, the president and CEO of Boeing Commercial Airplanes, pushes for governmental favors for his firm and industry in combating carbon emissions. I am not sure if Carson is part of the climate-industrial complex or just fears that federal environmental action will make Boeing less competitive relative to their international competition.  He begins by pointing out that commercial jets have reduced carbon emission, even without government mandate or, for much of the discussed period, concern over carbon emissions.
Historically, fuel has been the airlines' second-biggest operating expense next to labor. Last year, with oil reaching $140 a barrel, fuel costs even outstripped labor costs, rising to 40% of total airline operating expenses. So airlines have demanded increased efficiency from airplane and engine manufacturers. And manufacturers have responded big time. Over the past 50 years, the efficiency of commercial jets has risen an astounding 70%. This means that carbon emissions per mile flown have dropped 70% -- all without a regulatory requirement for greenhouse gas emissions.
Airlines have been good citizens because they have been constrained to produce more efficient products by markets.  This efficiency means lower costs for airlines and their customers as well as lower levels of pollutants.  Why then do we now need government involvement?

Despite the market driven record of improving standards, Carson suggests that regulation is now desirable.
That said, we believe properly structured regulations could be useful. It's not often that an industry asks for additional regulation, but Boeing, GE and other airplane and engine manufacturers are convinced that a fuel-efficiency standard for new airplanes is an effective way to drive the development of fuel-saving technologies.
Milton Friedman disagreed with Carson's assessment that "It's not often that an industry asks for additional regulation."  In an EconTalk podcast of Milton Friedman hosted by Russ Roberts, Friedman explains that business support regulation that increases their profit.  
[I]t's always been true that business is not a friend of a free market...It's in the self-interest of the business community to get government on its side. It's in the self-interest of a particular business...But the real puzzle—puzzle isn't quite the right word—the real problem here is where do you find the support for free markets? If free markets weren't so damn efficient, they could never have survived because they have so many enemies and so few friends. People think of capitalism or free markets as something that obviously is supported by business. People think that if a business party is a party in politics, it will promote free market. But that's wrong. It will be in the self-interest of individual businesses to promote a tariff here and a tariff there…
Specifically, Carson asks the government through the International Civil Aviation Organization to impose an efficiency standard for new airplane designs, improve air-traffic management, and government loans to biofuel refiners that are extended when oil prices are low and repaid when they are high. 

My guess is that the first request is an attempt to protect Boeing from federal attempts to promote "efficiency" that will harm it in international markets.  The second request, that the government improve air-traffic management with existing technology is reasonable, but illustrates the general inefficiency of government.  It is the same inefficiency that has allowed Social Security, Medicaid, and Medicare to operate for decades with huge projected deficits.  Finally, the request for aid to biofuel refiners would lower the airlines' long run fuel cost, increasing the demand for new airliners. 

1 comment:

  1. Jillian Lenamon26/5/09 2:46 PM

    Carson claims that Boeing, GE, and other airline corporations took initiative to reduce carbon emissions, but presently is convinced that government involvement would help raise the standards of efficient emissions.