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Privatizing Air Security

Mises Daily: Monday, December 06, 2010 by

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In reaction to the growing public anger at the TSA and its "freedom fondles," some pundits are rushing to the bureaucracy's defense. An illustrative example is Marc Thiessen's call for Americans to give thanks to the "men and women of the TSA who give up time with their families during the holidays to keep us safe from terror."

As we'll see, Thiessen's defense of the TSA is internally contradictory. Moreover, his endorsement of a government monopoly (on the design of air security) ignores all of the economic arguments against such an arrangement. As I pointed out in an earlier column, the only way to strike a proper balance between the (possibly competing) goals of customer privacy and safety is to allow competition among airlines in a truly free market.

Thiessen Tries to Have It Both Ways

In order to justify the invasive scans and provocative pat downs, Thiessen naturally brings up the specter of terrorism:

If a passenger who is supposed to be seated near us on our next flight has a bomb in his underwear, I suspect most of us would prefer that the explosive be uncovered when he tries to get through airport security — not when a Dutch tourist sees the passenger in the row ahead of him try to set it off and dives across the plane to stop him, as happened on a flight to Detroit last Christmas.

Now, before we continue, let's note just what an odd defense of the TSA this is. Remember, the TSA was established in November 2001. So Thiessen is justifying its current procedures — which many Americans find repugnant — by reminding us that the TSA totally failed to prevent the "underwear bomber" from getting into position on a plane above Detroit. According to Thiessen's own story, even though the TSA had been in place for eight years at that point, it took a vigilant member of the private sector, i.e., the Dutch tourist, to avert catastrophe.

As this example so clearly illustrates, Thiessen makes the mistake common to all proponents of government power: he assumes that if the government arrogates to itself the power to do good thing X, then the government will actually accomplish good thing X. Throughout his column, Thiessen recoils at "the Left," so he should recognize the pattern. We could just as easily tell Americans to thank the people who work in Housing and Urban Development for keeping our country safe from inner-city poverty.

This is a crucial point, so let me elaborate: It's not as if TSA officials had said all along, since 2001, that they needed full-body scanners in order to do their jobs properly. Had they said that in the beginning, then the public probably would've protested enough such that the "small-government" George Bush wouldn't have nationalized airport security.

On the contrary, the public was led to believe that the establishment of the TSA, and the new procedures it implemented, were necessary to "keep us safe" in the wake of 9/11. Nobody thought there was a caveat declaring, "Unless of course someone smuggles a bomb in his underpants."

By the same token, these new procedures will not actually keep us safe if terrorists are so inclined. Just as the government's security protocols did not stop the underwear bomber, so too will these new procedures fail in their ostensible purpose. And when the next incident occurs, I am confident that Thiessen and others will applaud the next invasive step on the slippery slope toward a police and surveillance state.

Ironically, Thiessen himself — in the very next paragraph of his article — demonstrates that these new procedures have nothing to do with preventing the next underwear bomber:

In the last two weeks, I have been through TSA screening eight times — and not once was I asked to go through the millimeter-wave machine, or undergo an enhanced pat-down. Odds are that most of the 2.2 million passengers who will go through airport security each day during this holiday weekend will have a similar experience. On the last leg of my trip, I finally asked to go through both procedures to see what all the fuss was about. No one touched my junk.

So which is it, Mr. Thiessen? Are these new procedures necessary to weed out underwear bombers? If so, then doesn't it concern you that "most of the 2.2 million passengers" who go through security each day won't be subjected to the techniques? That's a rather porous net, isn't it?

We see the same pattern in the informal reports of Thanksgiving travelers who claimed that the reason the "Opt Out Day" fizzled (as the media told us) was that the TSA completely backed down. In other words, rather than face the surly travelers head-on and force (a small fraction of) them through either the scanners or pat downs, the TSA simply waved everyone through the conventional metal detectors and avoided confrontation.

If these reports are accurate, it means that the TSA acknowledges what the critics have been saying: namely, that forcing people to endure the humiliating new procedures doesn't really enhance air security — or, at least, that the marginal benefit in weeding out potential terrorists does not justify the huge inconveniences imposed on travelers.

The Economics of Air Security

In my earlier article, I made an analogy between car crashes and terrorist attacks on airplanes. Let me expand that analogy here.

To the average person, the "optimal" number of car crashes is zero. That makes sense, obviously, because it is undeniably bad when people get injured and property gets damaged.

But economically speaking, in our current world, the "optimal" number of car crashes is much higher than zero. In other words, the only way to achieve the undeniable benefit of zero car crashes would be to suffer unacceptably high costs. Very low speed limits — of 25 miles per hour, say — would need to be enforced with draconian severity. Furthermore, the requirements for getting a driver's license would be much stricter, and the much-smaller pool of eligible drivers would need to go through renewal procedures very frequently.

The important point is that, although it might be technologically possible to drive the number of car crashes per year down significantly, very few people would want to live in such a society. Beyond the inconvenience of having to drive very slowly (or switch to bicycle) to get around in one's personal life, people would see huge increases in prices, especially for perishable items such as food.

Even though it takes a cold-blooded economist to say it explicitly, such a world would be inferior to one with more car crashes. The obvious drawbacks in terms of vehicle damage and injuries would be more than compensated by the benefits of relaxing the restrictions on driving.

A similar analysis applies to air security. It is far too crude to think of airline procedures as "safe" versus "unsafe." Rather, there is a whole spectrum of various techniques that could make flying more or less safe, and safety itself is but one dimension among many.[1] Other things being equal, people would prefer flights to be safer in terms of conventional crashes and of course terrorist attacks. And indeed, as humans become richer, airline travel tends to become safer: from 1960 to 2009, the number of fatalities per 100 million aircraft miles dropped from 44.2 to 0.7.[2]

The Role of Insurance

When it comes to defending against terrorism, the problem is how to adequately quantify the threats, and to do so in an economically meaningful way. Because it is a government monopoly, the TSA cannot possibly find the economically efficient balance between customer privacy and security. Even if the TSA somehow stumbled upon the ideal mixture through dumb luck, its bureaucrats wouldn't recognize it as the solution. They would then fail to change policies as the underlying fundamentals moved or they would change the policies and deviate from the still-optimal arrangement.

On the other hand, if airports were privately owned, and airlines were allowed to compete in a truly free market, then we would have an institutional structure that at least would tend toward the efficient set of procedures. In practice, of course, humans make mistakes, and private-sector CEOs are not exempt from this malady. But the constant feedback of market prices — something the TSA lacks completely — would steer them to their destination.

In a truly free market in air travel, insurance companies would probably play a much larger role. For example, suppose that the legal system held airlines strictly accountable for the damages their planes imposed on others in the event of a hijacking or explosion. In order to gain permission to fly over populated areas, the airlines would need to demonstrate their ability to pay such huge damages, and to this end they could take out massive insurance policies.

Insurance actuaries — supplemented by experts in terrorism, of course — are the ideal profession to evaluate the benefits of various security procedures. Right now, an actuary can calculate the premium on, say, a $1 million life-insurance policy for a smoker of a certain age and other characteristics. The actuary can also calculate how much the premium could be lowered if the potential customer decided to quit smoking. In principle, an actuary could tell an airline the expected amount of damages (resulting from a terrorist incident) that would be avoided per passenger if some new security screening measure is implemented.

For example, the actuary could tell the airline, "Using only conventional metal detectors and X-ray machines on luggage, you should expect 10 terrorist incidents, each costing on average $300 million in legal damages, for every 100 million passengers who fly on your airline." The airline would then need to charge at least $30 per passenger per ticket in order to fund the premium for its terrorism-insurance policies.

Further suppose that the actuary reported, "However, if you required your passengers to completely strip down and submit to a full-body cavity search, then you should expect only 1 terrorist incident for every 100 million passengers." The airline in that case would only need to charge passengers $3 per ticket in order to fund the insurance policies.

Should the airline implement the new strip-search policy? It depends on its customers. Would the airline sell more or fewer tickets if it charged $27 less but required its passengers to be randomly subjected to such an invasive procedure? The answer in the current United States is probably "fewer," meaning that it would be unprofitable for the airline to ramp up its security measures.

Mises Academy: Robert Murphy teaches Anatomy of the Fed

But the important point is that this is a quantitative matter: depending on how much damage the measure would likely avoid, and depending on how little a (poor) segment of the population objected to such searches, the new approach could very well be profitable for at least one airline to implement.

Conclusion

Terrorists and cancer are different foes, to be sure. In particular, terrorists could adapt to a new security environment, whereas lung cancer won't change its relation to smoking just because of insurer policies.

Even so, it is easy to see that a truly free market in air travel would bring the innovation of capitalist entrepreneurship — as well as the crucial feedback of profit and loss — to bear on this complex problem. Though the monopoly TSA promises us privacy and safety, it will deliver neither.

Notes

[1] Steve Horwitz also makes the important point that if the TSA's onerous procedures drive more people to highway travel, then statistically there will be more deaths because driving is more dangerous than flying.

[2] Even this statistic understates the gains in safety, because there are far more passengers per aircraft-mile in 2009 than in 1960. Although people complain about "flying like sardines," this is how competition and low fares have driven the industry. The proper benchmark of airline safety would look at fatalities per (100 million) passenger miles flown, but unfortunately the BTS tables do not show this figure.