Government regulations are enacted as consumer protections on the premise that the state disciplines markets better than markets discipline firms. In competitive markets with strong property rights, firms must continually satisfy consumers on price and quality or lose them to rivals, and avoid harming property owners who can obtain relief from courts that enforce their rights. Governments face far weaker discipline because ineffective or corrupt politicians can remain in power until the next election, while civil service laws and powerful unions protect their bureaucratic counterparts from dismissal. This lack of accountability helps explain the state’s long record of democide, extortion, expropriation, discrimination, corruption, pollution, and ecocide.
Despite government failures being mountains next to the molehills of so-called “market failure,” mainstream economists trust the government to correct markets. Why? Could this faith reflect economists’ incentives to work for politicians, government agencies, or public universities, or to secure federal research grants at private universities? Whatever the reason, Murray Rothbard points out that policies enacted as consumer protections instead protect incumbents by determining who may enter a market and how firms may operate. The consequences include less consumer choice, suppressed entrepreneurship, artificial scarcity, and lower quality. The resulting frustration fuels populist movements on both the Left and Right as the economy increasingly resembles old-world European mercantilism rather than a genuine market system.
The consequences of this system are best understood through actual, firsthand consumer experiences, such as the one I recently endured. It was the kind of airline horror story often reported on the evening news. A four-hour delay on a flight from Charlotte to Dallas was followed by nearly six hours of confinement aboard a connecting flight on the tarmac. Its eventual cancellation stranded me overnight at DFW and ruined my weekend. After refunding only the Utah legs, my carrier flew me back to North Carolina, but to Raleigh rather than Charlotte, where my car was parked. I then had to rent a car and zigzag across the state to retrieve it and return home.
The ordeal involved more than travel disruptions. We received excuses that sounded like lies, warning looks from flight attendants suggesting that TSA was ready to handcuff anyone who expressed frustration verbally or visibly, and dismissive treatment from customer-service representatives who treated being trapped on a plane for six hours as normal. Meanwhile, the airline continued selling snacks at captive-market prices. Most passengers would understandably blame the carrier. I do not. The prevalence of similar experiences across airlines points beyond any single carrier to the regulations governing the entire industry.
These industry-wide regulations create what Rothbard would describe as a state-enforced cartel masquerading as a competitive market. When the same failures persist across carriers, different names, logos, paint schemes, and advertisements create the illusion of competition. In a free market, such failures would create opportunities for entrepreneurs offering newer aircraft, greater reliability, honest communication, and better service. This coordination arises not from State direction but from market discipline. As Rothbard explains, “Profits and losses spur rapid adjustments to consumer demands” by moving capital “out of the hands of the inefficient entrepreneurs and into the hands of the good ones.”
For poor service to persist across an entire market, however, this competitive process must be obstructed. A cartel can preserve such failures by allowing firms to operate collectively as a monopoly, but its survival requires state protection. Understanding this arrangement requires recovering monopoly’s original meaning. Today, it describes a large or dominant firm. Historically, however, a monopoly was a privilege granting a firm the exclusive right to sell, buy, produce, or transport a good or service within the kingdom. In return, the firm shared revenue with the Crown or collected taxes and duties on its behalf.
This history reveals that a monopolist’s defining feature is not market success but state-enforced exclusion. Historically, monopolists owed their positions to laws subjecting unauthorized competitors to fines, imprisonment, or confiscation. Rothbard preserves this meaning by defining a monopolist as a producer shielded from competition by the state. Today, the regulatory apparatus has assumed the Crown’s former role, using licenses, certifications, permits, controlled infrastructure, and other barriers to determine who may enter an industry and on what terms. To preserve the illusion of competition, the state extends this privilege to several firms.
The airline industry illustrates this arrangement. Without government intervention, carriers could not sustain a cartel. Members would have incentives to undercut agreed-upon prices, improve service, expand output, and attract one another’s customers, while outside entrepreneurs remained free to challenge them. A durable cartel therefore depends on the state to restrict entry and enforce cartelizing rules.
State enforcement of this cartel has shifted from explicit control to a subtle form. The Civil Aeronautics Board (CAB) replaced market competition with administrative control over airline entry, routes, and fares. The CAB and the Civil Aeronautics Administration (now the FAA) were created when the original Civil Aeronautics Authority was divided in 1940. Although deregulation in 1978 dismantled direct fare and route controls, federal certification, public airports, landing slots, air traffic control, security screening, safety inspections, and others preserved the government-organized structure. Airlines now appear to compete while operating within a state-controlled system that restricts entry and sets minimum standards of service.
Within this system, regulatory minimums become service maximums. Presented as floors for safety, quality, and service, they become common benchmarks for approved carriers. Once airlines comply, thin profit margins and restrictions on competition weaken incentives to exceed them. Passengers seeking fast long-distance travel also lack close substitutes. Cars, buses, trains, horses, and walking may eventually reach the same destination, but none can match the airline system’s essential promise: “We will get you there faster.”
Airlines therefore need not ask how well they must treat passengers to win their business. They need only ask what the law requires. If poor communication, long delays, and hours of confinement remain within the government-approved framework, carriers have little reason to improve. The state need not order airlines to provide poor service. It need only prevent the competition that would make such service unprofitable.
Ticket non-transferability provides another form of protection. The strategy originated with railroads, which campaigned for local and state restrictions on ticket brokers. Airlines later imposed contractual restrictions, but limited identity checks allowed tickets to be resold through newspaper classifieds into the early 1990s. Government-mandated photo identification, adopted in the name of national security, made these restrictions enforceable industry-wide and eliminated the resale market. Yet security does not require non-transferability. Airlines can transfer reservations, identify replacement passengers, and screen them before departure. Non-transferability instead protects price discrimination by preventing resellers from undercutting higher last-minute fares. Similar restrictions have proven less successful in sporting events, concerts, and bus travel because they cannot be defended as readily on national-security grounds.
The supporting services underlying air travel are similarly insulated from profit-and-loss discipline. Neither passengers nor airlines can replace an inefficient security provider, air traffic-control agency, or government inspector. These institutions answer to political authorities rather than travelers, allowing airport security workers to become political pawns in periodic federal budget battles while agencies shift blame among themselves. In a free market, airlines would bear the full cost of transporting passengers safely, either directly or through contracts with competing service providers. Those costs would be reflected in fares, insurance, reputations, and contractual obligations, while revenues would depend on satisfying passengers. Instead, responsibility is dispersed and accountability disappears.
Supporters and beneficiaries of the regulatory state can point to falling airfares as evidence that intervention protects competition and consumers from firms driven by greed to monopolize the industry. Yet this claim ignores socialized supporting costs, charges for formerly included services, losses caused by non-transferability and price discrimination, and the time, uncertainty, and discomfort imposed by deteriorating service. The rising effective cost of reaching a destination, relative to declining service quality, allows monopoly pricing to lurk behind falling advertised fares.
Neither the airline I flew nor the industry’s more recent entrants created this state-organized system. They entered one that long predates them. They are not the villains. Each responds to the incentives and moral hazards of a market cartelized by the state, while taxpayers bear the socialized costs of functions it provides. Airlines retain the revenues and navigate tight margins by adjusting fares, routes, baggage policies, seating, and service quality. My experience was therefore not merely the failure of one airline but the predictable result of a system that protects incumbents, separates fares from the full cost of air travel, and weakens market discipline. Genuine competition would force carriers and supporting service providers to bear their full costs, answer directly to passengers, and develop innovations not yet imagined. Consumers would benefit from lower prices, better service, and greater access.
