Showing posts with label The Wealth of Nations. Show all posts
Showing posts with label The Wealth of Nations. Show all posts

Friday, August 12, 2011

Crandall and Putnam

People of the same trade seldom meet together, but the conversation ends in a conspiracy against the public, or in some diversion to raise prices.

---Adam Smith, The Wealth of Nations.

A recent post by Nikto entitled "The Tax Cut Experiment" provoked an interesting discussion in comments and it made me think of the quote above. Clearly, Smith was well aware of corporate force even that long ago. The comments in that post also sparked a memory of the phone call between Robert Crandall, president of American Airlines, and Howard Putnam, president of Braniff Airways, in 1982.

Crandall: I think it's as dumb as sit here and pound the #$%#$ out of each other and neither one is making a $%#$ dime.

Putnam: Do you have a suggestion for me?

Crandall: Yes, I have a suggestion for you. Raise your #$%#$ fares 20 percent. I'll raise mine the next morning.

Putnam: Robert, we...

Crandall: You'll make more money and I will, too.

Putnam: We can't talk about pricing!

Crandall: Oh, ##$%$, Howard! We can talk about anything #$%$ thing we want to talk about.

If Crandall were around today, he'd be running a Tea Party organization.

The simple fact is, folks, that the government can sometimes improve markets. Never is this more true than with the airlines. Time and again we see that if left to their own devices they will collude against the public and produce a market that is not other words, less consumer surplus.

In so many ways, this accurately describes the problem we have right now. We have a decided lack of aggregate demand with consumers (two thirds of our economy) not spending money. The main reason for this is prices from food to gas to health care are completely ridiculous.

With government effectively ball less (vasectomy courtesy of the Tea Party), it's only going to get worse.