Re: TSA and the Airlines

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Becky: Re your comment “Aviation has absolutely no incentive to please patrons,” this is a consequence of becoming attached to state power. If the success or failure of a firm is determined by marketplace forces, it will have an incentive “to please” those who do business with them. If this is determined by political connections and machinations, the firm will be motivated to satisfy those in the political establishment who can affect its profitability. If a firm knows that it is “too big to fail” it will, like recent corporate predecessors, likely have the assurance that its losses will be covered by a government bailout and, therefore, be less inclined to please the traveling public. In such a setting, the “patrons”  who firms will have an “incentive to please” are the politicians and  government officials who will determine whether — and in what amounts — a bailout will be forthcoming. There is nothing peculiar or sinister in any of this: It is just another reminder that outcomes are a function of the incentives operating in either a marketplace or Washington, D.C.

12:41 pm on July 12, 2012