Well, this is awkward.
This morning, a blog was published by Mark Perry, an Economics Scholar at the American Enterprise Institute, in which he used his platform to seemingly argue on behalf of the largest trade violation in U.S. history. Which seems a little odd, because the issue at hand is an economic one, and Mr. Perry, (an economist), doesn’t seem to understand what’s behind it, or what is at stake, at all.
Mr. Perry’s blog makes a rather lazy argument that fails to provide any context for his reader on the issue at hand, which would be the $50 billion in subsidies provided to three Middle Eastern airlines by their governments over the past 10 years in direct violation of the aviation trade agreements they hold with the United States. He ignores, or simply doesn’t bother to understand, the harm these trade violations are causing to U.S. workers and American companies that are playing by the rules.
One would think that as an economist, Mr. Perry would have a better grasp of this issue; but since he doesn’t seem to, we’re going to provide the context and facts that Mr. Perry did not.
Our nation currently has two types of international aviation trade agreements. One is called a bilateral agreement- this means the government plays a role in every new route established. And given that our nation has the world’s largest airspace, that’s a whole lot of government involved in industry. The second type of agreement is called an Open Skies agreement. The U.S. started signing these agreements with foreign nations 25 years ago with aim of reducing burdensome government oversight by creating an open market in which private companies could compete based on an agreed-to set of rules including language around fair competition. These rules include a ban on subsidies and a ban on artificial or predatory pricing practices. The idea was that open markets would stimulate growth, promote competition, and benefit not just the industry served, but also those served by the industry (the consumers).
And indeed, it worked. Now, 25 years later, the U.S. holds 117 active Open Skies agreements with countries around the globe. There’s just one problem- two of the countries who hold Open Skies agreements with the U.S. are in violation of their agreements and have decided to stack the deck in their favor. They have massively subsidized their airlines (the above mentioned $50 billion in subsidies to three failed Middle Eastern airlines: Emirates, Etihad, and Qatar Airways), which have, in turn, used the subsidies to predatorily expand into new markets with no regard to demand and no expectation for returning a profit. These airlines flood those routes with excess capacity and artificially lower prices of seats to drive competition out of markets. For every international route lost by U.S. carriers to this unfair competition, 1,500 American jobs are lost. This is illegal and it is harmful.
Mr. Perry claims to want to represent the consumer’s interest. He says that a lack of choice or a lack of competition is bad for the traveling public. On that front, he is actually correct. But unfair trade practices don’t benefit consumers in the long run. Predatory practices drive out competition, they don’t promote it. And it’s competition that drives down prices for consumers. Not to mention it’s what’s best for the millions of Americans employed either directly or indirectly by an industry that represents 5% of the U.S. economy and is playing by the rules.
We are happy to provide Mr. Perry this simple economics lesson. A lot more information can be found at our website, fairskies.wpengine.com.