April 19, 1978
Page 10695
Mr. MUSKIE. Mr. President, I support S. 2493, the Air Transportation Regulatory Reform Act of 1978. This bill would partially deregulate the Nation's airlines. It represents the first comprehensive revision of the structure of airline regulation since the establishment of the Civil Aeronautics Authority in 1938. The bill instructs the Civil Aeronautics Board to work toward a goal of providing low-cost, efficient air transportation in a regulatory environment based on competitive market forces.
There are a number of attractive provisions of this bill which would bring the fresh air of competition to the airline industry. It would permit freer entry of air carriers into new markets and provide more flexibility in setting fares. It would also reduce the CAB's power to approve anti-competitive mergers, acquisitions, and other control activities.
The bill also contains adequate safeguards to insure a smooth transition to a more competitive environment. It contains employee protection provisions should an air carrier suffer a major financial problem resulting from enactment of the bill. It establishes a new program including commuter as well as local service air carriers for small communities. It also renews for an additional 5 years the guaranteed loan program for air carriers serving small communities.
Mr. President, as chairman of the Budget Committee, I have a special interest in this bill because of its potential anti-inflationary effects. All of us are aware of the heavy price which inflation exacts upon American consumers and taxpayers. The public opinion polls make it clear that Americans view inflation as our most critical economic problem. All of us have had this confirmed by our constituents.
Next week the Senate Budget Committee will report to the Senate the first budget resolution for fiscal year 1979. The committee was especially mindful of the inflation problem in preparing the fiscal year 1979 budget. We tried to achieve reductions in spending and in the deficit wherever possible to signal the country our awareness of the necessity for congressional action to lower inflation.
The control of aggregate spending will be critical to the battle against inflation, especially as the economy approaches full employment in the future. But there is another inflationary battle that must be fought. That is the battle against Government actions which restrict supply and directly increase costs and prices, whatever their impact on spending and the deficit.
Regulatory actions in particular can sometimes be severely inflationary without adding a dollar to Government spending or the deficit. Sometimes this inflationary price is worth paying, but often it is not. For this reason, we must give careful consideration to the legislation which may directly increase or reduce costs and prices.
It has been estimated that actions taken by the Congress last year will add a full percentage point to the rate of inflation this year. And just 2 weeks ago this body passed a farm bill that, together with the administration's recent actions, would have added another half a percent to consumer prices.
Fortunately, I sense a growing recognition that we cannot afford to continue to legislate inflation. Although the farm bill passed the Senate, the President unequivocally pledged to veto the bill as inflationary, and the House of Representatives resoundingly rejected it. Washington may finally be hearing the voice of the American people insisting that action be taken against inflation.
Mr. President, this bill presents us with an opportunity to lower prices through our actions rather than to raise them. We have had so little experience with genuine competition in interstate air travel that it is difficult to make precise estimates of the impact on this bill on inflation.
However, recent experience with intrastate fare reductions and fare discounting indicates that, as a result of this bill, fares would fall, passenger traffic would increase, and employment in the industry would rise. A range of estimates by the Comptroller General, the Civil Aeronautics Board, and private economists have indicated that full airline deregulation would reduce fares by 10 to 30 percent, saving air travelers $1½ to $4½ billion annually. This bill, which would provide partial deregulation, would have a slightly smaller but significant anti-inflationary impact, cutting 0.1 to 0.3 percentage points from the rate of inflation next year.
Mr. President, a few tenths of a point off the inflation rate may not sound like much. In fact it can be very significant. The President's anti-inflation strategy is to decelerate inflation by 0.5 percent a year, and this is widely recognized to be an ambitious goal. This bill's anti-inflation impact next year would represent a substantial portion of this deceleration of inflation.
Mr. President, I would like to illustrate the importance of a "few" tenths of a percent of inflation. Consider the Nation's consumers. Two-tenths of a percent of additional inflation cuts $2.5 billion from the purchasing power of their income. It cuts another $1 billion from the purchasing power of their savings held in banks and thrift institutions.
Furthermore, cost-of-living adjustments then lead to higher wages and transfer payments, and thus to a second round of higher prices. Even those consumers fortunate enough to get pay increases to recover their lost purchasing power end up worse off, because they would find themselves in higher tax brackets.
Two-tenths of a percent of inflation means a lot to consumers and to taxpayers.
Consider the Nation's businesses. The expectation of more rapid inflation is reflected in higher interest rates, greater uncertainty in investment decisions, a weaker stock market, and greater tax burdens. The result would be less business investment.
Two-tenths of a percent of inflation means a lot to the Nation's businesses.
Consider the international situation of the dollar. More rapid inflation will be reflected in depreciation of the dollar, pushing up import prices and fueling further inflation.
But perhaps the most serious danger in ignoring a "few tenths" of a percent of inflation is that it only takes a few such programs to add up to a large inflationary bill.
Last year the Congress ignored a "few tenths" of a percent of inflation on numerous occasions, and we added a full percent to inflation as a result.
Now we have an opportunity to undo some of this inflationary damage. In his recent anti- inflation message, the President specifically noted the importance of enacting airline regulatory reform legislation this year. The Congress should support the President's anti-inflation efforts.
If no significant airline deregulation is achieved this year, the prospects for reforming the regulation of other industries will be weakened substantially, and prospects for reducing inflation will dim even further. Passage of this bill will give a clear signal to the American people that the Congress is serious about reducing inflation.