Friday, January 25, 2019

Privatize TSA and ATC!

In the aftermath of 9/11, there was some debate whether TSA should be federal employees, or run privately, and paid for by airlines. Government does not have to actually employ people in order to regulate, supervise, and make sure standards are followed.

Similarly, there has been a longstanding debate whether air traffic control should continue to be run by the federal government rather than privatized, as it is in Canada.

Now that TSA and ATC turn out to be the straws that break the camel's back on federal government shutdowns, perhaps it would be wise to revisit both decisions!

29 comments:

  1. "Now that TSA and ATC turn out to be the straws that break the camel's back on federal government shutdowns, perhaps it would be wise to revisit both decisions!" If there is a government shutdown with a private contractor(s), with the contractorstill be paid? It's my understanding the private contractors really lost out on the shutdown because they will receive no funds and yet be obligated to pay their employees? Is this an assumption that private workers would still be paid by their employer or with those workers start to call in sick with the same effect of under staffing the service that they provide to the government? Would someone please clarify this that has more knowledge about the proposal than myself. Thank you.

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  2. Except that would also mean politicians could shut down the government for longer. Then you find the next group and then privatize that, then the next. Of course that's a libertarian's dream, but all is not rosy in privately run government.

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    1. Illogical comment -- if the "middlemen" can earn all of this "profit" then it is the taxpayers who are now foregoing this "profit."

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    2. John Chapman, I think your reply was meant for rafal below?

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  3. Of course. So the middle men can make profit. Privatized ATC and TSA employees will have less generous benefits, make less, work harder, could be fired for no reason and a few "job creators" will become fabulously wealthy. Why stop there, privatize everything. I understand your frustration, though. The real goal was never the wall but to shrink the Government. Somehow the corporate tax cuts have to pe paid for.

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    1. How often are people fired for 'no reason'? What firms use a randomization process to fire people? At least in a relative sense can you at least admit the firms try not to fire their most talented and valuable employees? Or do you not want to be able to fire people for pretty much any reason?

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  4. "Government does not have to actually employ people in order to regulate, supervise, and make sure standards are followed."

    One only needs "H.A.L." Then the question arises, does "H.A.L." need people? And the answer is that it does not. If people are superfluous within government, then they are superfluous everywhere, almost surely, because government is the least efficient organization in the economy. According to McKinsey & Company, this is the future of work--automation will render obsolete human labor as an input to the production of goods & services. In the limit as time goes to infinity, L (labor) goes to zero while at the same time K (capital) remains bounded and strictly positive, in this model.

    The question of what to do with the surplus N generated through this transition to a no-labor-input production function is ideally suited to the optimization problem-solving capabilities of "H.A.L.II" second-generation A.I. machines. In this model, the problem of saving carbon is simultaneously optimized, as is conclusively demonstrated in Section 2 of the paper.

    The paradox in this optimal solution is evident in recent events, i.e., as L goes to zero, C goes to zero. It follows then that as C goes to zero, G goes to zero as N in the unconstrained optimization problem approaches a minimum. The as yet unresolved question is the optimial trajectory of K as C goes to zero. This is left as a future topic of research.

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    1. Hi David,

      It's funny you mention L approaching zero in the f(L,K) production function model. A while back I was mucking around with isoquants and isocosts, and if you tinker with the input costs and exponents on a normal Cobb-Douglas PF, you find that K can push L pretty close to zero while maintaining constant output. This is relevant to AI/ML because there's a version of the future where humans don't need to interact much with machines in production -- whether it be goods or services. Machines can coordinate and optimize amongst themselves without human interaction or oversight. This can produce efficiencies but also exacerbate biases that shut people out of opportunity.

      Best,
      M

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    2. The Cobb-Douglas production function is just one of many forms of a 'production function' relating capital (K), labor (L), and total factor productivity (A). The relation between K and L at constant A and output is hyperbolic, K*L = constant. As K increases w/o bound, L goes to zero. L/N = the labor participation rate, w/ N = population. In the world of "H.A.L. II", wherein L goes to zero, N approaches a minimum as humankind becomes redundant. The residual N is like those inhabitants of the 'wild kingdom' retained for their scientific and entertainment values only. Of course, this is nothing but a postulate of the future in a world in which A.I. has displaced man at the controls of industry. Not likely to happen anytime soon.

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  5. John—I like this model. It’s precisely the same as many of the banking agencies operate—self-funded through assessments on regulated entities.

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  6. https://www.aopa.org/news-and-media/all-news/2017/july/12/get-the-facts-about-atc-privatization

    Many issues would need to be worked out (see above)

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  7. I dont know if the two, ATC and TSA are connected. Maybe one can be and the other not. Privatization of ATC has been brought up with a significant push from President Trump and certain members of congress. The push was defeated. Privatizating ATC would be giving control of a national resource (airspace) to a for profit organization with a monopoly.

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    1. ATC and TSA may both employ gov't employees but are NOT related. I would not use them together in the same sentence. TSAs are low wage bag checkers and people friskers looking for contraband. ATCs are highly paid skilled employees with years of training looking at planes so they don't crash.

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  8. To answer Barry’s comment, most people seem to imagine a system in which the security and traffic control people are not government employees or contractors. They would be employees of firms set up to do those tasks. These could be non-profit firms but there’s no reason they couldn’t be for-profit firms. Some consortium of airlines and airports would be the customers. Here at DFW, for example, Terminal C is used exclusively by American Airlines. It would be easy enough for them to take over TSA, although that would more likely be a job run by the airport authority. Either way it could be a big marketing point (“our team gets you through the line 30% faster and offers much gentler pat-downs than those thugs who work for Southwest over at Love Field”).


    People may not fully appreciate how much of the air transportation system is already privatized. Most airplane inspectors and check pilots work for the airlines. They are administering FAA rules under FAA oversight but they are not government workers. The safety record is remarkably good not because the Feds are involved but because the airlines know they have to sell a safe product and so build their cultures accordingly.

    People may also not realize just how slow the ATC system has been to adopt new technologies. (Google “Electronic Flight Strips” to see how the FAA is bravely advancing ATC into the early ‘90’s). ATC is mostly about flight safety but how they operate has huge implications for flight efficiency. Technology has been available years that would dramatically increase direct routing and reduce delays. The FAA has been scandalously slow to change.

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  9. Similarly, we have an on-going debate about how much of our health care should be paid for by government and taxpayers and how much should be kept private, beyond the reach of political forces that could shut down such spending. Perhaps, it would also be wise for everyone to reconsider the wisdom of single payer and "Medicare for All". (Even if Medicare spending was not affected by the recent shutdown and political forces determining annual appropriations, other political forces do determine Medicare spending.)

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    1. Therein lies the problem - Beyond the reach of political forces.
      Maybe Bezo, Buffet and Dimon can come up with something in regard to healthcare. Unfortunately, primarily because of historic wealth disparity, oligopolistic behavior in the private sector is rampant.

      Hedge fund billionaire Ray Dalio: 'Capitalism basically is not working for the majority of people'

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  10. Mr. Mike Davis brings up some very good points about the advantages of privatization. But my question really concerns compensation during a government shutdown. Would the private contractors receive payment during the shutdown? If so, would they be forced to maintain reserve funds to compensate their employees during a possible shutdown or would their employees be contractually bound to work during a potential "no compensation"phase (assumes that all employees are under contract)? Thank you.

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    1. Barry, If the airport security and air traffic control were privatized, the money would flow from one private entity, airlines and/or local airport authorities, to another private entity, the firms that provided security and ATC services. None of those payment streams require Congressional authorization and so there wouldn't be a "no compensation phase". The only worry is that in an extended shut down, the FAA and Homeland Security might be unable to enforce the rules that the private firms are expected of follow and so could order the planes to quit flying.

      Federal contractors, on the other hand, are being paid out of money appropriated by Congress. One of my brothers, for example, runs emergency response for one region of the EPA. If something nasty spills, his team assesses the problem and then hires contractors to clean it up. He is authorized to spend up to some amount of money (about $1 million, I think) through a budget stream that can be traced to some part of the Fed budget. He was not paid during the shut down but was expected to be on call for emergency response. My understanding is that contractors could have been paid only if the money was already authorized.

      Although, here's an interesting side observation: While we often worry about cronyism between Fed employees and contractors, those relationships are often very useful. When there is a true environmental emergency (e.g., a rail car accident spilling hazardous material into a river) apparently contractors will often get to work on a clean up before the money is authorized. Time is critical in these emergencies, these guys have been working together for years and the contractors trust their EPA guy to fight for the money to pay them.

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  11. You never get fired without a reason. However, when you don't have a legal protections in place people can get fired for getting sick, getting pregnant, disagreeing with a boss,... Reason here means legal reason. Most valuable employees will not get fired. But most employees have nearly equal qualifications and/or can be easily replaced (e.g. assembly line workers, janitors, librarians...).

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  12. My difficulty with privatizing TSA is that we used to do that. And when 9/11 happened everybody could lay the blame solidly on greedy private security companies paying minimum wage.

    From this standpoint I'd prefer TSA remain in the Federal government. If we get another terrorist attack then private companies aren't the default scapegoat. Maybe somebody will pay attention to the repeated reports that it's trivial to smuggle weapons past TSA. On the other hand, another attack is as likely to bring the "fly naked" jokes into reality -- nothing is allowed onto the plane other than the person.

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  13. What should be privatized or not - hardly the subject when it comes down when thinking about a government shutdown. May that should be a public choice debate - and I have an idea where that debate might end up with a University of Chicago educated readership of this column, and public versus private goods: how about contracting out privatizing) the military and police to private services? After all we have virtually privatized the presidency at this stage - a hotel owned by the federal government in Washington (Postal service) is now run by the Trump Trust (and trust you can: where would you stay, if you want to curry favor from an administration). In good Chicago tradition, the federal government has finally been captured by the most powerful interest group: a group of wealthy individuals which in turn have promised and delivered a tax cut for high income individuals, and in particular for commercial real estate investors. Did we reform carried interest ? - On the subject of privatization itself (does it matter, when the federal government is already captured? What is private and what is the public sector?): you may recall the experience with privatizing military services in Iraq intervention - among others to a company which was a subsidiary of Halliburton, where our then Vice President Cheney was CEO before joining the federal government? How many scandals, how many contractual failures and scandals does one need to see how good the government is in outsourcing, if the fox watches the hen house? I find the question most cynical, although surely worthy a debate. Just as my former colleague from Invesco, Wilbur Ross, was musing: surely federal employees can borrow money to bridge the gap, since they know they will be repaid. Private contractors - interestingly enough: that is neither the TSA nor the AirTraffic Control - will not get repaid. John: are you next interested in asking why the President should NOT call for a national emergency ? - Is there ANY justification for this federal govt. shut-down? The President cannot introduce bills in the US constitution, and all he can do is refuse to sign (i.e. veto a bill), and then that veto can or cannot be overturned. That is how the legislative process is supposed to do. Why is President Trump not starting a foundation, and ask private interests to support his real estate hobby of a beautiful wall - and Mexican philanthropists can contribute as much as American ones. Is that not a better idea: have the private sector solve the problem ?

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    1. I apologize for my typos and grammatical errors. I was in a rush yesterday. I hope my arguments can still be understood.

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    2. I apologize for my typos and grammatical errors. I was in a rush yesterday. I hope my arguments can still be understood.

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    3. RE: how good the government is in outsourcing, if the fox watches the hen house? The problems with outsourcing are many but when you are talking about large contractors like Haliburton, Brown & Root, etc - those are purely political decisions where the selection process is less than transparent. In lots of cases there are only one or two competitors and not a whole lot of choice or competition.

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  14. I'm old enough to remember when the TSA did not even exist. I'm old enough to remember reports how the underwear and shoe bomber were detected by passengers, how the TSA fails 95% of its security tests (https://www.nbcnews.com/news/us-news/investigation-breaches-us-airports-allowed-weapons-through-n367851), and how passengers cared about their own security, even to extreme degrees (flight 93) long before and long after the introduction of security theater.

    I don't begrudge anyone working for a paycheck, but the TSA was a stillborn industry, made obsolete simply by locking the flight cabin and having randomized sky marshals on board.

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  15. It's a bit funny that TSA is public in the USA. In Europe it's private. This gives the airports the possibility of hiring more security to minimize waiting time.

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  16. TSA need not be a monopoly. That's a tougher claim with ATC (although not impossible). I shouldn't have to point out the problem with creating a private must-use monopoly that controls a key resource and is controlled by a subset of incumbents. I would argue it's the only setup that is structurally worse for competitors and users than a government-run monopoly.

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  17. "No country comes close to spending as much money on healthcare as the US –-- on average $10,739 per person each year, about three times the UK figure."

    Three times?

    Egads. I like free markets, I love free markets, I worship free markets.

    But for now, can't we just copy the UK? Are outcomes all that different?

    https://www.lrb.co.uk/v41/n03/deborah-friedell/a-chemistry-is-performed


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    1. The public healthcare system in the United Kingdom of Great Britain and Northern Ireland consists of four separate publicly funded and operated healthcare systems---one for each of the Kingdom of England, the Kingdom of Scotland, the Principality of Wales, and the province of Northern Ireland. The comparable model for the USA would be separate public healthcare systems for each of the 50 states and the District of Columbia. The Canadian public healthcare system is similarly structured with separate healthcare systems for each of the ten provinces and three territories. Public healthcare systems manage costs by rationing access to hospitals and esp. surgical centers. The rationing is evidenced by waitlist times for access to surgical procedures and is in part determined by access to hospital beds. An infamous instance of provincial government decision-making involved a public hospital in British Columbia that having just completed construction of a new wing could not open the new wing because the provincial government refused to provide operating funds (budget appropriations) to enable the hospital to staff the new facility. It was a crass political decision. The other way in which public healthcare is rationed is through limits placed on admission of students to medical and nursing schools (public universities in the province) and licensing of doctors and nurses from out of province. By such means the government limits its rate of expenditure as a whole. When coupled with limits on compensation paid to medical doctors in private practice (the government is a monopsonist in this case) you have the elements that yield the lower cost per capita that you cite. Consumer choice is curtailed by government fiat subject only to constraints on government action through the ballot box every 4 to 5 years.

      Each is free to choose his own form of poison. It is useful to look before you leap, almost surely.

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