Piper Cub circa 1947 (In the beginning, God created the Piper Cub… )
I’ve found that I tend to notice the ‘big swings’ in history. Macro economics rather than micro. Pivotal moments, minutia bogs me down. The best way to illustrate this is by using the horribly distorted markets of healthcare and higher education. One of the big moments in the American economy was in 1965 and LBJ’s “war on poverty” and the 1965 Medicare Act. As soon as the government has a “war” on something, you know its going to increase. Like the “war” on drugs or the “war” on terrorism.
With the involvement of the federal government into healthcare and its bottomless wallet, hospital costs skyrocketed and have never returned. A study using 1962 prices showed a hotel room and a semi-private hospital room were very comparable during the time people were paying for their healthcare and not insurance companies. Once the ‘3rd party payer’ concept was introduced, prices were never the same. (Like P.J. O’Rourke said, “If you think its expensive now, wait until its free!”)
A lot of people can’t grasp the concept that it is impossible for the price of a product to outpace the market. If the buyer can’t afford the product, the maker can’t survive. Its self fulfilling. The key being if there is market forces controlling the market, and not the government. Another market that has been grossly distorted by the government is higher education. A person could still work their way through college up through the 70’s. After the government made it “free” with the federal student loan program, the cost of college went through the roof.
For reasons beyond my understanding, Americans can’t seem to grasp basic economics. Having spent less than a week researching small planes, I saw instantly what happened to prices over the past 70 years. The Federal Aviation Act of 1958 doesn’t seem to have killed the market (one of the things it did was create the FAA), general aviation prospered for another 20 years. It took another 20 years from its birth for the FAA to kill aviation. When you insert government influence, you remove market forces. This ain’t real tough.
What has killed general aviation in America was the General Aviation Revitalization Act (GARA) of 1994 and the FAA. The official story is that manufacturers were getting killed by product liability lawyers in the 1980’s and their bottom line was going into the red. Manufacturers banded together and their lobbying efforts resulted in Senator Nancy Kasssebaum of Kansas (which just happens to be where Cessna / Textron Aviation is from) introducing GARA in 1994 and having it signed into law by Bill Clinton in 1995.
Manufacturers promised price drops would result with the 18 year limit on product liability enacted. Nothing of the sort happened, of course. Whereas in the 50’s, 60’s and 70’s market forces had kept entry level plane prices inline with slightly more than a year’s wages of a good blue collar job, in the 80’s they exploded to where they are now of ten times a year’s salary! In the 1950’s a Cessna 140 (2 seater) could be had new for around $8,995. Today a new Cessna 172 costs $230,000 dollars. That’s no where near the historical average of a typical year’s wages.
Typical annual earnings for a working man back then being between $6K and $8K (yes people made more, and yes people made less). At the end of the 60’s, $5 an hour ($10,000 a year) was a good wage. And guess what? A similar Cessna purchased new was then around $13,000 dollars. The same thing happened in the 70’s when $15,000 dollars was a good salary and new plane prices were around $20,000.
Everything was kept in line by market forces. But by the 80’s trial lawyers were putting manufacturers between a rock and a hard place with lawsuits after each resulting small plane fatality. When in reality as Wikipedia puts it, consolidation and unwise mergers were resulting in monopolies that fostered a lack of competition that ended up distorting pricing models. Manufacturers were crying all the way to the bank. Textron Avionics essentially became the only manufacturer of general aviation aircraft bodies, Garmin of electronics and Rotax of engines. Yes of course there are other names, but lobbying of the FAA paid off. Cessna and others essentially said to buyers in the recreational market ‘to hell with you’.
Competition was eliminated. And despite all the squawking about ‘globalization’, American manufacturers were able to keep out foreign competition. They got the FAA to make it illegal for makers like the Czech Republic’s Merlin PSA solo aircraft so that it could only be sold in kit form in the U.S. The finished product can’t be sold here. They would rather endanger the public by having amateurs do final assembly than have it assembled by factory professionals as allowed in European sales. Think about that, lives are endangered just so manufacturers can keep domestic prices artificially jacked up.
Americans have no idea how lucky they were to have electrical products regulated by a private entity, the Underwriters Laboratory. The efficiency of a private body puts a governmental one like the FAA to shame. That’s one of the reason electrical appliance prices have tracked pretty close to wages over the decades. Its the only thing that COULD happen in a market not distorted by government influence. If there had been a government agency in charge of refrigerators, you’d be paying $25,000 dollars for a new frig.
But in the case of Textron Aviation and their manufacture of Cessna and Beechcraft aircraft, in typical corporate fashion they were incredibly shortsighted. All they could see was jacking the price of a new 4 seater from $24,000 to $240,000. They were willing to forgo private sales and just concentrate on corporate sales. Just 2 years ago they announced layoffs in January 2017 because even corporations got tired of paying those ridiculous prices. And rather than adjust prices to match the market, Textron would rather go under.
If they hadn’t been so greedy, and had stayed in the recreational market, they wouldn’t have been so devastated when corporate sales cooled. They would have had some diversification. And when they stopped production of 2 and 4 seaters in 1986, they never saw the long term of aftermarket parts sales and the like that would have resulted from a healthy recreation and small business market. They were so intent on gouging the consumer, they never saw how it would impact them in the long term.
The sickness of the American economy can be seen by the casual observer in a number of ways. You can catch Trump daily trying to tout how “healthy” the American economy is under him. Bullshit, Donald. I’m no economist, but I can see what’s going on around me. 32 years ago me and another guy were walking into an employer to test for jobs. He made an observation about the cars in the employee parking lot. He knew he wanted to work there because the employees drove nice, new cars. Smart.
Trump can sit there all day and say the economy is great, but that’s bullshit. Look around you. Malls look like ghost towns. Some are completely vacant, others are at 60% occupancy. Consignment shop growth is exploding. Every city used to have a pawn shop or two, but secondhand store growth is booming, becoming mainstream. “Checks into cash” operations are all over. College graduates now routinely work at Best Buy. The percentage of new car buys by individuals has dramatically plummeted. New car sales now are largely limited to government agencies and other fleet sales like rental car agencies, as compared to decades past. New home sales as a percentage of population compared to 60 years ago is another indication.
Politicians can sling their bullshit all they want, but people have eyes, we can see what’s going on. One of the final ‘ballpark’ indicators is interest rates. The fiscal legs of both business and government start to buckle when interest rates move from zero. That tells you something when BOTH government and business are existing on borrowed money at zero interest. When government and business can’t survive without free cash, something is wrong.
The Merlin PSA (Personal Sport Aircraft). It supposedly can be built by the kit buyer for $42,000 dollars. A single seater (even one you have to build), does fall roughly inline with the historical average of getting a plane for a little more than a years wages at 42K. The similarities of this plane from 2019 and the one pictured above from 1947, are beyond striking.
General aviation is being kept on life support by this obscure corner of the flying world called “experimental aircraft”. The FAA has allowed this little niche of the industry to exist with a rather macabre bargain. In rough terms experimental aircraft come with a lethal proviso, we’ll allow you to kill yourself by buying and building these, but there is no product liability. If you die you can’t sue. This 1 little corner of general aviation has true market forces. You live or die on what sells, what works. If a product doesn’t work, it doesn’t survive. The downside is neither will you.
One of the best examples of how markets keep things affordable is in another area of transportation: cars. A Ferrari is a car. A Ferrari costs $330,000 dollars. Does that mean all cars cost $300,000 dollars? Of course not! The doctor can buy his new Cadillac XT6 SUV for say $92,000. The plumber can buy a new Ford F-150 for say $31,000. The guy working at the supermarket can buy a used Toyota for $9,500. A student can pick up a working ‘beater’ for $2,500. The unemployed guy who can’t afford anything can take the bus. See how that works? In a market everyone gets covered from top to bottom. A demand is always met with supply.
Everybody at every price level has some form of transportation available to them. From the Ferrari to the bus. The reason this occurs is because luckily the government has largely stayed out of the car market. I say “largely”, because little things like the ‘cash for clunkers’ program during the Obama Administration did result in a dramatic spike in used car prices. But as long as we don’t have an FCC (Federal Car Commission), prices have to stay somewhat affordable. GM can’t exist if no one can afford their product.
It would be like if the 3 social media giants (Facebook, Twitter and YouTube) had no real competition and were allowed to run roughshod over freedom of speech and privacy standards. (That’s irony of course because that’s exactly what happened.) Cessna made the conscious decision to quit being a “pioneer in aviation”, and instead chose to be a multinational industrialist (to hell with the American consumer). If you watch YouTube videos on small aircraft, you’ll see all the innovation is happening in Europe.
While the manufacturers banded together in the late 80’s to fight what they considered unfair product liability laws, the pilot’s association (AOPA) either didn’t have the ability or the desire to lobby Congress for their side. Increased competition, stopping monopolistic mergers and opening domestic markets to foreign competition should have been the goal of AOPA. Instead the private pilot got steamrolled.
I found an inflation calculator at http://www.dollartimes.com , I plugged in the value of a Cessna 172 in 1956 at $9,000. In 2019 dollars that comes to $84,369.29. There are a couple of things to take into account there. Over that 63 years the experience and Cessna’s learning curve would have went through the roof. Coupled with a more automated manufacturing process, that would have clearly offset the cost of a better plane being produced. What a new Cessna 172 comes to is $300,000 dollars. There’s no justification for that except FAA BS and corporate greed. What should have been an increase of just under 10 x is in reality an increase of 33 times.