Soak the Rich | Bleader

Monday, August 16, 2010

Soak the Rich

Posted By on 08.16.10 at 01:30 PM

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I flew for the first time when I was 16, and didn't fly again until was 18. My family simply didn't fly very much, because when I was growing up it was way too expensive. I drove, rode Greyhound thousands of miles, and shuttled back and forth on Amtrak to college because, up until the oughts, it was simply more affordable than trying to fly into an area with no major airports. Then prices came down so that I could fly within a few or even a couple hours of home; recently it's made financial sense to fly straight to my hometown.

Which is why I get irritated when I read stuff like this:

Middle-class Americans are fed up with paying more for less, fed up at being taken for granted, especially since their salaries remain stagnant and their jobs insecure. They're angry at airlines, with their myriad fees and their pampering of elite fliers, a category of their own invention.

It doesn't take much to spot the flaw. Just try pricing business or first class tickets. If you want to pay two or three times as much to be "pampered," help yourself. I can't afford to, and I probably wouldn't if I could: I got bumped up to first class awhile back, and the result was a bit more room, a bit of food and drink on the house, and a hot cloth. Which was perfectly nice, but given the margins I operate on, not remotely worth tacking on a couple weeks' rent.

Chris Jones is simply incorrect: when it comes to airlines, the average flier is paying much less for somewhat less, and the tremendous expense incurred by "elite" fliers subsidizes the price of the average flier. And as businesses tighten their belts by cutting back on generous travel expenditures, airlines have to return to squeezing a bit more money out of the volk in the back of the plane. And I'm happy to navigate their fees in exchange for saving on the base price of the ticket. To each according to his ability to pay, from each according to his need. Or, as a pilot put it:

Fliers were paying roughly the same price for airline tickets as they were paying in the early 1980s. As late as 2006, the average fare was 15 percent cheaper than it had been in 2000, despite a 150 percent rise in fuel costs. If the most recent spikes feel especially painful, that's mostly because fares have been underpriced for so long. Heck, how many people realize that in 1950 it cost the equivalent of $5,000 to fly between New York and Europe? I wouldn't quite say there's a sense of entitlement among travelers, but it's something like that.

The reason that these sorts of minor misunderstandings of airline economics irritate me so is that it betrays a broader misunderstanding of recent American economic history. The American middle class gets what it can pay for—what it can demand with its buying power—and in recent years average Americans just haven't been able to demand much:

Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 — having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the ­multiple is above 300.

Meanwhile, the wealthy have gotten much wealthier, and businesses have responded in kind, offering high-margin products for people with the financial cushion to pay much more for a little bit more service. This is how progressive pricing works. As money pools in the accounts of the rich . . .

The top 2 percent now receive almost a quarter of total national income, which is one reason why the middle class doesn’t have the purchasing power to lift the economy on its own.

. . . businesses are forced to chase it by catering to them. The government could try shifting the balance by returning to more progressive tax brackets, instead of ones "well suited to nineteenth-century New Zealand." But it's not, which is why businesses are filling the breach with the inequitable offerings Jones decries.

It's not that I don't think Ravinia didn't screw the pooch, or that I totally disagree with Jones . . .

The Obama administration has been singularly clueless as to the dangers of this phenomenon to its longevity. The perception abides that President Barack Obama would (to borrow the Ravinia metaphor) be hobnobbing at the benefit, rather than sitting on the lawn. It doesn't matter if it is fair. Obama needs to plant himself on the grass if he is to be re-elected. It is as simple as that.

. . . it's that I think his ire is misplaced. Businesses are responding to market conditions, and market conditions suck. Some places are handling this more felicitously than others, but they're all responding to the same root problem: the nature of who pays for what has changed due to structural changes in the American economy. And the solutions to that reside in much higher places than the hamhanded Ravinia management.

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