Event Recap: Paul MacAvoy '60 PhD

Paul MacAvoy '60 PhD, Williams Brothers Professor Emeritus spoke at the Federal Reserve to the Yale Club of Houston on Thursday, January 24. He discussed his experience with the nation's efforts to deregulate industries and his findings, as published in his book, The Unsustainable Costs of Partial Deregulation.
Professor MacAvoy set the context for deregulation by recalling his days in the Ford Administration and a 1975 speech given by President Ford '41 Law to the US Chamber of Commerce in which a paragraph regarding the burden of government on business brought a very positive response. Professor MacAvoy, as the lone microeconomist on the Council of Economic Advisors, was co-chair of the government task force charged with overseeing and assisting the specific industry task forces. He regaled us with stories of OSHA's required life vests for bridgeworkers, even at 1,500 feet above a dry stream; OSHA's requirement that portable facilities be provided to lone shepherds amongst their flocks of thousands of sheep; and the Teamsters' subtle suggestion that he look both ways before crossing the street after a meeting. But more to the point, he discussed industries in which economic regulation had led to cross-subsidies and economic inefficiencies: telephones; railroads; airlines; trucking; natural gas; electricity generation and distribution. He told us that the deregulatory efforts started under Ford and would have languished had it not been for the efforts by the Carter Administration to pass the legislation, and that his work on the Council of Economic Advisors was taken up by Yale Professor Bill Nordhaus.

Professor MacAvoy then focused on the three industries that have been left in disarray by incomplete deregulation: the natural gas industry, the electricity industry, and telecommunications industry. In walking us through charts from the book, Professor MacAvoy demonstrated that both producers and consumers are worse off than under either full deregulation or full regulation. In these industries, producers are required to provide services at prices that do not allow the full recovery of costs. Therefore, there are periods of extreme price volatility for consumers as markets are unable to transport product, e.g. natural gas in California in the 2000 debacle.

Professor MacAvoy ended his discussion with a description of the new program of study at SOM. SOM has adopted a modular style of instruction in the realization that management must deal with all of the disciplines to solve problems. Rather than maintaining silos of course-by-course instruction, the SOM faculty today bring all disciplines to bear upon projects. The modular style allows the accounting, marketing, strategy and finance faculty to work together with the students to examine a specific problem. Professor MacAvoy reported that the very positive approach of Dean Podolny, the faculty and students show that Yale is changing the way the MBA is taught.

The Fed was a gracious host, as we were to have vacated the building by 8:30 pm. We left at 9:30 after even Fed officers had stood in line to obtain Professor MacAvoy's autograph

Below are two links to The Houston Chronicle website referencing Professor MacAvoy and "Unsustainable."

http://blogs.chron.com/lorensteffy/2007/10/our_dereg_probl_1.html

http://www.chron.com/disp/story.mpl/side2/5195603.html