What Spirit Airline’s End Signals for Financial Services
Back in 2024, I testified before Congress to warn policymakers that price controls would ultimately hurt consumers. At the same time, Senator Elizabeth Warren (D‑MA) was celebrating that the government had just blocked JetBlue and Spirit Airlines from merging. She proudly declared that the intervention was “a Biden win for flyers!”
Within 48 hours, both Senator Warren and I warned that the other person’s policies would result in worse customer service. I argued against government interventions. She argued for them. Now, two years later, with the news that Spirit Airlines is closing and taking thousands of jobs with it, it seems clear who was right.
At the time, I was testifying before Congress about President Joe Biden’s “war on junk fees”—or, more accurately, his war on prices. As part of this campaign, the Consumer Financial Protection Bureau (CFPB) proposed price controls on credit card late fees, overdraft fees, and nonsufficient fund (NSF) fees.
President Biden and fellow Democrats argued that prices needed to be capped by the government to give consumers relief. However, I warned that doing so would result in shortages and lower-quality services. Despite pointing to a long history of economic research on the dangers of price controls, Democrats were uninterested.
Representative Brad Sherman (D‑MA) even went so far as to make fun of me for quoting Paul A. Samuelson—the first American to win the Nobel Prize in Economics. Samuelson himself had warned Congress in 1969 that setting price controls on interest rates (e.g., interest rate caps) would “result in drying up legitimate funds to the poor who need it most and will send them into the hands of the illegal loan sharks.”
Looking back, it’s a relief that many of these proposals did not make it to the finish line. However, it’s disappointing that the relief is limited to financial services. The end of Spirit Airlines means thousands of workers will lose their jobs, and countless consumers will lose access to some of the most affordable airline tickets. Senator Warren may think that is a “Biden win,” but I struggle to see this result as a win for anyone.
Considering that the Trump administration has also been flirting with price controls and playing politics with several potential mergers, it would be wise to consider Spirit’s experience as a cautionary tale.