The problem is not with the airlines, not with the government, nor with regulations. The problem is with people. Us. Well, not me, of course - it's with the rest of you.
There's no mystery here and it shouldn't come as a surprise to anyone. The airlines have figured out that the #1 motivator and differentiator for consumers is price. Actually, it's the #1, #2, #3, #4 though #100 issue. They're just giving you what you keep asking for.
You could ask them to please accept lower profit margins, or ask them to give you more space just to be nice, but I wouldn't bet my lunch money on them doing that. They make the seats smaller because that's what they have concluded you actually do want (rather than what you say you want). You want the absolute cheapest flight possible? Fine, they'll give you that. They've been doing that for a while, and you keep buying cheap tickets from those airlines. You keep giving them the green light to continue doing what they've been doing. I think you know the definition of insanity, right?
Anyone who thinks the government is going to regulate personal space and seat dimensions is, with all due respect, a fool. Not gonna happen in any of our lifetimes. Christopher Elliott can cry "Titanic" all he wants and maybe that'll get him clicks and keep his paymasters happy, but it's not going to get you a seat wider than 17 inches on that flight to Milan.
Do you have a choice? Sure you do. You could pay a bundle for Business Class to buy your way out of misery (this is the future of America - it's everywhere - stuck in traffic on the way to the airport? Buy your way into the "HOV" lane. Hate the long TSA lines? Buy a pass to one of the now several expedited options available..). There are other ways - shop around for airlines that don't squeeze their passengers (physically) quite so much. Shop for your flights using seat comfort as the primary criteria, rather than the lowest bid.
Me, I refuse to fly in a seat that's going to leave me miserable immediately after sitting down, and counting the minutes and hours until I can get out. I fly a fair amount for work these days, and I choose an airline that has decent seat comfort. There are other airlines that charge a few bucks less for the same route, but their seats are cramped and I want no part of them. For personal flights, I'll either save up enough FF miles to claw my way into business class, or will pay to sit in a better seat, or I won't go. I've been on my last 15 hour torture flight, I'm done with that. Yes, I love to travel as much as any of you. I'll tough it out in a crappy seat for a short domestic flight if I have no other option, but I'm through with clamping myself in for 10 hours or more of misery. There are other options - and for me, paying more or just staying home are better options.
Keep giving the airlines your money for a miserable experience, and you can expect more of the same. The seats continue to get smaller and smaller. Stop encouraging them. They'll notice eventually.