Many flyers don’t remember that before 9/11 passengers could take two carry on bags onboard. Generally passengers had a free allowance of three bags — and those could be two carry ons and one checked bag, or one carry on and two checked bags.
This changed by government regulation. The TSA wanted fewer bags going through the checkpoint, which meant less screening work, and fewer delays given a fixed throughput at the checkpoint.
Continental Airlines actually pushed back: they had installed higher capacity overhead bins as a customer convenience. Passengers wanted to carry on bags, and they viewed this accommodation as a competitive advantage.