In my recent article on the Biden administration’s many-pronged assault on economic freedom, I pointed out that comparisons of President Biden with former president Jimmy Carter are inaccurate and unfair to Carter. In 1980, Carter, along with Democratic majorities in both the House of Representatives and the Senate, deregulated surface freight transportation. Deregulation of trucking, with the 1980 Motor Carrier Act, and of railroads, with the 1980 Staggers Rail Act, unleashed competition among truckers and railroads and between the two modes of transportation. Virtually everything that transportation economists anticipated and hoped for came about.
But on July 9, 2021, in Executive Order 14036, President Biden proposed that railroads be reregulated. Specifically, he proposed that the chair of the federal government’s Surface Transportation Board (STB) “consider commencing or continuing” regulations on “reciprocal switching agreements” and consider other regulations on freight transportation. The parts of the executive order on rail and, indeed, the whole executive order, show a serious misunderstanding of competition on the part of the Biden administration. If the federal government were to move ahead with rail regulation, it would reverse one of the few major accomplishments of the Carter administration. It would create problems where few existed.
This is from David R. Henderson, “Railroad Regulation’s Poor Track Record,” Defining Ideas, November 18, 2021. Notice the double entendre in the title, which was my editor’s idea.
Another excerpt:
Given the gains that regulation has created for railroads and their customers, why would President Biden want to reregulate? The answer, I believe, can be found in two things: (1) the narrow view of competition that many officials in the Biden administration hold, and (2) those same officials’ failure to understand what economists call “the information problem.”
And the penultimate paragraph:
One thing railroads have going for them is that their rails are private property. This gives them an incentive to take care of their property. Roads used by trucks, by contrast, are typically government property and governments don’t typically charge enough to heavy trucks to compensate for wear and tear. Ironically, therefore, new regulation could take one of the real virtues of the rail mode of freight delivery and whittle it away. Railroads would become more like highways and that’s bad, not good.
Read the whole thing.
READER COMMENTS
Andy Weintraub
Nov 21 2021 at 9:23pm
And, with respect to Jimmy Carter, let’s not forget the deregulation of the airlines and the elimination of the Civil Aeronautics Board.
David Henderson
Nov 22 2021 at 5:11pm
Yes. I made that point in my article on Biden’s many-pronged assault on economic freedom.
Johnson85
Nov 22 2021 at 3:24pm
Deregulation is all good and well, but I do have a problem with rail companies building out their network using eminent domain and then after receiving the benefit of that privilege, getting to just set their rate at the cost of trucking less 5%, or in the case of big enough companies with enough volume, the lesser of trucking less 5% or whatever rate will just keep the company operating.
And this is made much worse by basically making it impossible to build out lines to compete with existing ones with government red tape, taking as much as a decade to even get a ROD.
I have no problem with rail companies at least being subject to cost based rates at the request of customers and having to pay the customer for the costs of the rate case if the ultimate rate is more than 5% less than the rate they offered. Otherwise, you get them telling customers that it’s going to take hundreds of thousands of dollars, at best, to do a rate case and even if they’re successful, the amount of time it will take them to recoup the costs of the rate case make it untenable to challenge them.
David Henderson
Nov 22 2021 at 5:12pm
There’s always the temptation, when one set of regulations is anti-freedom (in the case you mention, eminent domain) to add more anti-freedom regulations. As probably won’t surprise you, if you read my posts much, I think a much better way is not to add regulations but to subtract them: at a minimum, get rid of eminent domain for private actors.
MarkW
Nov 23 2021 at 6:13am
at a minimum, get rid of eminent domain for private actors.
I fully agree when it comes to things like urban development, but if eminent domain cannot be used for private rail, haven’t you all-but-guaranteed that only the government could build new rail lines?
David Henderson
Nov 23 2021 at 10:52am
Hmmm. Good point. I don’t have a good answer.
Johnson85
Nov 23 2021 at 12:07pm
I would love to get rid of regulations also. But that’s not really on the table, so I don’t think of it as “freedom reducing” to hold railroads to the original deal of “we’ll use the force of government to build your lines, but the tradeoff is you can’t gouge people to use them.”
I’d also be fine if they operated more like the electrical transmission system. The railroads maintain and operate the lines, but have to make capacity open to everybody on a more or less equal access basis and not be able to use their ownership of the rails to favor their train operations.
And I don’t have a problem with using eminent domain to build out new rail. The problem with eminent domain is usually with the valuations they give people. If people got market value plus a premium to account for hassle and “selling” unwillingly, I think that’s not an unreasonable imposition in exchange for getting access to infrastructure. The problem usually occurs when people often don’t even get FMV.
I have a bigger problem that the federal and some state governments have set up so many opportunities for rent extraction that you basically can’t build new lines, so of course our rail lines are overcrowded and railroads have the market power to be more or less inefficient companies that treat people like shit.
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