Railroad Regulation's Poor Track Record
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.
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.