Government Regulation Gone Amuck, No. 3: The American Railroad Industry

How many of you readers think that the government should get more involved with the railroads? How many would like to see a high-speed train between Los Angeles and San Francisco?

How many know the story of the railroads in America?

Alan Greenspan, our former Federal Reserve Chairman who is noted for his foggy Fed-speak, wrote some very clear chapters about 30 years ago describing the American rail fiasco. So did Ayn Rand, although not everyone likes her style or thinks of her as a notable historian.

(For example, see her Capitalism: The Unknown Ideal, Chapters 3 and 4 [the latter written by Greenspan] for an easily understandable critique. I don't support Rand's every word by any means, but I do like some of her better-written passages.)

Because blog posts must remain short and pithy, I won't go into the history of the American railroad but rather will simply note that the federal government was a major factor in the demise of the industry, and it remains involved to this day. Let me just quote Wikepedia's Amtrak entry as a pretty unbiased source of information, at least as of today 2/13/08:

"Literature suggests that the causes of the decline of passenger rail were complex. The industry was hobbled by government regulation and labor inflexibility, which undermined passenger rail just as the industry faced an explosion of competition from flexible and user subsidized automobile and airplane transportation. [Footnotes omitted] These for-profit railroads were structured to sell access to elaborate, efficient, roads at a profit; they lost in the competition for passengers to parallel, publicly-funded, non-profit turnpikes, air strips, and highways in the sky." (Please note the seemingly derogatory use of the phrase "user subsidized." I'm not quite sure what the authors intended to convey thereby, but it doesn't really matter.)

And government involvement continues to this day. Amtrak, the poorly run, mostly government-owned passenger rail system that the legislators have decided to pump up with taxpayer funding to permit it to survive, is only one example. To wit another:

In today's Wall Street Journal article by Daniel Machalaba, we learn that privately owned freight railroads are finally becoming profitable, after almost a century of stagnation. Investors like Warren Buffett have taken serious stakes in one or the other of five major lines: Union Pacific Corp., Burlington Northern Santa Fe Corp., CSX Corp., Norfolk Southern, and Kansas City Southern. Rightfully earned profits, instead of tax dollars, are finally being reinvested, undeterred, in improving rail lines.

But this situation may not last for long:

"The expansion is stirring conflict with some old customers, the shippers who move raw materials such as chemicals, grain and logs, who feel they're being charged unnecessarily high rates to pay for capital improvements. Trade groups representing such shippers are seeking federal legislation to rein in railroad rate increases."

With friendly customers like that, who needs enemies?

What business do you know that doesn't use its own profits, and good credit based thereon, to make capital improvements? The rail companies are charging prices that are competitive with trucking and air freight prices, and if the shippers don't like rail pricing, they should switch to trucking or airplanes instead of running to Daddy Government for intervention.

But old habits die hard. Our nation has become accustomed to Daddy's spoiling ways. Indeed, Daddy feeds our addiction to special favors in order to increase his own stature and power over us. What kind of Daddy is that, a Sugar Daddy?


[Thanks to buycostumes.com for the photo of this great "Sugar Daddy" costume.]

We will see what the federal government does. Unfortunately, there is such a long history of federal intervention into this business--indeed, on behalf of special interests in so many businesses--that I wouldn't be surprised if legislators profited from this golden opportunity to "help" (themselves).