Wednesday, February 13, 2008

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 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).

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Anonymous Favela Cranshaw said...

I don't support Rand's every word by any means, but I do like some of her better-written passages.

Do you attach this disclaimer to every reference? Why is it necessary? And, also, why do you illustrate the concept of "sugar daddy" with a caricature of a black pimp? Sugar daddies are universally found throughout the ages. Thus, two of your biases are now uncovered.

4:31 PM  
Blogger Katy said...

First of all, that is not a caricature of a black pimp. It is a photo I found on Google of a costume proposed under the name "Sugar Daddy" on a public website. I did not choose that name; the manufacturer of the costume did. However, if you find it offensive, I would be glad to change it. Voila. Photo gone.

As for Rand, yes I do find it necessary in her case. Just a personal preference.

6:00 PM  
Blogger Katy said...

There. How about this white Sugar Daddy? Is that better?

6:04 PM  
Anonymous Favela Cranshaw said...

The question is: Why is it necessary in her case? You admit the bias, but not the reason for it. I'm pursuing a pet peeve here. You seem to admire Rand and, at the same time, apologize for it. As a Rand admirer myself, it bugs me when people do that. Do you have some insight?

7:32 PM  
Anonymous Favela Cranshaw said...

Your profile says you are the daughter of E. C. Harwood. In my library (somewhere) I have a yellow pamphlet from AEIR titled Why Gold (if my memory serves) with your father as the author. It's stuck in with all the Mises, Bastiat, Hazlitt, Bohm-Bawerk and Menger books currently in storage. My apologies for the rough come-on.

7:54 PM  
Blogger Katy said...

First of all, Favela, let me express my pleasure at seeing you're still with me. I accept your apology, but it is superfluous. I understood your discomfort; you made me realize I should have been more sensitive to that possibility. Thanks for taking the trouble to bring it to my attention.

I too have a copy of "Why Gold?" on my shelf behind me as I write. How did you ever come into possession of one?

Now about Rand. Here are a few off-the-cuff remarks.

I also admire her fabulous writing and her crystal-clear vision, and I believe her to be one of the most important capitalist writers of the last century. She had an ingenious way of leading us to an understanding of the capitalist ideal.

My hesitancy is at least twofold:

1. Her most ardent followers, those groomed by herself and others since, tend to be what I would describe as fervent, bordering on religious, even cultist. I too feel strong emotion when I read her clarity and enthusiasm. However, her emotion seems to flow over the cup--admittedly one of her charms, but when it comes to defending a political system, I think she crossed the line. She let her emotions take her too far, and her followers give of themselves blindly, unquestioningly, religiously.

It's evidence of her strong will, powers of persuasion, and mastery of the art of Pied Pipering -- "Qui m'aime me suive." ("All those who love me, follow me. Otherwise, get thee hence.") This degree of devotion disquiets me.

I can think of Randisms to challenge. Example: her stabbing of cultural and religious virtues to the heart. Take altruism, for example. I think she erred in targeting altruism, when it is hypocrisy, i.e. forced altruism (altruism at gun point), that is at fault, in my opinion.

Altruism is an extension of empathy, which to my mind is a distinctly and wonderfully mammalian trait, to be cherished and cultivated. She tried to stab the life out of it without qualification and accused it of being at the root of all evil. (Have I misunderstood? I have only begun to read her work.)

Another example: guilt. Capacity to feel guilt is another, mostly human trait that has a purpose. It is not something imposed by the church; it is the result of having a conscience, which admittedly some churches--including socialism, another kind of church--have milked to their advantage. (See this post for more on this subject.)

She believed she could do away with thousands of years of human evolution, wipe it off her universe like a stain. She advocated living without guilt, and she lived herself as though she didn't know the phenomenon. I'm convinced that it was she the hypocrite--either that or she was exceptional, in which case her social theory no longer holds water.

Her disrespect for altruism and guilt are evidenced in:

2. Her personal life. Now, far be it from me to throw stones. But I see evidence of egocentricity beyond the call of capitalism in the manner in which she lead her love life and friendships. For all her passion, she seemed to lack the notion of respect for others.

Both these things may be minor, but they keep me from becoming a Rand-worshiper. I don't believe capitalism asks these sacrifices of us.

On the other hand, I refer to her often, because her writing is so good and most of her ideas so just.

What are your thoughts?

8:43 PM  
Blogger Yehuda Draiman said...

Politicians should be paid commissions only – performance based compensation R1
I say that politicians should be paid - compensated on a performance based via commissions only, for example on every tax dollar that they save. Example, if a politician cuts government spending 1 Million dollars, the tax payers would pay him X% of 1 Million.
If it hits them in the pocket, they are going to be much more cautious how they spend our money.
A politician running for office should reimburse any matching funds after the election.
A politician should run the country like any non-profit corporation, with checks and balances, fiscal responsibility and not committing funds that our great grandchildren would have to pay.
Any politician who violates the oath of office will lose his job and forfeit his benefits and pension.
It is time we should hold our politicians accountable for their deeds and behavior, any deviation from honesty and ethics will be punished severely.
Honesty, integrity and accountability is the motto.
Yehuda Draiman
We should not rush to give our money to foreign countries, if we do give, it is a loan and must be repaid; the loans should also be collateralized with real estate and assets of the receiving country.
Value-based Management of the Government
Value-based management makes an explicit link between a government's strategic and operating decisions and their impact on the country and its citizen’s benefits. It does so in part by aligning politicians incentives with citizens' interests.
Politicians should earn the public trust, which, in turn, is based on openness and accountability. Excessive compensation, self-dealing and hidden agenda’s are detrimental to earning public trust.
Just over 2 months ago, the National Commission on Public Service, known as the Volcker Commission, issued its report on how to revitalize the Federal Government. At about the same time, the President issued his fiscal 2004 budget proposal. Both documents contain bold recommendations to reshape the Civil Service:
The Volcker Commission, for example, suggests abolishing the General Schedule and allowing managers to base employees’ salaries on ‘‘competence and performance.’’ The White House’s budget proposal includes a $500 million Human Capital Performance fund to reward top performing employees, as well as a proposed shift of the entire Senior Executive Service to a pay-banding system.
More and more often, Federal agencies are seeking permission to develop a compensation system outside the General Schedule.
More than 20 percent of non-postal civil servants now work under alternate personnel systems according to the Volcker report, including those developed at the Federal Aviation Administration, the Internal Revenue Service and the General Accounting Office. In all of those examples, change in the compensation system was designed not merely as an end to itself but as a way to improve agency performance.
The GAO is here today and I am looking forward to hearing how the various pay for performance systems are working so far, including GAO’s own.

American concern about inefficiency in government dates back to the First Continental Congress. In the 200 years since then, reorganization plans have come and gone, but the fundamental structures of government departments have changed only infrequently, although their jurisdictions have changed constantly, and usually have grown. Recent politicians statements of Reinventing Government program is only the latest in a long series of plans to reorganize or reinvigorate the federal government.
One of the many devices proposed by politician’s is to create a "government that works better and costs less" is an often tried yet little- known type of government entity called a federal government corporation (FGC). Congress has created a new government corporation every year or so since World War II. It created the United States Enrichment Corporation in 1992, and the Corporation for National and Community Service (AmeriCorps) in 1993. Congress recently has considered new federal corporations for everything from aid to small businesses to the regulation of boxing, and is now considering proposals for a Technology Transfer and Commercialization Financing Corporation. Reinventing Government would add to the list by semi-privatizing much of the Federal Aviation Administration into the U.S. Air Traffic Services Corporation, an FGC that would, the administration hopes, borrow funds (which would not be counted towards the national debt) to modernize air traffic control.

9:52 PM  
Anonymous Favela Cranshaw said...

Thanks for your generous response. I don't remember where I came across the booklet, but it was some time in the mid 60's, probably during the Goldwater campaign.

Rand is the person who tied together my childhood rejection of the supernatural and the concomitant development of my own individualist bent. Her views on politics were just gravy, since I was already familiar with laissez-faire capitalism and Ludwig von Mises in 1955. I will continue to read your blog, since I admire your political outlook.

Your disagreement with some of the vocal followers of Objectivism are understood, but they shouldn't require you to announce that you are not in solid agreement with Atlas Shrugged. It's a sort of paranoia that pops up everywhere in the blog world--fear of being struck by lightning or something. So, your "personal preference" seems to me like a fearful response in advance of perceived disapproval of some of your readers. I chalk it up to religion and the difficulty for otherwise intelligent folks to see the contradictions.

But, anyway, I feel honored to be chatting with someone with your heritage.

Try me at if you want to know my real name. :)

12:48 AM  
Anonymous Favela said...

Oh, if you happen to have access to AIER's book order site, my identity is divulged here: Order Number 6249

12:53 AM  
Blogger Katy said...

For Favela,
I'll be at AIER later this spring, and I may have a chance to check out Order 6249, now that I have your permission. Thanks.

9:58 AM  
Blogger Katy said...


You're not far off in your description of the reason for my disclaimer. Although I wouldn't go so far as to call it paranoia, I definitely feel the need (1) to ward off any dismissals from people who confuse her admirers with her parishioners, and (2) to avoid contributing to the worship of her cultist persona.

And yes, I am in solid agreement with Atlas Shrugged. But Ayn Rand is more than Atlas Shrugged. She is a mind-set.

I can see how anyone--especially a young woman of the 50s--who encountered her work at a susceptible age might have been blown away by her individualism.

On the other hand, I will take issue with your conclusion that my hesitancy towards her is the fault of religion. I happen to be a qualified agnostic, so you can let that go.

Having said that, my lack of ties to any formal religion does not require me to throw out the baby (cultural tradition) with the bath water (religious institutions). Culture is more than skin-deep. Religion fits only on the surface of that.

Regarding my heritage, don't pay me any extraordinary homage because I am my father's daughter. After all, he only gave me a pair of genes--and who knows if they were the right ones.

10:28 AM  
Blogger Stephen said...

If someone is fired for cause from a railroad, do they forfeit their pension benefits?

7:28 PM  

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