Seeing as the words Regulation and Deregulation have been beaten to death during this latest “crisis”. How much did either regulation or the lack thereof affect the mass bankruptcies and mergers in the railroad industries in the 50’s, 60’s and 70’s? Just something to chew on.
Regulation (notably that provided by the Interstate Commerce Commission) back then meant that a railroad wishing to (1) adjust freight rates, (2) abandon lines, or (3) abandon passenger service had to go before the Commission and get approval, which deprived them of the speedy decisions often needed. Much money was lost waiting for approvals that were hardly a sure thing.
I think the answer is clear. Under strict regulation (The railroads have not been totally deregulated.) the railroads tended to be financial basket cases and certainly were not a growth industry. With the loosening of regulation we have financially healthy railroads and they’re adding capacity as they deal with growth.
Under the old regulation, not only did railroads have to seek approval to alter a rate, competitors could object to the rate change. The most famous example in the late regulated era was the “Big John” hopper case on the Southern. US poultry production was concentrating in the southeast and the Southern wanted to participate by hauling the chicken feed. They developed a 100 ton covered hopper (new at the time) and sought to use its efficiency to lower rates to compete with truckers for hauling the feed.
The truckers ran to the government to stop the rate reduction. They were joined by barge lines and railroads such as the L&N. The ICC rejected Southern’s bid to charge lower rates. Southern had to take it to the Supeme Court in order to charge shippers less to use its services. That’s how dumb the regulation was.
I think the absolute worst rail regulatory decision (and maybe the all time worst regulatory decision ever) was “In the Matter of Container Service” handed down in 1931. We’re still paying for that one today.
In the 1920’s commercial motor vehicles that could carry a decent load of freight were developed. We now call 'em “Trucks”. It’s obvious that trucks do certain freight handling work better than trains. A good, efficient system would integrate trucks and trains to move freight by using each one to its best advantage. And that integration naturally developed as soon as trucks became practical.
The New York Central lead the way, using a container based system to integrate trucks and trains to drive costs out
If the pre-Staggers rail system had been allowed to continue, the surviving railroads would all be basket cases with a lot more Milwaukee Roads and Rock Islands. Addition/Betterment accounting that was forced on railroads while everybody else could depreciate was just plain nuts.
does anybody know if anyone tried a regulation like:
you may lower prices as much as you want but you may only raise prices n% or n times in a period?
Read, “The Wreck Of The Penn Central” - your eyeballs will fall out of your head when you learn just how suffocating federal regulations were at that time for railroads.
No. And if they had, there would be no one around to try it a second time. That sounds like saying “Others may make a profit, but you are not allowed to make a profit.”
Well nobody who actually passed an economics class would try it. At least nobody who wasn’t a politician trying to buy votes.
In the first place, you’d create shortages. Prices are economic signals and serve to ration scarce resources. All resources are scarce in that there is not an unlimited supply of anything.
Supply and demand for anything have to match. The free movement of price matches them. If prices can’t move up demand will eventually exceed supply. This will artificially create a shortage.
Under regulation there were recurring shortages of rail equipment. This was because the railroads were not allowed to increase their prices to ration the existing supply of equipment. (Also known as “Clearing the Market”). The artificially low rail charges also greatly inhibited the acquisistion of new, additional equipment because it would never pay for itself at the low prices.
The obvious solution was to let the market clear by allowing unrestrained price adjustments. This would have allowed the shippers who most needed the rail equipment to get it by upping their bids. It also would have brought new equipment into the fleet. But NO, the government couldn’t just let the free market work - it had to, had to, had to regulate. It got so bad the railroads couldn’t even afford to repair their existing equipment and the shortages got worse.
The regulators tried all kinds of gimicks to deal with this - none of which worked and some of which produced disasterous results. Finally, they just let the free market work and “amazingly” things are now OK.
Take an economics class. The government can not regulate prices without
Yes, I think that was what the Nixon administration tried in the 1970’s. That plus price freezes. I worked in a grocery store at the time and remember skipping orders for our meat department since then “n time” for beef increase was the next week. Yes we would run out of beef (shortage) the one week but make a bundle the next. People would panic because of the “shortage” and stock up at the new higher prices.
What I can’t figure out is why unregulated airlines can’t seem to make a go of it. They have a corner on the long distance travel market, yet can’t seem to not keep in the red. cost X / number customers X + desired profit margin = ticket price X. In economic theory in a competative market the “desired profit margin” should be pushed to zero. But it seems the current airlines are putting a negative numbers into that slot.
The major air carriers still hold most of the premium berths at airports, and they still have most of the thru routes. Thanks a lot, Bankruptcy Code.