As Food and Supply Shortages Worsen, Biden Admin Plans to Smash Freight Train Shipping
19th Century Abolitionist and Entrepreneur Lysander Spooner Was Right: The Constitution Has Not Stopped These Political Gangsters
In another educational example of how government manipulation harms economic calculation – and real people’s lives – a new “cause-and-effect” phenomenon has arisen in the freight rail sector.
This one is shocking, it’s bad, and, as you might expect during this time of government-created shortages, spike-proteins, and price spikes, it reiterates the truism that government is your enemy.
Indeed, specifically, economically, when governments attempt to artificially cap prices, they increase the probability of shortages.
The first indication of rail trouble this year could be seen within Veronique de Rugy’s March 25 Reason article concerning new freight rail “regulations” (i.e. commands) from the Surface Transportation Board (STB, “created” by Congress in 1996). As de Rugy explains, ol’ “Amtrak Joe” Biden’s love of rail evidently does not extend to him privately deciding to get into the rail business and compete, but in having a branch of the federal bureaucracy tell REAL rail track owners how to run their businesses.
“Specifically, the president's team at the supposedly independent U.S. Surface Transportation Board (STB) just finished a marathon two-day hearing on a controversial regulatory proposal. The idea would force private railroads to subsidize their own competitors and disregard their property rights through a burdensome regulatory change to what is known as forced ‘reciprocal switching’—the practice of allowing one carrier access to another's infrastructure and customers.”
Essentially, the new Biden mandate is a favor to freight-car carriers, allowing them to demand access to cheaper rail lines than the ones with which they already might be contracted to use, and forcing those cheaper lines to open a percentage of their rail access space/time to the demanding parties.
Anyone who knows basic economics recognizes this as a form of price control that will lead to fewer rail space/time opportunities being offered, i.e. to a shortage of rail space/time, and, thus, a shortage of the things consumers can obtain from shippers.
“Reciprocal switching already occurs voluntarily through private agreements between railroads. Now, the administration wants to give more power to Washington bureaucrats to force open these privately owned networks for use by competitors and to offer below-market rates to shippers.”
And, adds de Rugy:
“While the rule sounds like a backdoor price control, the government asserts that turning more control over to Washington will promote competition. Their argument is that the railroad industry acts like a monopoly. However, data from the Bureau of Labor Statistics shows that over the past few decades, freight rail rates have not significantly increased, a fact difficult to square with the claim that freight rail is abusing its position to charge its customers excessive prices.”
And, as Dominic Armentano spells out in his 1996 book, “Antitrust and Monopoly: Anatomy of a Policy Failure,” this appears to fit right in with the sad, sordid history of the Constitution-defying “Antitrust” judicial and “regulatory” mindset, seeing government illegitimately attack the free market, insert political commands that help friends of the government, and harm honest businesses and consumers.
“The answer, as always, seems to be powerful special interests. In this case, it's shippers. The Rail Customer Coalition's letter to the STB makes it clear that they are trying to get the government to artificially deflate their costs. The hearing also demonstrated an uncomfortable chumminess between the regulators—particularly the agency's chair—and the ring of regulatory proponents led by multinational chemical companies. Indeed, as it has been from the beginning, the biggest cheerleader for the change is the powerful American Chemistry Council, which includes Delaware-based DuPont—a longtime political ally and campaign contributor of the president.”
And, as one might expect, economic cause-and-effect now appear to be revealed. An April 14 press release from CF Industries, which explains that CF is a “leading global manufacturer of hydrogen and nitrogen products” headquartered in Illinois, tells us that Union Pacific rail lines has announced a REDUCTION in the slots it will offer for freight carriers to use its rails.
“CF Industries Holdings, Inc. (NYSE: CF), a leading global manufacturer of hydrogen and nitrogen products, today informed customers it serves by Union Pacific rail lines that railroad-mandated shipping reductions would result in nitrogen fertilizer shipment delays during the spring application season and that it would be unable to accept new rail sales involving Union Pacific for the foreseeable future. The Company understands that it is one of only 30 companies to face these restrictions.”
This is very bad news, and reverberates with alarming news I discussed in written and video forms for MRCTV on January 24, news that dealt with Biden strangling the supply of fertilizer, in part, through his strangle-hold on natural gas:
In the man-made category, natural gas is the key to many of the integral chemical components of fertilizers used to help produce the tons of feed needed for grazing animals and poultry. And, from early (January 27, 2021) in his takeover of the command-and-control U.S. economy that some erroneously and embarrassingly still call ‘free,’ Joe Biden has slammed natural gas production.”
Now, the rail lines that could carry needed fertilizer that HAS BEEN CREATED are going to be manipulated by the Bidenistas, per a July, 2021, Executive Order.
Offers CF Industries:
“’The timing of this action by Union Pacific could not come at a worse time for farmers,’ said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. ‘Not only will fertilizer be delayed by these shipping restrictions, but additional fertilizer needed to complete spring applications may be unable to reach farmers at all. By placing this arbitrary restriction on just a handful of shippers, Union Pacific is jeopardizing farmers’ harvests and increasing the cost of food for consumers.’”
In March, FreightWaves’ Joanna Marsh reported on the coming change, and on the folks who tried to warn about these effects at STB hearings:
“(T)he railroads argued that allowing reciprocal switching would add operational complexity. Questions about where the railroads should provide access to reciprocal switching, as well as at what distances from terminals should reciprocal switching be permitted, were among the many issues raised.
Reciprocal switching could also lengthen the time for a shipment to move from point A to point B because of the time it would take to conduct a switch, railroads said.”
And while those details about added time, cost, and risk are important, they are secondary to the moral breach of politicians like Biden telling others how to run their lives.
For context, and to see the practical, economic, consequences of this kind of immoral arrogation of power (economic consequences that actually represent moral consequences, because economic decisions are subjective and represent people trying to navigate and better their lives, let’s look at an excellent piece on the history of rail regulations, written by my friend, economics professor at the Naval Postgraduate School, and Hoover Institution Fellow, David R. Henderson.
Hoover published the piece in November of last year, and David did such an excellent job not only presaging the problem now arising, but also detailing what the freight rail sector went through to get a brief period of freedom and growth (from the 1980s to last year) I want to recommend it, and I hope you will see my liberal use of his insights as impetus to read and share it.
“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.”
And we’ll see more on that, soon. First, David notes the same July, 2021 E.O. I noted, above.
“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.”
Again, I’d like to advocate that anyone reading this piece visit David’s piece and save it. The economic-political history in it is invaluable.
“The federal government heavily regulated US railroads for most of the twentieth century. In 1906, the US Congress passed, and President Theodore Roosevelt signed, the Hepburn Act, which gave the Interstate Commerce Commission (ICC) the power to set maximum railroad rates. During World War I, President Wilson took the further step of nationalizing US railroads. Although they were returned to their owners after World War I, until 1980, the federal government had a great deal of (“regulatory,” i.e. fascist) power over railroads.
This power hampered the railroads and, as trucking became widespread in the 1920s and 1930s, railroads found it difficult to compete. Rather than deregulating to make it easier for railroads to compete, the feds instead decided to hamper competition by truckers. With the Motor Carrier Act of 1935, the ICC required new truckers to obtain a certificate of ‘public convenience and necessity.’ This protected existing truckers from competition and somewhat protected railroads from competition. The ‘public convenience’ part was always a misnomer: if the public didn’t want to ship their goods using new truckers, then new truckers would not have wanted to go into business, so no restriction on new truckers would have been necessary. But if the public did want to ship goods using new truckers, then restrictions on new truckers would have been harmful. The term ‘public convenience’ was really a smokescreen to cover up the fact that the purpose of the law was to inconvenience the public by reducing competition.
Nevertheless, even with competition from truckers hampered, trucking continued to grow, albeit more slowly, and railroads continued to decline. By the 1970s, railroads were in serious shape. If they were to be saved, Congress needed to do something.”
And, after a great deal of effort on the part of freedom crusaders? Congress did do something – something to push aside the bureaucracy it had created:
“The late 1970s was probably the twentieth century’s high point for economists’ free market influence on economic policy. And strategically located economists took advantage of their opportunity. In their 2015 study titled Reviving Capitalism, policy analysts Fred L. Smith Jr. and Marc Scribner describe what happened when John W. Snow, a lawyer and a PhD economist who had been head of the National Highway Traffic Safety Administration, took action:
John Snow, by then an active member of the Association of American Railroads’ deregulation study group, bluntly stated in 1978 that he would press for ‘substantial deregulation of railroads in five years’ and that the private railroads ‘simply can’t live with the kind of regulation the ICC is dishing out.’
Snow and his allies succeeded. In 1979, the Association of American Railroads developed a fourteen-point plan for deregulation. In 1980, Congress passed, and President Carter signed, the Staggers Rail Act of 1980. This act freed railroads from detailed regulation of freight rates. Just months earlier, Congress had passed, and Carter had signed, the Motor Carrier Act of 1980. This act substantially deregulated trucking, allowing new truckers to enter the industry without having to get permission and allowing truckers to compete on freight rates. Darius Gaskins Jr., an economist who was chairman of the ICC at the time of the Motor Carrier Act of 1980, used his discretion to deregulate entry and rates as much as the law allowed.”
David offers an excellent overview of the salutary effects, and I would like to provide some of that information here:
“What were the results? Deregulation worked. In trucking, between 1979, just before deregulation was implemented, and 1986, once deregulation had had a chance, revenue per truckload-ton fell by an inflation-adjusted 22 percent. Moreover, according to Hoover Institution economist Thomas Gale Moore, ‘Shippers reported that carriers were much more willing to negotiate rates and services than they had been prior to deregulation.’
Deregulation of rail freight transportation, moreover, led to a dramatic renaissance of the previously sick railroad sector. Railroads were freed to negotiate rates with shippers and they used this freedom to cut rates and compete with trucking. The Staggers Act also allowed railroads to drop unprofitable rail lines without having to go through a cumbersome process to justify their decisions to the ICC.
Of course, the usual way to compete on prices is not to raise them but to cut them. And this the railroads did while, with their new flexibility, increasing productivity. In their October 2021 study for the American Consumer Institute, Veering Off the Rails: How the Recent Push to Reregulate Railroads Threatens Consumer Welfare, Steve Pociask and Liam Sigaud write:
From 1980 to 2020, taking account of inflation, the industry’s productivity has increased 159%, shipping volumes have increased 57%, revenues have dropped 13%, and prices have plummeted 44%.”
Sadly, under Barack Obama, the feds (specifically, the Federal Motor Carrier Safety Administration) imposed a slew of new mandates on truckers -- from Electronic Logging Devices (ELDs) that monitor the time haulers are on the road (because, of course, the feds also set arbitrary limits on precisely that), to increased fuel efficiency orders, and bans on refurbished rigs – and now, Biden has imposed his jab mandate on truckers coming into the US and he is moving in on rail owners.
By doing so, the government not only breaches basic Natural Rights, it harms our living standards and increases hardship for those we love.
And, for those, like Biden, who swore oaths to abide by the Constitution, I’ll offer this last bit.
Well known as the “Father of the US Constitution,” James Madison repeatedly reminded people that the Interstate Commerce Clause (in Article One, Section Eight) did not grant Congress the power to, a-priori, “regulate” products and commercial agreements being carried or conducted over state borders. The clause was written to allow Congress to handle disputes between States as political entities. As I noted in 2020, for MRCTV:
“Madison said this about the purpose of the Interstate Commerce clause:
‘Were these (States) at liberty to regulate the trade between state and state, it must be foreseen that ways would be found out, to load the articles of import and export, during the passage through their jurisdiction, with duties that would fall on the makers of the latter, and the consumers of the former.’”
And, as I wrote in 2016 for MRCTV:
“(I)n his book ‘Makers and Takers,’ Edmund Contoski observed that James Madison, who took notes on the Constitutional Convention, said that the clause was not to be used, ‘for… positive purposes,’ but as ‘a negative and preventive provision against injustice among states (as governments) themselves.’”
That isn’t something Biden or his ilk, in either major party, will acknowledge, let alone by which they will abide.
Because, for them, it’s about power.
And their Constitution will not stand in their way.
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