Matthew Kandrach – CASE President
July 10, 2019

he Trump administration continues to deregulate in sensible ways across the government, unshackling various parts of the economy from unnecessary and costly laws. Consumers are winning as policymakers remove nanny-state rules, which are just taxes, through cost savings and a healthier overall economy.

According to analysts at the American Action Forum, agencies “achieved $1.65 billion in regulatory savings” in fiscal year 2018 alone.

Yet not all the bureaucrats across the swamp are always on board, particularly at “independent” federal agencies such as the Federal Trade Commission – which signaled future regulation of Facebook Inc. – the Federal Reserve or the Federal Energy Regulatory Commission.

Flying completely under the radar yet wielding a powerful stick is the Surface Transportation Board, an obscure independent agency created in 1995 as a successor to the failed Interstate Commerce Commission to regulate the economic dealings of privately owned freight railroads. This includes rate regulation in markets where rail carriers maintain unimpeded control, as well as review of mergers, oversight of rate disputes and a role as a general middleman between companies such as Union Pacific and customers primarily in the agricultural, manufacturing, energy and consumer-product sectors.

Simply put, these rail regulators must not impose greater regulatory control in a well-functioning freight market.

Because freight railroads are quietly so integral to the economy – the industry accounts for 40 percent of all freight moved in the U.S, as measured by ton-miles – the actions made by the STB carry significant weight. A recent report issued by the staff at the STB and effectively endorsed by its chairman is particularly problematic and runs counter to the agenda of the president who appointed the STB’s leadership.

An egregious panoply of proposals, the report offers several measuresthat would effectively deem the industry a utility. As one former regulator and member of the Trump transition team at the Department of Transportation put it, “Given the remarkably poor track record of Uncle Sam running enterprises or micromanaging sectors – including the railroads for the most part from 1920 – 1978, which nearly exterminated U.S. freight railroads – the choice is clear,” utility-style regulation of railroads is a bad idea.

Most offensive is the possibility that unelected federal officials could cap rates that railroads charge customers after they deem that the railroad has earned an “adequate” amount of money in a given year. As famed economic commentator Steve Forbes said, “It is a fundamentally anti-capitalist scheme antithetical to U.S. economic doctrine.”

At the same time, the STB has not yet signaled that it would abandon a measure that would force railroads to let their competitors operate on their infrastructure at government-set rates. Aside from being a striking government overreach, this proposal skews the market for railroad transportation by playing favorites, in the end hurting both industry and consumers. It’s a real lesson in all that is wrong with Washington, D.C.: Well-heeled interests can monopolize and hijack policy debates on a whim.

Thankfully, a score of public policy organizations, including ours, opposes the measure. And more help could be on the way.

In April, the Trump administration issued an executive order that would subject independent agencies like the STB to greater oversight of the Office of Management and Budget and its chief regulatory czar. Rather than hide in the shadows of government – outside of the executive branch’s cabinet agencies – independent agencies will need to stand up to the scrutiny of regulatory analysis. Benefits must generally outweigh the costs in such a world.

Before it gets to this place at the STB, we should all hope that regulators reject the call for further government interference in this the overlooked yet critical rail sector.