Are Republicans Discovering the Limits of Markets?

A recent oped in the Financial Times bears a strange title: “On America’s Ramshackle Railroads, Republicans Concede the Limits of the Market.” Although this sentence does not appear in the piece itself, it does reflect its author’s opinion. Oren Cass, president of American Compass and a proponent of industrial policy and protectionism, argues that the frequent derailments of private freight trains in America justify more regulation of railroads. He congratulates Republicans like J.D. Vance, Marco Rubio, Josh Haley, Donald Trump, and Mitt Romney for supporting more regulation. Conservatives like them, Cass argues, have fortunately “become increasingly cognisant in recent years that regulation can be far from perfect and yet still far better than the status quo.” He does not mention the accidents of passenger trains of Amtrak, a heavily subsidized and money-losing corporation established by Congress in 1971 (under Richard Nixon), and whose major shareholder is the federal government.

In fact, it can probably be said that American railroads have been a major part of federal industrial policy, without the name, for a century and a half, not to mention heavy regulation by state governments (including, in the South, forcing them to discriminate against Black passengers).  This industrial policy has had ups and downs, and random walks, as is typical of industrial policies. The Council of Foreign Relations writes:

The mid-to-late nineteenth century saw thousands of miles of track laid across the United States, spawning an era of economic integration that connected the East and West Coasts for the first time. By the turn of the twentieth century, rail companies—which offered both passenger and freight rail services at the time—provided one of the cheapest and most efficient modes of transport. But in the first half of the 20th century, demand shifted to new forms of transportation, especially cars and planes. Meanwhile, a suite of laws that expanded the federal government’s power to set freight prices and enforce other stringent rail regulations increasingly challenged the system.

The second half of the century saw a rail revival. Congress established Amtrak in 1971, ushering in the present era of publicly owned and subsidized passenger rail.

Among the major agents of the federal railroad regulation figure the Interstate Commerce Commission, created in 1887, and the Federal Railroad Administration in 1966. There was some deregulation with the Staggers Rail Act of 1980, but I think nobody would argue that it negated the “limits of the market.” The Moving Ahead for Progress in the 21st Century Act of 2012 and the Fixing America’s Surface Transportation Act of 2015 continued to fit well in a rail industrial policy—I mean an industrial policy as it exists on earth, not as it should be in the minds of nirvana ideologues.

The idea that Republicans have just now decided to concede the limits of the market is at the very least misleading. If we take a general look at all federal regulations, it appears that the GOP has continuously added to the stock of regulations, just as the Democrats did. The chart below shows the evolution of federal regulation as measured by the number of prohibitions and mandates in the Code of Federal Regulations, which is the stock of total net regulations at the end of each year. Over the whole period for which this database is available, it is not easy to see a clear difference between the times when the Democrats and the Republicans held power in DC. The only two instances when a significant but temporary drop in total regulations are found in the first half of the 1980s under Ronald Regan and in the mid-1990s under Bill Clinton. It is unlikely that the modest drop toward the end of Donald Trump’s administration in 2019 would have continued. (Older data, a bit more favorable to the Trump administration on that score, can be found in my Regulation article “The Trump Economy: Three Years of Volatile Continuity.”)

Most Republicans and Democrats have long enforced limits of the market more than understood its benefits. It is true that libertarians and classical liberals have, since the mid-20th century, found more compagnons de route in the GOP than in the Democratic Party, but it is a matter of degree. And the degree of differentiation has been rapidly shriking.