Have we already forgotten 2008? It was then that the political class mistakenly bailed out ailing banks and investment banks. Failure in any industry is healthy as poorly run assets are released to better stewards, plus the American people were rightly disappointed. Politicians subsequently suffered voter frustration at the ballot box.
It’s hard not to think about 2008 with recent legislation proposed by Senators Tammy Baldwin (D-WI) and Roger Marshall (R-KS) top of mind. In the Senators’ own words, “profits for the nation’s largest railroads are at record highs.” Surely the Senators are celebrating an industry sector that doesn’t require a federal aid? Think again.
Sens. Baldwin and Marshall are pursuing a law (The Reliable Rail Service Act) that would revisit what’s known as the “common carrier obligation,” a rule that requires rail carriers to meet the needs of the shipping public “on reasonable request.” Up front, the “obligation” reads as superfluous given the desire of businesses to earn more by doing more for customers. But that’s a digression.
For the purposes of this piece, Baldwin and Marshall’s legislation reads as excessive for one of the primary reasons they’re introducing it: “profits for the nation’s largest railroads are at record highs.” Marshall, in addition to being a normally market friendly lawmaker, is also a medical doctor. His legislation on its face violates “first do no harm.” Really, why meddle with what’s prospering?
To which some, including the senators, would point to the profits themselves as worthy reason. But the reasoning is flawed. As Amazon founder Jeff Bezos famously once quipped, “your margin is my opportunity.” Applied to the railroads, the best way to make sure there’s healthy competition for thriving railroads is to allow the railroads to thrive. The profits themselves will be the lure for abundant competition from traditional shipping sectors, along with heretofore unheard of competition (drones, anyone?) that members of the political class likely aren’t familiar with.
The Senators would perhaps understandably reply that record profits aren’t the sole driver of their proposed new law. Baldwin and Marshall also point to “worsening service” and “significant service disruptions” in addition to “sky-high prices” as justifications for their intervention. The reasoning is flawed.
If high margins or “sky-high prices” flash brightly as opportunity for existing and future competition in the shipping space, so does the “unacceptable level of rail service” that the Senators allege. Precisely because the profits for rail shippers are presently high, if what Senators Baldwin and Marshall claim about service is also true, then they needn’t waste their time on legislation.
They don’t need to because by their very own description of what they deem a problem, their legislation is almost assuredly a look into the proverbial rearview mirror. Sen. Marshall in particular knows why: markets are incredibly efficient. If the myriad businesses reliant on shipping are presently overpaying for lousy service, then they can rest assured that help is on the way in the form of profit-motivated competition eager to grab market share that’s very much there for the taking.
The beauty of a market economy is that legislation meant to encourage competition is unnecessary. In other words, profits or the potential for profits are the surest sign of competition on the way. After which, legislation meant to intervene in the marketplace is a hindrance for those in the market.
Sens. Marshall and Baldwin are on record as saying rail firms are prospering. Since they are, the only answer is to do no harm so that the profit-hungry can do any needed fixing.
