The Trump Administration is off to a fast start. While closing the border, DEI reversal, needed tax legislation and the work of DOGE are getting the headlines, the area that I am most excited about is deregulation. In Trump’s first term his mandate that Federal agencies remove two regulations for every new regulation promulgated, has been replaced in his second term by a 10 to 1 ratio. His administration will face many obstacles in cutting regulations, but history shows us the economic returns to deregulation can be enormous.
Regulations can act as silent killers of economic progress. Few Americans realized it at the time and virtually no one knows it today, but part of the Reagan economic revolution of the 1980’s got started under President Carter with the deregulation of transportation.
In 1978, President Carter signed the Airline Deregulation Act which abolished the Civil Aeronautics Board (CAB) a few years later. In 1980, Carter signed the Motor Carrier Act (MCA), deregulating the trucking industry and the Staggers Rail Act which introduced competition in rail rates and allowed railroads to either abandon unprofitable lines or shed them to hungry entrepreneurs who built a generation of shortline rail carriers. Finally, Carter signed the Telecommunications Act, removing restrictions on long-distance phone service. These four major legislative initiatives are often referred to as the beginning of a new “American industrial revolution."
New American industrial revolution? That’s heady praise. Were these four deregulatory initiatives really that important?
Three of the four (Airline Deregulation, MCA and Staggers) industries impacted were in transportation. The MCA and Staggers impacted freight. It is estimated that by 1985, just five years after passage, the MCA was saving shippers over $15 billion annually in lower transport costs – worth around $45 billion today. That’s taking a lot of cost out of the system.
The Staggers Act is universally seen as having saved the railroad industry. Prior to Staggers, railroads were heavily in debt and had a poor rate of return. Naturally, new investment was limited, and track bed was poorly, in fact dangerously, maintained. A 1990 General Accounting Office report found that, within a few years following Staggers deregulation, rail profitability increased, accidents caused by track defects declined and railroad debt fell by a third. As importantly, the study found that shipper rates declined by between 10 and 44 percent while train service became more reliable.
But lower costs are just one manifestation of freight deregulation. It is probably no coincidence that just-in-time manufacturing and inventory management became commonplace in the U.S. in the 1980’s, despite having been used in Japan and elsewhere much earlier. The critical component to just-in-time management (JIT) is low cost and precise transportation services – options that were not available prior to the deregulation of freight transportation.
Economies are infinitely intricate with a myriad of connections that no one can fully comprehend. The transportation revolution allowed JIT inventory management. But JIT inventory management allowed new business models to develop. Low-cost superstores became viable in the 1980’s as Walmart, Costco and others began to take dominant places in the consumer retail space. Once the internet became a reality, Amazon came into being. But Amazon would not be possible without low cost, reliable transportation.
The Airline Deregulation Act (ADA) was equally revolutionary in its impact. While Federal Express began in 1971, deregulation was deemed so important to founder Fred Smith that he eventually turned over day-to-day operations to subordinates and moved to Washington, D.C. to lobby full time for airline deregulation. Once the ADA was passed it allowed FedEx to purchase larger planes, move into more markets and allowed it to become the company we know today.
Freight is important. But, people are the most important cargo carried by any mode of transportation. The ADA allowed price competition, opened new routes and allowed new entrants into the domestic airline market. Since the ADA’s passage the number of domestic passengers has grown more than fourfold from only around 200 million annually in the mid-1970’s to over 850 million by 2022. By contrast, since 1975 the U.S. population has only gone up by 55%. We might all complain about getting stuck in the middle seat, but deregulation has made air travel possible for millions of Americans.
Clearly, the Carter era deregulation of transportation was transformative for the U.S. economy. Many of the businesses and services that we enjoy today would never have been started with 1970’s era transportation regulation. Will the Trump era bring about similar transformative deregulation? Opportunities abound, particularly within transportation. I cannot wait to see if President Trump becomes the next Jimmy Carter.
