Efficiency and Adjustment: The Impact of Railroad Deregulation

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The Staggers Rail Act of 1980 marked the most significantchange in rail policy since the Interstate Commerce Act of 1887.It eliminated most common-carrier obligations, granted railroadsgreatly increased commercial freedom, and generally reversed previous policy. What caused this dramatic reversal? What changesin the transportation markets contributed to this regulatory reform of the railroads? Some perspective on these questions canbe gained from table 1. It compares the performance of the transportation sector to that of the economy as a whole. Changes inthe demand for transportation closely parallel changes in the demand for production, because of the derived nature of transportdemand. Thus, between 1950 and 1982, ton-miles of intercityfreight and the gross national product increased by similar magnitudes. However, the growth in the demand for transportationwas less than the growth of GNP and industrial production. Thisdifference is partly due to technical improvements in manufacturing that require less raw-material input per unit of output.Changes in the composition of GNP have also affected relativegrowth. As proportionately more resources are devoted to serviceproduction, inevitably the demand for goods transportation willgrow less rapidly than the general economy.

Michael W. Babcock

Michael W. Babcock is an associate professor of economics at Kansas State University in Manhattan, Kansas.