Obama Pundit

by C. William Chattin

The faiures of GM and Chrysler, and looming failure of Ford, are hardly novel for the transportation industry.  As detailed in this informative piece in the Wall Street Journal, the auto industry meltdown closely resembles the pattern leading to the failure of the rail industry — which died in the late ’70s:

First, the contemporary industry of popular transportion (rail in the late 19th century; cars in the 20th century) is thrust into financial prominence.  

Then, not long thereafter, government enacts broad regulatory proscriptions, attempting to transfer costs onto the industry, limiting competition, and resulting in barriers to entry — in the case of rail, it was the Interstate Commerce Act and other price controls; in the case of auto, it was the Wagner (i.e., the National Labor Relations) Act and CAFE standards.

The next step — after many years of survival — is the eventual wholesale collapse of the industry.  The rail industry finally collapsed during the Ford and Carter Administrations; the auto industry is collapsing now.

And, the final step is mass government subsidy/takeover aimed at keeping the industry afloat and, perhaps more importantly, its labor force employed: for rail, Conrail and other insolvent lines were eventually subsumed by Amtrak; for auto, the feds have already bailed out Chrysler and have now bought GM.

The effect of rail nationalization is well-documented: popular routes are overpriced to subsidize the less popular ones; cost-benefit decision-making and efficient pricing is cast aside in favor of political expediency; and, the nationalized monopoly obstructs any prospective competitor from entering the market.

In sum, an industry emerges, is then regulated into oligopoly, eventually collapses under the weight of regulation, and is finally coverted into a national monopoly, where politcal considerations are paramount to market forces.  In the end, the American public loses, and loses BIG.