Book Review: “American Railroads. Decline & Renaissance in the 20th Century.”

[greyhounds]

“American Railroads.  Decline and Renaissance in the Twentieth Century.”  By Robert E. Gallamore and John R. Meyer.  Harvard University Press, 2014.   Available from Amazon for $31.49 as an eBook and $49.50 for hardcover.

 The two authors (Meyer died in 2009) are (or were) PhD economists.  Meyer was on faculty at Harvard.  He served as an advisor to Gallamore as the later wrote his PhD dissertation.  The subject of the dissertation was an evaluation of parallel rail mergers.   (They lessened competition and didn’t produce the savings projected.)   Both Gallamore and Meyer had railroad industry experience with the Union Pacific.

So keep in mind that this is a book focused on economics.  Primarily the economics of railroading in the US and the futile, counterproductive attempts by various governments to alter economic reality though laws and regulations.   The Janney coupler and air brake do get mentioned, but the focus is on such things as Ramsey Pricing, Marginal Cost, Value of Service Pricing, Demand-Based Pricing, and personal income redistribution by the government  to politically favored groups though its control of rail rates.  Given that, it does provide a great historical record of US railroads in the 20^th Century.     It is a great historical record because, through its focus on economics, it gives an explanation of why the things that happened did happen.     Economic regulation put the US railroads in a “Survival Mode” in which they could not finance improvements or add capacity.  Those of us who live in the United States are still paying the price for that today.

Here’s an excerpt:

“A central theme of this book is that railroads, throughout their history, were so important to the US economy that politicians could not leave them alone, and when governments did intervene in transportation markets, they usually made a mess of things. Government regulation distorted consumer choices, found awkward and costly ways of subsidizing competing modes of transportation, taxed or regulated away profits needed for reinvestment and capacity expansion, and— while generally contributing to greater safety— typically fell far short of stimulating optimal safety performance for all transport modes.”

Gallamore, Robert E. (2014-06-17). American Railroads (Kindle Locations 470-474). Harvard University Press. Kindle Edition.

Some truths found in the book include:

Economic regulation was not a government response to a wide spread public demand to rein in the railroads.  Although there was some of that, and the railroads were not run by saints, the primary force behind the adoption of strict regulation was “Progressive” ideology.   “Progressive” ideology involved the US government in everything, generally in control.   The fact that government control of railroad rates made things worse was of no never mind to the “Progressives.”

There is absolutely no good way for a regulator to determine what a rail rate should be.   It cannot be done empirically or mathematically and it certainly cannot be done with lawyers arguing before a tribunal.   It’s got to be done in the marketplace.  But that excludes the government and “The Progressives” just hate that.

Likewise, there is absolutely no good way to determine the cost of individual rail movements.   Too many joint costs for too many different transportation services.   (Although the US Government hangs its hat on a faulty costing formula to this day.   What else can they do?   Just go away.  No, they’re the government.)

The railroads were saved by deregulation.  But it took a major crisis such as the Penn Central failure to get the mule’s congress’ attention.

Captive shippers generally aren’t.

 Railroads face a lot of competition.   Even if they’re the only railroad in town.

It goes on.

There are two chapters on passenger trains.  Amtrak fans probably won’t like them.   The main success of Amtrak was to relive the freight railroads of the crushing passenger deficit.

I’m going to wrap this up because I don’t want to write a book about a book.  Here’s another great insight from this book:

” James J. Hill said in an interview with Frank L. McVey at the turn of the twentieth century “that railroad income is based on ton miles and the expense of operation on train miles. The object is to get the highest rate [operating revenue] on the ton-mile and the smallest rate [operating expense] on the train mile. In this statement is concentrated the theory of railroad management of the present day.”

 

Gallamore, Robert E. (2014-06-17). American Railroads (Kindle Locations 805-808). Harvard University Press. Kindle Edition.

And one more.  (I could put many more of these insights in here.)

”Unfortunately, the US system regulating interstate commerce in the two decades from 1960 to 1980 was an embarrassment to the nation. The ICC’s decisions were based too often on poor information and inferior policies. The regulators may not have planned such malice aforethought , but their decisions rested on bad economic theories , faulty data analysis, biased recommendations supplied by interested parties, maladroit application of legislative mandates, a reverence for precedence at the expense of common sense, and too often the sitting commissioners’ plain ignorance. Respected economists calculated the costs imposed on the economy by transportation regulation to be as high as $ 10 billion annually in current dollars”

 

Gallamore, Robert E. (2014-06-17). American Railroads (Kindle Locations 4117-4121). Harvard University Press. Kindle Edition.

 I’ll say that if you want to understand why the railroads reduced mainline capacity, along with some other things that seem strange today,  you need  to understand the economic situation they faced.   This book will help you do that.  Regulation put them in a survival mode.   That was bad for the railroads and bad for the United States.

Edit to add.  Trains is a regularly cited source for this book.

 

 

[schlimm]

Ken:  Thanks for spending the time to write such a useful review and summary.

[Firelock76]

Thank you greyhounds, for a fine review!

[MP173]

I will add this to the list of "must read railroad books."

Thanks for the detailed review.

Ed 

[overall]

At the risk of asking a stupid question, where can I get one. I need a paper copy since I don't do digital.

[Bob Schuknecht]

Thanks for taking the time to write a review.

 

I finished Rock Island Requiem last week and started Wreck of the Penn Central yesterday, but American Railroads is definitely on my list for the future.

[PNWRMNM]

Overall,

Amazon.com but they were out of stock the other day when I ordered mine.

Mac McCulloch

[jeaton]

Search Harvard Press (the publisher) and you will find a link to their on line order procedure. That option will require payment of the full publisher's price. I think Amazon's price is lower.