George Gibbs Center for Economic Prosperity

Trump Can Cu⁠t⁠ More Red Tape by Hand⁠i⁠ng Ou⁠t⁠ Sc⁠i⁠ssors

By: Dr. J. Robert McClure / 2018

During its two terms in the White House, the Obama administration enacted an exorbitant number of new rules and regulations on American businesses, and the related red tape has cost more than $100 billion annually. And while President Trump’s first year in office showed promise, he has a monumental challenge ahead if he wants to shrink the bloated regulatory system left to him by his predecessor.

Some of Trump’s strongest early successes came through his deregulation victories at the Environmental Protection Agency. But he didn’t do it all on his own. He smartly appointed Scott Pruitt to lead the Agency’s wave of change.

But Mr. Pruitt and other agency heads can’t continue draining the swamp all by themselves. There remain vast numbers of positions left unfilled across dozens of federal regulatory agencies. If the president can promptly fill these vacancies with the right reform-minded people and empower them to slash and modernize the federal regulatory system — similar to what Pruitt has done at the EPA — then we could see the greatest shrinking of bureaucracy in our nation’s history.

Case in point: the freight rail system so many American businesses depend on to transport their goods to market.

America’s Industrial Revolution occurred on the back of its railroads, but as time went on the freight rail industry was crushed by burdensome regulations. Thankfully, the Staggers Rail Act was passed in 1980 to replace an outmoded regulatory structure that had stood for nearly a century.

Today, Staggers still stands as one of the best examples of federal legislation passed with the intent of deregulating an industry and enabling free-market activity.

But it also opened a new era of railroad mergers and acquisitions, with dramatic consolation reducing the number of major railroads from 27 in 1980 to seven in 2001 — and today, just four companies control 90 percent of all freight rail transportation nationwide.

That’s when freight rail went off the tracks.

The rules worked as long as free-market competition was present in the industry. But once the invisible hand disappeared, rail transportation rates skyrocketed (a 98 percent increase since 2001). Today, three-fourths of freight rail stations are served by just a single railroad, giving them complete power to set rates as they please.

Certainly, the federal government should not set the price of doing business for any industry. That’s the responsibility of the free market. But when free-market conditions don’t exist, I see a place for the feds to step in and say enough is enough — especially in industries so vital to the American economy as freight rail.

The 1980 Congress saw this coming and tried to plan accordingly. The Surface Transportation Board (STB) was given authority to oversee implementation of the Staggers Rail Act, including providing “fair and expeditious regulatory decisions when regulation is required.”

But even the best-intended legislation can become bogged down by outdated rules and regulations.

When a shipper with no alternative transportation options believes that a railroad is charging an unreasonably high rate, it can send the question to the STB for review. If the STB rules the rate is unreasonable, the railroad must pay back what it overcharged.

Seems simple, right?

Here’s the problem: Bureaucratic rules can bog the process down for years. Due to endless red tape that only our federal government could create, only one shipper has dared to file a rate case with the STB since 2013, and it was only resolved last week. The methodology used by the board to review cases, known as the “stand-alone cost” standard, is clunky at best. A better option exists today, called rate benchmarking, which would streamline government and cut costs. It would reflect today’s realities of 21st century innovation, technology, and free-market competition.

But the STB is handcuffed. Like many other regulatory bodies, it cannot modernize its portion of the federal regulatory rulebook until several board seats, vacant for most of President Trump’s first year in office, are filled.

If we’re going to have regulatory bodies that oversee specific areas of our economy — the STB is just one example — common sense dictates that they have the members they need to carry out that mission.

In the business world, a smart CEO must delegate some decision-making to subordinates. Likewise, the president must swiftly appoint reform-minded members to various regulatory boards if he wants to achieve his goal of cutting and modernizing burdensome rules and regulations on a huge scale. That’s just common sense for most of America, but not, apparently, in Washington.

Dr. Robert McClure provides expert perspective on current issues facing our nation and his home state of Florida, the third-largest state in the nation and a policy bellwether for the country. Recently named one of the Most Influential People in Florida Politics, Dr. McClure serves as the President and CEO of The James Madison Institute, Florida’s premier free-market think tank. He is a frequent commentator on television and talk radio programs and has lectured nationally on diverse policy issues. Dr. McClure has been published numerous times at both the state and national level on topics including property rights, tax policy, health care, and education reform.