Trillion Dollar Economists

Chapter 9Planes, Trains, and . . . Trucks

This chapter may not be as entertaining as the movie with a similar title (with automobiles at the end instead of trucks), but I will promise you this: It will demonstrate how extraordinary things can happen when regulators and legislators pay attention to some very simple economic insights that had long been promoted by many economists before policy makers actually acted on them.

The insights center on the role that competition, rather than regulation of prices and entry, can and should play in markets that do not display characteristics of natural monopoly. The extraordinary consequences are the new businesses and business models in the world of transportation, as well as substantially lower prices than would be the case if prices and entry into the transportation business were still regulated. Indeed, I will bet that many consumers of these businesses, and even many of their founders, may not appreciate the extent to which they owe their good fortune to the power of some simple economic ideas that led to transportation deregulation in the late 1970s and early 1980s.

How did all this happen? The answer differs by industry. The public choice theory of regulation only explains the deregulation of air cargo transportation and rail traffic (where affected industries wanted it), but it doesn’t explain passenger airline and trucking deregulation (industries in which firms liked the regulated life). In all these cases, however, economists ...