David R. Henderson  

Intervention Leads to More Intervention

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The late Ludwig von Mises famously argued that when governments intervene in the economy, they often create new problems. Then, to address these problems, they impose new regulations that themselves to new problems, etc.

I thought of that when reading this Wall Street Journal article from Thursday, July 24, 2014. The title of the print version, by Russell Gold, Betsy Morris, and Bob Tita, is "U.S. Puts Brakes on Oil Trains." The dec line is "Proposed Rules Would Limit Speeds Until Tank Cars Are Upgraded, Replaced." Here's a segment from the article:

The federal government's sweeping proposals come after a string of explosive derailments involving trains filled with oil from the Bakken Shale and will change how flammable liquids are transported in North America. But they aren't as stringent as some in the rail and energy industry feared.

Crude-carrying tank cars would need to upgraded by 2017. The proposed regulations would also give the ethanol industry until 2018 to improve or replace tank cars that carry that fuel. The deadline for cars used to transport other flammable liquids that typically pose less of a hazard than oil or ethanol would extend to 2020.

Other new requirements proposed include a 40-mile-per-hour speed limit until sturdier tank cars can be built or existing railcars can be strengthened, as well as other rules that cover tank-car design, routing, brakes and testing of hazardous liquids.

Shipping oil by train is much more dangerous than shipping by pipeline. But the federal government has a number of regulations that slow or even prevent building of pipelines. One intervention--preventing the construction of pipelines--leads oil to be carried in more hazardous ways. In response, the government does not reduce the regulation that slows the building of pipelines. Instead it regulates shipping by train.

Mises strikes again.

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COMMENTS (14 to date)
MikeP writes:

Mises may strike even harder in this case.

Presumably this is a reaction to, most notably, the Lac-Megantic, Quebec, derailment.

Well, that derailment didn't happen because a train was speeding through town. It happened because a train was left unattended so the engineer could get some sleep at the end of his shift.

What does a lower speed limit do? Create longer duration train trips of course. That means more shift changes, more nights in hotels with trains unattended, and in general more operations outside the designed steady state. Furthermore, a slower speed limit means more total time that oil tank cars are on the rails.

It may well be true that the slower speed limit will be safer overall, but that is not necessarily obvious. There are accidents due to speed, and there are accidents due to every other cause besides speed. Lowering the speed limit decreases the likelihood of the former. But keeping the trains on the tracks longer necessarily increases the likelihood of the latter. And the archetypical accident of the present day is an example of the latter.

Government continually gives itself new powers to solve problems which have been caused in part by earlier government regulations, as David illustrates.

Mainstream media play a role in this process as I have argued. A typical citizen-voter who becomes aware of a problem naturally hopes the problem will be solved without too much mental effort on the part of that citizen-voter. The simplest-looking solution will probably be proposed by a politician: Government will fix it; just support this politician.

I believe a solution discovered through market process would be healthier in the long run. But it is harder to picture that market-based solution. Harder to describe it. Citizen-voters who need to husband their resources naturally choose the best looking promise, the promise offered by politicians.

Tom West writes:

How odd.

I'm fairly certain that most infrastructure projects like pipelines or electrical transmission corridors would *never* get built without the government power of eminent domain.

David R. Henderson writes:

@Tom West,
Fairly certain, based on what?

Tom DeMeo writes:

Constantly demeaning government intervention, even when it is appropriate, leads to failures in government intervention.

This seems to me to be a perfectly reasonable role for government, even for libertarians. This stuff is very dangerous. Do we really feel that any transport of hazardous materials through residential areas is best left to private interests?

Regulations have become an idealogical battleground. Those against don't just vote no. They push for amendments that weaken and undermine the original premise, and they continue to find ways to undermine the process going forward.

You are correct to question why we can't focus on smarter regulatory tradeoffs, but these are failures in legislative cooperation. Anti-regulatory arguments are often devolving into an environment that combats cooperation.

I'm all for a healthy skepticism concerning the ability of government to execute, but constantly arguing that it can't do anything, when that clearly isn't true either, creates a self-fulfilling prophecy.

Tom West writes:

Based on what?

Limited conversations with hydro employees when my parents cottage got expropriated for a hydro line. They seemed to be of the opinion that about 5-10% wouldn't see unless forced to (for any feasible price).

Makes sense to me - we'd have been among them. Without eminent domain, I'd figure that any infrastructure project that requires 100-200 fixed blocks of land (i.e. one that can't wind it's way around hold-outs) is pretty much impossible.

Zeke writes:


You may not be aware of this, but companies are held strictly liable for any damage resulting from the transportation of highly dangerous substances. So, they already have a huge incentive to maximize safety around residential neighborhoods.

Now, maybe layers and layers of limited corporate liability may decrease that incentive. But that seemingly goes to the point offered by David and Mises, no?

Tom DeMeo writes:

Zeke- in the world you are describing, with no limit on corporate liability and no role for government, it is unlikely there would be any transportation of highly hazardous materials or any pipelines. The legal issues and liabilities would produce gridlock.

Government regulations may be very inefficient, but they often take issues like this and give them a framework where they can be resolved. They create markets that would otherwise be impossible. Issues like this simply won't clear when left only in private hands.

RPLong writes:

Tom @ 10:23 -

I quite like your comment, although I suspect we disagree about government. The interesting thing is that this "self-fulfilling prophecy" is an efficient and desirable one for the gub-haters like myself. It's only an unpleasant outcome for those who believe that government works. It's almost as if government would work better, but for we of little faith.

Given that we live in a world where some of us "believe" and some of us do not, what do you think is the best way forward? Convince more non-believers to have faith, or convince more believers to admit that - thanks to heretics like me - their best-laid plans will ultimately never come to fruition?

Zeke writes:


I actually do think corporate limited liability is a good thing in general. Otherwise, investing would open people to personal liability and therefore few would invest.

However, many corporations create other corporations to even further limit liability. The argument against eliminating corporate level liability for real people is much weaker for eliminating corporate level liability for other corporations.

So, if you would easily permit piercing the corporate vale intra corporate structure, then (1) liability would still be relatively strong and (2) you would still have shipping, because corporations would take care, but want to reap the benefits of shipping dangerous goods.

ThomasH writes:

The thesis is plausible but it does not seem relevant to the regulation in question. Is it the best way of imposing on transporters the costs arising from the danger of transporting hazardous materials (assuming torts suits don't work more efficiently). If it is, then the reason for one of the goods being transported (a response to some other regulation) isn't relevant. And if it is not, then the problem is to find the correct assignment of cost.

Mark V Anderson writes:

I am no expert in the subject, but it is my understanding that corporate limited liability does little to limit criminal liability or gross neglect. Judges are perfectly capable of charging executives or owners of corporations by looking through the limited liability shield.

The problem of business liability is that it is very difficult to determine who is at fault for criminal behavior in large organizations. I think that non-incorporated businesses have the same issues as corporations. In fact all large organizations have the same issue. That is also one reason that government officials are rarely charged. Of course there are laws that shield government employees, and government officials are often cronies of the prosecutors, so being part of large organizations aren't the only reason for rare gov't prosecutions.

Tom West writes:

Just like people, corporations can kill without gross neglect. Many things simply have some danger, like shipping chemicals or making fireworks.

The question really becomes "without government, how do you prevent companies from performing hazardous tasks that do not have the assets to pay for possible judgements awarded against them?"

BMan writes:

While we are worrying about the piercing of corporate veils, ought we not take notice of the wall of sovereign immunity that surrounds the government actors in this story? The point of the post was that government intervention creates serious problems, which prompts more government intervention, which can make things even worse, even while the people causing the problem are immune.

In this case, government subsidies to the politically active agricultural-industrial complex caused massive quantities of ethanol to move by rail (it can't move by pipeline), at great cost and risk to the general public. Then environmental restrictions on oil pipelines -- perhaps aided and abetted by those same ethanol interests -- forced oil to move increasingly by rail. As we keep piling on more and more government "solutions," we need to ask whether all these cures might be worse than the disease.

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