The Failure of Railroad Regulation

By the 1970s, the railroad industry had been heavily regulated by the Interstate Commerce Commission for over 80 years, and the airline industry had been regulated by the Civil Aero­nautics Board for almost 40 years. The railroads were in serious financial trouble under regula­tion. Mergers entered into to stave off financial collapse, like the Pennsylvania Railroad and the New York Central, only succeeded in delay­ing the inevitable as the Penn Central entered bankruptcy in the 1970s. Six Northeast railroads were in bankruptcy. In order to preserve pas­senger rail traffic in the Northeast corridor and environs, Conrail was created from the remains of the six railroads at a cost of billions of dollars of taxpayer money. Railroad passenger service could not be sustained anywhere in the private sector, as Amtrak, subsidized by the government, was required to take over that service nation­ally. It appeared that it was only a matter of time before the airlines were going to be in the same position.

Mistrust of Government

It also seemed that the government was not trusted, nor was it respected as before, perhaps due to public disgust and unease created by the divisive issues of the 1960s and 1970s. It hardly mattered from which end of the political spec­trum one viewed the situation. On the left, the Vietnam War and Watergate, resulting in the unprecedented resignation of a sitting president of the United States, were examples of inept or corrupt leadership. On the right, the social experimentation of the Great Society programs of Lyndon Johnson, the rapid deterioration of inner cities, and civil disturbances seen nightly on the evening news were evidence of misguided governmental policy. Government seemed to be contributing to the problem, rather than offering rational solutions. Nixon had imposed wage and price controls, effectively putting the govern­ment, not the business owners or the workers, in charge of prices and wages. These efforts were ineffective, and added to the general frustration of people with government.

«I really don’t know one plane from the other. To me they are just mar­ginal costs with wings.»

Alfred Kahn, 1977