Saturday, April 16, 2022

Regulatory capture: trucking edition

Dominic Pino has a lovely National Review article on Mexican trucks. Watch the sausage in the making. Excerpts with commentary

Congress banned Mexican truckers from entering the U.S. in 1982. NAFTA, which came into effect in 1994, committed the U.S. to removing that restriction by 2000.

1994 was 28 years ago.  

The U.S. left the restriction in place anyway, and was found to be in violation of the agreement in 2001... The Bush administration said it would remove the restriction.

But organized labor and environmental groups...sued to keep the restriction in place. The environmentalists claimed that Mexican trucks did not meet American safety and environmental regulations. The Teamsters and other unions had an obvious motive: keeping out the competition....

In 2004.. the Supreme Court ruled against the environmentalists and unions and said that the Bush administration could remove the restriction and bring the U.S. in line with its obligations under NAFTA. Clarence Thomas wrote for the unanimous court.

Unanimous.

The U.S. continued to drag its feet on approving Mexican carriers...The Bush administration created a pilot program in 2007... The program included safety examinations for every truck and required the Mexican drivers to read and speak English. Congress defunded the pilot program in 2009....

The Obama administration started a new pilot program in 2011.

Liberalizing trucking is bipartisan.  

This program addressed Congress’s purported concerns about safety and regulatory compliance by requiring a more comprehensive inspection of Mexican trucks and requiring GPS and electronic recording devices on every truck to enforce hours-of-service limits and location rules.

The Teamsters and a trade group for U.S. independent truckers sued to block the new pilot program. The D.C. Circuit Court of Appeals in 2013 ruled against them again, with then-Judge Brett Kavanaugh writing the opinion that rejected every argument the petitioners made.

The three-year program ended in 2014. Over the length of the program, the Federal Motor Carrier Safety Administration (FMCSA) performed 5,545 inspections and Mexican trucks crossed the border 28,225 times. They traveled 1,263,630 miles in border states and 255,392 miles in non-border states.

The FMCSA used that huge sample size and reported back to Congress. It found that “Mexico-domiciled motor carriers ... had safety records that were equal to or better than the national average for U.S. and Canadian motor carriers operating in the United States.” ...

... The Teamsters and other trucking organizations sued again... The Ninth Circuit Court of Appeals dismissed the case in 2017, writing that “the parties do not raise any arguments the merits of which we may review.”

The USMCA, NAFTA’s replacement, keeps just about everything the same for cross-border trucking..

28 years and counting. More great details on how trucking works follow. Bottom line: 

Given that shippers near the southern border complain of driver shortages on both sides, and we know Mexican trucks are fully capable of meeting American safety standards, the federal government should rethink its regulatory approach again.

A little mild critique: It's not clear that "thinking" about the "regulatory approach" is the problem.  

Contrary to what free-trade opponents might expect, this particular case of trade between two countries at different levels of economic development actually resulted in the less developed country raising its standards to meet the demands of the more developed country. Mexico went above and beyond what was required of it in NAFTA and spent large sums of money to bring its trucking up to American standards.

Trucks are an obvious part of the great supply shock and labor shortage. With inflation raging, cost-increasing protectionism is harder and harder to defend. Yet even a signed international treaty, obvious merits, and legal orders are not enough to get this little bit of sand out of the gears, for 28 years and counting. 

A big question on my mind, just how can we reform our political system so economic reforms can happen -- especially clearly sensible reforms that both parties understand. This is a good case to mull in that search.   

(The US deregulated internal trucking in the 1970s, courtesy Ted Kennedy and Jimmy Carter. ) 

 


21 comments:

  1. There is not a shortage of truckers in USA. The vast majority of licensed truck drivers are not driving because pay is so low and working conditions lousy with higher health and safety risks. The drivers are made to wait hours to load or unload without getting paid to wait. Incentives are obviously broken when this wasting of labor happens. The drivers have high costs for fuel, repairs, insurance. Want more? Pay more. Or do more automation.

    I get that Mexican labor is cheaper and we are violating a treaty. Sure. But there's not really a shortage. Shortages in labor markets are rarely real and every time I hear about some industry with lousy jobs and low pay complaining about labor shortages I wonder why not just pay more. Apparently the incremental value of supplying a supposedly critical service must not be very high. Good to know.

    ReplyDelete
    Replies
    1. Undercutting domestic labor with large amounts of low-cost immigrant labor...has not worked out anywhere in the developed globe. Increased social tensions, increased cynicism, increased populism.



      Delete
    2. Well, there cannot be shortages in absolutely *any* market if buyers are free to raise prices indefinitely.

      Cochrane is talking about "shortage" in the sense of not enough supply of truckers at the price that the demand side of the market considers "reasonable".

      Delete
    3. I plead guilty. No economist should use the word "shortage" in the absence of a price control. Just because the popular press uses that term to describe employer's difficulty in finding workers at the prices they customarily offer does not make it a "shortage." I'm guilty of misusing the term to resonate with current discussions, but that is still a misuse of the term.

      Delete
    4. Shortage -- "a state or situation in which something needed cannot be obtained in sufficient amounts." -- OED

      Shortage is the correct term to apply to this situation, if one follows the conventions of usage of the English language.

      Mr. Randall Parker is referring to the disincentives of working as a truck driver. If the disutility of work exceeds the utility of consumption derived from the wages earned, then withdrawal from the workforce is often the result. If, in addition, incentives not to work are provided by government then withdrawal from the workforce can become more universal as was seen during the first year of the current pandemic, i.e., 2020.

      In the engineering industries, esp., consulting engineering, firms also complain of the shortage of qualified applicants for open positions. The use of the term "shortage" is appropriate usage in this case as well as in the case of too few truck drivers willing to accept work in their specialty.

      Not every market clears. Firms that lack market power are relegated to price-taking; if those firms' margins are not sufficient to allow wage rates to rise to meet the price commanded by suppliers of labor, the market for that labor does not clear. From the employers' perspective providing work-for-hire, a labor shortage exists; from the perspective of the laborers, there is a shortage of suitable or "good" jobs.

      If "shortage" is objectionable, consider using the synonym: "dearth".

      Delete
    5. Yes, but this is an economics column, not a general interest newspaper. The word "shortage"should be used more exactly in this circumstance.

      In addition, I do not recall ever reading about "jobs shortages."

      I will say the US is defined by"housing shortages." Why?

      No matter how expensive housing becomes, in most major US cities zoning and regulations suffocate new construction.

      A total ban on property zoning is a good idea.

      This free-market solution to housing shortages will never gain traction in the US, with either major party.


      Delete
    6. Mr. Cole, given your criticism of the the word shortage as applied to describe the negative externalities arising from a socio-political issue which has economic ramifications, how would you describe a shortage of labor in any given industry or regional economy in exact economic terms without resorting to ordinary everyday English language? Is it necessary to dress up the language simply because it appears in a website that has an economics orientation?

      Delete
    7. In the context, 'shortage' is perfectly suited to the circumstances. The meaning is exact, and it is concise and to the point. This site is a web-log, or "blog" that. John hasn't offered a more exact economic description, because it isn't necessary.

      Delete
    8. Altruism rationalizes violating the individual right to property, production, trade and the pursuit of profit. Altruism rationalizes the evasion of rights by the advocates of rights violations. Modern economies are interlocking rights violations, w/many indirect indirect effects making it easy to arbitrarily select and omit rights violations. Markets are perfect relative to mans independent mind, the main enemy of traditionalists and egalitarians. As Ayn Rand said, altruism and capitalism are contradictory. Most people would rather evade focusing onto reality rather than identify altruism as a morality of death.

      Delete
    9. Shortage sounds like the correct term to this economist. Low wages ==> Q supplied < Q demanded. The current increase in wages is evidence that Q supplied < Q demanded.

      Delete
  2. John said: "A big question on my mind, just how can we reform our political system so economic reforms can happen". I wonder about an even bigger question, in my view, about how can we reform our political system so that we start honoring agreements (international and domestic). Being honest in business will help the economy.

    ReplyDelete
  3. Let’s add the latest quirk of keeping Mexican ( or any truckers) coming from Mexico Stalles - the Texas governor adds safety inspections after crossing the border and clogges up all cross-border trade by causing hours and days of delays , because the federal government does not keep the borders safe!! Protectionism is indeed a bipartisan enterprise! The the teamsters being the one union favoring Republicans have mastered the art particularly well ( we’re big supporters of Nixon). Yes, Democrats deregulated trucks and airlines under Jimmy Carter, and Senator Kennedy eliminated the requirement of union trucks to drive back empty

    ReplyDelete
  4. Factor mobility with zero frictions of any type is, of course, just about every economist's utopia. ;) But, it's called utopia for a reason. Labor mobility, while can be great economically, tends to open up Pandora's Box of political furies. Tribalism isn't easy to vanquish.

    ReplyDelete
    Replies
    1. > zero frictions

      Marxist transcendentalism. Reality is gritty.

      Delete
  5. NAFTA and USMCA are not 'free trade' agreements, but 'managed trade' agreements. The impediment placed on Mexican trucking firms bringing freight into the U.S. is not legal protectionism -- all of the lawsuits brought before the federal courts have lost on appeal -- but what should properly be labelled "rent seeking" behavior on the part of the unions "... and other trucking organizations... ." This is a socio-political problem, not an economic problem. The economists' solution is set forth in the latter paragraphs of the original article. The socio-political problem defies simple solutions.

    The past (historical) foot-dragging by successive administrations is suggestive of the absence of a political solution (despite the label of "bi-partisan" ahead of the noun "agreement"). The rent-seeking behavior is typical of unions -- high wage rates, restrictive labor practices, and monopolistic labor supply ('unionized labor or nothing') -- is perfectly in keeping with oligopolistic control over an industry sub-segment, in this case domestic trucking services. There is no "free trade" solution. Unionized American labor is too expensive to compete in the Mexican trucking market. A "managed trade" agreement is the antithesis of a "free trade" agreement, but optics are such that no one uses the term "managed trade" in connexion with a trade agreement. Is there a solution? No. The Mexicans have garnered a partial victory; the Americans have lost an exclusive right, but retained the exclusive dominance of "cabotage" (point to point to point trucking services in the U.S.) to the exclusion of the Mexican trucking firms. Economic efficiency doesn't have a seat at the table, full stop. That is a positive statement (as opposed to the normative statement, "free trade should prevail"). Life is tough.

    ReplyDelete
    Replies
    1. > Economic efficiency doesn't have a seat at the table, full stop. That is a positive statement (as opposed to the normative statement, "free trade should prevail").

      "In answer to those philosophers who claim that no relation can be established between ultimate ends or values and the facts of reality, let me stress that the fact that living entities exist and function necessitates the existence of values and of an ultimate value which for any given living entity is its own life. Thus the validation of value judgments is to be achieved by reference to the facts of reality. The fact that a living entity is, determines what it ought to do. So much for the issue of the relation between “is” and “ought.”
      -Ayn Rand

      Delete
    2. Many committees would happily subscribe to the musing by Ayn Rand, to wit, "The fact that a living entity is, determines what it ought to do."

      Delete
  6. In today's WSJ.com Opinion section, Alyssa Finlay summarizes her recent interview with EQT's CEO, Mr. Toby Rice. As Ms. Finlay, observes EQT is the largest producer of natural gas in America today. Mr. Rice is leading the battle against the likes of Sen. E. Warren (D., MA) who are seeking to curtail pipeline projects bringing natural gas to communities along the Eastern Seaboard of the U.S. This effort is pitting environmentalists, politicians, and the regulatory state against private capital in the struggle to reduce U.S. emissions. As Mr. Rice points, the regulatory hurdles are creating negative externalities for the country as a whole, and for communities in the Eastern Seaboard states in particular. Ms. Finlay brings these to light in her article. In this case, the federal appeals court is lined up with the regulatory state. The result is higher GHG emissions, and a doubling of the capital cost from $3 billion to $6 billion for a NG pipeline to transport natural gas from the Midwest to the Southeast. Source (behind a subscription req'd paywall) is listed below.

    "Fossil Fuels’ Forthright Defender", Alyssa Finlay, WSJ, "Opinion|Weekend Interview", The Wall Street Journal, April 22, 2022 1:33 pm ET, (online).

    ReplyDelete
  7. This topic provides a very rich vein for the economist concerned over direct and indirect government over-reach. James Freeman of The Wall Street Journal writes in an article published today (4/26/22), "Florida, Utah Take on ESG Farce",

    "It appears that ESG is not about creating fair assessments of corporate behavior. So what is it really about? Utah Treasurer Marlo Oaks takes a crack in a release about the state’s letter:

    "'ESG is about controlling and forcing behaviors. It attempts to do through capital markets what activists and their government allies have been unable to do through democratic processes. It is a political score that, intentionally or not, can result in market participants using economic force to drive a political agenda.'"

    ReplyDelete
  8. Andres Gonzalez-​Lira and Ahmed Mushfiq Mobarak describe in their article "Slippery Fish: Enforcing Regulation under Subversive Adaptation", April 27, 2022 • Research Briefs In Economic Policy No. 292, CATO Institute, measures of enforcement in suppressing out-of-season hake fisheries in Chile, the purpose of which are to preserve the hake population during the hake spawning period. Chile imposes regulations on its fishing industry during the spawning of hake (a Pacific Ocean species principally caught as source of food in Chile), to prohibit the catching of hake by fishermen during that period of year when the hake are reproducing in order to prevent depletion of the hake stocks. The paper describes the experiment set up by the authors to determine an optimal economic regulatory enforcement regime in Chile. Not all regulations are unwarranted. The social costs of depleting a fishery through excessive fishing (over-fishing) or fishing during the period of reproduction are well-known through experience in other fisheries around the world, namely, the collapse of the fisheries with subsequent reduction of employment in the local industry and the "stranding" (writing down) of industry capital assets. Social costs by their very nature are diffusely experienced whereas the net private benefits to the scofflaw are immediate and tangible. Regulation plays a role in leveling the playing field, so to speak, and enforcement of regulations ensures that the net private benefits arising from violation of the regulations are minimized if not eliminated altogether. The paper describes two approaches taken to enforce the regulations and the effect of those approaches on compliance in the regulated industry compared to a control population.

    ReplyDelete
  9. The NR article states that USMCA "keeps just about everything the same for cross-border trucking." It actually added some procedures to ensure compliance, which is why it was supported by the Teamsters and the Owner-Operator Independent Drivers Association. Neither of these unions supported NAFTA.

    ReplyDelete

Comments are welcome. Keep it short, polite, and on topic.

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.