Economic Report of the President

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FURTHER DEREGULATION OF SURFACE TRANSPORTATIONFor many decades, both carriers and shippers have made decisionsbased on expectations that the general regulatory system would continue.As a consequence, the transition to deregulation can be disruptive.The major conceptual problems of further deregulation involvethe following four issues: (1) the antitrust status of the rate bureaus,(2) the vulnerability of shippers who do not have an effectivechoice of carrier or mode, (3) the restrictions on multimodal ownership,and (4) the restrictions on route abandonment.As suggested below, these problems especially affect the prospectsfor further deregulation of the railroads.Antitrust Status of Rate BureausFor many years the regional rate bureaus (composed of transportationfirms) have performed the normal functions of a trade associationand have provided the forum for multilateral agreements onboth single-line and interline rates. These rate bureaus were exemptedfrom the antitrust laws, and their proposed rates were generallyendorsed by the ICC. The Motor Carrier Act of 1980 removed theantitrust immunity of the truck rate bureaus for single-line rates beginningin mid-1984, and established the Motor Carrier RatemakingStudy Commission to study whether the antitrust immunity for multilateralagreements on interline rates should be maintained. In testimonyto this commission, the Administration supported eliminationof the antitrust immunity of the truck rate bureaus. Members of thecommission, which was scheduled to complete its study by the end of1982, were equally divided on this issue at that time. Additionally,following the Railroad Revitalization and Regulatory Reform Act of1976, the ICC restricted the authority of the rail rate bureaus to addresssingle-line rates and restricted the carriers that could participatein an agreement on interline rates.There remains a legitimate dispute about whether the rail rate bureausshould retain antitrust immunity when setting interline rates.The general view of economists is that further deregulation shouldbe accompanied by the elimination of antitrust immunity. This approachwould prevent the adverse effects of a carrier cartel andpermit interline agreements to be treated as a joint venture. Someclarification of the application of the Sherman Act would also be appropriateto provide a stable legal environment for these interlineagreements. The contrary view is that the antitrust immunity shouldbe maintained as long as no carrier is bound by any bureau rates towhich it did not agree. A multilateral agreement on interline ratesmay have substantially lower transactions costs on small shipmentsthan the alternative pattern of bilateral joint ventures, and any at-112
tempt to set cartel rates would be disciplined by the freedom of anycarrier to set other rates. (This issue is less important for trucks, becauseinterline traffic is now less than 15 percent of total truck traffic,and complete freedom of routes would further reduce such interlinetraffic. Interline rail traffic, however, is 48 percent of total rail traffic,and it is more important to maintain a process that economizes onthe contracting costs for small interline shipments.) The alternativemay be an undesirable situation in which rail carriers refuse small interlineshipments, use trucks for shipments to points beyond theirroutes, or face an artificial incentive for mergers.The "Captive Shipper Problem"The "captive shipper problem'* is what initially led to rail rate regulation.This problem was substantially reduced by the developmentof alternative carriers and modes but has not been eliminated. Twodimensions of this problem, however, have sometimes been misunderstood.This relation is a bilateral monopoly. Both the rail carrierand the shipper have substantial bargaining power, and it is not clearthat this relation leads to rates that are generally "too high." Second,this relation does not lead to any long-term misallocation of resourcesas long as the price of the shipped commodity is determinedin a competitive market. In any case, the sum of the rents on rail andshipper property is constant. This inherent tension suggests that it isimportant to avoid any effective restraint on the common ownershipof rail carriers and major shippers. One alternative may be to requirejoint track use by competing carriers. Another alternative would beto index the rate bands now authorized for, say, another decade andto terminate these bands at that time. Unless this problem is resolved,however, some form of maximum rate regulation is likely tobe maintained in the rail industry.Restrictions on Multimodal OwnershipThere no longer appears to be any case for restrictions on multimodalownership. It is especially important to allow rail carriers toown trucking operations to facilitate container and piggyback traffic.A change in the law would be required to allow rail carriers to ownbarge lines. A change in the law would also be required to allowfreight-forwarders to own trucks, even though trucking companiesare now allowed to own freight-forwarders. The Bus RegulatoryReform Act of 1982 provides a substantially streamlined process forapproving intermodal mergers not prohibited by law.Restrictions on Route AbandonmentThe primary problem of the railroads is excess route capacity, aproblem that reflects a combination of increased truck competitionand ICC restrictions on route abandonment. Some studies have indi-113
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CONTENTSPageECONOMIC REPORT OF THE
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ECONOMIC REPORT OF THE PRESIDENTTo
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Monetary policy will play a critica
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Interest Rates and the U.S. Trade D
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THE ANNUAL REPORTOF THECOUNCIL OF E
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CONTENTSPageCHAPTER 1. FROM RECESSI
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PageConclusions 122CHAPTER 6. REVIE
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CHAPTER 1From Recession to Recovery
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slowed somewhat in the 1970s regard
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nal GNP growth is reflected in a sl
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inflation. More specifically, the A
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inflation rate, or with a 12 percen
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1988, an increase of about one-four
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CHAPTER 2The Dual Problems of Struc
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frequently associated with poor hea
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Chart 2-2Distribution of Unemployme
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Chart 2-4Distribution of Unemployme
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These findings suggest several conc
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Wage RigidityA number of studies sh
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that these measures may have caused
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Most young people find jobs or leav
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to employers who hire youths. Tax c
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defined broadly to include individu
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ship between incomplete experience
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CHAPTER 3The United States in the W
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with 2.6 percent in the other Organ
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TABLE 3-1 .—Structure ofthe U.S.
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TABLE 3-2.—Trade balances by comm
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concentrate on doing what it does r
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Page 69 and 70: Chart 3-3Real Exchange Rates Of Maj
Page 71 and 72: AN UNDERVALUED YEN?The explanations
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Page 75 and 76: nancial markets. These transactions
Page 77 and 78: TABLE 3-6.—Economic performance b
Page 79 and 80: were undoubtedly a highly favorable
Page 81 and 82: of lenders that some debtors will n
Page 83 and 84: CHAPTER 4Increasing Capital Formati
Page 85 and 86: ate of net investment was required,
Page 87 and 88: able share in Japan and 56 percent
Page 89 and 90: During the 1970s, productivity grow
Page 91 and 92: MEASURING NATIONAL SAVINGDomestic s
Page 93 and 94: TAX RULES AND PERSONAL SAVINGMany e
Page 95 and 96: on consumption taxation might also
Page 97 and 98: Nevertheless, a number of economic
Page 99 and 100: tion permitted businesses to deprec
Page 101 and 102: A final problem under current tax l
Page 103 and 104: fleeted efforts to deal with proble
Page 105 and 106: egulation was probably not applicab
Page 107 and 108: Aeronautics Board, for example, the
Page 109 and 110: system resulted. Price controls, wh
Page 111 and 112: NGPA, both controlled and decontrol
Page 113 and 114: Price and allocation controls only
Page 115 and 116: nications industries through the re
Page 117: Several major pieces of legislation
Page 121 and 122: computer information and advertisin
Page 123 and 124: of computer technology to the payme
Page 125 and 126: trend by widening the sources and u
Page 127 and 128: changes. That is, members can arbit
Page 129 and 130: ceived to be a consequence of exces
Page 131 and 132: lowest point in the post-World War
Page 133 and 134: ing. Partly in response to the drop
Page 135 and 136: Chart 6-3Ratio of Consumer Installm
Page 137 and 138: Chart 6-4RATIO1.85Real Inventory/Sa
Page 139 and 140: percent increase in real defense pu
Page 141 and 142: 8.8 percent in 1981. These declines
Page 143 and 144: housing. Borrowing by the nonfinanc
Page 145 and 146: orous competitor for credit as usur
Page 147 and 148: 1982 their share had risen to over
Page 149 and 150: TABLE 6-9.—Economic outlook for 1
Page 151: A critical element in achieving hea
Page 155 and 156: LETTER OF TRANSMITTALCOUNCIL OF ECO
Page 157 and 158: Report to the President on the Acti
Page 159 and 160: ety of interagency and internationa
Page 161: ence J. Kotlikoff (Yale University)
Page 165 and 166: CONTENTSNATIONAL INCOME OR EXPENDIT
Page 167 and 168: B-70. Mortgage debt outstanding by
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NATIONAL INCOME OR EXPENDITURETABLE
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TABLE B-2.—Gross national product
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19291933193919401941194219431944194
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TABLE B-5.—Changes in GNP and GNP
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TABLE B-ll.—Gross national produc
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TABLE B-13.—Output, costs, and pr
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TABLE B-14.—Personal consumption
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TABLE B-16.—Gross and net private
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TABLE B-18.—Inventories and final
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TABLE B-20.—Relation of national
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TABLE B-21.—National income by ty
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TABLE B-22.—Sources of personal i
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TABLE B-24.—Total and per capita
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Year or quarterTotalTotalTABLE B-26
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POPULATION, EMPLOYMENT, WAGES, AND
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TABLE B-29.—Noninstitutional popu
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TABLE B-31.—Selected employment a
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TABLE B-33.—Civilian unemployment
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TABLE B-35.—Unemployment by reaso
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TABLE B-37.— Wage and salary work
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TABLE B-39.—Average weekly earnin
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TABLE B-41.—Changes in productivi
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TABLE B-43-—Industrial production
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TABLE B-45.—Capacity utilization
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TABLE B-46.—New construction acti
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TABLE B-48.—Nonfarm business expe
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TABLE B-50.—Manufacturers' shipme
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Year or monthAllitemsPRICESTABLE B-
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TABLE B-53.—Consumer price indexe
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TABLE B-55.—Changes in consumer p
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TABLE B-57.—Producer price indexe
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MONEY STOCK, CREDIT, AND FINANCETAB
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TABLE B-63.—Commercial bank loans
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TABLE B-64.—Total funds raised in
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TABLE B-66.—Aggregate reserves of
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TABLE B-67 .—Bond yields and inte
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TABLE B-69.—Consumer installment
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TABLE B-71-—Mortgage debt outstan
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TABLE B-72.—Federal budget receip
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TABLE B-74.—Relation of Federal G
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TABLE B-76.—Federal Government re
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TABLE B-78.—State and local gover
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TABLE B-80.—Estimated ownership o
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CORPORATE PROFITS AND FINANCETABLE
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Year or quarterTABLE B-84.—Corpor
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TABLE B-86.—Relation of profits a
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TABLE B-88.—Determinants of busin
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TABLE B-9Q.~Current assets and liab
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TABLE B-92.—Common stock prices a
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AGRICULTURETABLE B-94.—Farm incom
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TABLE B-96.—Farm input use, selec
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TABLE B-98.—U.S. exports and impo
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INTERNATIONAL STATISTICSTABLE B-100
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TABLE B-101.—U.S. international t
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TABLE B-103.—U.S. merchandise exp
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TABLE B-105.—International invest
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TABLE B-107.— World trade balance
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TABLE B-109.—Growth rates in real
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TABLE B-lll.—Unemployment rate, a
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Economic Report of the President

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