Why has the U.S. House voted to block railroad workers from negotiating a new contract?

[MUSIC PLAYING] INTERVIEWER: And our top story, the US House of Representatives is set to vote today to block a railroad strike that could happen as early as December the 9th. The president is supporting that vote that would settle the contract dispute for 115,000 railroad workers without giving them what they want. Rail workers have made it clear they need more sick leave.

They say the railroads, many of which reported record profits last year, are enjoying even stronger profits this year and can afford to meet the Union's demands. Minnesota DFL Congress member Ilhan Omar tweeted today, "Railroad workers are asking for paid sick time. It's a simple dignified request. We stand with them, and we'll do everything in our power to make sure the request is granted."

The president says he's sympathetic to the Union's demand but that a rail strike would cause too much economic damage and must be avoided. For more on how this potential strike could affect the economy here in Minnesota, Professor Louis Johnston joins us right now. He teaches in the economics Department at Saint John's University. Welcome to the program, professor. How are you?

LOUIS JOHNSTON: I'm good. Thank you for asking me on, Cathy.

INTERVIEWER: Absolutely. Nice to hear your voice. Now, I understand very few states carry more rail freight than Minnesota. Which are the major industries using rail to move goods?

LOUIS JOHNSTON: Well, in Minnesota, you've got, of course, mining. That's using rail a lot. And, of course, the other big one is agricultural commodities.

So rail is perfect for moving bulky stuff that is heavy and bulky and doesn't necessarily need to go super fast. And if you think of things like soybeans and corn and Iron ore and taconite and stuff like that, Granite is a big one here in Central Minnesota, rail is perfect for that.

INTERVIEWER: I understand. 80% of Minnesota's ethanol plants move their output by train. I would assume that could affect fuel prices.

LOUIS JOHNSTON: Definitely. So one of the things about the US rail system today that I think is underappreciated is that it's-- for in many ways, the conveyor belt for the US economy, you've basically got all of these nodes set up all over the United States and people put boxes of things or tanks of things on the conveyor belt, and send them to somewhere else. And if that gets disrupted, that's going to have feedback effects all over the place.

INTERVIEWER: I want to talk about that. But I also want to ask about the health of the railroad industry at this point. If you look at the trains moving, say along the Mississippi River, around Saint Paul and down along the Wisconsin and Minnesota sides of Lake Pepin, it looks like fewer longer trains.

Are railroads saving money? Are they doing well? What's going on?

LOUIS JOHNSTON: So railroads are doing quite well in terms of their finances. And the big reason is exactly what you identified that what they're trying to do is run fewer trains but have them be longer. And that's part of the rail-- at the labor dispute too is, the longer the train is, you've got one or two employees on it, maybe three, hauling more and more stuff.

And so that increases the productivity of those workers, that reduces the cost per unit for shipping those goods, and puts more money in the pocket of the railroad and its shareholders.

INTERVIEWER: So, if there is a strike, how much would a shutdown like that cost the economy?

LOUIS JOHNSTON: Well, it's hard to put a number on it. But one way to start is that about a third by dollar value of all of the goods and services that move around in the US economy go by rail. And we're talking about a $23 trillion economy. And so, anything that affects one third of $23 trillion is going to be a pretty big number, and it's going to show up in all kinds of places.

You mentioned fuel prices. It could affect through ethanol, it could show up in food prices through agricultural commodities, it could show up in retail through slowing down or stopping shipment of goods from abroad that are going to be sold in stores, you name it. It's probably touched by rail.

INTERVIEWER: Who could be put out of work then if the strike happens? All of the above, I guess.

LOUIS JOHNSTON: Yeah. All of the above. In the sense that any industry that's affected by that. So, right off the bat, I think one of the places that would definitely get touched would be retail because they operate on this just in time inventory system where the goods that are on the train, in a sense, function as warehouses. So if those don't come, retail stores are going to have a difficult time processing companies.

And what I mean by that is anything from refining crude oil to mixing gasoline with ethanol to assembling automobiles, they're going to get hit as well. That's why I think that Congress and the president are acting.

INTERVIEWER: So I'm sure many businesses have been looking for alternative forms of transportation. I guess that would look at trucks, right? But there's a shortage of truckers. How does the trucking industry have the capacity to pick up the slack on this?

LOUIS JOHNSTON: Well, the short answer is they don't. The trucking industry doesn't have the capacity, and it doesn't have the right kind of capacity either because, in a sense, what we've done over the last 40 years is we've created a system where really big bulky stuff goes on the railroad. And especially things that have to go a long distance go on the railroads. And then shorter distances and more mixed loads of freight go on trucks.

And so, for example, there literally aren't enough trucks to haul the stuff that the railroads would be hauling. But even if there were enough physical cab units with drivers in them, we don't have the trailers and the other kinds of infrastructure like that to start hauling gigantic loads of grain or to be hauling tanker-sized loads of ethanol. It's just not there.

INTERVIEWER: Would he be-- Yeah, but I have just received a word, by the way, that the House has passed the legislation to avert the nationwide rail strike. The bill is now going to go to the Senate, where time is ticking before that January-- the December 9 date. I'm curious then, what are you going to be watching for as an economist?

LOUIS JOHNSTON: Well, as an economist, I'm going to be keeping an eye on how these companies that could potentially be affected by the strike manage their inventories. So, for example, are retail stores going to be trying to keep their inventories of say, toys or other goods for Christmas, they're going to try to replenish them faster than they usually would so that they have more on hand in case a strike happens or are manufacturing companies going to try to build up inventories of spare parts and parts for assembly and raw materials, things like that. Are they going to do that? Or are they going to, in a sense, roll the dice?

Right now, from what I can tell, a lot of them are rolling the dice and counting on Congress to make sure that this strike doesn't happen.

INTERVIEWER: I wonder if there is a strike, how long could it last?

LOUIS JOHNSTON: That's one of those things where random factors shouldn't last very long, in the sense that the pressure on both sides would be tremendous. But once you've dug in, you never know. I really think that the possibility of a strike is starting to recede quite a bit. You might have quite a fight in the Senate, but I think right now, it looks like the legislation is going to go through.

INTERVIEWER: All right. Professor, always good to talk with you. Thank you so much.

LOUIS JOHNSTON: You're welcome.

INTERVIEWER: We've been chatting with Louis Johnston. He's an economics professor at Saint John's University in Collegeville, Minnesota.