Friday, February 11, 2011

Spending ourselves into ever deeper difficulties with HSR

While I agree with much that this article by George Berkin offers, I don't agree with the underlying premises.  Much of the criticism of high-speed rail in the US, including this article,  is predicated on the belief that anything the government does is bad, and private investors can and should do it, or it shouldn't be done. 

It is true that the deficit and debt of the US are the highest they've ever been. This HSR train project does go well beyond borrowing to sustain a moribund economy.  The Keynsian argument is valid only up to a point. The real problem is not merely the borrowing and spending, but what the funds are spent on.  

While Obama may use the word "investment," and Mitch McConnell will call it "taxes," it is appropriate to pump (invest) borrowed funds into the economy to stimulate it, but only under certain very controlled conditions.  I do not favor the slash-and-burn approach now being taken by the conservative Right. Continuing to provide corporate oil subsidies on the one hand, and cutting education is a bad idea.  And so is building a high-speed rail system. And upon that, I do agree with them.

Repairing infrastructure that's broken seems to me like a totally rational idea.  Repairing and improving urban and regional public mass transit is also an excellent investment that enables people to get to work more conveniently and increases the economic status of a larger part of the working population. What we now have for urban transit is in serious decline.  We should borrow to fix it, or to use Obama's term, we should "invest" in fixing what is broken.

But, building a high-speed train which is not an improvement on an existing rail network, but needs to be created out of whole cloth, is a totally different matter.

There is a parallel to air travel.  What is being proposed is the expansion of charter private jets that will take the first class passengers from regular air carriers and give them faster and fancier trips for more expensive tickets but also at greater cost to us, the taxpayers, since each of these flights will require massive operating subsidies. 

We've now read this point numerous times.  This luxury, train is for well-to-do professional classes who can afford the premium fares to ride it.  Berkin makes the excellent point that each seat is a very expensive ride, regardless of who pays for it.  Either too few rich people would pay full operating cost tickets, or more people would ride at lower cost tickets subsidized by all the taxpayers.  However, even subsidized, most people will never ride this train.  They will be satisfied with normal express travel at slower speeds and far lower ticket costs. We are watching this exact scenario unfold in highly touted China with it's thousands of HSR miles running half empty trains. 

So, if we are going to invest funds in the economy even though that borrowing will be a burden for our children and their children, shouldn't we fix what's broken before we build something outrageously expensive, with far too few riders, that doesn't actually solve any existing problem? And, no, the European and Asian experience are not models for us to emulate. For the rail promoters to say so is glib and simple-minded.  

One more point. If the intention is to build a high-speed rail system to benefit our economy in the future, why wouldn't the United States invest in the most valuable natural resource we have in our possession, our human capital?  Why are we slashing education budgets but building electric trains for the rich?

Finally, a word or two about that $53 billion that Obama wants to include in the Transportation budget for HSR over the next six years.  This will not buy the United States a high-speed rail system anywhere.  Even if it all went to California, it would not be enough to create an operational train from SF to LA.  We know that now.  

In other words, the funds with which the Administration intends to stimulate HSR development is insufficient to build such a system.  The 18,000 miles of high-speed rail that will perform what the Presidents promises -- connecting 80% of the population by 2035 -- will cost over a trillion and perhaps over two trillion dollars.  Why is no one saying that when they advocate this project?

It's a macrocosm of the problem facing California.  In  2008, the voters were under the impression that a $9.95 billion bond measure would build our state a high-speed train.  The current cost estimate is $65 billion and rising. The voters were bamboozled.  At both the national and state level, the government is saying, here are some teaser funds to get you started.  After that, you're on your own.  

That's no way to build or run a railroad.

PS: In the quiz below, in the article, why is there no #3 which offers the alternative of investing funds for projects that benefit the largest number of people at the lowest costs, such as infrastructure repair and upgrades; that is, fixing what's broken? Or investing in higher education education for more people such as making college affordable for those who can't afford it?
High-speed rail plan is fiscal insanity
Published: Friday, February 11, 2011, 6:06 AM
 By George Berkin/NJ Voices 

 Amtrak loses money, but taxpayer subsidies to high-speed rail would likely be worse.

Quick quiz: If you were concerned about reining in the bloated federal budget, would you 
1) take a serious look at cutting expenses, or 
2) announce plans to spend $53 billion to build a high-speed rail system that would cater to (and subsidize) well-heeled passengers?

If you chose number two, you have a kindred spirit in Vice President Joe Biden. Speaking in Philadelphia, Biden announced on Tuesday that President Obama will ask Congress next week to approve a six-year program for super-fast trains between selected cities.

The announcement echoes a goal that President Obama included in his State of the Union speech. It shows that the President has learned little from the mid-term elections and that he is not yet serious about cutting back on federal spending.

If money were no object, there are many things that would be nice having. Unfortunately, with this year’s deficit at a record $1.5 trillion and the national debt skyrocketing, we simply cannot afford the luxury of high-speed trains.

Unfortunately, budget considerations did not stop either of New Jersey’s senators from endorsing the proposal. Sen. Frank Lautenberg, who seemingly has never met a federal spending program that he didn’t like, praised this new federal budget-buster.

Picking up President Obama’s characterization of “spending” as “investment,” Lautenberg said, “This is exactly the kind of investment our nation needs to get cars off the road, revitalize crumbling infrastructure and grow the economy.” Sen. Robert Menendez likewise offered praise for the plan.

Superficially, the high-speed rail plan sounds like a good idea. After all, Japan and other nations have high-speed trains, and they are very impressive. (I rode several during a trip to Japan, so I speak from experience.) For sheer glamour, such trains have “future” written all over them.

Yes, there are many things that would be nice having. Unfortunately, at this time, we simply cannot afford the luxury of high-speed trains.

First of all, is there any doubt that the $53 billion figure is just a low-ball initial cost estimate? If the program rolls out like most federal programs – and it will, of course -- the actual costs are sure to go much higher. Taxpayers would be on the hook for these cost overruns. The outlays will also likely cut into more “workaday” improvements to infrastructure, such as bridge and road repairs.

(Cost overruns don’t just happen here. A few years back, the “Chunnel” connecting the United Kingdom and France, another national “future” project, sought bankruptcy protection after going about a billion dollars in debt.)

Second, high-speed rail service is not something that would routinely benefit the average taxpayer. To enjoy shorter travel times, passengers would be willing to pay higher ticket prices. But it is not you or I who could likely afford those expensive tickets. No, most of the passengers would be wealthy travelers.

On the other hand, it is possible that the tickets would be sold at “reasonable” prices. That is, tickets would be sold at prices far below what it actually costs to build and operate the trains. In 2008, for example, U.S. taxpayers subsidized the average Amtrak ticket by $32, according to a recent study. Taxpayers’ subsidy of high-speed train tickets would be even higher.

High-speed trains subsidized by federal taxes would also harm competing industries. Say, for example, somebody wants to travel between Miami and Atlanta. If the federal government pays for high-speed rail service between the cities, the would-be passenger can choose between taking the train and flying on already existing airlines.

But while different airlines compete against each other to provide the best service at the cheapest price, the high-speed train has an unfair advantage in competing for the customer’s business. After all, much – perhaps most – of the cost of operating the high-speed train will be subsidized by taxpayers’ money.

Faced by this unfair competition from a rival with “deep pockets,” some private enterprises would be harmed. Airlines would likely lose some of their money-making routes. Some may go out of business.

While businesses which compete in the marketplace are forced to run efficiently to make a profit, federally-funded transportation systems do not face that market discipline. Amtrak has lost money for years, and survives only because of generous federal subsidies. All but three of Amtrak’s 44 lines nationwide lost money in 2008, a study shows.

So why is President Obama pushing for a new and costly outlay of federal tax dollars in this time when many voters are concerned that the federal government is spending too much?
First, President Obama believes the federal government should spend money to “create” jobs. That was the theory behind the stimulus packages. But the jobs created have been few, and our grandchildren are being saddled with a huge debt.

More cynically, can you think of a better way for President Obama to “discredit” the “budget conscious” Republicans than to offer up a new spending proposal – but one that fairly “shouts” high-tech future? Oppose this leap into a high-tech future, and you show yourself opposed to the future.

And if a fear of seeming “anti-future” causes Republicans to “go along” with this new spending plan, how can Republicans credibly argue against any other spending proposed by President Obama? However, shortly after Biden made his announcement, Rep. Bill Shuster, a Pennsylvania Republican and chairman of the House sub-committee on railroads, described the plan as “insanity.”

Instead of the federal government deciding that it would be worthwhile and economically feasible for the U.S. to have a nationwide high-speed rail system, let private entrepreneurs tackle the problem, if they so choose.

If business investors decide that they can make a profit by providing high-speed rail service, let them risk their own money. Instead of building a nationwide system, they may aim first at establishing just a few lines, links they believe would be profitable to construct and operate.

But in doing so, the entrepreneurs would be risking their own money, not the taxpayers’ hard-earned cash. They would reap the profits, or suffer the losses.

In this time when the federal government is spending too much money by trying to do too much, giving private investors a possible shot at this new business venture seems the more fiscally prudent way to go.