Saturday, March 26, 2011

Economist Looks at the Economics of High-Speed Rail. Misses Quite a Bit.

Professor Field teached economics.  While couched in rather reasonable terms, I'm surprised at how much he simply repeats the mantra of the CHSRA.  His bottom line appears to be that he likes/approves of high-speed rail.  I'm quite disappointed in him.  He should know better.

Every infrastructure project, whether it's putting new cement in your driveway, or builds a high-speed rail system, employs people to do the work.  However, all the current claims of employment, especially when the Rail Authority talks about 450,000 jobs, need to be far more carefully examined with a reality check. 

The standard dollars to jobs ratio needs to be understood far more in situation-specific terms.  Basically, high-speed rail will be an importation from other countries.  It won't be "home-grown." That makes a big difference with jobs. Furthermore, high-speed rail construction today is far more technical and computer assisted than a generation ago.  That also makes a difference.  You can see where this is going. 

Much of the manufacturing will be done overseas. Field acknowledges that. But building a rail system for 200 mph is not like building any other kind of rail system.  The US has no experience or skills-pool for high-speed rail construction.  

Acela is not high-speed rail because it exists within a current, regular rail environment.  High-speed rail requires dedicated, 200 mph worthy track and ancillary systems to support it. Let's just say that the much anticipated local employment will be underwhelming.

When Field talks about the work to population ratio, he has to take into account the permeation of information technologies which have increased productivity (and profits) so much.  Permanent jobs have been lost permanently for two basic reasons; lower cost labor markets overseas (at all levels of professional/organizational classification), and the work multiplier achieved by the digital revolution. 

High-speed rail will have little impact on those market conditions.  To the contrary.  The two factors just mentioned will induce a gradual reduction in the need for business travel. American industrial and business sectors realize a profit increase through use of a reduced work-force and its increased per capita productivity.  Cutting travel expenses is a by-product of that trend.  

So, expect a lower population to travelers ratio, rather than more, despite population increases.  Yes, the transit numbers for Amtrak have been rising, but from where? The total numbers of all Amtrak riders in the US is lower than the projected ridership numbers for HSR from San Francisco to Los Angeles.  That makes no sense at all, but it does highlight how trivial rail transit has become.

Field says,"If the country is going to incur new debt, it is better to do so to acquire well-chosen infrastructure and equipment than to fund consumption."  High-speed rail will encourage -- it is dedicated to -- high-end consumption and become a part of the luxury service marketplace. 

With fewer than anticipated riders, the HSR operators have several choices. Raise ticket prices to cover operating costs, or rely on permanent state operating funds (or both).  These would subsidize already expensive tickets, and therefore benefit the very well to do population and the professional business class at the cost to everyone else. That polarization is already reaching national crisis dimensions.

Although he does acknowledge the high costs, "And building in dense areas can be costly,"  Field misses the point by citing his own residence problem next to the rail corridor.  It will be expensive wherever it is built, rural, suburban or urban. The reason is that it requires new, dedicated tracks appropriate for a far more precise technology. Speed costs. The incompatibility of HSR with other forms of rail transportation, such as Amtrak's heavy-rail hardware, or with freight, inhibits HSR from capitalizing on existing rail technology. It's uniqueness is its Achilles heel. 

In Field's own back yard, so to speak, the right-of-way already exists in the form of the Caltrain corridor.  However, it will require massive funding since it must be completely rebuilt, including lengthy elevated viaduct structures capable of supporting four tracks that in turn must be able to support heavy freight. Similar structures are called for in the rural Central Valley.  Unlike regular trains, HSR must be as straight and level as possible to attain higher speeds. That also costs. It will demand many tunnels and viaduct structures in all hilly and mountainous areas.

I'm never comfortable when historical examples are cited as models for high-speed rail.  All those earlier transit examples, the Erie Canal, the Interstate Highway System, etc. enabled the movement of goods, not just people. That's what bolstered the US economy.  

High-speed rail is a purely luxury passenger transit mode and will serve a very limited population.  The Erie Canal was the only way to travel Westward Ho, other than by horse and wagon.  (And, by the way, it was rail that eventually made the Canal "obsolete.") The 'Interstate' connected every driveway in the US with every other one, and facilitated trucking which cut severely into the freight rail marketplace.

As we keep pointing out, the US has the world's best freight rail network today and it is profitable. (Ask Warren Buffett) That can't be said for passenger transit.  And  that's because a formerly extensive passenger rail transit system, especially inter-city, has been superceded by other transit modalities. Passenger rail hasn't gone away, and it shouldn't.  But it certainly needs to be operated on a totally different footing that currently.  Today, every Amtrak ticket costs the government an additional $40 to $100 dollars.  That's not transit cost-effectiveness.   And HSR will be far worse.

I also wish that Economist Field had looked at the trade-offs between financing HSR vs. funding urban and regional public mass transit.  

High-speed rail 
project would 
create jobs
Written by
Alexander J. Field
4:30 PM, Mar. 25, 2011|

SANTA CLARA, Calif. — Would high-speed 
rail spending add jobs in the United States? 
Of course.

Even if some of the rolling stock for the 
trains were imported, structures and other 
permanent way would still have to be built 
in the United States. Under current 
conditions, any government spending — for 
rails, for bridges, for highways, for the 
military — would contribute to job creation.

Fears that government spending might 
displace or crowd out private-sector 
capital formation would be justified were 
we at or close to capacity. But we are not.

The unemployment rate remains almost 10 
percent, and this doesn't account for those 
who, discouraged, have simply left the 

Even more telling is the ratio of 
employment to population, which has fallen 
from its all-time high of over 64 percent in 
1999 to 58 percent today. In spite of large 
"supply side" tax cuts tilted toward the 
wealthy, the record of the George W. Bush 
presidency on job creation was in fact quite 

For a variety of reasons, including the 
recent financial crisis, the U.S. economy 
remains in a serious slump. High-speed 
rail spending could stimulate job growth 
and help jump start the economy. These 
projects would, of course, add to the 
deficit and concerns about its long term 
growth, particularly that attributable to 
health care, are merited.

Looking back over the last three decades, 
however, Republicans' interests in deficit 
reduction seems to have waxed and waned 
depending upon who occupied the White 

The deficit ballooned under Bush, due 
largely to tax cuts but also to increases in 
military spending and a new unfunded 
prescription drug benefit. The resulting 
run-up in the debt was regrettable, but the 
time to cut government spending is when 
the economy is strong, not when it is weak.

If the country is going to incur new debt, it 
is better to do so to acquire well-chosen 
infrastructure and equipment than to fund 

Would high-speed rail represent well-
chosen infrastructure? In other words, 
would it help the U.S. "win the future"? This 
is a more complex question. It requires us 
to consider not simply whether such 
projects would help close the output gap, 
but whether and how effectively they would 
expand the potential output of the 

Here there are legitimate concerns about 
whether the U.S. has enough high density 
corridors — such as that between Boston 
and Washington — to yield large benefits.

And building in dense areas can be costly. 
For example, the proposed Los Angeles to 
San Francisco route would go right through 
my backyard in Palo Alto, and the extent to 
which that part of the route will or will not 
be put underground has become a 
contentious political issue.

That said, state and federal governments 
have a long and largely successful record 
of supporting infrastructure development, 
from the Erie Canal to regional and 
transcontinental railroads to the Interstate 
Highway System and, more recently, to the 

The build-out of the surface road network 
during the Great Depression generated 
large private-sector benefits, contributing 
to fast productivity growth in transportation 
— railroads and trucking — as well as in 
 wholesale and retail distribution.

High-speed rail projects could certainly 
create jobs and stimulate the economy in 
the short run. Whether they would generate 
benefits similar to those of other 
government funded infrastructure projects 
is uncertain. History suggests, however, 
that there's a good chance they would.