This is a great article from an investment consultant's blog. He gets it right. All the way to his final recommendation, with which I disagree. To get to the end first, he calls for a referendum on the national ballot to see if America wants a high-speed rail system. He states that HSR is a problem for which "the answer couldn't be more simple." Actually, the answer is far from simple and his solution is far from useful.
That's exactly what happened in California in 2008. The voters were totally misled and supported the $10 billion bond issue by a four point margin. They were told about the costs, the anticipated performance and re-assured that the train would be nothing but beneficial to the state. After the elections, the truth started coming out, but too late. The damage was done.
Uninformed voters are a real danger to Democracy, as well have seen in recent elections and we should be fearful about oncoming ones. The symptoms of a 'dummied-down' America are everywhere, as we can see by the popularity of a large number of new presidential candidates.
And now, the media are flooded with analyses and criticism of a project that should never have gained a foothold in the first place.
Other than that, however, David Fessler does a very good job of describing the problems that come with mega-infrastructure programs, the most important being the mega-costs.
The most important thing we can say about the California project is that although promised to cost merely $33 billion in 2008, the current arithmetic gives us more like twice that amount, $66 billion. Others, me among them, figure that when all the damage has been done, the costs will be well over $100 billion. Outside of NASA or the Defense Department, nothing costs that much.
It's insane to build an 800 mile luxury railroad, where none has previously existed, that slices through cities and farmlands, to shlep several million people a year from Sacramento to San Diego at the highest ticket costs there are.
About that ridership. The builders, the CHSRA, have been claiming huge numbers of riders. Before the bond issue elections, we heard and saw in print numbers like 117 million annual riders. That would mean every man, woman and child in California obliged to ride this train three times each year. Or, if you like such analogies, one third of the entire US population would ride this train annually.
Well, after the election, those numbers went way down, but not far enough to be plausible. There's been a lot of mathematical modelling hanky-panky that constantly provides the rail authority with higher than sensible ridership numbers. Why? Because those numbers are the basis for justifying the existence of this train, the promise of which is that it will require no subsidies to operate; none whatsoever. Of course, we know better. No rail lines (perhaps with one or two exceptions, such as in Japan) break even; and those rail lines were built by the government and will never recoup their capital costs. None are what we can call truly 'profitable.'
That leaves us with yet one more mega-example of low-ball project cost numbers, such as Bent Flyvbjerg describes in his Megaprojects research, and over-promises about users and revenue returns. Liar, liar, pants on fire. And that's the California project that the voters supported and we are struggling to contain and extinguish.
America’s High Speed Rail: Another Mega-Project Misstep in the Making
by David Fessler, Investment U Research
Wednesday, April 27, 2011
Winston Churchill, the Prime Minister of Great Britain during World War II, was highly regarded as one of the great world leaders of the day.
Most people don’t realize that Churchill was “half American.” His father was a charismatic English politician, Lord Randolph Churchill, but his mother was a consummate American socialite named Jennie Jerome.
So it’s not out of the question that he would have an opinion or two about America. Perhaps his most famous quote about the United States is this one: “The United States will always do the right thing… when all other possibilities have been exhausted.”
With gasoline prices heading skyward, I think the United States is finally getting around to “doing the right thing” with regards to natural gas. I wrote about it here.
President Obama recently spoke of a new era of “doing big things.” He spoke of wind farms and high-speed rails, otherwise known as bullet trains.
High-speed rail is certainly a “big thing,” in every sense of the word. It’s just not the “right thing.”
You’ll see why in a moment.
Fortunately, the President had to agree to take an axe to some of his pet projects, and the $53 billion he had earmarked for high-speed rail was one of them.
Investing in high-speed rail would certainly create construction jobs… likely in the tens of thousands. Certainly that’s what the President is pointing to, and counting on, when he talks about it. It’s what he isn’t talking about that’s the problem.
Mega-Projects: Mega-Cost Overruns
Mega-projects like the space shuttle, the Chunnel and Boston’s Big Dig, to name a few, have all gone way over budget. Politicians, both here in the United States and elsewhere in the world, get so excited about building big “stuff” that they vastly underestimate the cost.
They get caught up in the emotion of empire building, and it usually ends badly for taxpayers.
Take the Chunnel for example: It exceeded original cost estimates by a mere 80 percent. Boston’s Big Dig, a center-city tunnel upgrade, went 200 percent over budget and took more than twice the original estimated time to construct.
It turns out that on average, most mega-projects exceed initial cost estimates by 50 to 100 percent. That extra cost burden is borne by taxpayers at local, state and federal levels.
Ok, it’s Done: Where Are All the Users?
There’s another factor at work here as well: Britain’s Humber Bridge, a $250-million project, only receives 25 percent of its projected traffic. Why? It’s situated along a lightly traveled route, and because of the high tolls, motorists simply avoid using it.
In general, public usage of mega-projects is vastly overestimated. But nowhere, according to Bent Flyvbjerg, Nils Bruzelius and Werner Rothengatter, authors of Megaprojects and Risk: An Anatomy of Ambition, is that more true than in both high-speed and urban rail systems.
Rail systems seem to have an especially dismal record when it comes to usage when measured against original projected use and cost estimates. Japan’s system needed financial rescuing in 1987, and Taiwan’s line needed help in 2009.
But perhaps the biggest mega-mess is China’s $300-billion high-speed rail project. It’s $271 billion in debt, and it’s been fraught with corruption and graft from the get-go.
According to a recent article in The Washington Post, the interest on the debt service in 2011 alone will total $27.7 billion, far exceeding ticket sales.
The Chinese system is saddled with numerous mechanical issues and shoddy construction. As a result, the trains are forced to run at slower speeds, defeating the purpose of having them in the first place.
The real problem, according to the authors of Megaprojects, lies in the toxic mixture of politicians, so-called “experts” and private-sector construction and engineering companies:
“It is easy to find motives for producing deceptive forecasts of costs and benefits. Politicians may have a ‘monument complex,’ engineers like to build things, and local officials sometimes have the mentality of empire-builders.
“In addition, when a project goes forward, it creates work for engineers and construction firms, and many stakeholders make money.”
There’s no question that infrastructure projects are crucial to keeping a country’s economic engine humming along. But lies, deception, intentionally underestimating costs and overestimating public usage is a real problem.
Funding political boondoggles also has the effect that some really necessary infrastructure projects fall to the wayside, and never get built.
What to Do With High Speed Rail? The Answer Couldn’t Be More Simple
According to the authors, this one included, that’s an easy one: Give the voters a say in what infrastructure mega-projects should or shouldn’t be funded.
Obama has been quoted as saying: “Within 25 years, our goal is to give 80 percent of Americans access to high-speed rail.” Is that a good idea? There’s a really simple way to find out, and it won’t cost the government a nickel.
Put a national referendum on the ballot, and let the American voting public decide. They know what’s needed, and have no misconceptions about who’s going to have to pay for it.
The government should forget about high-speed passenger rail. Instead, it should focus on facilitating our freight rail system here in the United States. With the ability to haul up to 500 tons per mile per gallon of diesel fuel, freight trains represent a far more economical means of transport than tractor-trailer trucks.
Having said that, the nations largest freight haulers, CSX Corporation (NYSE: CSX), Union Pacific Corporation (NYSE: UNP), Norfolk Southern Corporation (NYSE: NSC) and Warren Buffet’s Burlington Northern, are all going great guns already, and don’t really require any help from the government.
It’s just one more indication that private enterprise typically trumps government when it comes to getting things done.