Tag: interstate highway system

Trump’s Bad Economic Reasoning on Infrastructure

Last night’s address to Congress by President Trump was devoid of detail on infrastructure investment. But in justifying his desire to harness $1 trillion of public and private funds for “new roads, bridges, tunnels, airports and railways”, the President used two lines of bad economic reasoning sadly all too prevalent in public debate on this issue.

First was to invoke the building of the interstate highway system. “The time has come,” Trump declared, “for a new program of national rebuilding.” The implication: the interstate highway system was good for the economy, so we should invest more in roads today - a common rhetorical technique, but one which confuses average with marginal.

Previous economic research has indeed found that the construction of the interstate highway system substantially boosted productivity for industries associated with road use. But the same research finds those benefits to be largely one-offs, meaning this analysis does nothing to inform us about new decisions. In fact, more recent work has found that too many new highways have been built between 1983 and 2003, and that marginal extensions to the highway system tend not to increase social welfare, because the cost savings of reducing travel times are small relative to incomes and prices.

In other words, building a highway system can boost growth. Building a second highway system? Not so much. Rather than appealing to grand projects based on historical experience, all new government projects should stand up on their own merits – ideally having high benefit to cost ratios and being things that would not be undertaken by the private sector.

The second mistake was to highlight “creating millions of new jobs” as an aim or positive of any infrastructure spending. When the government is investing to build something, it should aim to do so most efficiently. “Jobs” in this sense are a cost, not a benefit, and ones “created” only come through the diversion of resources and opportunities in other parts of the economy.

Upon visiting an Asian country in the 1960s, Milton Friedman is frequently quoted as reacting to the absence of heavy machinery in a canal build by asking why the project was being undertaken by men with shovels. Upon being told it was a “jobs program,” he is said to have remarked: “Oh, I see. I thought you were trying to build a canal. If you really want to create jobs, then by all means give these men spoons, not shovels.”

If one is concerned with improving the economic growth potential of the economy, then you would base both the selection of projects and the means of undertaking them according to that objective. Sadly, when governments are involved, other ambitions (be it stimulating particular regions, appeasing certain interests, obtaining political prestige or facilitating observable jobs) tend to interfere with the stated aim. The constant talk of the benefits of wise, productive investment is an ambition, rather than something we should expect.

Yglesias on High-Speed Rail

On November 1, the Washington Post published a devastating critique of high-speed rail written by journalist Robert Samuelson. In fewer than 800 words, Samuelson blows up just about all the arguments put forth in favor of rail. An 8-word summary: costs are too high and benefits too low.

One person who remains unconvinced is Matthew Yglesias, who dismisses most of Samuelson’s arguments because some of them resemble the work of a “car-subsidy shill,” namely me. Apparently, if you believe, as I do, that all modes of transportation should be paid for by users, and not by tax subsidies, then you, too, are a “car-subsidy shill.”

Yglesias did not even read Samuelson’s article, instead reading only a Cato-at-Liberty blog post by Tad DeHaven about that article. But after a mere three or four paragraphs of analysis, Yglesias somehow concludes that $1 trillion for high-speed rail is “a bargain.” His analysis, such as it is, comes down to two points. First, Randal O’Toole opposes high-speed rail, so therefore it must be a good thing. Second (pulling out his mortgage calculator), at 4.1 percent interest over 30 years, $1 trillion is really “only” $58 billion per year. “Let’s do it!” he concludes.

I’ve never met Yglesias, so he probably doesn’t know that I personally love trains and hate driving. But as an policy analyst, I have to put my personal preferences aside and ask a couple of questions that never seem to occur to Yglesias. First, what are the benefits? Second, what do you have to give up to pay the costs?

The answer to the first question is: negligible. High-speed trains will carry less than 10 percent of the number of passenger miles carried by the Interstate Highway System (all the cost of which was paid out of user fees), and virtually no freight (interstate highways not only carry 20 percent of all passenger miles but about 15 percent of all freight ton-miles in the United States).

The history of transportation shows that new technologies succeed when they are faster, more convenient, and less expensive than existing technologies. High-speed rail is slower than flying, less convenient than driving, and (based on Amtrak’s Acela) at least five times more expensive than either. That means, as Samuelson says, “High-speed rail would subsidize a tiny group of travelers and do little else.”

Moreover, really successful new transportation technologies significantly increase mobility. Yet Florida predicts that only 4 percent (see p. 13) of the riders on its 168-mph trains would be new mobility. California’s 220-mph trains would create even less new mobility: the California High-Speed Rail Authority’s latest estimate predicts that less than 1 percent (see p. 9) of its ridership would be new mobility. Here’s an arithmetic lesson for Yglesias: something that creates almost no new mobility, and merely substitutes high-cost transportation for a few marginal travelers previously using low-cost modes, is not a good deal.

Nor is high-speed rail the environmental answer to anything. The environmental costs of construction are high, while the environmental benefits of operations are low, leading Florida to conclude in its environmental impact statement that “the environmentally preferred alternative is the no build alternative” (see p. 2-38). In fact, both cars and airplanes are becoming more energy efficient so rapidly that, by the time a national high-speed rail system could be built, rail would be the brown form of passenger travel.

On the cost side, Yglesias only asks whether my $1 trillion estimate, which is “based on the costs estimates of the California system,” is valid considering that “California is an above-average cost jurisdiction.” That’s a legitimate question that would have been answered if he had bothered to read the footnoted reference. (I divided routes into low-cost and high-cost lines and used different estimates for each.)

Samuelson’s cost estimate was only $200 billion, but that was for high-speed rail in California and Florida and moderate-speed rail (90- to 110-mph) everywhere else. The $1 trillion is for a true national network of high-speed (150-220-mph) rail. I was not the first to use a $1 trillion estimate; that was Matt Rose, the CEO of the BNSF Railway, who probably knows a little more about rail costs than either Yglesias or me.

Beyond that, how could anyone conclude that $58 billion per year is a low price for anything, especially in today’s economy? Where is this money going to come from? Not the states, most of which are financially strapped. Perhaps we could cut all other federal spending on surface transportation–but that was only $54 billion in 2009. I know: let’s pass a health care law that will save money. But we already did that, and now federal health-care costs are projected to rise by, coincidentally, $58 billion between 2009 and 2011. Darn–there goes the money for high-speed rail. (All these numbers are from page 69 of the 2011 federal budget historical tables.)

High-speed rail riders aren’t going to pay $59 billion per year–they won’t even pay the operating costs of high-speed rail on most routes, which Yglesias managed to ignore. Amtrak claims its Acela trains earn a profit (not counting capital costs), but the Acela shares a lot of its operating costs with other Boston-to-Washington trains, which lose money. Between the two of them, they barely broke even in 2009 (see p. C-1). No other high-speed rail route in this country is likely to do as well.

By the way, in order to break even on Boston-to-Washington trains, Amtrak charged Acela riders 72 cents per passenger mile. That’s more than five times the average fares charged by airlines and intercity bus companies. Fares on Amtrak’s low-speed trains are only twice air and bus fares, which I am sure Yglesias thinks is a bargain.

I don’t know why Matt Yglesias thinks spending $1 trillion on trains that only a few people will ride would be a bargain. But I have no doubt that high-speed rail would be a high-cost burden on taxpayers.

Obama’s Recycled Moderate-Speed Rail Plan

The Obama administration believes in recycling, as shown by the so-called high-speed rail plan it announced last week. Below is a map of the plan, and below that is a map of the Federal Railroad Administration’s 2005 high-speed rail plan. As you can see, the proposed routes are identical. (The grey lines on the first map represent conventional Amtrak routes.)

map of the plan

2005 map

Of course, this is a time-honored practice. Eisenhower’s Interstate Highway System was really the Bureau of Public Roads’ Interregional Highway System. There is no doubt that the Federal Railroad Administration is thrilled that Obama has adopted its plan.

Yet there are several problems with Obama’s plan. First, it is important to understand that most of Obama’s plan is not bullet trains or TGVs. Instead, it is conventional Amtrak Diesel-powered trains running a little faster – up to 110 mph, but averaging only 60 to 70 mph – than Amtrak runs today. Based on this, here are my most important objections to Obama’s moderate-speed rail plan.

1. Less than 1 percent will ride, more than 99 percent will pay

More than 4 percent of federal transportation spending goes to Amtrak, yet Amtrak carries only 0.1 percent of passenger travel. Moderate- and high-speed trains will significantly increase the subsidies but have little effect on the total travel. Why is it fair for 99.8 percent of people to pay for the rides enjoyed by the other 0.2 percent?

Even with subsidies, high-speed rail fares will be about 50 percent higher than ordinary Amtrak fares. For example, passengers pay $69 to ride conventional trains from New York to Washington, and $99 to ride high-speed train. (By comparison, an unsubsidized bus is $20 and unsubsidized airfares are $99.) This means only the wealthy and those whose employers pay the fare will ride high-speed rail. All taxpayers will end up paying for rides of bankers, bureaucrats, and lobbyists.

2. Moderate-speed rail is dirty

Obama’s claims that trains are better for the environment are pure speculation. Amtrak today is only a little more energy-efficient than cars and planes. While cars and planes are expected to get far more energy-efficient in the future, running trains at higher speeds will make them less energy-efficient.

True high-speed rail, which generally powered by electricity, is dirty too. Even if the electricity comes from renewable resources, the energy and environmental cost of construction will be enormous. It will take decades for the trivial annual savings to pay back that cost.

3. It doesn’t work in Europe

High-speed trains in Europe are convenient for tourists, but the average European rarely uses them. Even in France, which has more high-speed trains than any other European country, the average resident rides heavily subsidized high-speed trains just 400 miles per year. Despite punitive fuel taxes, they drive 7,600 miles per year, a number that is increasing faster than high-speed rail travel.

4. It doesn’t work in Japan

The Japanese drive less than French or Americans, but they don’t ride high-speed rail more than the French. The average resident of Japan drives 4,000 miles per year and rides high-speed trains 400 miles per year. The Japanese ride trains more than the residents of any other country – nearly 1,900 miles per year including subways and other urban rail – but due to premium fares, nearly 80 percent of train riding is on conventional trains.

5. Every car off the road means more new trucks on the road

Obama’s moderate-speed trains will run on the same tracks as existing freight trains. Since many of America’s rail lines are near capacity today, there is a real danger that moderate-speed trains will push freight onto the highways.

Europe’s rail network carries 6 percent of passenger travel, while ours carries only 0.1 percent. But European trains carry less than 17 percent of freight, while 73 percent goes by highway. By comparison, American trains carry 40 percent of our freight, while only 28 percent goes on the highway. In other words, to get 6 percent of passengers out of their cars, Europe put nearly three times as many trucks on the road.

Personally, I love trains. But Obama’s plan is bad for taxpayers and bad for the environment. We would be better off ending all subsidies to transportation than piling on subsidy after subsidy for transport that is supposedly environmentally friendly but in fact hardly anyone will use.