Sunday, April 24, 2011

High-speed rail update

Has the tide officially begun to turn against the federal government's ceaseless promotion of high-speed rail as some kind of economic tonic? This certainly appears to be the case, with today's New York Times featuring a column from a Stanford history professor and self-described liberal which warns federal subsidies for construction of a high-speed rail network run the risk of repeating past mistakes:
In his State of the Union address, President Obama compared high-speed rail to the 19th-century transcontinental railroads as parallel examples of American innovation. I fear he may be right.
For the country as a whole, the Pacific Railway Act of 1864 and subsequent legislation subsidizing the transcontinental railroads — the lines that crossed the continent from the 98th meridian to the Pacific Coast — were the worst laws money could buy. By encouraging dumb growth, those laws sacrificed public good for private gain, and Americans came to regret it.
...Proponents of the transcontinental railroads promised all kinds of benefits they did not deliver. They claimed that the railroads were needed to save the Union, but the Union was already saved before the first line was completed. The best Western farmlands would have been settled without the railroads; their impact on other lands was often environmentally disastrous. For three decades California commodities could move more cheaply, and virtually as quickly, by sea. The subsidies the railroads received enriched contractors and financiers, but nearly all the railroads went into receivership, some multiple times; the government rescued others.
As more astute members of Congress came to recognize, the subsidies were a mistake. One described the major drawback of a proposal for the government to guarantee bonds: “If there be profit, the corporations may take it; if there be loss, the government must bear it.”
After 1872, the country turned against the subsidizing of large corporations. It was a little late. Fraud and failure left a legacy that would lead to four decades of government attempts to get back what had so carelessly been given away. In the 1890s, Congress was still trying to recover money from the Pacific Railway.
Yet here we are again. The Obama administration proposed a substantial subsidy, $53 billion over six years, to induce investors to take on risk that they are otherwise unwilling to assume. Such subsidies create what the economist Robert Fogel has called “hothouse capitalism”: government assumes much of the risk, while private contractors and financiers take the profit.
Indeed, as wikipedia notes:
The original track [for the trans-continental railroad] had often been laid as fast as possible with only secondary attention to maintenance and longevity. Getting the subsidies was initially the primary incentive; upgrades of all kinds were routinely required in the coming years.
Over at the Washington Post, meanwhile, comes a story that China's adventure in high-speed rail isn't exactly going according to plan:
The Finance Ministry said last week that the Railways Ministry continued to lose money in the first quarter of this year. The ministry’s debt stands at $276 billion, almost all borrowed from Chinese banks.
“They’ve taken on a massive amount of debt to build it,” said Patrick Chovanec, who teaches at Tsinghua University. He said China accelerated construction of the high-speed rail network — including 295 sleek glass-and-marble train stations — as part of the country’s stimulus spending in response to the 2008 global financial crisis.
Zhao Jian, a professor at Beijing Jiaotong University and a longtime critic of high-speed rail, said he worries that the cost of the project might have created a hidden debt bomb that threatens China’s banking system.
“In China, we will have a debt crisis — a high-speed rail debt crisis,” he said. “I think it is more serious than your subprime mortgage crisis. You can always leave a house or use it. The rail system is there. It’s a burden. You must operate the rail system, and when you operate it, the cost is very high.”
...During February’s annual migration, officials noticed that the high-speed trains were largely empty. But the slow trains on those lines have been taken out of use, giving people few choices. As a result, the highways were clogged and more people rode long-distance buses.
Given the mounting evidence against high-speed rail, I continue to think that support for this project rests on logic little more rigorous than the following:
  • High-speed rail is used in Europe, and therefore is worth doing by definition (other examples of such thinking are high personal income taxes, the VAT and socialized medicine).
  • High-speed rail is shiny, cool and futuristic, therefore if we build it we will be transported to the future. Or something.
  • It's infrastructure spending, which provides another excuse for the federal government to dish out money and "create jobs."
  • High-speed rail will be operated by the government, thus providing an opportunity for those who couldn't hack it in the private sector to run a business at taxpayer expense.
That an increasing number of people appear to be coming to their senses is welcome news indeed.

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