High-Speed Rail and the Poverty of Obamanomics
By William Shughart • Friday February 11, 2011 12:02 PM PDT • 3 Comments
Hard on the heels of his speech to the U.S. Chamber of Commerce, in which he jawboned the owners of private businesses to increase hiring in return for federal tax breaks and other subsidies, President Obama has included in his budget request for fiscal year 2012 a proposal to make a $8 billion down payment on a six-year, $53 billion taxpayer-financed “investment” in high-speed rail.
The president’s budget proposal is a bad idea for at least two reasons. First and foremost, the public sector has little or no incentive to spend the taxpayers’ money in ways that maximize the ratio of benefits to costs. What is more important, no public transit system in the country, with the possible exception of New York City’s subway, generates passenger revenues sufficient to cover operating costs, let alone capital costs. All others gush red ink year after year.
Passenger fares on public transit modes typically are set at rates below full cost in order to maximize ridership and to “prove” that transportation via bus or rail is a worthy public service.
It may be reasonable to assume that high-speed rail transportation in the Northeast corridor, linking Washington, D.C., Philadelphia, New York and Boston, could pay its own way, but that conclusion depends on the relative cost of rail versus air and automobile travel among those same cities.
The social benefits of publicly financed transit options seem to have been accepted broadly, although no hard-nosed economic analysis supports it. Should we be surprised that President Obama, who has time and time again demonstrated his ignorance of the principles of economics, thinks spending tens of billions of the taxpayer’s dollars on a pie-in-the-sky rail system will allow America to “grab the future”? Meanwhile, our highways and bridges are crumbling....
Tags: Budget and Tax Policy, Business, Economics, Government subsidies, Presidential Power, Socialism, Transportation, Urban Issues 
A possible planning session within Team Obama:
Jack: The stimulus should have had more effect.
Bob: I don’t understand it myself. All of that spending produced so few jobs.
Jack: Shhh! Never say it that way. Say “Our investment in the economy prevented a total collapse and preserved over 2 million jobs”.
Bob: We would need much more than 2 million jobs to have a full recovery.
Jack: So far so good.
Bob: We have to spend more.
Jack: They’re laughing at us. Obama promised shovel ready jobs, then he admitted that there weren’t any. Almost all of the stimulus went to reduce state and household borrowing. If we spend more now, we must be able to point to the projects. Good, union work projects.
Bob: How about building railroads, the miracle of the 19th century? Everyone likes railroads.
Jack: We have plenty of railroads, and lots of capacity in our recession.
Bob: High speed passenger rail, like the Simpson’s Monorail. We can point to the trains, and they will go everywhere.
Jack: Passenger rail loses money.
Bob: The point is to spend enough to end this recession. It doesn’t matter where it is spent, as long as we spend enough. And we will borrow enough to support the spending. Borrowing is free, because we won’t have to pay it back during our administration. The Republicans will have to pay it back, if we’re lucky. Or unlucky. Or something.
Jack: That is actually good. You have exceeded yourself. Spend and spend, with real, steel tracks and big engines to point to. Shovel ready and unionized. This will save us all.
Bob: (1) Spend lots of money. (2) ??? (3) We will all be rich.
Jack: Just like the Underpants Gnomes (starts at 17:40).
Andrew_M_Garland | Feb 11, 2011 | Reply
In this economy where the TARP funds were never spent according to plans, the debt has risen and the leaders of this country haven’t a clue as to how to get out of this slump, we need to STOP, take a month, look at the big picture, spend no money except for defense and security of our country, get the hell out of all foreign situations that don’t directly affect us! We are in a bad, slowly declining economic problem affecting the entire world! Now is the time to protect our real interests, if high-speed rail is wanted, put the unemployed to work for their benefits, especially those who have received beyond the norms for unemployment. There are engineers, contracting people, and many laborers to fill all of the positions, even administrators so that there is no dependence on government people to run this. That way the unemployed in their high numbers can work a short week to justify the pay for the work performed! if they do not want to work the money stops coming in! Make it similar to the WPA and you will see Construction Companies starting to line up and make reasonable bids and we can attach fines for unacceptable work or time spent doing the job!
Arthur L. Mackey | Feb 15, 2011 | Reply
I have a strong respect for William Shughart. And his taking issue with government subsidies is well understood.
I do not think anyone will ever be able to figure out all the costs in various transportation avenues. That includes cars, truck and trains. The USA Defense and State Departments are heavily involved in getting foreign petroleum, used by all 3 of these modes of transportation. That is almost an infinite amount. Having lived in China and Hong Kong, I do believe rail transportation can work. (There it is an absolute necessity. There are several cities larger than New York in China. In the particular city that I live in at this time, they are getting a subway. But Xi’an has a population, only exceeded in the USA by New York City) Shanghai and Beijing exceed New York City’s population. Hong Kong is smaller and has a population of around 7 million. But that 7 million is in a small place and the cars are always full. ) Eventually the USA will be using more rail transportation in its larger cities. Government subsidies education and so many other matters. In addition, in the Summer of 2008, the federal highway fund had to get additional money, that was not raised by road taxes. The final point I suppose is this. Gasoline is still relatively cheap enough, for people to have their private cars and use them almost exclusively. In the future more passenger rails services, will come into good use in the largest cities in America. We all know many friends in Atlanta, that use MARTA. Sure it is subsidized but so are other means of transportation to some extent. I am not disagreeing with William Shughart. I am just throwing out some more ideas.
Paul Gentle | May 10, 2011 | Reply