The Long Trains Roll

Subsidize what we really want.

The Associated Press reports:

A nearly $15 billion Amtrak bill passed the House Wednesday as lawmakers rallied around an alternative for travelers saddled with soaring gas prices.  The bipartisan bill, which passed by a veto-proof margin of 311-104, would authorize funding for the national passenger railroad over the next five years. Some of the money would go to a program of matching grants to help states set up or expand rail service.

Almost since its founding in 1971, the National Railroad Passenger Corporation, known to everyone except politicians as Amtrak, has been a poster child for government boondoggles, earmarks, inefficiency, and waste.

At the time of its creation, passenger trains were operated mostly by private companies, many of which had been in that business for well over a century.  However, because of competition from newer sources of transportation (trucks, cars, and airplanes), overwhelmingly expensive government regulation of their business, and union restrictions, most of the nation's railways were on the verge of bankruptcy.

Large areas of railroading had been mismanaged for years, but financially speaking, by far the least profitable aspect of the industry in general was passenger operations.  Ordinarily, businesses shut down loss-making ventures, but government regulations at the time forbade the railroads from stopping passenger services.  Trains ran practically empty on decaying lines, leading to lousy, unreliable service, leading to even fewer passengers, leading to ever more losses...  Something had to give.

That something turned out to be the Federal budget.  To oversimplify, the Rail Passenger Service Act allowed the railroads to dump their unprofitable passenger operations and equipment onto the government, into the newly-formed Amtrak, and in exchange be freed of the obligation to operate passenger trains.  The only real requirement was that the railroads involved had to allow Amtrak trains to use their tracks.  In the years following, Amtrak inherited useful bits of bankrupt lines, most notably the Northeast Corridor from Washington, DC to New York and points north.

Another Government Failure

The problem is, Amtrak as a whole has never been profitable.  It has to beg Congress for money every year; and it has to specially beg for more money if it wants to make any capital investment.  Sometimes this is successful, as in the recent program to electrify the Northeast Corridor all the way to Boston; other times it's not, as a few years back when the subsidies were not authorized and Amtrak came within days of a shutdown and bankruptcy.  But it's never predictable.  How can any business make long-term plans for expenditure when their revenues cannot be foreseen in any rational way?

What's more, Amtrak is held hostage to the Golden Rule of business and politics: he who has the gold makes the rules.  Buried in Congress' appropriations are myriad requirements that Amtrak has to obey: it must provide services to Nowhere, Nebraska; it must use favored vendors at higher prices; it must spend its money here instead of there.

As a result, we get mostly empty trains trundling through the prairie, completely overloaded ones in the Northeast, and a rail yard full of train cars which were damaged in accidents which could be repaired and returned to money-earning service if only Congress would let Amtrak spend money on repairs - but they won't.

This situation has gone on for longer than most voters have been alive and in the grand scheme of a multi-trillion-dollar Federal budget, it's mighty small potatoes.  John McCain considers Amtrak to be just another earmark that he hates; practically everybody else in Congress considers it pork for their district or a favor chit that can be used to get pork for their district, and votes accordingly.

Today's exponentially increasing gas prices are putting a different light on the matter: in most parts of the country, driving is the only practical way to get around.  Wouldn't it be useful if there were an alternative?

It Needn't Be So Bad

By its nature, rail is both more efficient and more problematic than road transportation.  A well-designed rail line can transport ten times as many people as a road of the same surface area, uses a tenth as much fuel per passenger-mile, and can move them faster at peak congestion; New York City is a prime example of this.

On the other hand, rail is only useful when moving passengers or cargo in bulk; it can't bring people efficiently to the separate detached houses that fill American suburbs, and it's much more expensive to run during the off-hours when few people are traveling.  Yet there has to be a way to travel in the off-hours; if there are no trains then, people will drive anyway, because they have no choice. Today's service economy has much less predictable working hours than the factory shifts of fifty years ago, emphasizing the schedule difficulties.

To make matters worse, the way subsidies work actually creates negative incentives.  In a normal economy, it's in the best interests of the business to get more customers; it's Business 101 that you want to grow your business by convincing people to use it.  Get more customers, you get more money, your business gets bigger, you can enter more markets, and so on.  This is true even in other modes of transportation, as Southwest Airlines shows each year.

But with Amtrak and local metro systems that receive a block subsidy unrelated to the number of passengers carried, it's not always in their interest to carry more passengers.  In some cases, the amount it costs to transport one more person is more than the fare that person pays!  They're better off driving customers away! 

That's why many government-operated rail systems have such extreme overcrowding, lousy customer service, and unpredictable delays: fixing things would cost the agency money it hasn't got, and not earn them any more.  So why should they?

As long as the service isn't so bad that nobody uses it and they lose their entire subsidy, they're all set; and if the service really is that bad, they can probably go to the legislature and use the bad service as a reason for a bigger subsidy, just as public schools and teachers' unions have done for generations.  It almost always works, too.

There's a saying: "If you give me perverse incentives, do not be surprised if I act perversely."  The genius of capitalism lies in setting up an economic system that forces businesses and individuals to offer something that people want to buy, at a price they are willing to pay.  If you want to grow bigger or wealthier in a capitalist economy, you must come up with a way of persuading people to voluntarily part with their money in exchange for something you are offering them.

Only the government has the power to force people to shell out when they don't want to.  Taxes are the obvious example of this, but it applies to transit as well: by not building required roads or by boosting gas taxes, governments can force people onto the trains if they don't want to spend half their life in their cars, and by not expanding the trains, they can force people to... well, pretty much, to just squash in tighter.  Until they get fed up and move away.

Doing It Right

In order to get what we need, we first have to determine what that is, and then make sure the incentives are set up correctly.  It can be argued that passenger rail shouldn't need a subsidy; after all, we don't subsidize Greyhound Bus or United Airlines, do we?

Except that we do: Greyhound doesn't have to pay to build and maintain the highways itself, and United doesn't build airports or operate the air-traffic control systems.  The government does these things.  Yes, Greyhound and United do pay taxes and user fees, but that only covers a portion of the expenses; the rest comes from general tax revenues.

Unless we are willing to eliminate this subsidy for other modes of transport (that'll be the day!), it's not entirely unreasonable to expect a subsidy for rail as well just to keep it fair.

So, what do we want from passenger rail?  Right now, it's a question of what individual Congressmen want: rail service through their district for them to show off, overpriced union jobs for their constituents, a sweetheart contract for a factory in their district.  That's not useful.

As a nation, what we want from passenger rail is the same thing we want from airlines, bus-lines, or for that matter, taxis: the most passenger-miles at the lowest possible price.

If a train runs empty, it may look pretty, but it's not doing the country much good.  When people choose to use the train is when it starts being a benefit.  The more people use the train, and the longer they travel on it, the more benefit is being provided.  This is readily measured by checking the ticket sales: one ticket sold from Point A to Point B is one passenger, and the map tells you how far they went.  Add them up, and you find out how useful the service is.

What if we gave passenger rail services a subsidy, not based on what some Congressman wants to bring home to his district, but purely on passenger-miles?  Say, $1 per each, and $2 for distance traveled in metropolitan areas (where it's even more important to get people off the roads, and more expensive to do it.)

All of a sudden, the incentives line up: to get its money, Amtrak or the local metro authority has to find a way to convince people to use their service.  The more people choose the service, the more money they get - just like in the real world of business.

Here's where American ingenuity comes into play.  As we've discussed before, bureaucrats are neither stupid nor incompetent, quite the contrary: they are very good at performing to the incentives given them.  The trouble arises when we give them the wrong incentives.

A Golden Opportunity

At this time of record train ridership and outrageously increasing prices at the gas pump, we have the opportunity to make a change for the better.  Instead of simply dumping money down the same rathole we've been dumping it for a third of a century, let's try something different.

Start subsidizing what we really want to see - passenger-miles on railroads - and set Amtrak free of other restrictions, like a normal private business.  What would result?  Yes, some services through the boondocks would end; but we'd see better, more useful services elsewhere.

And why limit it to Amtrak?  Make the subsidy valid for any rail-based passenger transportation, no matter who operates it - private companies, local public authorities, Amtrak, anybody with a train and some track.  We'd see a boom in commuter rail that's not been seen in a hundred years - and maybe, finally, do something useful about the congestion, pollution, and expense of impossibly clogged traffic.

No government planner can solve these problems; they've had a half-century to try and things only get worse.  Instead, set up the incentives, and unleash the power of private enterprise.

It can't be any worse than what we've got now.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Economics.
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