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Title: A historical look at subsidizing railroads
Source:
www.csmonitor.com
URL Source: http://www.csmonitor.com/Business/G ... -look-at-subsidizing-railroads
Published: May 17, 2015
Author: Matthew E. Kahn
Post Date: 2015-05-17 11:28:09 by CZ82
Keywords: None
Views: 1810
Comments: 12
A historical look at subsidizing railroads Obama administration will invest a large sum of cash into high speed rails. Historically, how have railroad investments impacted the US economy? By Matthew E. Kahn, April 26, 2011 Jeff Roberson / AP / File Did you short shares of airlines when you read about the Obama Administration's investment in high speed rail? I didn't and it seems clear that Richard White didn't either. In this NY Times OP-ED, he makes a number of interesting points and mentions the work of one of my heroes; Robert Fogel from the University of Chicago. To quote the article; “ "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." In the first sentence of his piece, Richard White tells you that he is a liberal who lives in California but he goes on to say that he is happy that the deep subsidies for HSR will be cut off due to federal budget cuts. White argues that the intellectual case for using public $ to subsidize such an infrastructure project is weak; To quote his historical case study: "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." Environmental accountants can be brought in to quantify how much greenhouse gas emissions and local air pollution will not occur if the train substitutes for driving and plane use. This should be quantified. Such externality reductions (if large enough) would provide a justification for government subsidies. Professor White understands the importance of having budget priorities. During a time of scarcity, we can't "have it all". He writes; “ "Without bond guarantees, private investors, which so far seem more prone to due diligence than the California High-Speed Rail Authority, have yet to put up money. The most astonishing thing is that even as financial problems force California to dismantle its social safety net, eviscerate its educational system, and watch its roads crumble, it has agreed on a plan for high-speed rail that demands substantial local subsidies and certainly will involve further concessions by the state to attract private investment." So, my intuition here is that HSR advocates viewed their projects as "too big to fail" and that they assumed they could rely on the federal government for more cash injections if private financing dried up. But, the Republicans sound pretty credible these days concerning their eagerness to cut off the sugar. What did Professor Fogel write about the railroads? Here is a quick overview and some references. He studied whether railroad investments had a major impact on the development of the U.S economy and he challenged the conventional wisdom that they did. Poster Comment: There are some links in the text you might want to visit.
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#5. To: CZ82 (#0)
I rather liked the interview of the railroad historian at Stanford on his book from a few years back. It seems that CSMonitor isn't the most rail-friendly source. : ) Stanford professor Richard White, author of 'Railroaded,' voices his staunch opposition to California's high-speed train Randy Dotinga After all, it's a dusty 6.5-hour trek by car and a hassle of security lines and cramped seats by plane. But Richard White, the author of last year's well-received "Railroaded: The Transcontinentals and the Making of Modern America," is no fan of the state's mammoth high-speed rail project, which is scheduled to break ground this year. He warned in the New York Times last month that "it will become a Vietnam of transportation: easy to begin and difficult and expensive to stop." White's opposition to the bullet train is unusual since he comes from the political left rather than the right. [Editor's note: In this sentence White was originally – and incorrectly – referred to as "Wilson."] (Many of the project's political opponents are Republicans.) I called him and asked why he sees the nation's railroad history as a cautionary tale instead of an inspiration. We also talked about the railroad baron he considers to be an airhead – the one whose name graces Stanford University, where White works. Q: You write that the transcontinental railroads weren't needed but got built anyway on the public dime. What happened? A: The basic thing is that no one would invest in them to begin with. You’re building a railroad into the middle of nowhere – railroads starting nowhere and ending nowhere. There's no traffic on these things, so that's why they have to be subsidized. You need all this public money and then borrowed money to get these things up and running. They went bankrupt once, twice, three times, but the men running them got tremendously rich. Railroads become these containers for speculation, collecting subsidies and selling bonds, and financial manipulation. They’re much like the companies we're familiar with now that have gone into bankruptcy but have made people rich. Q: What was the legacy of the railroad boom? A: We're still dealing with the consequences of what the railroads set in motion. They’re a disaster politically and environmentally. They begin modern American corruption, when corporations infiltrate the political system and make politics an instrument of corporate policy. My argument in the book is that this is not a happy story. Q: What do you say to skeptics who will say you're just another left-leaning academic bashing capitalism? A: This is a book that proceeds mostly by quoting the people who did it. They make a far better case for what happened then I did. It's full of quotes, oftentimes very funny, about how they invent this kind of corporate capitalism. If you don't believe me, the book is full of footnotes. For me footnotes are what give me protection. It's like smell to a skunk. What’s interesting is that I'm attacked sometimes as being a leftist, which I am, and I am often attacked as being too conservative by people who want subsidies for these large infrastructure projects. Q: You're not flattering about the brainpower of Leland Stanford, the railroad baron whose name graces your own university. What did you find out about him? A: Stanford was not the sharpest tool in the shed. A lot of this stuff has to be explained to him. His wife Jane realized exactly what was in his papers and she destroyed them all, but the story is in the papers of other people. Q: What have your overlords at Stanford thought of all this? A: I don’t think they really suspected that he was much more than how he's portrayed in the book. Stanford University has been very nice to me, but I will never speak at Founders Day. Q: How have your findings affected your perspective on the California bullet train project, which is estimated to cost almost $100 billion? The writing of the book led me to question it in the ways I wouldn’t have before. This looks like pretty much like transcontinental railroads: people demanding a huge public subsidy for a railroad that will be extraordinarily expensive. The public seems to be taking all the risk, and the gain will go to the contractors and people who build it. What they’re trying to do is make hard questions go away through all this gauzy public relations about how this is the future. Q: How should the public look at projects like this? A: You should be very leery of giving public money to large corporations on the promise that everything will be fine. The legislation has to be carefully written, and you should never have it that all the risk is public and all the gain is private. Often the private sector pretty much protects itself and is confident that the public will come in and bail them out if things goes wrong. These public-private kinds of endeavors very often will lead to an exploitation of the public.
This guy gets it right: the American railroad system was built by the government, but then privatized. The railroad system WAS the crony capitalism of the 19th Century, the method by which the Republican establishment of the post-Civil War period used the political control the war gave them to milk the national coffers for their cronies. It's how it was done, and how it's STILL done. My own answer, what I prefer, is like a cross to a vampire. I think that if the government massively subsidizes it and builds it and the public bears the risk, that it should not be privatized. The government built the railroads with public money and land at public risk. Instead of privatizing all of that profit, the government should have owned and operated what it built, sold the land that was opened up directly and taken all of that profit into government coffers. Likewise, I oppose private oil development on public land. Rather, the federal government should drill for the oil, pump it, sell it, and put all of the profit into the Treasury, to keep down taxes. The same is true for gold mines, silver mines, coal mines...ALL valuable resource extraction. There is no reason at all to allow the lion's share of the profit to escape into private hands. The government should exploit the resources directly, with the profits going into the treasury. There should be no shareholder profits or dividends whatsoever. The American people, who actually own all of these resources, should get 100% of the profits, in the form of direct payments into the Treasury. This can then express itself in lower overall taxation. Now, THAT really IS socialism, but it doesn't come about by "nationalization" of that which WAS private. The land and the resources ALREADY belong to the government, which is to say the people, and ALWAYS HAVE. The government acquired that land by purchase and war. Crony capitalist control of the government has caused all of this public property to be handed over to private interests, at fire sale prices, privatizing the profit. I oppose this. The hiring of workers and paying them a standard wage is not expensive. What is really expensive are the executive salaries and the shareholder dividends. There is no reason for either of those. Government corporations, without profit distribution to shareholders or executives, with civil service executives on civil service salaries (which are millions a year cheaper than private executive services) should be operating the mines, mills, (and railroads)(and utilities) on public lands, with all of the profit from all of the sales of resources and services going into the Treasury. It should have always been that way.
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Top • Page Up • Full Thread • Page Down • Bottom/LatestRailroad historian says California is on wrong track
February 13, 2012
Considering that he spent 12 years studying the history of American railroads, you might assume Stanford University professor Richard White would be delighted to take a bullet train from nearby San Francisco to Los Angeles in the time it takes to watch a Harry Potter movie.
#8. To: TooConservative (#5)
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