Amtrak is a Government Failure

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Fri, May 15 - 9:00 am EDT | 2 years ago by
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    Free Radical - Amtrak

    The bodies had barely cooled from Tuesday’s deadly Amtrak derailing when the usual sources began agitating for bigger government in response. The rush to campaign for more federal spending on infrastructure was so swift that it preceded any indication of the actual cause of the crash.

    The New Yorker‘s John Cassidy finger-wagged that “it’s time to get serious about transportation infrastructure,” claiming “for decades now, the United States has been allowing its public infrastructure to decay.” Meanwhile, MSNBC breathlessly reported that “House Republicans vote to cut Amtrak funding one day after crash,” bemoaning that, “the House committee repeatedly voted down Democratic amendments aimed at boosting funding for Amtrak.”

    Subsequent revelations, in an investigation that is obviously still in the early stages, that the train attempted to take a bend going more than twice the 50 mph speed limit for that section of track ought to provide these commentators some reason for pause, but is unlikely to halt the ideologically driven narrative of underfunded infrastructure.

    My colleague Dan Mitchell has an axiom that he immodestly calls Mitchell’s Law. It holds that: “Bad government policy begets more bad government policy.” The truth of that statement is on display now, as opportunists take a tragic event that, if it has any policy causes at all was brought about by too much rather than too little government, and attempt to turn it into a rallying cry for more government.

    First let’s dispatch with the primary charge. Specifically, that infrastructure spending is too low.

    This is not a new complaint. President Obama has been pushing it since he came into office, including as justification for his failed stimulus, saying, “We used to have the best infrastructure in the world. We can have it again.” It’s no more true now than it was then.

    Most infrastructure investment – on things like factories, freight rail, pipelines, etc. – is actually provided by the private sector rather than government. What government does spend on is also adequately, if not efficiently, funded. The share of roads and bridges rated as “structurally deficient” or “functionally obsolete” have steadily declined in recent decades, while highway conditions have improved. And as a percentage of GDP, federal spending on infrastructure post-stimulus remains well above the historic average since the 1960s, when the Interstate Highway System was completed.

    But spending levels don’t tell the whole story. Much of what government does spend is wasted on massive boondoggles like Boston’s Big Dig or the Bridge to Nowhere. And costs almost always run well over budget. So even if there is a great need for infrastructure spending in certain areas, the government has proven incapable of stewarding available funds in the right direction.

    Far from increasing federal infrastructure spending, it should be decentralized and left to the states. They’re more likely to utilize creative financing like user fees or public-private partnerships, or to privatize altogether. Most importantly, without central control they can experiment to find the right spending levels and funding methods.

    Which brings us back to Amtrak.

    Far from an example of fiscal neglect, Amtrak serves as a cautionary tale for too much government. It constantly loses money and is heavily subsidized despite serving a tiny ridership, providing just 0.14 percent of total passenger traffic in 2012 compared to 87 percent for highways and 12 percent for airlines.

    A major reason Amtrak is not more widely used is that it’s very expensive. Airfares averaged 13.8 cents per passenger mile in 2012, while Amtrak averaged 33.9 cents. And that’s despite very generous subsidies that have at certain times exceeded $100 per passenger. Between 2010 and 2012, Amtrak received $4.4 billion in federal aid, and it has benefited from a whopping $45 billion over the last 44 years. Not only is it still not profitable, but its expectations are so low that Amtrak bragged about a $227 million operating loss for fiscal year 2014.

    All this spending has resulted in little improvement in quality. The “high speed” Acela system, built between 1997 and 2004 from Washington to Boston, takes 15 minutes longer to get a passenger from Washington to New York than the Penn Central Railroad did in 1969. The Silver Star from New York City to Miami takes 31 hours, which is five hours longer than the route took in 1958.

    Like the Postal Service, Amtrak is a poster child for the ballooning budgets and declining quality of state-run enterprises. Divorced from market forces, these government owned businesses are abnormally immune to technological innovation. Political interests further keep unpopular, revenue losing routes open that would otherwise be shuddered in a competitive environment as politicians demand passenger train service to almost every state regardless of demand – similar to all the unnecessary post offices that never get shuttered because of political pressure.

    The government controls Amtrak’s budgets and has removal authority over its management, and the political power of labor unions also ensures that Amtrak overpays for labor. Its labor costs are so high it can’t even make a $15 hamburger profitable.

    To make matters worse, the Passenger Rail Improvement and Investment Act of 2008 outrageously gave Amtrak power to help craft regulations over its own competitors. The quasi-for-profit-entity (that never makes a profit), quasi-government-agency now helps set rail standards for the entire industry, including for the freight rail owned tracks that Amtrak in turn acquires access to.

    We don’t know yet what ultimately led to the most recent accident, but from a policy standpoint we really don’t need to know. The case for privatization is overwhelming based on Amtrak’s long, unprofitable track record alone. And history has proven that it can work.

    Micromanagement at the hands of the Interstate Commerce Commission had strangled the freight rail industry by the 1960s. Overbearing regulations, inflexible rate structures, and a costly unionized workforce left the industry unable to adapt to changing market conditions. Unions, for instance, fought for 35 years to keep firemen in diesel locomotives long after the job of stoking steam engines had been eliminated.

    Most of these policies were reversed in 1980 when the process of deregulating freight rail that began in 1976 was completed. The results were profound. Railroads divested themselves from unprofitable activities and abandoned unnecessary tracks to reduce maintenance costs. Staffs were reduced to lower operating costs, unions were forced to finally give up obsolete jobs, and other policies were adopted to improve worker productivity. They also began charging market rates.

    Today, freight rail is thriving even as prices for consumers have been forced down thanks to competition. Unshackled from the constraints of government, the industry has boomed. On the other hand, its passenger rail counterpart has floundered under the guidance of the political class. It’s time to cut Amtrak loose and let it sink or swim on its own.

    Image source: Richard Thornton / Shutterstock.com

    Brian Garst is a political scientist, commentator, and advocate for free markets and individual liberty. He also blogs at BrianGarst.com and you can find him on Twitter @BrianGarst.

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      • creative_dude

        Railroad tracks are not an easily moved resource. One of the things that this leads to is something it is easy to raise taxes on. Which also makes it an effective ‘hidden’ way to move tax money to heavily populated areas. If it is so expensive that a $15 hamburger is a money loser, why do we even pretend ?

        That is an easy answer. Patronage. The ability to pass it out is an essential part of any corrupt governmental organization.

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