From “Fast trains, supply networks, and firm performance” in VoxEU:
We find that sales and measured productivity rose substantially for firms near the new (high speed rail) stations after the opening. Firms in industries with greater purchased input shares outperformed firms in industries with lower purchased input shares.
So Wisconsin dodged the fate of having higher firm productivity.
The report is authored by Bernard, Moxnes, and Saito.
Update, 10/1 12:26PM Pacific: And here is the IMF’s assessment of the role of infrastructure investment. Not that I expect it to convince all the folks who think we should privatize all roads, airports, harbors, and train service…
How much does it cost to build and maintain? Non-zero productivity gains does not mean that the benefits exceeded the costs. Econ 101?
I was in Milwaukee last weekend and compared to Illinois, I can assure you that their economy is very robust. The train couldn’t add that much more for their absurdly high cost.
Tom: Teaching as I do at a public affairs/policy school, I’m all for benefit-cost analysis.
Well, the Federal government would have provided the bulk of resources for building the system. What is the current real borrowing cost to the Federal government? What would have been the impact on employment during a period of slack in the economy? How much did Wisconsin lose due to termination of contracts (as far as I know, still in the courts)?
I can answer the first question for you at least — the ten year real yield to maturity for the US government is 22 basis points…
Just because the borrowing rate is low does not mean the benefit outweighs the cost. The borrowing cost be zero or negative and still not be a good investment. So this a very non-robust answer, Menzie. Furthermore, I do not doubt that the Wisconsites near the train would be better off, so did they offer to put up 50% of the funds to get the train going? 20%? 1%? Everyone likes to recieve things that others pay for.
“Just because the borrowing rate is low does not mean the benefit outweighs the cost. ”
then you could show me how the cost outweighed the benefits?
Please, Your Bafflingship, you surely understand the cost mechanism…
hans, so you cannot tell me the cost benefit, but you are certain it is in your favor? surely you understand the benefit mechanism…
Why are you limiting the financing costs to a 10 year period? Is there some plan to repay the amount needed to finance the project within that period of time? That aspect of the plan seems to have been overlooked,
I believe the paper focused on Japan as a case study, the applicability of which to Wisconsin is less than clear.
The US does, of course, have high speed rail and has had it for nearly half a century. Here’s the text from a plaque in the Princeton Junction train station:
DECEMBER 20, 1967: A UNITED AIRCRAFT CORP. TURBOTRAIN PASSED THIS POINT
AT 170.8 MPH DURING ACCEPTANCE TESTING BEFORE ENTERING REGULAR SERVICE
BETWEEN NEW YORK AND BOSTON.
1968 – 1969: EACH OF THE SIXTY-ONE ORIGINAL METROLINER CARS
EXCEEDED 160 MPH DURING ACCEPTANCE TESTING BEFORE ENTERING
SERVICE BETWEEN NEW YORK AND WASHINGTON.
And yet, what speed do these trains manage between NY and Boston today? The slow train averages 40 mph, and the fast one, a bit over 60 mph. Is this a technology problem, or once again, the kind residents of the state of Connecticut flipping the finger to transit travelers on the East Coast?
But enough about us. Let’s talk Wisconsin. How about a fast train from Milwaukee to Chicago? That might work; it’s 90 miles. Well, how long does it take today? Amtrak takes 90 min; and driving is…90 min. So, Amtrak travels at 60 mph. You think that technology is the limiting factor on that route? How fast do you think a “high speed” train could go?
I’ll tell you. 60 mph.
And by the way, if shale oil production approaches the growth and levels of its promoters, we are going to be seriously short on infrastructure.
Keep in mind that we’re 1 car in every 6 off trend on 1 aircraft in every 3. Airports are going to be a horror show if we’re able to get more oil to market.
‘Well, the Federal government would have provided the bulk of resources for building the system’
Which would make it free?
At the risk of giving Menzie another chance to change the subject, does anybody know of a non-subsidized high speed rail project that has succeeded? I mean since the New York City subway built by financier August Belmont.
Patrick R. Sullivan: No, wouldn’t make it free — but with unemployed resources and extremely low borrowing costs by the Federal government, net present value of benefits vs. net present value of costs ratio much likely to be bigger than unity.
Since you have not responded to my previous inquiry, I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
Are we sure about those unemployed resources? Are the guys who would be building high-speed rail actually unemployed today? And how long would it take to get that labor into action? Probably two business cycles. As a result, I just don’t think you can time mega-infrastructure projects of the sort you’re envisioning.
However, I would agree that it would make sense to borrow money at low interest rates to obtain rights of way, which in urban areas (eg lake shores and northeast corridor) could take a decade or more. We should have been doing that on the CT TWP, frankly, since 1975 (with an additional three lanes each way in service by 2000).
Maybe Patrick would rather use privatization of the Indiana Interstate highway as an example of how to get infrastructure.
Or maybe Patrick can explain how it was the governments fault that it declared bankruptcy.
Indiana merely leased the operation of its toll road to private operators. And they made out like bandits by doing so. AS I PREDICTED THEY WOULD BACK IN 2006.
Indiana used the proceeds (nearly $4 billion paid in a lump sum) to build more highways. Which, among other benefits, enticed Honda to build a car factory in the state. So, Indiana’s experience is that ‘privatization’ is an excellent way to ‘get infrastructure’.
You’re not one of those guys who’s only concerned for corporate profits, are you?
Here’s some of my history with the critics of Mitch Daniel’s lease of the Indiana Toll Road;
http://hisstoryisbunk.blogspot.com/2014/08/back-home-again-in-indiana.html
Note that I predicted that the Macquarie-Cintra consortium overpaid for it by at least one billion dollars, while my erudite adversaries, such as pgl (pretty goofy liberal?), thought they’d gotten a bargain.
Patrick R. Sullivan: I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
Patrick R. Sullivan: I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
Here’s Mitch Daniels in 2012 responding to an ignorant attack on him New Mexico’s Jeff Bingamin;
http://www.washingtonpost.com/opinions/indiana-didnt-sell-its-toll-road/2012/05/10/gIQAsMFbGU_story.html
—————quote————
The senator’s broadside is based on the premise that the federal government is “paying twice” the Indiana Toll Road, once to build it and again through federal dollars used for its maintenance. In fact, no federal dollars built the road. Indiana borrowed money to construct it, and tolls paid for the principal and interest. By the senator’s illogic, Indiana should have been sending the federal government a bill every year for creating an interstate without a dollar of federal gas tax funds.
Nor have federal taxes paid for maintenance. Toll revenue, not federal dollars, has funded maintenance, although poorly. Before our lease was finalized in 2006, the toll road was in substandard condition. After 50 years, it still had a large debt and was losing money. That’s what you get when politicians run an enterprise as a patronage operation.
Indiana is midway through a decade of record-breaking road and bridge building, by far the biggest boom in our history and anywhere in America currently. A side benefit of acting when we did has been tremendous savings in time and money, as a starved construction industry bids aggressively for the work in our state. Every major project of the more than 200 our lease made possible has been completed ahead of schedule and far under budget; Indiana journalists have had to adjust to the term “government underrun.”
————–endquote———–
Scott Walker should be so lucky.
Patrick R. Sullivan: I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
Menzie, I’ll bet you’re really impressing everyone by continually changing the subject, back to your original changing of the subject away from the potential dangers of Scotland leaving the UK while continuing to use the Pound Sterling.
Might it be that that’s all you’ve got?
Patrick R. Sullivan: I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
Kopits, I wonder how often you drive between Milwaukee and Chicago. It would be a rare trip if you could drive city center to city center in 90 minutes not to mention the time you can do something productive on the train. Trains are not the answer in every case but apparently walker agrees the Hiawatha has some benefit http://m.jsonline.com/news/statepolitics/118842999.html.
Want to releave pressure on airports and pilot shortages think regional rail. Jets are at their lowest effiency over regional trips.
Walkers refusal to take the money prevented high speed between Minneapolis and Chicago. Seems pretty regional to me.
Kurt –
As with everything, there’s a study on this, no doubt. Why don’t you find it on the internet, and tell us what it says.
In any event, let’s do the St. Paul to Chicago math. The distance is 400 miles, the train makes 10 stops in 8 hours, averaging 50 mph. Those Amtrak trains can easily average over 100 mph, so train speed is not the limiting factor. Rather, the limits will be local rail speed limits and the number of stops. You could decrease the stops, but then you lose a good bit of traffic.
OK, so let’s compare it to taking a flight.
Flight time is 1:30; let’s add another 1:30 for all that airport stuff. So figure you have to achieve three hours travel time Minneapolis to Chicago to be competitive. So the high speed train has to average around 130 mph, including stops and rail speed limit restrictions (eg, the approach into the Chicago).
And it gets worse. The Amtrak fare is $130 round trip (“value”); airfare can be had for $150 and easily for $220. ( I would add that the Amtrak $66 one-way price looks hugely subsidized to me, given that Milwaukee to Chicago is $50 on Amtrak.)
So, for high speed rail to be competitive with air, it must complete the trip in three hours or less and cost no more than, say, $50 more than the current “value” price on Amtrak. Figure that gives you $180 round trip to work with.
What’s the traffic volume? Well, there are 30 flights from Minn/St. Paul to O’Hare daily. (You will not serve Midway, as it is south of downtown Chicago.) Figure half of these are air transit passengers connecting through Chicago. But maybe you could pick up the deficit in stops along the way (eg, Milwaukee, and let’s further assume no cannibalization of current Amtrak traffic). So you have a potential market of 3,000 people, of which you might take half off the airlines.
But let’s be optimistic and say you have 3000 passengers per day paying $200 on average, of which 50% can be used for debt service (interest + principal). And let’s further assume a 25 year payback period. That gives you a capitalized value of around $3 bn.
The World Bank has estimated the cost of California’s high speed rail at $56 million per kilometer. Figure it could be done for $60 million per mile (not kilometer) in the Great Lakes. This would amount to $24 bn for the Minneapolis to Chicago stretch, on a capitalized EBITDA value of $3 bn.
By this measure, you’re an order of magnitude off from having a value proposition.
“What’s the traffic volume? Well, there are 30 flights from Minn/St. Paul to O’Hare daily. ..So you have a potential market of 3,000 people, of which you might take half off the airlines.”
No one drives in a car from Minn/St. Paul to Chicago ? And wouldn’t prefer to take a train?
400 miles is a long stretch. 300 miles is probably the outside range to drive on a regular basis. But yes, you could probably get some people off the roads as well.
The Twin Cities has a metro population of about 3 million. 1000 people per day is 365,000 per year, or about 12% of the population. You think 12% of the population drives from the Twin Cities to Chicago every year. I tend to doubt it. I would guess the number is closer to 100 per day.
“I would add that the Amtrak $66 one-way price looks hugely subsidized to me, given that Milwaukee to Chicago is $50 on Amtrak.”
and air travel is not subsidized? think of all the tax breaks used through the years to get travel hubs. the new pittsburgh airport was built as a hub for usair. they hardly fly out of there anymore. subsidies exist on both sides of your argument.
Your BafflingShip:
How is air travel subsided? My understanding is that a host of fees are charged to the patrons
of that service.
you think the airlines foot the bill for construction of new airports? you don’t think the airlines receive tax concessions for locating operations in certain cities? what would be the full cost of airline tix without those supports? you are apparently lacking in your understanding.
Baffs –
The airlines themselves make a profit–or they don’t. But the shareholders carry that expense.
Why not check out the finances of the Minn / St Paul airport and tell us what you find.
steven, the airlines rely on an infrastructure funded by the public-ie a subsidized infrastructure. so arguing that rail is subsidized while ignoring the subsidy for air is not honest. not really favoring one side or the other, but lets be transparent in the discussion.
on a side note, steven, you should be interested in events surrounding the pittsburgh airport
http://www.economist.com/blogs/gulliver/2014/08/pittsburgh-international-airport
Baffs –
If you’re saying that airlines should carry their full cost, I agree.
By the way, if you wanted to invest in technology, speeding up TSA would be a good one. TSA is actually reducing traffic in the airports. The value can be calculated.
steven, i am not saying airlines should foot the entire bill. although i would agree the more skin they have in the game the better decision making they would make. but an airline is a regional benefit, so spreading the cost to the area is also fair (if you receive goods that travel by air you benefit even without flying directly). but i am saying if you want to advocate against the rails because of their subsidy, and you advocate for air travel, then in all fairness you need to acknowledge that air travel also receives significant subsidies and justify why you choose them as the winner in spite of the subsidy they receive which you hold against rail. as for TSA, i am in full agreement. the department can perform better and it should.
I am not arguing against rail. I am arguing against a specific rail project.
Rail has applicability in certain ranges, that is, longer than a car ride, and shorter than a plane ride. That’s the sweet spot. And the value proposition can be calculated–I just did it for you. (The exception: If you can make the train faster than the plane with lower unit costs. That’s the 1200 mph model I proposed above.)
I think there’s tendency to confuse subsidies with state ownership of Amtrak. These are different things, and they imply different dynamics.
I am making the point–again–that the state has different objective functions (three of them) than business (which has essentially one). A company in state ownership will tend to maximize the objective function of its owners. This is a very, very important point if you’re an economist.
So what is the objective function of Amtrak’s owners? It’s political acceptability subject to a budget constraint. Now, ask yourself why Amtrak might run at 60 mph from Milwaukee to Chicago when the train can functionally achieve twice this speed. Suppose the train ran behind Menzie’s house, and did so at 120 mph. What do you think Menzie would do? He’d probably complain (so would I), and those complaints would work their way up the political system and the politicos would say, “Gee, look, we can’t make all this noise and have all these speed risks for the residents around the tracks. Kids play near those tracks! Could you guys at Amtrak slow it all down a bit?”
And Amtrak management will think, “Well, we’re not making a profit anyway and we depend on direct subsidies. If the owners want to keep it slow, we’ll keep it slow. If they want to save money, we can always counter than we could increase speeds or cut routes if they want to save money. And then the owners will decide how much these cross subsidies of various sorts are worth to them.” So, the objective function of the owners of Amtrak may well–almost certainly will–lead to speeds lower than those a private sector company might prefer. (Once again, it’s Type I versus Type II statistical errors.)
If you want higher speed rail, privatize Amtrak. The private sector guys will want to maximize speed, for two reasons. First, it increases capacity utilization. Second, it improves competitiveness against other forms of travel. So you have a push for faster speeds that may well be absent for a state-owned enterprise. This is exactly what I mean when I write that the Brookings paper under-estimates the inherent profitability of these Amtrak routes. Amtrak, operated under a private sector mindset, would have substantially lower unit costs, and a greater share of its routes would show up as profitable.
Thus, when Slugs calls for high speed rail from Milwaukee, well, the equipment can already travel twice as fast as it does. That’s not the problem. It’s other stuff, including the ownership structure of Amtrak.
steven, can you clear up who is holding the speed limits of rail down? is it the railroad itself, or can the municipalities through which it travels require certain speeds? or are they codified by law? i understand your gripe of policy with respect to politicians. but who exactly has the power to change those speed limits? my understanding is we have national codes that control speed based on rail access and rail curve geometry, with the understanding these are the safest speeds for such conditions. so unless you are changing the rail geometry or providing bridges over the rail track, raising speed is not an option unless you provide a new construction of the rail to eliminate these problems.
Ah, Baffs. We are making progress. We are beginning to decompose the problem into its constituents. A bit of root cause analysis.
As for speed limits, well, why don’t you look them up yourself? The Truth is Out There. Google it.
steven,
actually you are the one who makes the popular buy unsubstantiated claim that amtrak slows the trains to avoid political problems with funding. i am not sure i buy into this argument, but believe what you will. on the other hand, i do know there exist speed limits related to the safety of the trains. in particular the geometry of the lines is set safely for a particular speed-you cannot arbitrarily exceed those speeds if you want to. this is why you see accidents occurring on the highway at sharper bends. so when you say
“If you want higher speed rail, privatize Amtrak. The private sector guys will want to maximize speed, for two reasons. ”
you ignore the fact the rails may be unable to increase the speed even if they want to. they are working with existing infrastructure with some inherent limits. of course you can build a new high speed rail to address this-and most projects are costly because they build the new infrastructure rather than adopt the existing. but privatizing the process will not in itself allow for high speed rail on the existing tracks.
Baffs –
Where you tend to lose speed in the Northeast corridor is typically on approaches into urban areas. Thus, trains typically crawl into New York from Newark. Similarly around Philadelphia. Connecticut is just a mess and I still don’t understand why speeds are so slow there, other than the high population of hedge fund managers.
Of course, some limits will be determined by natural features and safety regulations. (And these will also apply to “high speed” trains!) But Amtrak, because it is politically owned, has little incentive to challenge these.
Have you wondered why the drive time and train time from Milwaukee to Chicago is exactly the same? Let’s consider some market share analysis. If it costs the same, and Amtrak is materially slower, it will lose all of its traffic. If it’s the same all in as a car, then market shares should be about 50-50. If Amtrak were much cheaper or much faster, then it would get materially all the traffic. But the lower limit for Amtrak is 60 mph for commercial viability. And, lo!, Amtrak meets just that threshold. Is that a coincidence?
In any event, we are now beginning to argue a more sophisticated case. That is, given that Amtrak equipment can already easily exceed average attained speeds, what could we do, either operationally or with modest capital investments, to improve that performance. That’s the place to start.
Amateurs talk about strategy. Professionals argue market segmentation.
Menzie loves the mercantilist economic theories of the 17th Century and how he promotes the technology of the 19th Century. Well, he certainly is consistent.
Estimates for California high speed rail project:
* $68 billion to build.
* $1.7 billion annual operating and maintenance costs (electricity representing 30% of costs).
* $1.1 billion annual revenue (high estimate).
It may not be worth it.
Lt. Gov. Newsom: Stop California bullet train, redirect money
02/15/2014
“Lt. Gov. Gavin Newsom, once a strong supporter of California’s high-speed rail project…”I would take the dollars and redirect it to other, more pressing infrastructure needs, and I am not the only Democrat that feels this way.”
Newsom said he was the first California mayor (San Francisco) to support the (first) bond measure and even campaigned for it with then-Gov. Arnold Schwarzenegger.
Now, he said, “I think I’m where the public was and is. We don’t have the federal dollars that we were hoping for — only about $3 billion has come forward. The private sector hasn’t stepped up,” he said.”
When the California bullet train was approved by the voters in 2008, it was presented as a $30B project. Since approval the minimum estimate has doubled. The planned route is irrational -it will run 500 miles to get 300 miles from LA to SF. It will stop multiple times in the Central valley, ensuring political support, and ensuring it will never compete with air or break even. The $60B project ( my estimate is it will reach $100B ) is approximately 30 years of funding for the UC system.
Contractors experienced in building bullet trains didn’t get the contract; a politically connected contractor, with recent project failure – Bay Bridge, LA airport runway expansion – was chosen instead.
You know how this will end.
Steven: I can’t speak to the question of the time it takes to travel by plane from Milwaukee but I found it faster to take Amtrak from Philadelphia to Boston than fly. You have to factor in time it takes to taxi to and from the airport, time it takes to check in and go through security and time waiting for luggage. Plus you have more comfortable seating.
I take Amtrak regularly, given that I live in Princeton.
But I drive to Boston. I can make it in 4:15 in off peak hours with an autobahn mindset (and that’s from Princeton, not NY).
To take the train, I first have to go to New York, which is 1’20’ including parking. Then I have to wait to get the right train there, and then 4 to 5 hours, depending on which type of train I take. And then I’m in downtown Boston, which is fine, if I want to be in downtown Boston. So, I can make the trip easily in 5 hours by car, or 6-7 hours by train. There is no one more frustrated by this than I am. (Well, maybe there are others.) I believe I have regularly mentioned the cavalier attitude of CT residents to east coast transit traffic. Boston should be no more than 3 hours from NY. And this has nothing to do with “high speed trains” and everything to do with speed limits in CT.
Steve: you must by flying to make Boston in 4:15. I can’t count the number of time I have been slowed by construction on 95. I just returned from Cape Cod and the trip was 7 hours plus. There is also the stress of high speed driving. I know the train from Trenton to Boston is 5:30 and you can relax. Back to the other question, for Wisconsin in the midst of the recession, it seems to me with the support they could have from the Feds, it would increase GDP which I think is the main point.
You could do it on Amtrak. I’ve looked before, and it hasn’t worked for me. Maybe I’ll see if it works in the future.
Here’s the logistics:
By Amtrak: leave house at 5:15 am, in Boston at 11 am, back on the 3:20, home at 9:15
By car: leave house at 5:30 am, in Boston 10:30, take a meeting; do a lunch, leave 2:30 pm, home for dinner at 8:15 pm. The Boston approach is from the west I-91 to I-90.
Don’t talk to me about Cape Cod. I have a house there. I have nothing nice to say about the kind residents of CT as regards transit traffic. I-95 is a horror show. And it’s gotten worse and worse. Low interest government debt should be used to condemn and buy the properties adjacent to I-95 and with a “soft eviction” (ie, you could be kicked out on 12 months’ notice anytime, but maybe not for ten years or more). That would be a good use of funds, but no boost to employment.
I. Anyone familiar with the mess that is Amtrak knows that it is a creature of congress which loses about 1.2 billion each year bc. they are directed by the government to run a bunch of unprofitable routes in the West and Mid-West. The only profitable route for them is the northeast corridor route from Newport News, Va. to Boston, Ma. Anyone ridden that route lately? The trains were built in the ’70s and Amtrak has a rule that no trains can go over something like 100 mph. Not that I love the NYT, but they do a good job covering the political mess created by federal high-speed rail funding here: http://www.nytimes.com/2014/08/07/us/delays-persist-for-us-high-speed-rail.html?_r=0.
II. It shouldn’t be hard to think of the benefits of high-speed rail: reduced transportation costs for consumers, which would mean greater labor mobility and people moving through your city, just to name a few. But, that’s not really why the GOP wanted to kill high-speed rail.
III. I suspect the GOP wanted to kill high-speed rail for two reasons. First, they wanted to put political egg on Obama’s face (“we have to cut government spending to stimulate GDP growth!”). This sounds pretty evil when there were a bunch of unemployed, low/no-skilled workers sitting idle in a country with no transnational public-transportation (and with other needs for infrastructure investment) , and these projects offered a way to get those folks back to work. It is hard to argue that the government-expenditure multiplier is negative when you take an unemployed person and pay them a wage they were not otherwise earning. Even without turning the high-speed rail projects into a jobs program like the Works Progress Administration, the monies would have provided wages to a whole lot of people without work.
More and more, I think the second reason the GOP wanted to kill high-speed rail was because the projects actually would have been successful at employing people, and the GOP did not want to invest money into the class of worker that the projects would have helped, the low/no-skilled unemployed. Giving incomes to poor folks might provide them the leisure time to go and vote for people who would likely not share GOP interests. My great-grandfather — an uneducated drunk — was paid to hand out shovels by the Works Progress Administration. GDP is a formula and we know how to increase; we just lack the political will to do so. Or, just my thoughts.
Btw, Menzie, I’ve been a fan of the blog for about 4.5 years now. Great posts and the comments are always fun to read.
Kopits,
Thanks for being lazy and not taking the time to find the study on the internet that supports your premise. I’ll take your lead and make a bunch of assumptions and back of the envelope calculations that fail to include whole swath’s of considerations.
So let’s assume that a lot more than just people who fly travel between Chicago and Minnieapolis daily. Lets assume that also includes people who travel from Milwaukee, Madison, and other potential stops travel to Minneapolis and Chicago each day. Lets also assume those people don’t fly because it’s a pain in the butt because of the frequent delay’s and it’s not very comfortable. Why don’t you find the study on the internet that tells us the total number of travlers between the cities and all points between and their likelihood to use a rail system that perfroms like the best in world including timeliness and comfort.
Further, lets assume a carbon constrained world.
But seeing you correctly, incessantly, point out how the economy is constrained by the price of fuels why not consider controlling the demand side of equation rather than just the supply side. Please find me on the internet the study that shows how much benefit can be attributed to decreased energy demand and therefore reduced price on fuels that can be attributed to high speed rail.
Further, you argue that airports are going to be a horror show if shale gas production approaches it’s estimates. You want your cake and eat it too. Seems a little forethought into building some regional high speed rail could have helped alleviate the pending doom and gloom. If you want to argue we can just add capacity, I’ll assume in my equation that we can add capacity for rail too.
Enough with subidization argument. When is the last time a highway was built that was fully funded by the gas tax (even before all externalities, I bet their is a study on the internet of that) or that airlines stood on their own 2 feet without any tax breaks or low interest financing.
The fact of the matter is all transportation is subsidized because governments realize it’s good. Another fact of the matter is Walker turned down 800 million dollars from coming into his state. Last time I checked he was supposed to represent the interests of the people of the state but I guess he is just such a swell guy and Wisconsin people care about the good of the Union so much that they would rather forgo 800 million dollars rather than see the rest of the Union have to spend money on a project that benefitted the people of Wisconsin.
You decide is Walker killing Wisconsin with his Midwestern nice or a foolish politician riding the shirt tails of fossil fuel interests?
Kurt –
I am all for better solutions. But building a rail system that cannot even pay its interest costs is not a good approach.
I assumed that people would get on and off. But the $200 roundtrip price is the price for the whole route, which is assumed to be allocated pro rata along the way among multiple passengers. Revenues might be somewhat higher, but keep in mind, I am already assuming 3,000 people per day, which is 1 million per year on a Twin Cities metro population of 3 million. That’s not really a modest assumption to begin with. And if I were a betting man, I would guess a very large number of those are transiting through either Midway or O’Hare to other destinations, and you would be hard pressed to get those folks onto rail regardless. And I have valued the cannibalization of current Amtrak traffic at zero.
Finally, let me assure you that Menzie is not going to allow grain, auto parts or crude oil to blow through Madison at 130 mph. Aint’ gonna happen. (And for the record, I would not permit it through Princeton, either.)
In any event, Menzie wanted cost-benefit analysis, and I’ve shown you how to do a first order approximation using nothing but data readily available on the internet, notably:
– Google maps
– Amtrak reservation system
– Expedia (for flights)
– Wikipedia (for CA high speed rail and Twin Cities population)
I’ve demonstrated to you how to establish the requirement for a competitive offering and the feasible price points. I’ve shown you how to make a first order approximation of route traffic knowing nothing more than the number of flights. I’ve shown you how to get an approximation of capital costs.
And we know sensitivities. The model is not sensitive to the number of passengers. If I double the number of passengers, then the value proposition is only off by a factor of four. The model is only sensitive to capital costs, and to a lesser extent, debt service capability. There is no feasible passenger number which can cover $24 bn in capital costs.
So, I am not against rail traffic per se. I believe that oil will continue to be an issue, and I believe it has been holding back the economy. But high speed rail is no panacea.
Steven,
You made a serious argument, using real data that is available on the internet and did some calculations to support your point. What you got back was the typical response from commenters on the Left.
1) A personal attack that you were too lazy to find a study supporting your point although Kurt–as is typical on the Left–doesn’t think he needs to find a study supporting his point
2) A condescending summary of your argument as just some assumptions and back of the envelope calculations that ignores all sorts of relevant considerations
3) Data-free speculation about those relevant considerations
I’m always struck by the contrast between the vehemence of the views held on the Left and the weakness of the arguments supporting them.
I agree that a simple look at the facts shows that the train isn’t even close to being competitive. But I would think the value proposition is even worse. As you point out, there are 30 flights per day between those cities. But there is only one Amtrak train that leaves in the morning from St.Paul/Minneapolis, which arrives in Chicago at about 4. And there is only one train that comes back, leaving mid-afternoon and arriving late at night. On the plane, you have many choices for when you want to arrive and when you want to leave. But on the train you have only one.
Let’s say you have a 1 PM meeting in Chicago. If you take the train from Minneapolis, you need to leave the previous day, spending the entire workday traveling, since the train arrives too late the day of the meeting. So you’ll need to check into a hotel. You can have the meeting the next day but you can’t leave that day, since the train is already gone by the time the meeting is over. So you need to stay overnight in Chicago again. You can leave mid-afternoon the following day and arrive very late home. On the plane, you just fly in the morning and leave in the afternoon, all on the same day.
Not only does the train have to speed up by quite a bit, but there will also need to be multiple trains running, implying the purchase of several train sets, to even approximate the convenience of air travel.
That’s correct, Rick. It’s clear that the train as it stands is not competitive.
However, at three hours total travel time and current or slightly higher price levels, the train would be competitive at least across part of the market. And that would draw a decent share of the traffic onto the rails. Maybe you see a couple thousand passengers a day in the better case. You’d see the frequency go up to somewhere in the 4-8 departures per day. That’s enough for day-trip purposes, although not necessarily enough for airport transfers.
I think the bigger issue is the share of transit traffic through Midway and O’Hare. If you’re flying through Chicago, the train would be hard pressed to be competitive under the best of circumstances. It’s convenient to just jump on the plane in Minneapolis and check your bags through to your final destination. Given that the flight is only 90 minutes and the cost not more than $150, there’s not much a train can compete on. It can’t get you there faster, it’s not going to be cheaper, and comfort really doesn’t matter on a 90 minute leg.
The train could be competitive for certain intermediate stops not near an airport, or for those going downtown to downtown, but the proposition as a whole is uninspiring.
In the 1990s, Colorado Democrats and Republicans worked well together. Often, Democrats sounded like Republicans and Republicans sounded like Democrats. There was little hostility. It seemed, Colorado was dominated by moderates and they worked with business to accomplish their goals.
Consequently, in the 1990s, Denver built three pro sports stadiums, a light rail system, a convention center, a large main library with murals of the Old West (where the G-8 meeting was held one year), an international airport, and renovated lower downtown.
In the late 1980s, you could buy a mansion in Denver for $50,000, and there were lots of “For Rent” signs in front of apartments in nice neighborhoods. You could rent a spacious one-bedroom apartment with wooden floors and a view of the mountains for less than $300 a month. In the 1990s, many people moved to Colorado, e.g. from California. The For Rent signs disappeared and rents gradually rose.
Also, the Denver Tech Center, about 20 miles south of downtown Denver, expanded quickly with dozens of new office buildings. There was a homebuilding boom, in the area, and many impressive shopping malls were built. These were “upper-middle” class houses built on empty fields. Thousands of these large houses were built over many miles, to the mountains in the west and towards Castle Rock in the south.
Patrick R. Sullivan I did a study a while back on rail to see if there were any that could operate without a subsidy. There were two in the world. One was in France and was profitable because the roads has such heavy tolls that it was cheaper to take the train. I forget where the other was and the study was lost when my computer was stolen a few years ago. But essentially hight speed and commuter rail is never profitable. All must be subsidized.
I would be open to anyone refuting this.
I am inclined to disagree with this.
The Northeast Corridor line of NJ Transit carries 9 cars x 120 passengers x $20 per head (plus or minus) for a 65 mile trip. That’s $20,000 for a 1’25” ride x maybe 6x per day. I would guess that’s highly profitable on a cash basis. Doesn’t mean that NJT is profitable as a whole, but yes, I would guess that particular line is lucrative.
Ricardo: “I did a study a while back on rail to see if there were any that could operate without a subsidy.”
Name one airline that could operate without government subsidies. Heck, they aren’t profitable even given billions in subsidies.
Airports, air traffic control, the FAA, NTSB, TSA are all subsidized. While some fees are collected, they don’t come close to self-funding. The airlines even have federal exemption from anti-trust laws that allow them to collude via the IATA. These amount to billions in subsidies each year, yet the airlines are always on the verge of bankruptcy.
Not to speak of the subsidies for the road and highway system. If the abolition of subsidies is your baseline criterium for transportation, the U.S. would not have a transportation system at all.
By the way, given Ricardo’s posting link history, I’m guessing his “study” consisted or pursing the websites of NewsMax and WorldNetDaily.
‘Not to speak of the subsidies for the road and highway system.’
I wouldn’t, because there are few or none. Gas tax revenue not only pays for the roads, it also subsidizes rail and bus. The latter two were once thriving businesses on their own.
Patrick R. Sullivan: I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
Now, if you wanted to talk a high speed, near-vacuum rail tunnel, well, that’s actually interesting.
If you could run a train underground at 1200 mph, that would be something special.
You could link NY to Singapore, with the following stops along the way:
NY – Chicago: 40 min (You could commute to work in Manhattan from Chicago.)
Chicago to SF: 90 min
SF to Vancouver: 40 min (you could commute to SF from Vancouver)
Vancouver to Tokyo (via Anchorage): 4 hours
Tokyo to Seoul: 40 min
Seoul to Beijing: 30 min
Beijing to Shanghai: 40 min
Shanghai to Hong Kong: 40 min
Hong Kong to Hanoi: 30 min
Hanoi to Vientiane: 15
Vientiane to Bangkok: 20 min
Bangkok to Kuala Lumpur: 40 min
KL to Singapore: 15 min
SG to Jakarta: 30 min
If you made all stops and included 15 min per stop, then total time NY to SG is 14 hours, versus 18.5 hours for SG Airlines discontinued Newark direct flight. The project would cost a perhaps $1.9 trillion dollars. On the other hand, it would more fully integrate Asia, and it would allow the use of facilities for transport of goods. It would presumably last for centuries.
Interestingly, it is not primarily a US initiative. China, I think, would benefit most, as it integrates the cities of east Asia into a compact region centered around China (Shanghai or Hong Kong, specifically). I would guess the US share would be around $600 bn over 15 years of construction, figure $40 bn per year. Not cheap, but not inaccessible, either. (And as Menzie has pointed out, we blew more in Iraq.)
If you want pipe dreams, this is the way to go.
Is it OK to quote Keynes here?
‘It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly ‘wasteful’ forms of loan expenditure rather than for ‘partly’ wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict ‘business’ principles. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as ‘gold-mining,’ which not only adds nothing whatever to the real wealth of the world but involves the disutility of labor, is the most acceptable of all solutions.’
So no trains because they don’t ‘pay.’ Certainly, let’s keep those people on Unemployment Insurance, however.
I agree, people should work and add value to society in exchange for government benefits.
Unfortunately, too much government benefits are “free.”
However, does it make sense to force everyone to pay $2 for a public good that’s worth $1 – year after year – generation after generation?
Of course, the public good may be worth more than $2 to a small group of people – and less than $1 for the masses.
Here is a recent Brookings analysis. Not all train lines are cost-effective, but some are.
Et voila! A study.
I would note, Menzie, that the study understates the underlying profitability of the Amtrak routes mentioned.
As I have stated before (and learned from painful experience consulting to such companies), state-owned enterprises are not profit maximizers. They are budget sufficers subject to political acceptability. How much will Amtrak lose? As much as the politicians are willing to underwrite.
So, the Brookings study should not be taken as an indictment of rail travel. (It may be taken as an indictment of state ownership.) Trains can be very effective on medium haul routes, from 60-300 miles in range, in densely populated corridors.
Steven,
Right, train travel can be cost effective on fairly short haul trips in very congested areas. If you look at Amtrak, it’s routes are basically all unprofitable except for the Northeast corridor line and the Accela. Whenever I have traveled between Washington and Boston I do prefer the train to flying, like a lot of people.
When you consider the market for transportation, you are essentially selling time. That’s your product. And from the customer’s point of view, it’s the door-to-door time which matters. You can calculate your market share based on time differential, all other things equal. Therefore, if cost and time are equal, then we would expect market shares to also be equal. That’s how we can calculate the number of train departures on the proposed line.
The calculation of time also includes schedule, which is a potentially much more complex thing to model. And expected delays. By this measure, by the way, TSA affects market shares by mode and total volume of travel. And that can be calculated.
On longer trips, you can also compete to an extent with comfort. The train to DC is just much more comfortable than driving, which matters if you left early and are coming back late.
All of these can be measured either directly, or indirectly, as we did in this case.
So, if you’re doing cost benefit analysis, start with the customer and the customer’s perspective. Answer the question: Why would the customer choose the proposed option? There are essentially only two reasons: Because it’s cheaper, or because it’s better. For travel, “better” will by default mean “faster door-to-door.”
Finally, there is a great thing about starting with the customer: You are one. So you can ask yourself: Would I take this option? Why? What are the features I value? How much would I pay for an added feature? How much of a discount would I demand for the loss of a feature? You yourself are a source of market knowledge.
steven, you are also selling opportunity. opportunity to travel to another location to complete a task-work, vacation, etc. not all travelers are business travelers-many are traveling for pleasure to another location. in those cases time is not necessarily a priority (within reason) as much as the destination is an opportunity.
so i would agree that each person provides market knowledge, as you stated, but you may be focusing too much on a select type of traveler, such as yourself, at the expense of other types of travelers. as an example, the focus of this discussion has been on the traveler who makes a round trip in a single day. i don’t know the stats, but i would say this is a rather small population compared to all travelers. should we make business decisions based on that sample? probably not.
“…many are traveling for pleasure to another location. in those cases time is not necessarily a priority (within reason) as much as the destination is an opportunity.”
Yes, I agree, but you’re making the case against high speed rail. If the traveler doesn’t value time, why does he need to save time on a high speed train?
As for valuing schedule, that’s a really interesting exercise. A choice of potential departures is an option, and should be valued as an option. (Can you use Black-Sholes?)
All the destinations mentioned can be reached by car, bicycle, bus, goat, covered wagon, etc. The question is rather, is your proposed solution better in that it is either cheaper or faster. If it’s not, then no one will use it. If it is, then the next question is whether it is profitable. If no, then you have a superior solution, but not an economically feasible one.
In venture capital, we used the phrase MOTEPPCABE.
MO – Market Opportunity – Have you identified a product or service that people want to buy? Is there a market proposition?
TE – Team – Do you have the right team to pull it off?
PP – Profit Potential – Can you serve the market at a profit?
CA – Comparative Advantage – Can you do it better than the next guy?
BE – Barriers to Entry – Can you protect your position over time?
I was trying to make a pedagogical point. If you want to do a cost – benefit analysis of this sort, start with the customer. Sometimes you don’t have customers as such handy, eg, you may not be able to readily survey a hundred businessmen or tourists. But that doesn’t mean you don’t have market knowledge. You are also a customer, whether you are a businessman or a casual traveler. You can interrogate yourself (or significant other or parent) about how they feel about some price/service combination. It’s a starting point for a first order approximation.
Steven Kopits First, you seem to be missing the main point of the VoxEu analysis, which is that hi-speed rail increases productivity. That appears to be true regardless of any other costs or benefits from rail. Second, I don’t understand why you are only counting the 3M people from the Minneapolis metro area. Shouldn’t you also count the million or so from Milwaukee…along with all of the other folks along the route? And if Chicago is added to the route, then you’re talking about some very big numbers. Third, it may be true that heavy freight won’t be carried over the rail line, but there is no reason that high value light freight could not be carried, much as it is today via buses and planes. Finally, and most importantly, you seem to believe that relative costs between today’s rail versus cars & planes will be the same 20+ years from now. I think that’s very naïve. Like a lot of conservatives, you are having a hard time imaging that the future might not look like today. Things change despite conservative America’s best efforts to stand astride history and yell “STOP!” As you yourself point out time and again, oil supplies 20+ years out will make 300-400 mile trips by car unaffordable. Ditto with planes. Policymakers have an obligation to look one, two or three generations into the future. High speed rail is not a solution to today’s problems, but it is one possible solution to tomorrow’s problems. But it’s a long term effort, so you can’t wait until tomorrow’s problems are on top of you. It takes time for communities and businesses to establish themselves along rail lines much as it took decades for businesses and communities to follow interstates. Expensive oil and carbon taxes will make alternative forms of transportation a necessity.
Rick Stryker I don’t know how often you go through O’Hare and Minneapolis, but it doesn’t sound like you are very familiar with the reality on the ground. First, Minneapolis is a Delta (formerly Northwest) hub that connects to its hubs in Memphis and Detroit. Flights to Chicago are few and expensive. No one flies direct between Minneapolis and Chicago unless you are absolutely desperate and made of money. You’re far more likely to get routed from MSP to Detroit and then to O’Hare. Been there, done that. Plenty of times. And today’s O’Hare is not your father’s O’Hare. I remember when O’Hare used to be a 24/7 airport. Today they pretty much close the place down at 9:00pm. As a general rule, if you arrive at O’Hare after 9:00pm to catch a connecting flight, then you better plan on sleeping on one of those oh-so-comfortable benches. The idea that you can leave MSP in the morning for a 1:00pm meeting in Chicago and then fly back to MSP that evening is sheer fantasy unless it’s one hell of a short meeting. Ever been stuck in traffic along the Kennedy during rush hour? Once upon a time that was possible; but not today. The only way I would be able to do that is if I took one of the Air Mobility Command operated Gulfstream’s that the govt seized from drug lords. I can’t even do day trips between O’Hare and Washington National anymore, and there are a lot more flights between those two airports than between O’Hare and MSP.
2slugs,
As usual, your facts are completely wrong.
Let’s suppose I have a 1PM meeting on Tue Oct 21 and I need to get to Chicago from Minneapolis. There are 33 non-stop flights ranging from $95 to $400 or so round trip. There are 7 1 stop flights ranging from $417 to $823. Those 1 stop flights take 5-7 hours as opposed to 1:30 for the non-stop flights and are a lot more expensive. So, you are completely wrong that non-stop flights are “few and expensive” and that no one flies direct. I can’t imagine why anyone would not take a non-stop flight.
For my meeting, I’d take the 9 AM Delta flight, arriving at O’hare at 10:30 AM, in plenty of time to prepare and get lunch before my 1 PM meeting. Then I’d take the 5:21 PM Delta back, arriving in Minneapolis at 6:50 PM, in time for dinner.
The round trip fare would be $320. If I’m quick on expedia and plan ahead, I might be able to get a flight like this for a couple of hundred dollars.
2slugs,
You must not travel very much. What do you mean you can’t do day trips between Reagan and Ohare. Of course you can. For example, if you had a 1PM meeting in Chicago on Oct 21, you could take the 9:45 AM United, arriving at Ohare at 10:44 AM. Then you could take the 5:11 PM from Ohare, arriving at Reagan at 8:02 PM. The cost would be $320 round trip, which is a lot cheaper than taking the Gulf Stream.
Re the Chicago traffic: keep in mind those flights represent both Minneapolis and Chicago passengers. So they are already included in the Minneapolis numbers. We’ve already captured the two-way traffic.
But if you want to make a case for the intermediate destinations, here are the ones currently on the line:
– Chicago, IL – Union Station (CHI)
– Glenview, IL (GLN)
– Milwaukee, WI – Intermodal Station (MKE)
– Columbus, WI (CBS)
– Portage, WI (POG)
– Wisconsin Dells, WI (WDL)
– Tomah, WI (TOH)
– La Crosse, WI (LSE)
– Winona, MN (WIN)
– Red Wing, MN (RDW)
– St. Paul, MN – Union Depot (MSP)
Probably won’t be others on the current line, because Amtrak would already serve them if they were even remotely viable. Which of these are you going to keep to hold to your three hour travel time? Which will you drop? What do you see the market size for the stops you want to keep?
Red Wing, for example, has a population of 16, 500.
Winona has 27,600.
Wisconsin Dells: 2,700 people.
You could re-route through Madison (which is not currently on the line): 234, 000.
Maybe add Eau Claire: 66,000.
But how much does that help?
Where is that intermediate stop that’s going to make your numbers if Minneapolis / St. Paul isn’t big enough?
Acela has shown that if you ignore depreciation, interest, and other costs (whatever that is), not to mention, return on investment you can run a reasonable commuter in the most densely populated region in the US. That means the Fed Government should get out of the business and sell it off, patting themselves on the back. That is the best test if the line is profitable. For a hint of viability, it will be interesting to see what the bids come in at for the new complete set of trains. They are due Oct 1.
But what is true in in the Northeast is not true in the rest of the country. High speed buses on on limited access express lanes would be cheaper to build and operate and not be as limited in use. With new technology of driverless car, use of buses, I suspect become economically obsolete, but at least the infrastructure is still usable.
Ed
Then you have the politicians interfering with your valuable (to the users of it) service;
http://www.mercurynews.com/business/ci_26607940/sf-la-district-attorneys-threaten-move-against-ride
‘”We value innovation and new modes of providing service to the public; however we need to make sure that the safety and well-being of consumers are adequately protected in the process,” [San Francisco DA] Gascon said in a prepared statement.’
Of course. Obviously the public can’t be trusted to decide for themselves what serves their interests.
Patrick R. Sullivan: I am still waiting to hear you admit you were in error regarding depth of the downturn in Canada vs. US during the Great Depression. As you recall, you stated unequivocally:
And this statement is wrong.
Steven Kopits I think you misunderstood my point. Your calculations assumed a 3M population baseline for the MSP metro area. You also need to include the ~1M for Milwaukee and the ~6M for Chicago. Also, there might be a lot more traffic between Madison and Minneapolis than you think…especially during football and basketball seasons. But the bigger problem is that you seem to have completely missed my larger point, which was that the proposed rail service is for a future generation of travelers, not you. And that really is the main argument for hi-speed rail.
Rick Stryker I hope you don’t do your own business travel planning. You seem to have forgotten to allow time for travel to and from O’Hare. The minimum time during off hours is 25 minutes by taxi/limo and 90 minutes during rush hour. In your scenario you were going through rush hour, so the fastest way to get to O’Hare is via the train (45 minutes). And all that assumes you’re just going downtown…a huge assumption.
http://www.transitchicago.com/airports/
Of course, it will also take time to get to the train station and then you’ll have to wait at the platform for awhile. So now you’ve arrived at O’Hare…oops, the train takes you to Terminal 2 and if you’re flying direct to Reagan you will have to go to Terminal 1…probably B or C concourse. So that’s gonna be a nice hike even if you take the tram. Now you get to go through security, and because you are traveling without luggage through O’Hare and to Reagan National all within a half-day round trip window, that means TSA will pay particular attention to you. Those are TSA flags. You’ll know this when you’re told that you will have to go through the counter to check-in when you try to get your boarding pass at the self-service terminal. Sorry, those are the new TSA rules. And I hope you allowed for that recommended 2 hour interval before departure. So if you start backing up the times, it looks like you will have to leave that 1:00pm meeting almost as soon as it started…2:30pm at the latest. Is that really a meeting? As I said in my initial post, the only way to make that schedule is if it’s a ridiculously short meeting, in which case you probably should have done a video conference or something.
Of course, all this time flying was wasted time. Since you bought a restricted economy seat you won’t be able to use your laptop without that big guy sitting in front of you in seat 22E crushing the screen when he leans the seat back. I think this is one of those productivity issues that the authors of the VoxEu.org paper had in mind. As Krugman likes to point out, you can be productive on trains in a way that you cannot be in in a plane or car.
Regarding flights out of MSP, almost all of the direct flights are on very small (one seat on the left and two small seats on the right, can’t stand up) commuter planes that are frequently cancelled for various reasons. O’Hare is not a Delta hub, so Delta doesn’t have a lot of gates for large planes. You’re a very foolish person if you count on small commuters out of MSP for business…especially during the winter. But more to the point, the amount of traffic small commuters carry is trivial compared to the amount of traffic hi-speed rail can carry.
One of the problems with air travel is that you simply cannot rely upon it. Business travel is not like personal leisure travel. If a meeting is important enough that you need to fly there to attend it, then it’s probably important enough that you have to build in some buffer or slack time to allow for the inevitable delay. You cannot schedule meetings and trips under the assumption that everything will go perfectly in the minimum amount of time. Air travel is anything but deterministic.
And I’m wondering what company allows or encourages its employees to just go online and buy airline tickets through some site like Expedia. Really? Most businesses of any size that engage in business travel have established “city pair” type negotiated contracts in place. Maybe some mom & pop businesses buy business travel tickets through Expedia. I dunno. I’ve never worked for a place that did business that way.
BTW, the marginal cost of the Gulfstream flight is virtually zero. It’s considered mandatory training flight hours for both the plane and the pilots. They have to log in a certain number of hours whether the plane is full or empty. But as a personal matter I hate the damn things. Surprisingly uncomfortable and the Air Force pilots often forget that they are not flying F-16s.
“Your calculations assumed a 3M population baseline for the MSP metro area. You also need to include the ~1M for Milwaukee and the ~6M for Chicago.”
Alright. Let’s do some comps, another approach to estimating market size.
Total, that is, total embarkations from Chicago on Amtrak are 4,800 per day. I’ll spot you every one of those.
For Milwaukee, the total is 850 per day. I’ll spot you all of those.
From Minneapolis, based on, say, Baltimore, is 1,500 per day. And I’ll spot you all of those.
I’ll give you every one, no cannibalization of existing traffic. Your high speed rail literally doubles the total market from every direction from those cities. That’s 7,200 daily departures at $200 per roundtrip ticket.
That’s about $520 million in gross revenues per year. On $24 bn in capital costs, 2.2% interest is $528 bn. Even if I allow the most fantastic volume assumptions, even at a very low interest rate, and assuming no operating costs and no repayment of debt, this project does not break even. That simple.
It has nothing to do with “it’s for future generations.” It never–never–repays its capital. Not in five years, not in fifty years, not in 5,000 years.
steven, how would that analysis change if you did not hold population steady over the next 2 decades, inflation affects the price of a trip and increased business activity produced larger tax rolls? granted the increased tax revenue may be a bit tricky to model accurately, but population and inflation may be easier to model. especially if you are in the inflationista camp, you will reduce the debt yearly without doing any work at all. first order estimates are fine, but that does not mean they need to be sloppy especially if you extend over a larger period of time.
“Wisconsin’s population in 2040 is projected to be nearly 6,500,000, a gain of more than 800,000 people, or 14 percent, from 2010.”
http://www.doa.state.wi.us/Documents/DIR/Demographic%20Services%20Center/Projections/FinalProjs2040_Publication.pdf
Illinois population trends:
“The U.S. Census Bureau announced that Illinois had the sixth-lowest population growth in the nation in 2013. The state’s population growth was just 0.11 percent, adding only 14,000 people to its population of nearly 13 million people.
Other large states such as Georgia, North Carolina, Florida and Texas grew seven to 13 times faster than Illinois did in 2013. These states’ pro-growth policies are attracting workers and businesses, resulting in a higher population growth and more opportunities for residents.
Even California, despite its economic problems, managed to grow eight times faster than Illinois.
Illinois didn’t just lose out to the big states. Every one of Illinois’ neighbors grew at a faster pace. Wisconsin grew three times faster than Illinois. Indiana, five times faster.
Illinois’ three-year population growth numbers are just as disheartening. From 2010 to 2013, Illinois added just 42,000 people. In contrast, Indiana, half the size of Illinois, added more than 80,000.
California added nearly 1 million people in that time frame, while Texas grew by 1.2 million.”
http://www.illinoispolicy.org/illinois-sputtering-population-growth/#sthash.97ZfEazv.dpuf
Not much to work with here from a demographic point of view. If you want an angle of attack, it really has to be on the capital cost side. The breakeven passenger numbers all in are probably in the 20,000 / day range. For purposes of comparison, Amtrak moves about 12,500 people per day from New York.
2slugs,
As usual, you move seamlessly from one set of false statements to the next. Let’s recall that your original claim was that there are very few direct flights from Minneapolis to Chicago and those that do exist are very expensive. According to you that’s why most people take flights with stops, which are more prevalent. And that’s the reason that you supposedly can’t go to Chicago and back in one day for a meeting. You implied that you have experience doing this and that’s how you know.
But clearly you have no experience. As I showed, there are non-stop flight choices all day to Chicago and back from Minneapolis and I picked one pair as an example that is much cheaper and faster than any flight with stops. Experienced travelers (.i.e., people who don’t take the Blue line to the wrong terminal) can easily do what I suggested.
But then you shifted to a whole new set of objections. The meeting might need to go on for 2 hours. The cab might have a flat tire on the way to the airport. You might take the blue line but miss your terminal and have to backtrack. TSA will give you extra scrutiny and you’ll have to go the desk to get your boarding pass. You need to be there 2 hours before the flight. The plane might be grounded. The plane is too small and you won’t be able to get out your laptop, sacrificing valuable productivity. It goes on and on.
To anyone who really travels this is laughable. You don’t need to be there 2 hours in advance for a commuter flight. Who doesn’t do automatic check in and get his boarding pass on his phone? And no, you are wrong that the plane has 1 column of seats on 1 side of the aisle and 2 columns on the other side. The plane you will be taking to and from Chicago has 2 columns of seats on one side and 3 columns on the other. It also has enhanced economy and business class.
Contrary to your previous claims, there are enough non-stop flights to accommodate all your complaints. Worried that your meeting might not be downtown? Maybe you need to go to the University of Chicago? Then fly into Midway instead. Worried that your cab will hit a deer and that the cab driver can’t produce his hunting license for the game inspector? Or that your meeting will go on for 3 hours? Or that you might be delayed by that TSA body cavity search that businessmen usually get because they travel without luggage? Let’s build in some extra time then to your flight to Midway.
So, you can leave at 7 AM arriving at Midway at 8:34 AM. And you can leave Midway departing at 7:28 PM arriving in Minneapolis at 9 PM. That should give you plenty of time for the problems that seem to plague you.
But you were also worried about your productivity suffering during that 90 minutes that you can’t properly open your laptop. I would imagine all that lost productivity is far more valuable than $100 each way. So, let’s upgrade you to business class. Total fare: $531 from Minneapolis to Chicago. In business class, you’ll also be far more comfortable than you would have been on the Gulfstream and I bet the Delta pilots won’t do any power dives like those Air Force pilots do in the Gulfstream. Zero gravity has a way of killing your productivity.
Here’s a bit I wrote on illegal immigration. The undocumented immigrant population appears to be falling, and pretty fast at that.
http://www.prienga.com/blog/2014/9/30/oils-the-reason-the-illegal-immigrant-population-is-declining
The central point in the linked article is that firms along high speed rail lines benefit because of improvements in their supply chains. Unfortunately, that has no bearing on the economics of adding high speed passenger rail anywhere in the US since passenger and freight traffic move on completely separate rail networks.
bumticker: Try reading the article again. The point is high speed rail facilitates face-to-face contacts between suppliers and purchasers, thereby lowering search costs. Hence, your summary/critique is as complete a misreading of the study as is humanly possible.
Quite impressive!
1. But on quantifying the benefit in Dollar terms they are pretty silent, or did I miss this in the voxEU or the underlying RIETI paper?
2. at anonymous 5:55 pm below
As far as I know materials do not get transported by the fancy high speed trains
In the mean time bottlenecks in our rail system are preventing the delivery of frac sand, crude oil, and wheat to and from North Dakota to Minnesota and Wisconsin…