By William L. Anderson*
When he was in the US Senate, President Biden was famous for taking Amtrak home to Wilmington, Delaware, each night and he often was called “Amtrak Joe” for his enthusiasm about passenger rail. Indeed, people who live in the Northeast Corridor from Washington to Boston find rail travel—whether it be from Amtrak or other passenger lines—to be a regular part of life.
I include myself among people who enjoy traveling by rail, and to celebrate New Year’s Day 2020, my wife and I took the overnight train from Seattle to Sacramento and thoroughly enjoyed our trip. When we go to San Francisco, we usually take the Amtrak to and from Sacramento and find the trip to be comfortable and relaxing. We also used Amtrak to take us to Monterey and back on an overnight trip a couple of years ago and we’d do it again.
(I should add that we have not gone to San Francisco in nearly two years because that city is deteriorating under the weight of covid restrictions and the destructive ideologies that now undergird its governance. We have no intention of becoming yet another data point in San Francisco’s rise in street crime, and one can only visit Fisherman’s Wharf and eat sourdough bread so many times.)
My preferences for rail travel notwithstanding, I find the latest push by the Biden administration to expand and “revitalize” Amtrak to the tune of $80 billion to be amusing, alarming, and full of the same economic ignorance that Ludwig von Mises debunked in his work on socialism a century ago. It is yet another chapter of the lessons never learned that government and intellectual elites continue to foist upon us, instead asking us to believe that anything is possible, provided government throws enough money into the hopper.
When Paul Krugman recently declared the Biden “infrastructure bill” to be as “American as apple pie,” that should have been enough to discredit the entire piece of legislation, given Krugman’s lack of even basic economic analysis. (Krugman believes that an economy grows because people spend themselves into prosperity; enough said.) Like so many others who seem to be starry eyed at the prospect of spending $2 trillion on this and that, Krugman and other supporters of the Biden proposal assume that capital development is simply a matter of funding and that profits and losses—something that Mises noted was vital to economic calculation—simply are irrelevant in the development of an economy.
While there is much to criticize about the Biden proposal, I shall stick with Amtrak and the proposals that Amtrak has trotted out, as its supporters are excited at the prospect of this government corporation expanding its existing routes. From CNN:
Amtrak, the largest passenger rail provider in America, said this week that it plans to upgrade and expand service, including as many as 30 new routes and more trains on 20 existing routes. Service would begin in cities like Nashville, Tennessee, Columbus Ohio, Phoenix, Arizona and Las Vegas, Nevada, pending approval from Congress.
The accompanying map shows proposed new routes from Nashville to Atlanta, Los Angeles to Las Vegas, Dallas to Houston, and Minneapolis to Duluth. Adding to the “new money solves every problem” mentality, CNN continues:
Trains would be sped up between Boston and DC, which is Amtrak’s busiest and most profitable route. Amtrak declined to say how much speeds would increase, or how many more trains would be added, though true high-speed rail, defined as speeds over 186 mph, is unlikely without even larger upgrades and new rights of way along existing routes.
In other words, Biden wants trains to go faster, so they will go faster—except that track conditions (the Northeast Corridor is infamous for its numerous curves that force trains to slow down) might not allow that to happen. So, maybe they won’t go faster, since it might be too dangerous, but out of all that we still have faster trains because the president said so, and the mainstream media today—which journalist Matt Taibbi has likened to the old media of the Soviet Union—is not going to call the president’s hand on this nonsense.
Political, academic, and media elites typically portray the dearth of passenger rail and the issues involving Amtrak simply as a lack of funding. In the eyes of elites, Congress failed to “fully fund” Amtrak when it was created in 1971 and Congress continues to be stingy. If Congress would give Amtrak the money it needs, the nationalized rail service would flourish. If only …
The CNN article continues:
The Biden rail push is a sea change from years of Amtrak struggling to find funds to operate. Joseph Schwieterman, a DePaul professor who studies rail, said he’s lived through a dozen crises of potential massive budget cuts that have set off alarm bells for rail advocates.
“It’s hard to plan new routes and build an efficient network while sitting on the edge of a financial cliff,” Schwieterman told CNN Business. “The stars are aligning for rail in ways I haven’t seen for a long time.”
Rail experts say that in many parts of the US, trains run at slow speeds, sometimes less than 50 mph, because investments haven’t been made to maintain tracks. In other parts of the country, rail service is woefully nonexistent, they say. (emphasis mine)
The key word in this section is “investments,” which is a false classification, as money spent on Amtrak is not an investment in any rational sense of the word. In fact, governments do not make economic investments, period, regardless of what politicians and the media may say. Ludwig von Mises explains the problem in Bureaucracy:
As soon as an undertaking is no longer operated under the profit motive, other principles must be adopted for the conduct of its affairs. The city authorities cannot simply instruct the manager: Do not bother about a profit. They must give him more definite and precise orders. What kind of orders could these be?
The champions of nationalized and municipalized enterprise are prone to answer this question in a rather naïve manner: the public enterprise’s duty is to render useful services to the community. But the problem is not so simple as this. Every undertaking’s sole task is to render useful services. But what does this term mean? Who is, in the case of public enterprise, to decide whether a service is useful? And much more important: How do we find out whether the services rendered are not too heavily paid for, i.e., whether the factors of production absorbed by their performance are not withdrawn from other lines of utilization in which they could render more valuable services?
While as a government corporation, Amtrak is supposed to seek profitability, that is a pipe dream, and under the current constraints, it always will need subsidies. If Biden’s new injection of money into Amtrak receives congressional approval, then after the new routes are added, the rail service will lose even more money. The proposed new routes are not investments, but rather added expenses, mere wealth transfers in which resources are moved from higher-valued purposes to lower-valued uses.
Take the proposed route from Nashville to Atlanta via Chattanooga. If one does not wish to drive, ground shuttle services are available, not to mention Megabus, which runs between the two cities, along with air travel. Both the shuttle services and Megabus are affordable, undercutting the argument that that Amtrak would fill a special “need” for transportation. Furthermore, these services (with the exception of airlines, which have become a ward of the state due to government covid-19 restrictions) exist because customers are willing to pay the full freight for them. Mises explains:
With private profit-seeking enterprise this problem is solved by the attitudes of the public. The proof of the usefulness of the services rendered is that a sufficient number of citizens is ready to pay the price asked for them. There cannot be any doubt about the fact that the customers consider the services rendered by the bakeries useful. They are ready to pay the price asked for bread. Under this price the production of bread tends to expand until saturation is reached, that is, until a further expansion would withdraw factors of production from branches of industry for whose products the demand of the consumers is more intense. In taking the profit-motive as a guide, free enterprise adjusts its activities to the desires of the public. The profit-motive pushes every entrepreneur to accomplish those services that the consumers deem the most urgent. The price structure of the market tells them how free they are to invest in every branch of production. (emphasis mine)
Amtrak does not have a cost-price structure that would be profitable, instead resorting to what only could be called cost-minus, in which passenger fares will never cover the costs of running a railroad, all the while politicians and media advocates lament the lack of nationwide passenger rail networks. Yet this hardly can be seen as an economic failure (or, in the words of mainstream economists, a market failure), especially since the freight rail system in this country is the best in the world. In other words, American railroads move freight across the country efficiently, economically, and profitably; the problem is moving people economically via rail over long distances in a way that is cost efficient. Sean Stein Smith and Peter C. Earle write:
It is easy to point to the failings and losses accumulated by Amtrak and blame any number of external factors, but the underlying causes of these failures are neither new or complicated. Chartered by government mandate, and unable to exercise the same level of entrepreneurial initiative as its private sector counterparts, Amtrak seems fated to either continually incur losses or, perhaps, to limp along at a breakeven level without the ability to make the capital investments sorely needed to improve the customer experience—let alone to compete on a cost basis versus alternative forms of transportation.
Indeed, given that Amtrak is programmed to lose money, spending on the railroad is just that: spending. It is not an investment, since there is no way to be able to place a true economic value on its capital and its services and there can be no economic return on the capital that Amtrak purchases. Yes, because of scarcity and opportunity cost, one can place a price on, say, a new locomotive or a newly built passenger car, because external markets already exist for the factors of production that are used to make these things.
As Mises noted when he explained the concept of economic calculation, profit-seeking entrepreneurs move factors of production to their highest and most economical uses. Amtrak, on the other hand, is diverting useful factors of production from higher use values to lower-valued uses. To put it another way, Amtrak is destroying wealth.
This is not to say that Amtrak—or any other passenger rail service—does not provide any benefits to people. As I wrote at the beginning of this article, I enjoy riding the rails with my wife, just as I have enjoyed riding trains in Europe and when I go back to China to teach within the year, we will take advantage of the massive Chinese tax subsidies of passenger rail there as well. However, I’m also sure I would benefit from taxpayers providing me with free helicopter service, a free home, and free meals the rest of my life.
Even Paul Krugman might recognize that the items listed in the last sentence would not confer net benefits to society at large. Even if I were to declare all these things to be “public investments,” that would not change the fact that they were naked wealth transfers and that enough of them would ultimately drag down an entire society.
Economically speaking, however, there is no substantive difference between the “investments” taxpayers would shower upon me and the “investments” made in Amtrak. Both are based upon wealth transfers, end of story.
*About the author: William L. Anderson is a professor of economics at Frostburg State University in Frostburg, Maryland.
Source: This article was published by the MISES Institute