Over the past month, economist Ed Glaeser has explored the benefits of high-speed rail in an occasional series over at the New York Times website. To put it mildly, his reception in the blogosphere has been wretched. Ryan Avent at Streetsblog has been a particularly devastating critic, picking apart Glaeser’s analysis strand by and strand and characterizing the overall effort as “daft and indefensible.”
But what’s been missing thus far is a numbers-based rebuttal of Glaeser’s “back-of-envelope calculations.” He figures three categories of benefits from high speed rail: travel (for example, fewer car accidents and reduced highway congestion), environmental (lower carbon emissions than car or plane travel, etc.), and improved land use (the rail project encouraging denser, more walkable cities, etc.). Through this combination of factors, Gleaser examines a hypothetical HSR link between Dallas and Houston and calculates annual benefits of $158 million. Not bad perhaps, but they pale in comparison to annual costs of $648 million. The gap between costs and benefits–an annual loss to society of $500 million–would seem to be so huge as to kill the prospect of US high speed rail in its cradle.
That may even to have been Glaeser’s intent in writing the series. The problem is that–through a sorry mix of omission, oversimplification, distortion, and deficiency–his calculations bear no relation to the effects he is claiming to consider. So it’s important to show that “the numbers” do not at all undermine the viability of HSR in the US, even outside the northeast and California. In fact, they tend to support it.
By populating his model with a better set of assumptions, we hope to show how badly the economist missed the mark even on his handpicked example of an HSR link between Houston and Dallas. In reality, a well-designed high speed intercity rail project between the two largest cities in Lone Star State would likely produce a net economic benefit–not at all the white elephant Glaeser suggests. In this more comprehensive model that takes into account trivialities like regional population growth and a reality-based route, the annual benefits total $840 million compared with construction and maintenance costs of $810 million. Which is to say, our numbers show that HSR pays for itself rather handily.
And this would be early in the lifecycle of the system, with those benefits likely to grow in future decades.
The Basics: A Better Set of Assumptions
Rather than looking at Glaeser’s hypothetical 240-mile rail line directly and exclusively between Dallas and Houston, I’ll base my argument on a line actually under consideration called the Texas T-Bone that would run roughly 300 miles between the cities, with intermediate stops at Waco, Temple, and College Stations. For simplicity’s sake, in this piece I’ll ignore the roughly 140-mile proposed extension of the line south to Austin and San Antonio but factor in connecting slow-speed trains from those locales.
Despite the fact that an HSR system would take more than a decade to build, Glaeser calculations are all for 2008. Why? We have no idea. Unlike some other US states, Texas is projected to grow steadily in coming years. Assuming the project gets underway relatively soon, the Texas T-Bone HSR line ought to be hitting full stride around 2030. So our model focuses on that year. Texas is projected to have 33 million people (up from 24 million today) with the metropolitan areas of Houston and Dallas each growing by more than 4 million inhabitants to populations of 9.9 million and 10.6 million, respectively.
Ridership: Using Real-World Examples
Glaeser argues that a Houston-Dallas line would be roughly one-half as popular, relative to population, as the current slow Amtrak service is in the Northeastern Corridor. His reasoning is that both Dallas and Houston are less transit-friendly areas, and therefore less conducive to train travel. So, assuming a 50 percent lower per capita ridership rate, he comes up with 1.5 million annual customers for the line – this is similar to the number of people who currently fly directly between the two cities.
There are a number of major flaws with this approach though. First, while transit-friendly conditions are desirable – and it bears mention that both Dallas and Houston are expanding their transit systems significantly – there is little evidence those networks are vital in attracting customers to high-speed rail.
Second, Amtrak services between Washington and Boston have never fit the international definition of high-speed (186 mph). They reach a high of 165 mph for a short segment in Rhode Island and Massachusetts, but Acela trains average only 72 mph overall, so their ridership is hardly an apt point of comparison, as Glaeser suggests.
Third, Glaeser neglects to mention that a number of commuter rail agencies in the Northeast serve long-distance travel, such as MARC between Baltimore and Washington and MBTA between Boston and Providence. These agencies cannibalize Amtrak market share, carrying more than 60 million passengers a year on track shared by Amtrak Northeast Regional and Acela trains; Glaeser’s calculations do not account for these rail riders at all.
So instead of deeply flawed attempts to project ridership based on the Northeast, we should be focusing on high-speed rail’s noted ability to take substantial market share away from the airlines and even from automobile commuters. Evidence from overseas to this effect is plentiful, though Glaeser doesn’t even mention it. In France, for instance, the 200 mph TGV Est line between Paris (metro population 11 million) and Strasbourg (600,000) carried 11 million passengers in its first year of operation. Rail now commands 70% of total travel market share, including automobiles, versus 30% before the line opened. Today, roughly 10 million people a year travel between Dallas and Houston either by plane or by car.
Looking to the future provides even more evidence of the route’s potential ridership. We can reasonably speculate that trains would take 80% of the market from air services offered between Houston, Dallas, College Station, Waco, and Temple, each of which would be located directly along the line. By 2030, about 4.3 million people will take flights between those cities, based on current growth rates. In addition, people connecting to the line on routes between Austin and Houston (900,000); Austin and Dallas (1.2 million); and Dallas and San Antonio (800,000) would have an improved time incentive to take the train (up to 30% of market share for the first two and 10% for the latter). In total, around 4.1 million people every year would choose the high-speed route instead of air travel.
Of the 12 million people who will likely drive between Dallas and Houston by 2030, looking to international example leads us to conclude that 25% could be expected to abandon their cars for the train ride as long as services are provided at a competitive rate. Fewer people would likely choose the train on trips between Austin and Dallas (15%); Austin and Houston (10%); and Dallas and San Antonio (5%), simply because rail would be less convenient than on direct Dallas-Houston journeys. Based on reasonable assumptions, 1.3 million car drivers could be expected to switch to the train on trips to and from College Station, Waco, and Temple. In total, a full 7.3 million trips might be removed from the highways.
This adds up to a projected more than 11.4 million annual riders riding the train (27,000 a day), far higher than Glaeser’s oversimplified assumptions. This figure is well supported by a comparison with Spain, whose AVE line between Madrid (7.1 million) and Barcelona (3.2 million) will serve 8 million passengers a year by 2011, taking 50% of total market share.
With this level of ridership, we calculate annual travel benefits alone of $578 million (see this PDF for detailed breakdown of how we got this figure).
Environmental Effects: 21st Century Rail Travel Should Be Zero Carbon
The construction of a high-speed rail line would require a large environmental sacrifice – construction crews would need to shape the land, poor concrete, lay the tracks, and build the stations. This work would release millions of tons of carbon dioxide into the atmosphere. But building a new highway such as Texas’ planned I-69 would require similar work and would almost certainly be just as ecologically damaging. On a somewhat smaller scale, the same can be said for new terminals or runways at airports.
In a rapidly growing state like Texas, though, a serious need for a transportation capacity upgrade is bound to arise over the next decades – especially between the state’s two biggest cities. The construction of this infrastructure would require carbon emissions on a large scale–but since we don’t yet have competing plans for highway or airport capacity expansions if the high-speed system is not built, the most meaningful question for us is the rail system’s environmental effects in operations rather than construction.
Glaeser himself demonstrated the efficiency advantages of rail, showing that it releases less than a fifth of the emissions per passenger-mile of those of automobiles and less than a fourth of those of airplanes. Air travel emissions are particularly damaging to the environment because the nitrogen oxides and water vapor they release magnify the global warming effect.
Approximately 150 daily flights would be eliminated if the ridership model suggested above plays out. In comparison, Dallas’ Love Field hosts only 130 daily departures today. As such, the opening of the high-speed line would represent significant relief for airports and it would delay the need to expand terminals and runways, projects that are typically multi-billion-dollar operations.
The reduction in carbon emissions from people choosing not to drive cars or fly airplanes would be quite significant – especially if the rail system is powered by renewable energy. These savings are particularly evident on the very short flights on this corridor, such as from College Station to Houston or from Waco to Dallas, which could be replaced entirely with rail service.
Glaeser argues the power plants that produce the electricity used by high-speed trains would produce significant carbon emissions, reducing the environmental gain from switching away from air or car travel.
Yet he fails to account for the green potential of an electric rail line: it can operate without releasing any carbon at all. California, which is developing a 220 mph line between San Francisco and Los Angeles, has pledged to run its trains with electricity obtained only from carbon-neutral sources, such as wind turbines and solar panels. Texas could make the same commitment and dramatically expand the environmental benefits of the high-speed system. Texas is uniquely positioned to build such facilities, too – its western and northern sections are sunny, windy, and sparsely populated.
Needless to say, airplanes and automobiles cannot match high-speed’s promise of carbon-free long-distance travel. Just as significantly, this allows the system’s capacity to be ramped up – more and more trains, serving a growing population – with no additional carbon output.
With greater ridership, all the benefits that Glaeser calculates–based on better safety, congestion reduction, and lower carbon emissions–are all amplified. All told, we figure the annual environmental benefits would be $150 million in 2030 — compared to the $26 million Glaeser’s calculates for 2008.
Land Use: Give Density A Chance
With the exception of two flights a day to Atlanta, the small airports in Waco, Temple, and College Station each only provide service to Dallas and Houston today. If high-speed rail replaced plane circulation, these airports could be downsized and redeveloped for the public’s benefit. This is especially true for Easterwood Field in College Station, which is located just a few blocks from Texas A&M University. The use of this land for new housing or office space could reap significant new tax revenue for the city.
Glaeser himself assumes that high-speed rail would change the habits of some Americans: he argues that perhaps 100,000 households could be convinced to switch from suburban areas to inner city neighborhoods in both Dallas and Houston. Doing so provides a net benefit to society through carbon reduction.
Those estimates, however, are likely low since both metropolitan areas will be expanding by more than four million people by 2030. What if the state were proactive in encouraging dense, infill development around station cores? That straightforward strategy–which has a long history of success in cities around world–would both encourage ridership and amplify the projects benefits. It would also open up significant new economic opportunities for inner-city growth in those two cities as well as in Waco, Temple, and College Station. But Glaeser chooses to ignore that a high-speed system would attract offices and retail around stations. With both residential and commercial development being drawn to a downtown magnet rather than agglomerating in loosely around the cities’ outskirts, transit use and density would increase accordingly, both to society’s net benefit.
By plugging in a few of these conservative assumptions we get annual land use benefits of $72 million generate by a high speed rail project.
Conclusion: Build, Baby, Build
This reevaluation of Glaeser’s argument seems to upend his primary conclusion that the construction costs of the high-speed line would vastly outweigh the corridor’s benefits. While he figures that a 240-mile train system would result in a net annual loss of around $500 million, this analysis – using his own economic benefits model – shows a net benefit of $30 million a year (see our PDF for the math). High-speed rail between Dallas and Houston, then, seems like an eminently sensible thing to do.
See the full numerical breakout on this PDF.
Note: Car Travel Data from the 1995 American Travel Survey; updated by the author to compensate for the growth in the population of metropolitan areas. Population estimates based on existing population growth of 7% a year in San Antonio metro area; 8% in Dallas and Houston; and 9% in Austin. Car travel estimates for smaller cities (Waco, Temple, and College Station) calculated based on assumption of 50% car/air market distribution, which seems to be low-balling the data since the Houston-Dallas market is 3:2 car:air.
***
Yonah Freemark blogs about transportation and land use issues at The Transport Politic and is a regular contributor to The Infrastructurist.
August 25th, 2009 at 5:05 pm
As someone who grew up in central Texas (College Station) and had to drive to Houston first to fly anywhere else, I can say that a high-speed link to Houston or Dallas would be very appreciated by many residents.
It is my understanding that Texas A&M University has to work very hard to keep regular flight service to the small town. But since it is the only link to the outside world it is very important. A new passenger train station would restore some historical significance to the name of my hometown, as well. This last bit is not important in the current discussion, but does show that the railroads once played a key role in this region as passenger rail.
I don’t know if the ecological destruction assumed in the post will truly occur. Most of the land involved in this corridor is agricultural and has already been contributing to environmental damage. Getting rid of a few cows and reducing toxic runoff from petro-chem fertilized GMO crops would not be such a bad thing.
Some clever Infrastructure-ist might even be able to find a replacement for concrete in high-speed rails, which would reduce much of the CO2 involved in the development.
August 25th, 2009 at 7:55 pm
I used to live in College Station too. I’d have killed for a high speed connection to ANYWHERE. I strongly agree that adding stops in College Station and Waco could increase ridership substantially. Heck, I used to know people who commuted by car between Houston and College Station. You’d get a lot of extra ridership if the train schedules were such that people could actually use them to commute.
Whenever I used to fly anywhere, I used to start the trip with a flight on a horrible little puddle jumper jet to Houston or Dallas. I’d have much rather gone by rail, but only if there were good connections to DFW, Houston International, and Houston Hobby. Which is not all that easy to achieve, because none of those airports are near the center of their cities.
So when I think about how such a train would have altered my life in College Station, everything depends on the little details. The schedule. The connections. The transit networks in the destination town. Depending on those details, it could be anything from a wild success to a complete flop. There is certainly room for a huge gap between optimistic and pessimistic estimates.
And the details that you’d need to get right to make an optimistic estimate come true are not that easy to get right.
I agree that comparing Texas to New England is silly, but comparing it to France may well be sillier. Paris and (I suppose) Strasbourg have excellent transit networks, and the residents are used to using them. Unless things have changed a lot in the twenty years since I was last in Texas, I think the best thing you could do with high speed rail in Texas is put a rent-a-pickup-truck agency next to the each railway station (gunracks optional). Then Texans would be able to get around in their destination city in a familiar and satisfactory manner.
August 25th, 2009 at 8:03 pm
I agree we ought to get started on real HSR (meaning 150+ mph) in the U.S. as soon as possible (I lived in Japan a couple of years and have visited there many times since, and really love the Shinkansen), so don’t take this the wrong way, but I’m going to raise two questions/comments to think about.
First, what percentage of people flying between Waco/Temple/College Station and Dallas/Houston really are flying to Dallas or Houston? My guess is a substantial portion are using DFW or IAH only as a connecting point to get to New York, California, Europe, Asia, etc. Unless you extend HSR to the airports with convenient connections into the terminals, none of these connecting passengers will go by HSR.
Second, unless you’re going someplace in the immediate vicinity of the station (say, within a 15 minute walk) transit availability (or the availability of suburban stops on the HSR) absolutely does matter. What makes the Shinkansen work is the fact that Tokyo Station is one of the hubs of a transit network that puts New York to shame. You can get off the Shinkansen and be where you really want to be in 30-45 minutes tops. By contrast, if the HSR drops you off in downtown Dallas and you’re really visiting friends in the northern burbs, you might just decide to take Southwest.
Putting this one closer to home for me, if there were HSR between Detroit and Chicago and the only terminal was Detroit (i.e., no Pontiac extension with a convenient stop in Birmingham 15 minutes away), HSR would have no value to me. Let’s see - a half hour drive downtown with unknown parking availabiluty, or a 45 minute bus ride, or my normal 45 minute drive to DTW. Yeah, flying is unpleasant these days, but unless HSR can save me time point-to-point I’m not going to do it. Particularly if I’m a businessman on a one-day trip to Chicago, I’m going to take whichever mode can get me where I’m going the quickest.
All I’m saying is HSR ought to take into account the fact that not everyone is going downtown-to-downtown, and include availability of transit or suburban stops in its planning, to account for the reality of U.S. life.
August 25th, 2009 at 8:35 pm
Let’s assume that adding a lane to I-45 between Dallas and Houston would cost $10 million a mile. (This is probably less wacky than Ed Glaeser’s $50 million a mile for HSR.) An extra lane in each direction for the 240 miles works out to $4.8 billion. If you pay 5% of that annually, as Glaeser assumes for HSR, that works out to $240 million a year.
Considering the projected growth of both cities, it is perfectly reasonable to assume that high-speed rail between Dallas and Houston would prevent the need to expand I-45. And when you add that $240 million / year avoided cost, even Glaeser’s numbers support HSR!
August 25th, 2009 at 9:46 pm
[...] via Hey, Ed Glaeser, You’re Wrong: Better Numbers Shows High Speed Rail Pays For Itself. [...]
August 25th, 2009 at 10:01 pm
I think everyone is ignoring the fact that HSR as implemented is usually similarly expensive to flying. It’s not something you casually hop onto if you’re not pretty well off. The TGV is operated at a pretty big loss to keep prices so low.
I live in New York (downtown) and I wouldn’t care if Acela was a teleporter, I’m not paying $100 one way to go to Washington DC. I will stick to the Chinatown bus or the Boltbus, and keep the $85 change, thanks.
I really hope those trains save an awful lot of carbon emissions, because I don’t see any advantage to them on the transportation end of things.
August 25th, 2009 at 10:03 pm
[...] a competing back of the envelope plan to rival Glaeser’s. Yonah’s plan is available on Infrastructurist, and unsurprisingly reaches a different conclusion: That may even to have been Glaeser’s intent [...]
August 25th, 2009 at 11:31 pm
John, the TGV operates at a significant operating profit, despite its relatively low prices. The French rail system made a 600 million Euro profit in 2008, mostly due to its high-speed TGV services. The SNCF’s advantage? Huge capacity, lowering costs all around. By sending 16-car long double decker TGVs south from Paris towards Lyon and Marseille every half hour, SNCF can charge commuters very little for long-distance trains and still make money.
August 25th, 2009 at 11:42 pm
John, where do you get the idea that the TGV is operated at a loss? SNCF as a whole ran a profit in 2007. Most HSR, like roads and the air transport system, involve capital subsidies, but unlike roads, a well chosen HSR corridor can cover its operating costs.
What Yonah Freemark has shown is that the full economic return on the capital subsidy should be positive, so that the capital subsidy is justified.
HSR as implemented is usually about half the cost of a flight. And, yes, its not a one-size-fits-all transport solution, but nothing worthwhile IS a one-size-fits-all solution. One-size-fits-all never fits everyone, and normally fits most poorly.
August 26th, 2009 at 1:55 am
In Europe the amount of students/backpackers that frequented the trains I used was crazy. Give the students of these schools student discounts and the like to encourage them to use the system and you’re off.
Another money maker might be Corporate naming rights on stations, or sports teams. Cowboys, Mavs, Stars, UT football, A&M football you name it. Let them get in on the act with promotions on the trains to make the experience more personable for the fans. Paint a train Burnt Orange and White with horns on the nose, do a aggies train, cowboys etc. The pride in this place when it comes to sports is astounding. cars decorated, houses decorated, why not a train? Its extra cash.
I tend to be a glass half full kinda guy and to me it would seem that if you build this system the people will come. The alignment of the T-Bone make the most sense as it seems. I understand they want to terminate the lines at the airports. Thats a good Idea because the Airports already have the required infrastructure to handle traffic.
The TGV system in France has a station at Charles De Gaulle International.
Charles De Gaulle handled 60,851,998 passengers in 2008 approximately three million passengers used the high-speed network.
By comparison DFW handled 57,093,187 passengers in 2008, they have a shuttle bus connecting to a Trinity Rail (9 800 daily riders) commuter rail station, which in turn connects to both downtown Dallas and Fort Worth.
IAH handled 43,176,478 passengers in 2008, they have a bus service between the airport and the downtown transit centre, no details on that.
“In total, around 4.1 million people every year would choose the high-speed route instead of air travel.” As Yonah said.
So who’s going to build this thing I wanna ride a train dammit.
August 26th, 2009 at 9:21 am
“If high-speed rail replaced plane circulation, these airports could be downsized and redeveloped for the public’s benefit. This is especially true for Easterwood Field in College Station, which is located just a few blocks from Texas A&M University. The use of this land for new housing or office space could reap significant new tax revenue for the city.”
Does anyone really believe that a city would plow under an airport because it was getting a rail station? That would be a very foolish thing for a city to do. Can you provide an example of any city anywhere actually doimng this? The airports of Europe have been expanded concurrently with train system development. And the notion that you will barrel through an arrow straight right of way across hundreds of miles of country side to avoid building or maintaining a 20 acre runway is silly.
One key downwise to HSR is that it doesn’t move freight. All of the modes it’s intended to replace can move freight and it’s likely for that reason alone those modes will need to be preserved and expanded whether you get your HSR or not.
August 26th, 2009 at 10:15 am
Eric F. — HSR does indeed move freight. In fact, in Europe it is a key component of moving goods across the continent (along with trucks and waterways) and part of their strategy to reduce the heavy polluting freight trucks on the highway, which also contribute to accidents and congestion. In fact, I believe they have built parallel freight HSR tracks so as not to have freight interfere with passenger travel and vice versa. Amtrak’s subservience to the freight rail companies, which own the tracks that most Amtrak trains use, is one of the primary reasons that it’s on-time performance is so abysmal. Amtrak trains have to give way to freight trains, regardless of how much it puts them off-schedule. This is an unfortunate result of starving the passenger rail system in this country, rather than providing the capital to build the infrastructure needed to move both people and freight efficiently. If we subsidize car and airport infrastructure, then we should also subsidize rail infrastructure to increase the overall efficiency of our transportation system.
August 26th, 2009 at 10:28 am
No HSR does not move freight. HSR must operate on a dedicated right of way or you have exactly the operational and safety problems that Amtrak has now. If you have ever seen freight move on a Shinkansen or TGV line you are hallucinating.
“This is an unfortunate result of starving the passenger rail system in this country, rather than providing the capital to build the infrastructure needed to move both people and freight efficiently.”
Note that freight railroads are private companies that turn a profit. They get zero tax dollars and yet are not “starved” for capital. Passenger rail is a money loser and thus is always “starved” no matter the subsidy.
I’m actually a rail enthusiast. Problem is that HSR would work, if anywhere, on exactly one corridor in this country Bos-NYC-Wash and you cannot do it there. God couldn’t do it. You can’t build a dedicated HSR right of way there, too much community opposition and enviro lawsuits. So the best you can do is build useless HSR systems on a Texas prarie while the people who actually use trains putter along at 20 mph through a windy ancient right of way in the Bronx and Queens.
August 26th, 2009 at 10:45 am
The Chinese strategy on HSR and freight is interesting — they actually don’t have much of a freight system now, certainly compared to the US. They’re building out an HSR network and then giving over a lot of their old, slow passenger network to freight.
I’m not aware of using HSR lines to move freight in Europe, but perhaps in some cases… I do know that generally in Europe they are generally much more reliant on trucks for shipping freight than the US is. Our passenger rail network sucks, but we have an enviable freight network. That fact is often overlooked, but it has large benefits in terms of reducing congestion and pollution.
JR
August 26th, 2009 at 10:47 am
Eric F. — please watch your tone and check your own facts before questioning my state of mind — I am not hallucinating.
I am not saying that freight moves on the TGV rail lines. If you read what I wrote, what I was saying is that Europe has HSR tracks that are dedicated solely to freight, leaving the TGV to move people. It’s a separate system, but travels at allows travel at high speed.
And car travel would be a money loser if the government did not provide subsidies to build roads, bridges, signage, stoplights etc. As would air travel. Oh wait, that’s already a money loser. I would also hesitate to say that freight rail gets zero tax dollars without checking that assumption. When were those tracks laid? Were they laid entirely with private funds? How did they obtain right of way? Completely with private funds? If you do the research (and admittedly I have not, so this is my hunch), I would guess that the private companies purchased many of the freight rail lines from the federal or state governments when passenger rail was scaled back as car and air travel ramped up post World War II. My guess is that would have been far cheaper than laying the rails today. To my knowledge, there are no transportation modes that are completely independent of federal, state, or local tax dollars.
August 26th, 2009 at 10:50 am
@ Eric F: With the addition of HSR it gives commuters a viable alternative to other modes of transport. One we in the US have been lacking. There will still be those who choose to fly or drive. Yonah did say “…these airports could be downsized and redeveloped for the public’s benefit” meaning just that not to be completely done away with.
HSR will complement any other form of transport if the planning that goes into the system is done correctly with the eye on efficiency of moving people, which worldwide it seems to have done rather well. I think we aught to follow suit. The advantage we have is that we can look at their history and learn from their mistakes.
Also there are 2 HSR services that do freight, the SNCF TGV La Poste, they have 7 half trains built for this purpose, granted its mail but its something other than people, there is also the Roissy CAREX project targeting this specific issue and the other company is Deutsche Bahn Shencker Rail subsidiary of Deutsche Bahn AG who runs the ICE system. Shencker is currently the largest rail freight distribution company in Europe with over 100 000 shipments daily.
August 26th, 2009 at 11:02 am
I think the Germans run freight on high speed rails during the night at a lower speed.
August 26th, 2009 at 11:08 am
It’s important to examine all the costs and benefits of rail to rebut the anti-rail set, but the ultimate trump card in the debate is peak oil. We have entered the era of oil depletion, how are we going to stay mobile without cheap and plentiful oil? Rail is the only answer.
August 26th, 2009 at 11:12 am
In your assumptions, don’t forget that I-35 between Austin and DFW is a congested, stressful nightmare.
August 26th, 2009 at 11:14 am
[...] highly recommend reading the full article over at the Infrastructurist. Mega kudos to them for their work on this! Share this [...]
August 26th, 2009 at 11:22 am
“I would also hesitate to say that freight rail gets zero tax dollars without checking that assumption…”
This is completely backwards. Train companies were powerful profit-making enterprises for decades. They were among the industrial giants of the nation. They did not purchase rail systems from the government! Rail was profitable because it was the most efficient way to move stuff. Nowadays it is not. The desire to graft a 19th century transport system on a 21st century populace is mystifying.
“To my knowledge, there are no transportation modes that are completely independent of federal, state, or local tax dollars.”
To my knowledge there are. The New Jersey Turnpike tollroad system, to give one example, is completely self-financing and tolls are siphoned out of the system to subsidize loss-making choo-choos.
August 26th, 2009 at 11:35 am
Rail is absolutely the most efficient way to transport goods. Don’t be an imbecile.
August 26th, 2009 at 11:57 am
“This is completely backwards. Train companies were powerful profit-making enterprises for decades. They were among the industrial giants of the nation. They did not purchase rail systems from the government! Rail was profitable because it was the most efficient way to move stuff. Nowadays it is not. The desire to graft a 19th century transport system on a 21st century populace is mystifying.”
Somebody failed his history lessons. Train companies got land concessions, especially in the west. Huge land concessions. In the Dakotas, half the settlements near the train lines had the settlers paying the train companies for their land claims, not the federal government. In fact, the building of American infrastructure (ALL of it: canals, roads, rails) in the 19th century was financed with something called the “American System”, meaning mostly by tariffs on imports. It was not a free market transaction.
Rail was profitable because it was chummy with government. Now it is unprofitable because it is not as chummy with government as the road lobby. Rail companies pay property taxes on their lines. Trucking companies get their lines as a government utility service, subsidized by property taxes on people’s homes, by state sales taxes, and nowadays by people’s federal income tax.
Eric, are you really this ignorant, or are you a troll? Man up and fess up.
August 26th, 2009 at 12:05 pm
Something that I haven’t seen mentioned is the big picture of planning for the future. How much gas will be left in 2030? How much will it cost per gallon? If gas is $10 or even $5 per gallon, that could significantly change the ridership and provide cost savings for customers.
Any investor knows the importance of diversification. You wouldn’t put all your money in one stock. Why would you put all your travel on roads or planes? Let’s diversify our transportation system. Having a third way to get between cities will be a good hedge against the future scenarios in which petroleum-based travel gets very expensive.
August 26th, 2009 at 12:15 pm
“Somebody failed his history lessons…”
You are describing a transcontinental line. Yes, in order to promote a vastly expensive system, the government gave land grants. Very littel rail traffic was moving through Utah, the rail system money makers were always by the population centers. I’m not really sure what your point is though. Something like, “There is no market. The government really pulls the strings behind all transport, so let’s just take this idea to the logical extreme and have the government build and run a massive loss-making train service that will conform to my fantasy of turning the U.S. into my idealized vision of what I think western Europe looks like based on my two week stay in Paris.” Good luck with that.
“Rail was profitable because it was chummy with government. Now it is unprofitable because it is not as chummy with government as the road lobby.”
Please, passenger rail IS the government! Freight rail is quite profitable, but most transport moves by car and truck. It does so because it’s a better system not because of better lobbyists. It’s odd to have to explain to someone what they already know. How do you get around for most of your trips? How does your purchased “stuff” get to you? Do you imagine this would change if your fantasy rail system was built? Do you really think it’s different in Europe?
August 26th, 2009 at 12:17 pm
“Rail is absolutely the most efficient way to transport goods. Don’t be an imbecile.”
Do you think your quart of milk gets to you by rail? Your amazon.com packages? You’re using a computer right? Do you think it spent one second on a railcar? Rail moves heavy bulk good efficiently. That’s it.
August 26th, 2009 at 12:27 pm
“You are describing a transcontinental line. Yes, in order to promote a vastly expensive system, the government gave land grants. Very littel rail traffic was moving through Utah, the rail system money makers were always by the population centers”
And in the East, import tariffs paid for local lines. You clearly have no idea how the country operated in the 19th century. Or the 20th. Or today. Infrastructure is never a free market matter. There is simply too much risk in any major infrastructure investment for any private investor to try it without backup from the government. It’s not a matter of shady backroom deals or anything like that. You don’t get billions of dollars to plunk down on an infrastructure investment without government backup.
“Please, passenger rail IS the government!”
So what? The government is perfectly capable of neglecting parts of itself. It does that a lot, in fact.
“Freight rail is quite profitable, but most transport moves by car and truck. It does so because it’s a better system not because of better lobbyists.”
It does it because the government spends huge amounts of money on maintaining roads, while taxing the maintenance of rails. And that is because of lobbyists.
August 26th, 2009 at 12:29 pm
Eric:
“Rail is absolutely the most efficient way to transport goods. Don’t be an imbecile.”
Do you think your quart of milk gets to you by rail? Your amazon.com packages? You’re using a computer right? Do you think it spent one second on a railcar? Rail moves heavy bulk good efficiently. That’s it.
Every pre-1950s industrial hub was once crisscrossed by railslips that reached every factory out there. Those slips were pulled out, not because road&truck is better, but because train companies have to pay taxes to keep them in the ground, while truck companies get road access for free.
Even the 2nd-to-last mile is better served by rail than by road.
August 26th, 2009 at 12:37 pm
Eric, You are either trolling or a moron or most likely both.
Article from 1986 on the Trucking Lobby killing a tax that would have charged them to pay their share of road maintenance:
http://news.google.com/newspapers?nid=1298&dat=19860919&id=7w0QAAAAIBAJ&sjid=kYsDAAAAIBAJ&pg=5728,3115856
And here we are 23 years later: http://www.fairfaxtimes.com/news/2009/jul/07/virginias-transportation-funding-woes-not-big-enou/
This is just Virginia. $200 million a year for 23 years is 4-4.6 billion is subsidies.
August 26th, 2009 at 12:51 pm
I think we should factor in the billions we spend on military occupations in the middle east, geological research, and other taxpayer subsidies for our cheap cheap oil when we compare which forms of transit are “efficient.”
August 26th, 2009 at 1:01 pm
“Every pre-1950s industrial hub was once crisscrossed by railslips that reached every factory out there. Those slips were pulled out, not because road&truck is better, but because train companies have to pay taxes to keep them in the ground, while truck companies get road access for free. ”
You can’t possibly mean that. The state of NJ has seen the construction of massive warehouse corridors all along the NJ Turnpike, which charges tolls up the wazoo. Second, the point proves too much. We have as we speak a vibrant rail transport system in spite of whatever tax disadvantages they seem to have. Heavy goods, and in particular bulk goods are moved by rail. In fact, the U.S. and Canada probably have the best freight rail system in the world. We rely less on trucks for freight movement than Europe does and more on rail. It’s nevertheless a compartmentalized area, which does not move goods that need to ship quickly or goods of high value on a per pund basis.
August 26th, 2009 at 1:11 pm
“You can’t possibly mean that. The state of NJ has seen the construction of massive warehouse corridors all along the NJ Turnpike, which charges tolls up the wazoo.”
That that is relevant, why exactly ? You pay a toll to use the turnpike. You do NOT pay a toll for the trip from the exit ramp, down the local access road, down to the loading dock at the industrial park. All that roadway requires maintenance. And none of that comes from the turnpike toll.
Until the 1950s, you still had sidetracks serving industrial areas and major commercial areas. That won’t get your jug of milk home, but it will get it to the supermarket. And it will get those Ipods to the mall. But that got taxed into being noncompetitive.
August 26th, 2009 at 2:16 pm
There are a number of errors of fact from Eric here, most significantly that railroads do indeed haul much more than bulk. Much of it goes via containers or intermodal. Which, yes, includes packages. The largest rail shipper in the country is UPS.
Tolls on the New Jersey turnpike may cover it’s maintenance costs, but you haven’t considered the artificially subsidized capital costs it got and gets. Railroads have to go to the private capital markets and therefor earn a rate of return that highways don’t have to. And yes as Omri says, rail pays property tax and the highway doesn’t. Also the New Jersey turnpike is considerably busier than a typical interstate which might only see 10,000 vehicles a day (outside of metropolitan areas).
Ellen, what you say is not true. There are not any high speed lines for freight in Europe (although a bit of freight goes over German high speed lines and the French high speed line carries mail trains.)
Nikolas says rail is the most efficient way to transport goods and people. That’s true. But just like VHS vs. Betamax it is not the most efficient that wins out, there are always other factors. It’s also more efficient for freight to not go over 25-40 mph and for autos not to drive over 55mph . . . but we do anyway.
August 26th, 2009 at 2:31 pm
Wow…there is so much brainless drivel in here that I’m almost tempted to give up responding right now. But I’ll shoot:
1) Anybody who thinks that rail is helped by the government is out of their mind. The idea that sometime, way back when, the government subsidized the creation of a few railroads is no grounds for the blanket statement that railroads depend on the government. In fact, history has proven that the railroads that DID rely on the government end up in bankruptcy. ALL OF THEM!
Freight railroads today are hampered by extensive safety regulation (despite proving that freight rail is by far the safest way to move freight, period). They are hampered by the constant threat of price regulation (Anybody with google access can find out how well that turned out last time).
More importantly, freight railroads pay more in taxes than any other industry besides tobacco. They don’t receive concessions like other industries which lower their effective corporate income tax rates. But more important still, they pay the highest property taxes in the US, both in absolute numbers as well as percent rates. You see, for a freight railroad to operate, it needs rights of way. Cities and counties know this, and so they know they can get away with charging higher rates to railroads than they can with homes (where residents can pick up and move if rates get too high). Often times, they get charged higher tax rates even in counties where the railroad passes through and makes no stops, thereby not even receiving a cent in benefit from those taxes paid.
That last point is important in understanding why government is necessary to build high speed rail: The government doesn’t have to pay taxes on its property…especially when that property is assessed at $60+ million per mile!!! Of course we could fix this if we wanted to, by changing how freight railroads are assessed by property tax assessors…but who wants to do that??
And yet, because of their extreme efficiency, freight railroads manage to make a profit despite all government intentions to destroy them. Think about this: The average fully loaded truck does anywhere from 9000 to 25000 (the trucking industry’s own estimates) times the road damage of an average car. And do they pay 9000 to 25000 times as much in fuel taxes? The highway system as a whole is slightly subsidized, but when you look at it just from the perspective of trucks, which compete with freight rail, we are subsidizing it heavier than we subsidize agriculture!
2) ANYBODY who thinks that europe moves freight on high speed rails is completely mistaken. The TGV moves mail in dedicated rail cars on a few rail lines, but that is the only example of freight being moved on high speed rail lines in the entire world. In fact, you would be lucky to find a freight train in Europe that travels faster than 50mph. There are no dedicated high speed lines in Europe for freight rail.
3) Freight rail is good at much more than transporting bulk goods. In fact, they are so good at transporting containers and truck trailers that trucking companies are now freight rail’s most profitable customers. Freight rail’s share of non-bulk goods has risen at a remarkably stable rate since deregulation in the 70’s.
4) This one is for Jebediah: Glaeser’s analysis may be simplistic and not to your liking, but he is not making things up and he makes reasonable assumptions. He omits minutiae for a good reason…because it is minutiae. In fact, you should notice all economists do as much. Pareto’s rule is no less true in economics than it is anywhere else, and as such, we should always focus on core factors instead of minute details. The general rule in economics is that as you increase your number of assumptions, the variance in how truth measures up to estimates increases exponentially.
You see, these assumptions have multplicative effects. Just as a rudimentary example, lets say that I am starting a business and I want to see how much money I will make. I can estimate this by estimating how many customers walk in the door, estimating how much profit I make from each customer
Lets say, 100 customers a day with a profit per customer of $1.6.
100 x $1.6= $160
And if I am 10% more optimistic with those three assumptions, my calculations change as follows
110 x $1.76= $194
So therefore, a 10% increase in optimism with two assumptions results in a 21% increase in my estimated profit.
What happens when I increase the number of assumptions? Lets take four assumptions: How many people walk in the door, how many people decide to buy, how much they decide to spend, and my profit margin. Lets say 150 people walk in the door, 2/3 of them decide to buy, the average person spends $4, and the profit margin is 40%.
150 x 66.6% x $4 x 40% = $160
A 10% increase in optimism results in the following numbers:
165 x 72.5% x $4.4 x 44% = $232
And thus a 10% increase in optimism with four assumptions yields a 45% increase in my expected profit.
What does this all mean? It is much better to err by omitting some assumptions than to err by being too pessimistic or optimistic.
There are good reasons to ignore network effects for some calculations. In this case, building a single line carries no network effects with it. Only after other lines are built can we really assess the network effects. This means that you can only realize the exponential net benefits of rail network effects after you invest much more into the surrounding areas.
For example, rail ridership as a share of miles traveled will likely be in the range that Glaeser estimates until much more is invested. In fact, in order to approach your numbers, which you claim are supported by extrapolated data from France and Spain, you would have to replicate their Network…not just their line.
What does this mean? In order to replicate their share of transportation, we would need to see extensive metro systems covering the Dallas/Fort Worth metropolitan area, as well as extensive metro systems covering the Houston area. We would also probably need to see the high speed network expanded, such that lines to Austin and San Antonio would also be needed, and possibly even lines to St Louis, and/or Kansas City, and/or Memphis.
This is really just a reflection of how Network Effects work. You might see the fact that Glaeser’s analysis is flawed because he “ignored” beneficial network effects. But the truth is, Glaeser’s analysis is better suited to reality…because existing networks don’t exist…nor do they look likely.
You have an optimistic bias, which there is nothing wrong with when assumptions are kept simple. But when you combine an optimistic bias with a huge increase in the number of assumptions, you exponentially increase the variance from your estimates with reality. You say we can have a higher ridership percentage because of examples from Spain and France. What is the likelihood that we can actually match Spain or France’s network infrastructure anytime soon and at what cost? You say we can make trains carbon neutral. How much do we have to spend to do so, and what is the likelihood of that actually happening? What is the likelihood that HSR alone will increase urban density in the amount you believe? What is the likelihood that actual population growth in these areas perfectly matches the projected population growth?
Jebediah, you may think that you have a better look at reality by introducing what you consider to be better numbers…but your increase in the number of assumptions you make, by mathematical fact, drastically increase the cost of error in your estimates. I love your blog, and I generally agree with a lot you have to say…but I never would confuse you with a transit pessimist. I have to side with Glaeser here in his assessment of reality.
August 26th, 2009 at 3:25 pm
Danny,
I’d never pretend that this piece was anything but what it was: An exercise in showing that the numbers *can* add up if you want them to, just as they *won’t* if you don’t want them to (which I suspect is the case with Glaeser). Now, if we built the HSR line in question, would the world turn out the way Yonah models it in this piece? Probably not. Would it turn it like Glaeser suggests? Probably not.
Which is to say, this is more an exercise in rhetoric than in literal economic prediction. What pissed me off about Glaeser’s piece–and led me ask Yonah to do this one–is that he was deeply uncareful, yet was writing in a very influential forum and the conclusion he reached will certainly have serious impact on the public discussion of this issue and perhaps even on ultimate policy choices.
In some superficial way, one could say that Glaeser’s exercise is grounded in “conservatism” or “prudence” — as in, let’s not do something dumb. Let’s not throw money away. But, in a deeper sense, I don’t think that conservatism and prudence really suggest we should not build a passenger rail link between the 4th and 8th largest cities in the country with the world’s largest economy, when those cities happen to be rather close to each other and in a rapidly growing region that will play a key role in America’s future. Moreover, our future energy situation is far from clear. Rather, I’d argue that it is *self-evidently* a good idea to make this investment, and Glaeser is *self-evidently* being irresponsible to indulge in this exercise of plugging a long series of made-up and arbitrary numbers into an arbitary and not-very-impressive model and then using the results to undermine a sensible and important public policy initiative.
So, I suppose, the answer is I don’t care if the numbers are “accurate” because I think that whole idea is meaningless. Glaeser’s whole exercise was sophistry. Because neither you nor I nor Ed Glaeser has any freaking idea what 2030 is going to look like, and I will say categorically that almost regardless of the conditions that actually prevail the US will be a better place if we build in a decent passenger rail network.
I think back to something Robin Chase, the Zipcar founder, said when Cassim Shepherd and I interviewed her a couple of months ago: you build good things that will last and prove adaptable and continue to be useful well into the future. That’s how you plan and build your society. And you don’t pretend to know more than you do, which is precisely what Glaeser is doing.
Jebediah
August 26th, 2009 at 5:27 pm
I’m not sure if Glaeser made the point, but I think it’s worth noting: The very places where high speed rail makes some sense and can really add value are the high density places where NIMBYism and enviro activism make it impossible. This is a political, not an econiomic, observation, but I’d love to be proven wrong on this. You will never see true HSR in the northeast corridor. There may be some value in plowing under a few hundred miles of prarie to connect Texas cities, but where people would use the thing day in and day out, where it would supplant some air travel and make commutes easier (if nothing else than by removing conflicts between intercity and commuter trains), it won’t happen. You can’t install a birdbath in NJ without litigating it for 50 years, no HSR in the northeast, no way, never. The way a politician gets power in the northeast is by stopping projects.
August 26th, 2009 at 5:36 pm
He didn’t make the point because it isn’t true. Most of those places already have rights-of-way secure, so there is not much in the way of eminent domain to do, and HSR is a far better neighbor than a freeway.
August 26th, 2009 at 8:40 pm
The basic assumption behind Glaeser’s conclusions being based on a back-of-the-envelope model, is that such a model is robust. If you can alter the equations slightly or reasonably adjust the numbers this way or that and get a qualitatively different result, then it’s a house of cards.
Yonah (and my previous comment) shows that his back-of-the-envelope model for high-speed rail is not robust, and thus meaningful quantitative analysis requires more substance than Ed Glaeser has provided.
Or, what Jebediah wrote in his excellent comment above.
August 26th, 2009 at 9:07 pm
I’m a little disappointed that you didn’t include an high-speed Austin-San Antonio segment in your analysis. When I read Glaeser I immediately looked up air trips in the region (using http://www.transtats.bts.gov/airports.asp), and found (to my surprise) that Austin and San Antonio had almost as many air passengers each to Houston and Dallas as there are between Houston and Dallas (1.3 million Austin-(Houston/Dallas); 1.5 million San Antonio-Houston/Dallas), adding in the 1.7 million Houston-Dallas passengers and the passengers from the minor airports we find that there are about 5 MILLION annual air travelers among the cities on the Texas T-Bone. (A 200mph T-Bone would make all of the trips on it air-competitive, with the longest being the 325 mile roundabout San-Antonio-Houston segment - still under a 2 hr express ride)
With 30% growth and the 80%-90% hsr/air displacement typical of < 2hr HSR trips that translates into an estimated 5.5 million HSR trips on the T-bone on opening day 2030, without assuming that a single Texas intercity driver is diverted to HSR.
August 27th, 2009 at 12:37 am
Dallas Love is used by Southwest Airlines, which probably continues to have little interest in using DFW. It seems odd and naive to assume that Southwest service will go away in the face of relatively high cost rail service, unless the Wright Amendment is completely tossed out and Southwest can use Love to serve its national network more effectively. I doubt that many people who fly between Waco or College Station and Dallas or Houston are making trips between those cities. Instead, fliers to Dallas are going on to somewhere else in American’s network, and fliers to Houston are going on to somewhere in Continental’s network (Waco, for example, is served by American and Continental regional airlines). Folks going just to Dallas or Houston from Waco or College Station are probably driving. Unless the HSR service includes DFW or IAH, it’s not going to be useful for most of the people flying from the smaller cities to the hub airports.
Replacing road travel in the Texas Triangle was the impetus for Southwest Airlines in the 70s; these routes are perhaps dense enough now for HSR to challenge Southwest in those markets. Southwest would fight back politically, as they have in the past (effectively)
August 27th, 2009 at 1:08 am
Also, I think Eric @9:21 is right about plowing under all or part of the local airports in places like Waco or College Station. Although the airports and cities like to have commercial service, the principal use and purpose of those airports is to serve General Aviation traffic, some of it fairly high performance (private and corporate jets). Places like those (and Temple) are non-hub commercial service airports in FAA parlance, serving only a very tiny fraction of US commercial passengers. I would bet there’s a lot of high end GA traffic to College Station on A&M football weekends, and to Waco on Baylor football weekends. There may be environmental or other sorts of objections to such traffic, but thinking about Waco or College Station aviation activity primarily in terms of commercial passenger service is mistaken.
August 27th, 2009 at 1:31 am
OK, one more thought. It’s great to see someone using the American Travel Survey data, which dates from 1995. There was an update in 2001, the National Household Transportation Survey, and data collection recently ended for a more recent update ( http://nhts.ornl.gov/nhts2008.shtml ). Knowing how people actually choose from the travel options they have available is essential for good analysis and decision making in this area.
August 27th, 2009 at 2:23 am
[...] The Infrastructurist refutes Edward Glaeser’s high-speed rail critique point-by-point. Glaeser’s reception in the blogosphere, including here. [...]
August 27th, 2009 at 3:13 am
So you estimate that this “T-bone” line would transport over 11 million passengers per year. This is over 4 times the current ridership on Acela. You really believe that?
I just wish there was some way to make money off people like you with your wildly optimistic guesses.
August 27th, 2009 at 9:43 am
[...] sure to also check out the piece Freemark had Tuesday on The Infrastructurist, in which he sharpened his pencil and re-ran the numbers on Ed Glaeser’s unfavorable analysis of [...]
August 27th, 2009 at 10:31 am
[...] sure to also check out the piece Freemark had Tuesday on The Infrastructurist, in which he sharpened his pencil and re-ran the numbers on Ed Glaeser’s unfavorable analysis of [...]
August 27th, 2009 at 10:33 am
[...] sure to also check out the piece Freemark had Tuesday on The Infrastructurist, in which he sharpened his pencil and re-ran the numbers on Ed Glaeser’s unfavorable analysis of [...]
August 27th, 2009 at 10:51 am
Sacramento judge’s order may delay high-speed rail
http://www.bizjournals.com/losangeles/stories/2009/08/24/daily31.html
August 27th, 2009 at 12:14 pm
[...] good rebuttal of typical, widely-disseminated HSR critiques, here. You know, the ones with casually construed cost-benefit analyses that say they will need so much [...]
August 27th, 2009 at 12:22 pm
[...] sure to also check out the piece Freemark had Tuesday on The Infrastructurist, in which he sharpened his pencil and re-ran the numbers on Ed Glaeser’s unfavorable analysis of [...]
August 27th, 2009 at 12:54 pm
[...] Freemark (of the Transport Politic, see my blogroll) posted a fantastic cumulative response to Edward Glaeser’s lackluster and academically dishonest essays on high speed rail at the [...]
August 27th, 2009 at 3:10 pm
~4% roi on a many year long project? and only if things keep on improving? Thats insane. The payoff is TINY. You would be better off putting your money in treasury bonds.
August 27th, 2009 at 3:18 pm
Based on reasonable assumptions, 1.3 million car drivers could be expected to switch to the train on trips to and from College Station, Waco, and Temple. In total, a full 7.3 million trips might be removed from the highways.
What assumptions? And what data? Your PDF contains a bunch of numbers, but no description of the data sources or methodology you used to produce them.
August 27th, 2009 at 4:23 pm
Jebediah-
Your argument, if I understand you correctly, is that a quantitative argument is subject to bias. You can make a quantitative argument work or not work, based on the assumptions you make, and those assumptions are driven by bias.
You also seem to think that qualitative arguments are more important in this debate, despite the fact that qualitative assumptions are driven by bias as well.
You seem to be missing my point though, so I’ll try to rephrase it.
Of course it is possible for HSR benefits to outweigh the costs. And it is also possible for the costs to outweigh the benefits. Depending on which assumptions you make, the cost/benefit ratio can be skewed to benefit any argument. This much I am in agreement with…I feel like Glaeser’s assumptions fell too conservatively.
But my concern is not whether arguments can be biased, but rather which argument is most likely to fit reality. As far as I have read, from this blog as well as Streetsblog and Transport Politic, the argument for HSR benefits exceeding costs relies heavily on a “stars perfectly aligned” probability matrix.
Look at the assumptions we must have in order to arrive at the conclusion that costs do not exceeds benefits:
1) We have to have existing networks well established. This means subway systems, extended connections to other cities, etc.
2) We have to have perfectly model-matching, or better, population growth.
3) We have to assume extremely fast changes in population density
4) We have to assume extremely fast buildup of expensive alternative energy, without accounting for the costs of that buildup
The simple fact of the matter is that each one of these assumptions is a very low probability occurrence. And only in the extremely low probability event that all of these low probability assumptions take place, can we really realize a net benefit.
And, like Tyler Cowen commented earlier today, we must consider the fact that we have irreversible investment, lock-in effects, hurdle rates of return, likelihood of inflation on the cost side, as well as public choice problems.
Your personal analysis, (sorry for confusing you with Yonah at first) is ONLY a benefit analysis. And of course it is going to be a better place with HSR than without it if we didn’t have it in 30 years. But you are completely ignoring the cost of achieving that benefit!
By ignoring the cost of achieving that benefit, you are implicitly suggesting that money grows on trees. The truth is that we have a very limited supply of funds to work with. We can only raise taxes so much before we get huge negative effects from that taxation. In our situation, we are looking at anywhere from 7-14 trillion dollar 10-year deficits…meaning just to cover what we have already planned, we would have to raise taxes past what Sweden and Denmark have. And you want to spend billions more!
Sure, ignoring costs gives us a very pretty picture of the future. But by taking into account costs, we have literally thousands more options of public investments that we could make that are much more likely to have a positive benefit/cost ratio. By investing in those first, maybe we can achieve the economic growth necessary to fund our current budget without raising taxes, and maybe having some left over to spend on projects like this where the positive benefit/cost ratio is lower in probability.
August 27th, 2009 at 4:34 pm
Danny, I disagree completely with your ‘assumptions’.
August 27th, 2009 at 4:46 pm
Regardless of whose analysis is right or wrong, this is a project that should be decided and funded by Texas alone. The rest of the US has no substantial stake in this project and would be better off spending the money on projects in our own states.
August 27th, 2009 at 6:09 pm
Eric,
You are a troll. I love the twofer that the “enviros and NIMBYs” are blocking HSR. That is such a crock - after all, we know “enviros” hate rail.
HSR is blocked everywhere in Amtrak because the freight rail guys own the right of way. And they won’t support upgrade to HSR unless the feds buy them an entirely new infrastructure, for free.
They are free to do that, until the Feds exercise their rights under Railway regulation. But don’t blame the “enviros and the NIMBYs.” That just shows that you are operating via prejudice, rather than analysis.
August 27th, 2009 at 6:59 pm
Danny,
It’s not about “bias,” which I don’t think is a meaningful word in this context. If making a decision like this involves consulting a model to see if there’s a payoff 35 years from now, then that discussion has become meaningless. It’s people pretending to grown-up and analytical when they’re being nothing of the sort. And I think Glaeser’s recent contribution to the HSR debate falls in that category.
In terms of cost, we could put a 40 cent/gal tax on gasoline, still be below the OECD average, and have a way to fund this. I’m not saying that’s politically feasible, but it is an eminently sensible course of action and doesn’t involve 70% income taxes.
JR
August 27th, 2009 at 8:44 pm
[...] sure to also check out the piece Freemark had Tuesday on The Infrastructurist, in which he sharpened his pencil and re-ran the numbers on Ed Glaeser’s unfavorable analysis [...]
August 27th, 2009 at 9:11 pm
From the GAO report on High Speed Rail:
“…analyses and research on the accuracy of rider forecasts and cost estimates for rail infrastructure projects have found that a systematic problem and incentive to be optimistic may exist—that is, actual riders are more likely to be lower than forecasted, while actual costs are more likely to be higher than estimated. For example, a study of over 250 transportation infrastructure projects in Europe, North America, and elsewhere, found that rail projects—while not all high speed—had the highest cost escalation out of all the transportation modes studied—averaging 45 percent higher than estimated. Another study that included 27 rail projects, 1 of which was a high speed rail project, from around the world found that rider forecasts for over 90 percent of the rail projects studied were overestimated, and 67 percent were overestimated by more than two-thirds.”
August 28th, 2009 at 7:47 am
You seem not to understand how to evaluate investment projects. There will be a set of construction costs when the line is built - the initial capital investment. Once the line is up and running, there will be cash inflows and outflows each year. If the present value of (cash inflows - cash outflows) is greater than the initial capital investment, proceed, otherwise don’t.
It’s actually impossible to tell from the way you’ve presented your argument what the initial capital cost will be. I suspect very strongly that you figure of $750m “annual construction costs” actually represents an amortization of initial capital expenditure, in which case you shouldn’t be including it in the calculation of cash in/out, since amortization isn’t a cash item, merely an accounting term (the accountant is smoothing out initial capital expenditure, an actual cash flow, over some arbitrarily determined horizon).
This matters a lot, because your own “improved” analysis almost certainly suggests the high speed link is a no-go. Taking your cash in/outflow figures at face value, you’ve got an annual incremental benefit of $30m. To do a quick and dirty valuation, assuming a discount rate of 5%, no growth, and that these cash flows persist in perpetuity, that gives a present value of $600m (= $30m / 5%). Furthermore, that $600m worth of benefit arrives 20 years in the future. Its value today is only $226m.
If the value today of the initial capital investment required is any amount greater than $226m then one should not proceed with the project. I don’t know what the capital costs of building the link will be, but I’m willing to bet that it’s substantially greater than $226m. So the present value of the incremental benefit, as you’ve presented it, is simply doesn’t justify the capital outlay.
However, even if one assumes you’ve simply made a school boy error in the presentation of the figures, the picture is quite different.
Let’s say that the $750m “annual construction cost” actually represents the results of amortizing the capital costs over 20 years. Then capital costs are $15bn. Let’s also assume that thos capital costs aren’t all incurred tomorrow, but are actually spent over a 20 year construction period, starting tomorrow.
Since amortization isn’t a cash item, we add that back to incremental cash inflows. Now we have cash in of $1590m (=$840m + $750m) and cash outflows of $60m, for a net incremental benefit per year of $1530m.
Assuming, as before, a discount rate of 5% and no growth, then we have a present value of cash in/out of $30bn. However, that’s not the value of the incremental benefit today; that’s the value of the net benefits once the line has been completed. Assuming it takes 20 years to construct the line, and construction starts tomorrow, then the value *today* of the incremental benefit is $11.3bn (=$30bn / 1.05^20).
Assuming that the $15bn construction expenditure is spread out over 20 years, then the value today of the construction expenditure, before the line is complete, is $9.34bn (the result of discounting back $750m a year each year for 20 years at a rate of 5%).
The value of the project is positive, since the value of the benefits is $11bn, but the value of the investment in $9bn. So it’s worth doing.
But these are figures I’ve tried to rescue from your confused presentation. To summarise, what we actually need to know in order to evalue the line is:
Total cash outlays during the construction phase, and the timing of those outlays.
Actual cash inflows per year once construction has been complete (including all incremental benefits attributable to the project).
Actual cash outflows per year once the project has been complete (including all incremental costs attributable to the project). Actual cash outflows does *not*, repeat *not*, include accounting measures like amortization of construction costs.
Without that data, it’s simply impossible to tell whether the project is worth doing or not.
August 28th, 2009 at 8:46 am
“You are a troll. I love the twofer that the “enviros and NIMBYs” are blocking HSR. That is such a crock - after all, we know “enviros” hate rail.”
Google: environmental lawsuit rail project
and follow the links.
August 28th, 2009 at 9:37 am
[...] Tuesday, transportation researcher Yonah Freemark delivered another sharp rebuttal to Glaeser: The problem is that–through a sorry mix of omission, oversimplification, distortion, [...]
August 28th, 2009 at 2:35 pm
[...] to its decision to construct a high-speed rail network. At a more casual level, Chris Bradford and Yonah Freemark have shown that simply by making a few reasonable assumptions, the stripped down models used by Ed [...]
August 28th, 2009 at 2:43 pm
[...] sure to also check out the piece Freemark had Tuesday on The Infrastructurist, in which he sharpened his pencil and re-ran the numbers on Ed Glaeser’s unfavorable analysis [...]
August 28th, 2009 at 3:54 pm
[...] a long-winded economic analysis doing a cost-benefit analysis of a high school rail from Houston to Da…. Several economist types weigh [...]
August 28th, 2009 at 5:22 pm
[...] to its decision to construct a high-speed rail network. At a more casual level, Chris Bradford and Yonah Freemark have shown that simply by making a few reasonable assumptions, the stripped down models used by Ed [...]
August 28th, 2009 at 5:45 pm
[...] and the Economics of Ideas: Catching Up vs. The Cutting Edge Matt Yglesias points us to this survey of costs and benefits from a Dallas-Houston high-speed rail link. I’m not convinced by many of the particulars of the argument, which claims to show that the link [...]
August 28th, 2009 at 10:25 pm
Reading through the discussion on here I notice that allot of commenters are throwing around the freight rail share in the US and european countries. There are allot of factors that negatively effect the european freight rail share. The US system is definitely more efficient and definitely has a greater market share, I’m just saying that the differential is not as unbelievably large as some commenters are making it out to seem.
1) The basic underpinnings of the european economy differ from the US in some important way. They do not use coal as an electrical energy source to nearly the same extent as the US. Coal is a very transportation intensive energy source because of its Btu / weight. In contrast natural gas, nuclear energy, and hydroelectric energy are not that freight rail intensive.
2) The basic realities of european infrastructure/geography differ from the US in some important ways. They invested early on in canals which they still use to transport cargo. Canals are used in the US near the Mississippi river system and somewhat in the eastern US. However, their extent and utility are more limited than the system in europe. In europe seaports are somewhat evenly spread around the coast (having the Atlantic Ocean and the Mediterranean, Black and Baltic seas) allowing shorter intra-coastal shipping which is not as used in the US market (inland population centers, long land borders, US flagged vessel requirements, etc.). European railways were not built to allow double-stacks or wide loads. Originally, neither were US railways, however the capital cost of increasing the loading standards on several US freight rail corridors has come from the government (e.g. Heartland Corridor, 3R act, 4R act). Also, the desire to transport goods from west coast ports directly to east ports doesn’t really have a parallel in europe.
To digress, I agree that US freight rail is more efficient than european freight rail. However, It is not as much better as some commenters think. Also, the difference between them does not completely stem from the use of high-speed rail technologies and as such should not come into the debate over HSR as much as it does.
Also, a side note, HSR and freight are not totally mutually exclusive (except if the Federal Railway Admin makes them be). LGVs (high-speed only lines) and freight are the bigger issue. The weight of the freight trains would destroy the specialized tracks and the low incline requirements would inflate the construction costs of LGVs (1-2% vs. 4% inclines). Freight and high-speed trains should be able to share tracks near a city or on a line connecting two LGV corridors. The nice part about an LGV corridor as well is several routes or city pairs can use the same LGV, allowing a greater return on the initial investment. I mean as long as you get to your destination quickly, safely, and you have to switch trains a minimum number of times, how much do you care if you are using an LGV corridor or a conventional corridor?
August 30th, 2009 at 9:13 pm
[...] those benefits and costs may be. Yonah Freemark, writing at the Infrastructurist, comes up with his own set of numbers and sees a much more brighter future for HSR (even in Texas). This reevaluation of Glaeser’s [...]
August 31st, 2009 at 10:44 am
“Rail was profitable because it was the most efficient way to move stuff. Nowadays it is not.”
Technically correct - moving goods by water is most efficient in terms of dollars per tonne-km. However, moving goods from side of the USA to another is a lot shorter by rail than sea, hence all those freight trains running across the continent (oftenn with containers from the port of LA). Also, most places in the USA don’t have a convninent canal runnign close to them, so rail wins again on accessability.
August 31st, 2009 at 1:41 pm
Jebediah,
Bias is relevant in this context, as is uncertainty. The uncertainty is important, and can be dealt with a more formal manner (there are analytical methods to do this), but blog posts do not lend themselves to either long, drawn-out expositions or highly technical treatments.
Glaeser is a highly competent economist, and I have no doubt that he could do a more comprehensive analysis of the subject. In fact, I hope that he does, and that he publishes the results in a peer-reviewed journal, where any assumptions and calculations can be scrutinzed to the extent necessary. Meanwhile, I find it telling that anyone who publishes work that is critical of HSR projects is immediately labeled as biased or partisan (or worse) by the pro-HSR crowd.
I do not put myself in the camp that believes that high-speed passenger rail projects should be built because they are “self-evidently” beneficial, even between the 4th and 8th largest cities in the country. Quite the contrary. As Yonah’s post indicates, even torturing the assumptions produces a project of only marginal benefit, even if we believe we know all of the relevant quantities in advance. HSR projects are not just expensive, they are risky. They also fall into the class of “megaprojects”, which recent studies have shown to be problematic in more than one dimension.
Whether this project could be funded with a 40-cent gas tax or not is irrelevant. There might be good reasons for raising the gas tax, but none of them change the reality that HSR is likely to be a negative NPV proposition, and thus would erode any social benefits that could be gained by increasing the gas tax.
August 31st, 2009 at 9:29 pm
[...] There’s been a great back and forth over the past few days on high speed rail, most of it stemming from Ed Glaeser’s flawed cost-benefit analysis, and Yonah Freemark’s counter-analysis. [...]
September 1st, 2009 at 12:41 pm
[...] opinion of casual observers is slowly shaping. But is Glaeser right? I’m not sure. On the Infrastructurist, Yonah Freemark puts together a compelling case that Glaeser’s numbers are all wrong. Figuring in [...]
September 2nd, 2009 at 12:03 pm
“Also, I think Eric @9:21 is right about plowing under all or part of the local airports in places like Waco or College Station. Although the airports and cities like to have commercial service, the principal use and purpose of those airports is to serve General Aviation traffic, some of it fairly high performance (private and corporate jets). Places like those (and Temple) are non-hub commercial service airports in FAA parlance, serving only a very tiny fraction of US commercial passengers”
I can think of an airport which was plowed under: Stapleton, in Denver.
More importantly, the land footprint of a general aviation airport is a lot less than that of a typical commercial airport. Even if the aiport stayed, it would likely be nibbled away at the edges. No waiting areas, security checkpoints, and so forth make the terminal facilities much smaller and simpler.
September 2nd, 2009 at 12:05 pm
“HSR is likely to be a negative NPV proposition, ”
Correction: a positive NPV proposition.
Again, all you have to do to find positive value is to compare it to the alternatives:
(1) massive airport expansion;
(2) massive highway expansion;
(3) congestion and lack of mobility
Obviously, HSR to places where nobody is going to consider airport expansion or highway expansion because there is no congestion or lack of mobility — that’s just stupid. Thankfully, apart from a few questionable proposals in New England, all the HSR proposals are of the “avoid $10 billion airport and highway expansion” varieties.
September 2nd, 2009 at 12:08 pm
“There are allot of factors that negatively effect the european freight rail share. ”
Yes. And one of the biggest ones is that Europe still uses hook-and-chain couplers. This makes it very, very inefficient to switch cars, involving someone walking the length of the train to unhook and again to hook.
If Europe switched to knuckle couplers, used throughout the entire rest of the world, their freight rail would win sudden, large benefits. Unfortunately interoperability “lock in” has made this very difficult.
September 6th, 2009 at 8:36 am
[...] blogger Eric Morris. Now that his seris is complete, here’s a more in depth critique from The Infrastructurist, which uses the Texas T-Bone instead of Glaeser’s hypothesized Houston-Dallas line. The good [...]
September 30th, 2009 at 6:28 am
[...] presented here. The study projects 12.1 million annual riders by 2026 and 15 million by 2040. After predicting 11.4 million annual riders for the Dallas-Houston corridor last month — far higher than the 1.5 to 3 million economist Ed Glaeser assumed in his study of [...]
October 23rd, 2009 at 6:18 pm
I’m having an existential dillemma stemming from Danny’s post in which he says: “because existing networks don’t exist…nor do they look likely”
p.s. > I got $8 billion that says “YES WE CAN!”
February 1st, 2010 at 6:17 pm
Besides believing this is economically needed and sustainably needed - I would like to know what happened to the enterior of the US.
From Chicago to Denver and out through the Dakotas, The rail lines are still out here -some still hauling coal and other loads and some defunct - but the rail road stiched the coast together once before - and Gulf to the great lakes - why not continue.
We need high speed across the whole country.