p.s. > I got $8 billion that says “YES WE CAN!”

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.

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.

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.

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.

Google: environmental lawsuit rail project

and follow the links.

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.

“…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.”

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

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.

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.

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.

http://www.bizjournals.com/losangeles/stories/2009/08/24/daily31.html