22 April, 2008

Privatize Amtrak

In my last post, I argued that it makes sense for the government to own and maintain infrastructure. However, this does not imply that services using that infrastructure should be publicly owned and run. In general, these services will be better off in the private sector.

Take Amtrak, for example. The argument for the continuation of its public subsidies is that we heavily subsidize other forms of transportation--highways--so let's subsidize train travel...Amtrak. But this is really an argument for subsidies for rail itself, not a service that uses rail. Amtrak is not a public good in the strict sense. It is rival--each seat that I take is one more seat that can't be taken by anyone else--and excludable--it is easy to keep people off the train. And are there positive externalities? None that I can think of.

It also turns out that Amtrak loses money on every single route (at least as of 2004) and does a pretty crappy job of being on-time. But what are Amtrak's incentives? If they do poorly and lose millions of dollars, they are slapped on the wrist by Congress, which grudgingly picks up the tab. Private companies usually can't go over budget year-after-year without some repercussions.

Now, it may be the case that many of these routes will never be profitable no matter who is running Amtrak and what incentives they have. In that case, I see no reason not to eliminate them. Do we really need a passenger train with a cute name that goes from Boston to Chicago? These areas are well-served by airlines. Incidentally, it costs $82 to go from Boston to DC on Amtrak and $101 to go from Boston to Chicago, even though this latter route goes through DC. So the DC-Chicago leg is worth $19 to Boston passengers? Wow. No wonder the Cardinal (DC-Chicago service) loses $209 per passenger per year.

If there is a market for ridiculously cheap and time-consuming cross-country travel, maybe freight lines will start attaching passenger cars to their trainsets. I suspect that Northeast Corridor service, Acela, Caltrain, and other high-traffic lines would survive.


Elliot said...

I think the main positive externality is that rail is vastly cleaner carbon-wise compared to airlines. And we also subsidize airlines to a much greater extent than rail, its not like Amtrak is competing in an open market. According to DOT in 2002 we subsidized air travel by 32 billion while rail by 500 million. It seems to me that if we are going to subsidize one or the other of these modes of transportation, it should be rail, at least to a greater extent.

What really seems to be the case is that Amtrak is set up to fail by politicians that a) don't care about rail travel or are ideologically opposed to its government ownership and b) want to use that money for other things. By giving Amtrak such a pathetically small budget (Amtrak is, as I understand it, responsible for its own upkeep and investment in infrastructure) it is of course going to fail to innovate, expand, or even keep its cars in good working order.

But I agree in principle that if the government would undertake to dramatically expand and update our rail infrastructure, then we could at some point have a situation where rail companies could compete. I would love to see the domestic airline industry collapse once people realized they could get from DC to Chicago in 4-5 hrs at a third of the price.

I also think this gets back to gas prices - as long as it is ridiculously cheap to drive medium-long distances, people will not see the need for trains. But if gas goes up dramatically, both car travel and plane travel will (and should) become dramatically more expensive. A forward-looking administration should prepare for that now by authorizing a nationwide rail infrastructure project a la Eisenhower's highway project. I am heartened by Sen. Obama's decision to spend the last weekend in Pennsylvania campaigning by locomotive.

spencer said...

Ah, thank you for pointing out what I forget to mention: that rail travel pollutes far less than air or car travel. And, most likely, Amtrak would be profitable if carbon and gas were priced correctly. The price of flying and driving would rise and so the price and quantity of rail travel demanded would also rise.

However, I do think that the best way to account for pollution externalities is to implement a carbon tax or higher gas tax or even a cap-and-trade system, not to arbitrarily subsidize particular clean technologies. It's not so much that Amtrak has a positive externality as it is that cars and planes have negative externalities. The tax addresses the whole problem--picking and pushing a few technologies does not.

Now, your claim that Amtrak is set up to fail because it is given a pathetically small budget doesn't exactly refute my point that they can't compete in their current form. The "budget" that is given to Amtrak is a pure subsidy and it is generally equal to whatever their losses were in any given year. Amtrak is thus given an advantage over nearly every private company, all of which must pay for their own upkeep. If it has been set up for failure, it is because there is little accountability built in to the system.

As far as investment in infrastructure, I completely agree that a revamping of our rail system is in order. Getting from DC to Chicago in four hours via high-speed rail may or may not be prohibitively expensive, but it would be nice to see true high-speed rail in the Northeast Corridor and the California coast.