Tag Archives: Miami

High-speed rail: is this year different?

Many U.S. cities are racing to develop high speed rail systems that shorten commute times and develop the economy for residents. These trains are able to reach speeds over 124 mph, sometimes even as high as 374 mph as in the case of Japan’s record-breaking trains. Despite this potential, American cities haven’t quite had the success of other countries. In 2009, the Obama administration awarded almost a billion dollars of stimulus money to Wisconsin to build a high-speed rail line connection between Milwaukee and Madison, and possibly to the Twin Cities, but that project was derailed. Now, the Trump administration has plans to support a high-speed rail project in Texas. Given so many failed attempts in the U.S., it’s fair to ask if this time is different. And if it is, will high-speed rail bring the benefits that proponents claim it to have?

The argument for building high-speed rail lines usually entails promises of faster trips, better connections between major cities, and economic growth as a result. It almost seems like a no-brainer – why would any city not want to pursue something like this? The answer, like with most public policy questions, depends on the costs, and whether the benefits actually realize.

In a forthcoming paper for the Mercatus Center, transportation scholar Kenneth Button explores these questions by studying the high-speed rail experiences of Spain, Japan, and China; the countries with the three largest systems (measured by network length). Although there are benefits to these rail systems, Button cautions against focusing too narrowly on them as models, primarily because what works in one area can’t necessarily be easily replicated in another.

Most major systems in other countries have been the result of large public investment and built with each area’s unique geography and political environment kept in mind. Taking their approaches and trying to apply them to American cities not only ignores how these factors can differ, but also how much costs can differ. For example, the average infrastructure unit price of high-speed rail in Europe is between $17 and $24 million per mile and the estimated cost for proposals in California is conservatively estimated at $35 million per mile.

The cost side of the equation is often overlooked, and more attention is given to the benefit side. Button explains that the main potential benefit – generating economic growth – doesn’t always live up to expectations. The realized growth effects are usually minimal, and sometimes even negative. Despite this, proponents of high-speed rail oversell them. The process of thinking through high-speed rail as a sound public investment is often short-lived.

The goal is to generate new economic activity, not merely replace or divert it from elsewhere. In Japan, for example, only six percent of the traffic on the Sanyo Shinkansen line was newly generated, while 55 percent came from other rail lines, 23 percent from air, and 16 percent from inter-city bus. In China, after the Nanguang and Guiguang lines began operating in 2014, a World Bank survey found that many of the passengers would have made the journey along these commutes through some other form of transportation if the high-speed rail option wasn’t there. The passengers who chose this new transport method surely benefited from shorter travel times, but this should not be confused with net growth across the economy.

Even if diverted away from other transport modes, the amount of high-speed rail traffic Japan and China have generated is commendable. Spain’s system, however, has not been as successful. Its network has only generated about 5 percent of Japan’s passenger volume. A line between Perpignan, France and Figueres, Spain that began services in 2009 severely fell short of projected traffic. Originally, it was expected to run 19,000 trains per year, but has only reached 800 trains by 2015.

There is also evidence that high speed rail systems poorly re-distribute activity geographically. This is especially concerning given the fact that projects are often sold on a promise of promoting regional equity and reducing congestion in over-heating areas. You can plan a track between well-developed and less-developed regions, but this does not guarantee that growth for both will follow. The Shinkansen system delivers much of Japan’s workforce to Tokyo, for example, but does not spread much employment away from the capital. In fact, faster growth happened where it was already expected, even before the high-speed rail was planned or built. Additionally, the Tokyo-Osaka Shinkansan line in particular has strengthened the relative economic position of Tokyo and Osaka while weakening those of cities not served.

Passenger volume and line access are not – and should not be – the only metrics of success. Academics have exhibited a fair amount of skepticism regarding high-speed rail’s ability to meet other objectives. When it comes to investment value, many cases have resulted in much lower returns than expected. A recent, extreme example of this is California’s bullet train that is 50 percent over its planned budget; not to mention being seven years behind in its building schedule.

The project in California has been deemed a lost cause by many, but other projects have gained more momentum in the past year. North American High Speed Rail Group has proposed a rail line between Rochester and the Twin Cities, and if it gets approval from city officials, it plans to finance entirely with private money. The main drawback of the project is that it would require the use of eminent domain to take the property of existing businesses that are in the way of the planned line path. Private companies trying to use eminent domain to get past a roadblock like this often do so claiming that it is for the “public benefit.” Given that many residents have resisted the North American High Speed Rail Group’s plans, trying to force the use of eminent domain would likely only destroy value; reallocating property from a higher-value to a lower-value use.

Past Mercatus research has found that using eminent domain powers for redevelopment purposes – i.e. by taking from one private company and giving to another – can cause the tax base to shrink as a result of decreases in private investment. Or in other words, when entrepreneurs see that the projects that they invest in could easily be taken if another business owner makes the case to city officials, it would in turn discourage future investors from moving into the same area. This ironically discourages development and the government’s revenues suffer as a result.

Florida’s Brightline might have found a way around this. Instead of trying to take the property of other businesses and homes in its way, the company has raised money to re-purpose existing tracks already between Miami and West Palm Beach. If implemented successfully, this will be the first privately run and operated rail service launched in the U.S. in over 100 years. And it doesn’t require using eminent domain or the use of taxpayer dollars to jump-start that, like any investment, has risk of being a failure; factors that reduce the cost side of the equation from the public’s perspective.

Which brings us back to the Houston-to-Dallas line that Trump appears to be getting behind. How does that plan stack up to these other projects? For one, it would require eminent domain to take from rural landowners in order to build a line that would primarily benefit city residents. Federal intervention would require picking a winner and loser at the offset. Additionally, there is no guarantee that building of the line would bring about the economic development that many proponents promise. Button’s new paper suggests that it’s fair to be skeptical.

I’m not making the argument that high-speed rail in America should be abandoned altogether. Progress in Florida demonstrates that maybe in the right conditions and with the right timing, it could be cost-effective. The authors of a 2013 study echo this by writing:

“In the end, HSR’s effect on economic and urban development can be characterized as analogous to a fertilizer’s effect on crop growth: it is one ingredient that could stimulate economic growth, but other ingredients must be present.”

For cities that can’t seem to mix up the right ingredients, they can look to other options for reaching the same goals. In fact, a review of the economic literature finds that investing in road infrastructure is a much better investment than other transportation methods like airports, railways, or ports. Or like I’ve discussed previously, being more welcoming to new technologies like driver-less cars has the potential to both reduce congestion and generate significant economic gains.

New Public Choice Papers

Last week I attended the annual Public Choice Societies conference in Miami, Florida. Among the most interesting papers were:

Does Economic Freedom Foster Tolerance?” by Niclas Berggren and Therese Nilsson:

Tolerance has the potential to affect both economic growth and wellbeing. It is therefore important to discern its determinants. We add to the literature by investigating whether the degree to which economic institutions and policies are market-oriented is related to difference measures of tolerance. Regression analysis of up to 65 countries reveals that economic freedom is positively related to tolerance towards homosexuals, especially in the longer run, while tolerance towards people of a different race and a willingness to teach kids tolerance are not strongly affect by how free markets are….We furthermore find indications of a causal relationship and of social trust playing a role as a mechanism in the relationship between economic freedom and tolerance and as an important catalyst: the more trust in society, the more positive the effect of economic freedom on tolerance.

Governance, Bureaucratic Rents and Well-Being Differential Across U.S. States” by Simon Luechinger, Mark Schelker and Alois Stutzer:

We analyze the influence of institutional restrictions on bureaucratic rents. As a measure for these rents, we propose subjective well-being differentials between workers in the public administration and workers in other industries. Based on data for the U.S. states, we estimate the extent to which institutional efforts to strengthen bureaucratic accountability affect differences in well-being. We find that the differences are smaller in states with high transparency, elected auditors, and legal deficit carryover restrictions. These findings are consistent with limited rent extraction under these institutional conditions. No effect is found for performance audits and regulatory review.

Economic Performance and Government Size” by António Afonos and João Tovar Jalles

Our results, consistent with the presented growth model, show a negative effect of the size of government on growth. Similarly, institutional quality has a positive impact on real growth, and government consumption is consistently detrimental to growth. Moreover, the negative effect of government size on growth is stronger the lower institutional quality, and the positive effect of institutional quality on growth increases with smaller governments. The negative effect on growth of the government size variables is more mitigated for Scandinavian legal origins, and stronger at lower levels of civil liberties and political rights. Finally, for the EU, better overall fiscal and expenditure rules improve growth.

Leaders, Institutions and Fiscal Discipline” by Heiner Mikosch:

In particular, I find evidence that pure career politicians are fiscally more disciplined than politicians with working experience outside of politics. This contradicts a popular claim that people who have been working in the “real world” outside of politics, are better politicians.

Institutions, Lobbying, and Economic Performance” by Jac Heckelman and Bonnie Wilson:

They find that economic freedom improves growth but that lobbying detracts from it. Moreover, there may be an interaction between the two. It might be that in economically free societies, lobbying is particularly bad for growth whereas in less-free societies it actually enhance growth. This lends support to their basic hypothesis that:

while economic freedom that emerges spontaneously may be growth promoting, economic freedom that emerges as a result of costly lobbying efforts may be less fruitful.

And here’s one that made me smirk:

The Right Look: Conservative Politicians Look Better and Voters Reward It” by Niclas Berggren, Henrik Jordahl and Panu Poutvaara:

Political candidates on the right are more beautiful or are seen as more competent than candidates on the left in Australia, Finland, France, and the United States. This appearance gap gives candidates on the right an advantage in elections, which could in turn influence policy outcomes. As an illustration, the Republican share of seats increased by an average of 6% in the 2000–2006 U.S. Senate elections because they fielded candidates who looked more competent. These shifts are big enough to have given the Republicans a Senate majority in two of the four Congresses in the studied time period. The Republicans also won nine of the 15 gubernatorial elections where looks were decisive. By using Finnish data, we also show that beauty is an asset for political candidates in intra-party competition and more so for candidates on the right in low-information elections. Our analysis indicates that this advantage arises since voters use good looks as a cue for conservatism when candidates are relatively unknown

This last one reminded me of this famous paper from a few years ago showing that inferences based solely on appearance predicted 68.8 percent of U.S. Senate races in 2004. (It isn’t good to have a baby face).

In Miami, Detroit, and San Jose Unions Face Pay Cuts

NPR reports that cities and states are making significant cuts to public sector salaries in order to balance their books. To close Miami’s $105 million deficit, public employee benefits and salaries were slahsed by $80 million. They had little choice. City Commissioner Suarez notes without the cut employee costs would have been 101 percent of the total budget. Detroit’s Mayor Dave Bing is cutting salaries and benefits by 10 percent. (The culmination of a year-long standoff with AFSCME to cut wages)

Spam Artists, Electronic Pickpockets and Online Jobs

Hard Times can lead to acts of desperation. During the Great Depression rural areas saw increased petty property crimes – illegal fishing and crop picking, as well as a violent crime wave by notorious and newly-minted public enemies.

The current recession has produced its own wave of burglaries, robberies, and scam artists. Neighborhood Watches have intensified in Las Vegas and Miami as residents contend with a sudden up-tick in break-ins, car-thefts and other “crime of opportunity.” Copper, (which has been steadily rising in value), is increasingly being pilfered, everywhere from foreclosed homes, to Bangor Hydro Electric Co. in Maine, to Pennsylvania’s mines.

Perhaps more fitting with these times is  the increase in financial and online fraud. According to NPR, the  poor economy is also leading to increases in “data breaching”: identity theft, credit card fraud, and insurance schemes. Reports of online crimes are up one-third from last year to 350,000 complaints.

But not all of the fraudsters are professional criminals, or big-time Ponzi scheme masterminds. In fact, many often come from the ranks of disgruntled employees. Risk managers are most worried about embezzlement plots and organized data theft by insiders: “administrative staff, back-office employees, traders and tellers.”

According to the Association of Certified Fraud Examiners the number of embezzlement crimes are likely to continue increasing. Times are rough and layoffs are leaving holes in companies’ internal fraud controls.

It’s not just Wall Street that should worry. Employee embezzlement happens in other sectors too. Last week, the ex-Chief Financial Officer of Michigan Public Health Institute, was charged with embezzling $120,000 from the non-profit.