Who wants efficient passenger rail?
The US spends about 18% on health care, and many experts believe that a substantial share of that expenditure is wasted. I tend to agree with that view, and attribute the waste to massive government subsidies combined with severe restrictions on health care competition, both of which tend to drive up prices.
But this is not an easy problem to fix. If we were to cut health care spending to 10% of GDP, then health care providers would lose income equivalent to 8% of GDP, which is a really big number. One recent attempt to reduce health care expenditures was the “Cadillac tax” on expensive insurance plans. That tax was recently repealed, with substantial support for repeal in both political parties. It’s not popular to deprive a group of people of 8% of GDP.
Matt Yglesias has an interesting new post on the problems facing Amtrak. The new infrastructure bill authorizes $30 billion to improve passenger rail service in the northeast corridor. In places like Europe, that would be more than enough money to build a nice high-speed rail line from DC to Boston, which at the moment is the only part of the US where high-speed rail makes much economic sense.
While Yglesias is pleased with the push for more spending on infrastructure, he worries that Amtrak will end up wasting the money, as it is an extremely poorly run organization:
Amtrak . . . is run by people who are not curious about trains.
In March, Grabar interviewed Amtraks new CEO, William Flynn, and he asked him about the cost of the Gateway project which is almost $5 billion a mile, and thats many times the cost of similar projects in other countries. This is a recurring issue, as Im sure you know, in tri-state area projects, where the cost is way out of whack with international best practices. Whats going on there?
Flynn just has no answer for this. He doesnt say look, theres a good reason and here it is. And he also doesnt say its a big problem and hes working on fixing it. And he also doesnt say he finds it puzzling and hes looking into it. He just reiterates that he thinks the project is important.
Yglesias suggests that Biden bring in an expert from overseas to run Amtrak, as the current leadership is clearly in way over their heads. He points to the example of New York’s subway system, where city officials brought in an outside expert and service improved substantially.
Unfortunately, the gains did not last:
This then led to two problems.
One is that when you bring a skilled outsider in, he starts fixing some stuff and gaining credibility. But he also starts identifying stuff that for some reason or other he cant fix and starts saying things like I cant fix this because of X Rule or Y Person or whatever we else. Lifetime managers of dysfunctional systems learn to just live with these points of dysfunction, but outsiders have fresh eyes and they say this is not how a world-class system would work.
At that point you start making enemies, and either the politicians have your back or they dont.
And in New York, they didnt, seemingly in part because Andrew Cuomo was annoyed that Byford was getting so much praise.
As a result, Yglesias is a bit pessimistic about the prospects for Amtrak:
What I take from this is that an effort to make Amtrak good would probably fail because the relevant elected officials probably dont actually want to make it good. But if theydid want to make it good, then they could bring in an experienced passenger rail executive from a high-functioning European system and empower him to do some house-cleaning. It would be risky, but it would also be ambitious. This would say not just that the Biden administration is interesting in spending a lot of money on mainline rail, but that they actually want to create excellent passenger rail in the United States.
I am even more pessimistic than Yglesias. I doubt whether Biden would succeed even if he were to try to fix passenger rail service. Recall what Truman said as Eisenhower was about to take office:
Hell sit here, and hell say, Do this! Do that!And nothing will happen. Poor Ikeit wont be a bit like the Army. Hell find it very frustrating.
Of course Eisenhower did set up the interstate highway program. But that America is long gone.
If I had my way, I would not just bring in an outsider to head Amtrak; I’d farm out the entire project to foreigners. Management and engineering people would be from Western Europe and East Asia, while lower skilled workers would be from South Asia. I’d favor a project that used zero American workers, as neither our labor nor management has a comparative advantage in building passenger rail. But of course this won’t happen.
Then I would have Congress pass a law saying that the high speed rail project would be 100% immune from all environmental laws and regulations, and that environmental lawsuits to stop construction would not be allowed. That also won’t happen. People may say they favor high-speed rail, but do they actually favor the things that would be required to get the project done?
The root cause of inefficiency is misaligned incentives. Because Amtrak has no incentive to be efficient, they will not be efficient. Firms in the private sector have good reason to be efficient—fear of losing out to competition.
In fairness, it’s not easy to set up a competitive private rail network. Various developed countries have involved the private sector in their passenger rail service to a much greater extent than the US, but while the results are generally better than here, there are cost problems almost everywhere.
Interestingly, freight railroads in the US are privately run, and (along with Canada) they are the best in the world. So it’s not like Americans cannot do railroading; we cannot do passenger rail.
My general view is that it will never be possible to fix government entities such as the public schools or Medicare, and that the only real solution is privatization. You need a system where providers have a reason to be efficient, and Amtrak does not now and likely never will have a reason to be efficient. If you want good schools, you need competition.
We have an infrastructure bill, but I remain very skeptical as to whether we will actually get infrastructure.