on high speed rail, and job creation

My US House Representative, Albio Sires, recently wrote an op-ed entitled Making high-speed rail a national priority. In it, he argues that among the benefits of a nationally-funded high-speed rail project are economic benefits:

During our nation’s prolonged period of economic challenges, it is my goal and the goal of many of my colleagues to create jobs and stimulate the economy. Investing in infrastructure is one of the most sound policy choices to meet this non-partisan objective. Studies estimate that for every $1 billion in infrastructure spending, 18,000 jobs will be created.

I’m sure that New Jersey would do well to such a spending project, as the Northeast Corridor is an obvious place to put a high-speed project. This is no doubt related to why Mr Sires wants it.

The problem is, government infrastructure spending does not create wealth — in fact, it tends to destroy it by allocating it inefficiently.

The government can create “jobs”, but this is not necessarily a good thing. For example, the government can employ everyone to dig ditches with little or no economic value and pay them by printing the money. This would result in a bunch of ditches going nowhere, and a wealth transfer from those who have saved dollars to those who dug the ditches. No wealth is created in the process, it’s just moved around. And to the detriment of all of us, it’s probably moved from a more productive place to a less productive place.

In the case of high speed rail, what happens if the government comes in and builds it? Yes, money and jobs would flow into New Jersey. New Jersey may even benefit economically. However, that money had to come from somewhere, and the only place it could have come was the productive private sector. If the productive private sector has determined that there are better projects than to work on a high-speed rail system in New Jersey right now, then there probably are. Otherwise, why wouldn’t somebody in the private sector, seeking a higher return on investment, go into the business of a high-speed rail system? I’d invest!

There are a few things the government can do to encourage an environment in which a high-speed rail system would thrive:

  • The government could lower taxes (and stop printing money!), allowing capital to accumulate. A big project such as a high-speed rail system requires a lot of capital. It’s also a shiny project, the kind that some wealthy and capable entrepreneur would love to tackle if he/she had the capital. It’s not for lack of desire that we don’t have a high-speed rail system yet — it’s because it doesn’t make economic sense in our environment yet, possibly due to a lack of real capital.
  • Repeal regulations and subsidies. Since the early part of the 20th century the government has been intervening in the rail industry, writing rules and levying taxes which distort prices and natural market forces. Amtrak has been government funded since Richard Nixon (and is seeking more funding) because it’s a financially insolvent operation. If we get the government out of the way, Amtrak may fail — then what? The tracks and train cars will be sold to somebody, and that somebody can go to work turning it into a profitable operation again. Or perhaps replacing it with… a high-speed rail system!

So no, unfortunately, as good as it sounds on paper, making high speed rail a “national priority” by funding it with tax/inflation dollars is probably a mistake. We would all end up poorer in the long run. But there is hope! If Mr Sires wants to help make high speed rail a reality, he can get to work on getting the government out of the way. Then we may start to see some progress in the right direction.

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