Tag: economics

High Speed Passenger Rail for America: Thanks But No Thanks

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Most of you know that I really like trains.  Model railroading is a hobby of mine, and I grew up consistently riding trains in China as alternative transport options either didn’t exist or were really unsafe (read: 80’s era Chinese airlines).  We generally travel by train in Europe when we visit.  However, most people are usually surprised that I don’t support any plans for high speed rail in the US and don’t envy the extensive passenger networks that exist overseas.Passenger service requires the presence of several factors which are almost never available in the United States:

  • Relatively short distances (less than 4 hours).
  • High population density.
  • Good local public transport one you’ve reached your destination.
  • High schedule density (a lot of trains providing lots of schedule options).

Passenger rail is incredibly expensive to operate by itself even with the presence of those four factors.  The last requirement of sufficient schedule density imposes a lot of constraints on the rail network that aren’t readily apparent to observers too.  As an example, The Wife and I often choose to ride the Amtrak from South Florida to Orlando instead of making the drive.  It’s more expensive at roughly 100 bucks for both of us round trip compared with a tank of gas at 40 bucks, but the 27 dollar toll for the turnpike makes things a little closer.  It’s roughly an hour longer too, but it’s nice to be able to read or watch movies on the train instead of driving.  Most importantly, and what prevents us from using it a lot more is the schedule: you can depart at 9:30 AM from South Florida, or 1:30PM from Orlando, and that’s it.  Compare this to Europe where most cities have an hourly service and you can see the difference.  There are several points in this little anecdote: the schedule, the cost, the need for pickup upon arrival in Orlando (thanks Sara’s family!) and the time all conspire to eliminate huge swaths of potential customers.A more insidious issue: once you’re at sufficient schedule density, you basically invalidate your rail network for freight traffic.  Here’s something you may not have known: the United States has the world’s most efficient railway system (See here, and here: the US enjoys the cheapest freight rates in the world).  This is because it’s entirely freight based which allows the railroads to maximize what trains are really good at: moving huge amount of cargo extremely cheaply and efficiently.  Adding in passenger traffic (particularly dense traffic) with its priority trains would essentially destroy the efficiency we have or require incredibly expensive infrastructure investments.  Even with those investments it’s generally not feasible to run freight and intense passenger service on the same trackage.  Most freight in Europe travels by truck in case you didn’t know.Passenger rail, even where it’s “successful” in Europe and Asia is still a chronic money loser requiring subsidy support.  In a wholly unsurprising development, China’s extensive new (and darling of the media) high speed passenger network is essentially insolvent.  This is the ideal which Friedman and other breathless watchers of China and India have been prescribing for the United States for years.  Says Chinese professor Zhao Jian:

“In China, we will have a debt crisis — a high-speed rail debt crisis,” he said. “I think it is more serious than your subprime mortgage crisis. You can always leave a house or use it. The rail system is there. It’s a burden. You must operate the rail system, and when you operate it, the cost is very high.”

I’d rather have the railroad system the US currently has, thank you very much.  A privately funded, operated, and most importantly, wildly efficient transportation system that’s designed to move big bulky stuff.  As gas prices fluctuate and we continue to import a huge percentage of our manufactured goods, we’re sitting pretty.

Does China’s Autocratic Government Provide an Economic Advantage?

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It’s a question you often see timidly asked, in an almost guilty fashion.  Don’t you think, just maybe, setting aside all of its problems and just focusing on the economic question, that China’s government gives it an advantage over our messy democratic republic? Liberals in the United States are often criticized for their breathless infatuation with technology, intelligence, education, and a belief that top-down government inspired projects and policies are the main way to affect lasting and dramatic changes within society.  They point to examples including the Transcontinental Railroad, New Deal’s Tennessee Valley Authority, the Apollo Project,  and the impact that DARPA and other government funding had on the internet.

No one today cheerleads the economic advantages of China’s autocratic government more than Thomas Freidman, author of The World is Flat, and Hot, Flat and Crowded. Reading these books is to experience a breathless optimism that surrounds India, China, and other developing countries as he examines their education systems, massive economic investments in infrastructure, and the desire of their citizens to compete in a global economy.  No country receives quite as much praise as China, however, and the message both implicit and explicit throughout his columns and books is that this is all a product of a single-minded focus from a strong central government that’s dedicated to improving the lives of its citizens.

Are We Losing Our Edge to China?

China watchers (both admiring and fearing) can usually list off the following in quick abandon: China has the world’s second largest and second busiest airport, the fastest train, the fastest computer, the largest dam, and is using most of the world’s concrete (PDF).  There are other impressive economic stats as China is now the world’s largest exporter, makes the most cars, and has the world’s second largest economy.  The Chinese people and Chinese government relish statistics, particularly those that point out how they’re the best, and they have a flair for announcing large projects like the construction and logistical integration of several cities into the world’s largest mega-city that leave foreign observers stunned at the sheer scope of such projects.  If you read the previously linked Telegraph article, you can clearly see in your mind’s eye a vision of editors going back to each number and checking that they have the right number of zeros, all while softly cursing to themselves at the absurd size and scale involved.

Lets Look at Real Statistics

But for all of the admiration, large projects, and grandiose announcements, Friedman and others tend to forget a simple fact: China and India are still by any standard exceedingly poor.  Equating scale of projects without taking into account relative size is just, well, stupid.  Of course China and India should have the largest of everything – they have the largest populations.  The public works that everyone salivates over are all driven by the monumental sized populations that each country is responsible for.  People forget that China is still the 95th poorest country in the world when ranking by per-capita GDP.  Lest we become guilty of not adjusting for relative purchasing power (in other words, everything’s cheaper in China so you can earn less but still feel richer), when we look at their per capita GDP adjusted by Purchasing Power Parity, China climbs two spots to number 93.  These are imperfect estimates, but are directionally correct, and are prepared every year by the International Monetary Fund.  The United States, by contrast, is in the top ten for both measurements, with none of the countries besting the United States having a population of over fifteen million.

Can We Really Know the Effects of Communism on China?

Note that these bad (both absolutely and relatively speaking) individual economic indicators are despite nearly thirty years of constant economic growth, many of these years being close to ten percent or greater.  Not exactly the picture that tends to be painted, is it?  The point is this – there are two words that accurately describe China’s current economic progress: catch up. Decades of autocratic rule, political unrest, warfare (China was continuously at war from 1927 through 1950) have actually intensely harmed the country and its economic prospects.  In fact, these are often pointed to by outsiders (and even some Chinese) as reasons to why China is currently lou hou or backward.  

However, there is a decent control scenario that we can use to contrast with the current Chinese economy: Taiwan.  Both countries were founded the same year, 1949.  Both had participated in the ravages of civil war.  It can be argued that Taiwan may have left the mainland with some economic advantages: the best and the brightest, and possibly more administrative experience, but that case seems hard to make due to how poorly they had previously run the mainland.  They also left with China’s gold reserves, but the mainland received economic aid from the Soviet Union the first decade of its existence, and if the economic development stats were at all close it might be relevant.  In any event, Taiwan, having always pursued a free market with limited government interventions is today is one of the world’s strongest economies and near the top of the lists we just ran for the United States and China.  In other words, historically, China’s autocratic government has been nothing but a hindrance.

Today we are told, that all has changed.  China’s embrace of new economic policies (and priorities) is the new paradigm: that of the state guiding the economy along long term goals, inspiring its citizens with great public works while simultaneously providing a stimulus to the economy as a kind of dual pronged weapon of economic good.  This is contrasted against the herky-jerky, short sighted, messy and error prone proclivities of democratically elected governments that are so obviously wrong. However, when you really stop to consider this, it’s extremely puzzling.  We’re essentially saying that the element that prevented China’s economic growth for thirty years (a planned economy) is now it’s key advantage when competing globally.  

Keep in mind that when people decry the fact that the free market hasn’t arrived with something, they’re generally pushing an agenda that is economically incompatible with reality.  Friedman and friends are pushing carbon reduction due to a belief in global warming.  Others push social agendas for things like public housing.  Still more push redistribution of wealth for the betterment of the working and lower classes.  While we can debate the merits of these agendas, the reality is that if they were economically viable, someone would have found a way to monetize them. Here’s the general conclusion (to be followed I’m sure by a few more posts on this topic): it’s easy to make double digit gains when you’re in last place.   It’s also easy to cherry pick smart development deals when your whole country is undeveloped or underdeveloped.  In a hyper complex, massive economy like the United States that also happens to be very diverse, this type of top-down management is practically impossible.  China makes their share of stupid investments too, we just tend to not hear about them.

China vs. the United States

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Yesterday I was at the dentist, getting my teeth cleaned, and watching CNN for roughly an hour.  They spent almost the entire time (they did interrupt to let us know that Regis was retiring, sigh) discussing Hu Jintao’s visit to the US, how the Chinese economy is the second largest, and what the goals of the visit would be for both parties.  It was painful, and not because my teeth were getting poked.  The media, most members of the US Congress, and I’d say most of these groups in addition to normal Americans spend significant time talking about China in very abstract, basic, and historically ignorant terms.Here are some statements that are a commonly made with regards to China that I believe most China observers would take issue with, but are accepted as fact by most Americans:

  • China owns most of our debt, and therefore owns America, and therefore will begin to (if not already) influence the United States in ways we aren’t comfortable with, and in ways which would be imposible if they didn’t own so much of America’s debt.
  • China’s military power is a deep concern for both the United States and the West at large, and certainly a threat to East and Southeast Asia.
  • China’s autocratic government coupled with their capitalist economy affords them tremendous advantages to exert political and economic will towards being “the best” in ways the US and the West can’t muster.
  • China must demonstrate that it’s willing to behave responsibly towards the rest of the world and engage at the level of statesmanship that the West has long demonstrated.
  • China’s economic growth will continue unabated for the foreseeable future, and there is essentially almost no risk of a derailment.

There are a few more but these seem to be the ones that most people focus on, and simply put, the feeling is that maybe not now, but in the next twenty to thirty years, the following scenario could play out: China is big, they own our country, they could wreck our economy (either by wielding our debt against us or demolishing our superiority in competition), then kick our butts in a war.I’ve tried not to make these straw men arguments, and over the next few days/weeks I’ll deal with each and provide some counterpoint to each.