Last week the NY Times ran an article that stated the Obama administration has spent $11 billion on high speed train travel since 2009 and has almost nothing to show for the expenditure. I have been thinking about this article since over the past six months I have ridden on a number of high speed trains in Italy, Japan and South Korea. The allure of high speed trains for an individual is clear. You get on a train in the center of one major city with no security check, no need to be there 1 hour before the flight leaves, and no lines. The trains almost always leaves on time, and then arrives on time in the center of a different city quickly and efficiently. It is a low hassle travel experience compared to flying or driving.
The allure for a government is also clear. When people take high speed trains there is reduced congestion on the roads, reduced pollution and fewer accidents. One additional allure is that many foreign countries have found that high speed trains increase economic development. For example, entire new affluent neighborhoods filled with huge office towers, department stores, hotels, and shops have arisen near the Kyoto and Osaka, Japan high speed train stations in previously poor neighborhoods.
The key economic idea behind the debate over high speed train travel is something called the government multiplier. The government multiplier shows how much GDP is increased over time when the government spends $1 million.
If government simply wastes the money then the government multiplier is close to zero: it spends the money and society gets nothing in return. These programs are easy to see in retrospect. All political parties attack these programs and they get shut down relatively quickly. During the Great Recession, Congress passed an economic stimulus package in 2009 that contained about $2.4 billion in funding for battery research. The program produced few tangible results. This was a multiplier close to zero.
Many government programs have a multiplier of about 1. This means for every dollar the government spends society gets back about the same. Programs with multipliers of about 1 are relatively easy to spot. They typically generate a lot of controversy and political passion both for and against the program. Welfare and other poverty reduction programs are examples of programs with a multiplier close to 1. There are many reasons to support poverty reduction programs, but in general these programs do not provide extra economic growth.
There are also government programs that have multipliers that are much greater than 1. Society gets back much more that the government puts in. These are programs that generate little controversy and are backed by all political parties. An example is the USA’s Interstate Highway System. Almost everyone loves the highways and the economic impact of being able to cheaply move goods and people has been a large multiple of the money the government spent.
How does all this help us understand high speed rail? The NY Times article on high speed rail indicates that the current government multiplier is close to zero for the Obama’s administration’s high speed rail projects. Eleven billion has been spent and there is almost no payback. It is clear from my travels that some countries outside the USA have a multiplier for high speed trains greater than 1.
I am skeptical the USA will ever have a government multiplier for high speed trains that is greater than 1. The places where I have seen high speeds train provide an economic boost have one additional factor the USA is not considering. They all have excellent subway, bus and local train connections to the high speed rail service. To get people in the USA to give up their cars, people need to know not only that they can travel quickly from the center of one city to another, but that they can complete the last leg of their journey to their actual destination. Currently, in the USA many people fly from one city to another and then rent a car at the airport to complete the last leg of the journey. For high speed trains to really work the USA will also need to spend billions more on improving local public transportation, which is money I don’t see Congress willing to spend. Without excellent subway and bus connections, high speed rail will fail economically in the USA.