Must read article on need to invest in rail

One of the most troublesome aspects of Obama’s stimulus plan is the lack of attention to rail transport. Just look at this graph to see why.

Rail vs other modes efficiency

So, I consider this article by Phillip Longman one of the most important articles of the new year, because it clearly points to the one of the most effective means for moving the economy off the basis of “oil-for-paper.” There are enough references to other studies, going back to a 1970s National Academy of Science project that identified the specific lines most suitable to electrification (electrified railroads, which are common in Europe, are twenty times more fuel efficient than trucks).

I urge you to go and read the entire article. It is extraordinarily well researched and well written. Here’s a teaser:

In a study recently presented to the National Academy of Engineering, the Millennium Institute, a nonprofit known for its expertise in energy and environmental modeling, calculated the likely benefits of an expenditure of $250 billion to $500 billion on improved rail infrastructure. It found that such an investment would get 85 percent of all long-haul trucks off the nation’s highways by 2030, while also delivering ample capacity for high-speed passenger rail. If high-traffic rail lines were also electrified and powered in part by renewable energy sources, that investment would reduce the nation’s greenhouse gas emission by 38 percent and oil consumption by 22 percent. By moderating the growing cost of logistics, it would also leave the nation’s economy 13 percent larger by 2030 than it would otherwise be.

The “bang for buck” return of investment in rail is truly spectacular. For example, rail actually can move priority and perishable freight from New York to Chicago faster than aircraft. But, as Longman explains, because the rail system was built in the mid-1800s (actually, just before the Civil War, when Chicago marked the end of major settlement and the beginning of the frontier), the 1,200 trains a day that move through Chicago do not have a straight connection through.  

Consequently, thousands of containers on their way elsewhere must be unloaded each day, "rubber-wheeled" across the city’s crowded streets by truck, and reloaded onto other trains. It takes forty-eight hours for a container to travel five miles across Chicago, longer than it does to get there from New York. This entire problem could be fixed for just $1.5 billion, with benefits including not just faster shipping times and attendant economic development, but drastically reduced road traffic, energy use, and pollution.

My only criticism is that Longman could have done much more to drive home the point that the current problems of rail, such as a very hurtful lack of capacity, are largely the results of letting Wall Street do what it pleased the past three decades. It’s just that I personally believe that if we are going to save the economy, and our future, we need to absolute annihilate the idea that finance can be allowed to seek the highest return without regard to what is required to advance the general welfare. Still, Longman makes the point more than adequately:

Why don’t the railroads just build the new tracks, tunnels, switchyards, and other infrastructure they need? America’s major railroad companies are publicly traded companies answerable to often mindless, or predatory, financial Goliaths. While Wall Street was pouring the world’s savings into underwriting credit cards and sub-prime mortgages on overvalued tract houses, America’s railroads were pleading for the financing they needed to increase their capacity. And for the most part, the answer that came back from Wall Street was no, or worse. CSX, one of the nation’s largest railroads, spent much of last year trying to fight off two hedge funds intent on gaining enough control of the company to cut its spending on new track and equipment in order to maximize short-term profits.

So the industry, though gaining in market share and profitability after decades of decline, is starved for capital. While its return on investment improved to a respectable 8 percent by the beginning of this decade, its cost of capital outpaced it at around 10 percent—and that was before the credit crunch arrived. This is no small problem, since railroads are capital intensive, spending about five times more just to maintain remaining rail lines and equipment than the average U.S. manufacturing industry does on plant and equipment. Increased investment in railroad infrastructure would produce many public goods, including fewer fatalities from truck crashes, which kill some 5,000 Americans a year. But public goods do not impress Wall Street. Nor does the long-term potential for increased earnings that improved rail infrastructure would bring, except in the eyes of Warren Buffett—who is bullish on railroads—and a few other smart, patient investors.

Longman ends by noting that the financial collapse and economic crises have created new political opportunities.

Is all this politically feasible? Certainly more so than a year ago, before the consensus formed that we must invest massively in infrastructure of some kind. Importantly, too, we’re not talking about bailing out a failing industry, but about helping an expanding, more energy-efficient one to grow fast enough to meet pressing public needs. Nor would we be making big bets on unproven technology. Also, it’s important to remember that big trucking companies, facing acute driver shortages and mounting highway congestion, are increasingly shifting their containers to rail and so have an interest in improved rail infrastructure.

There is definitely a buzz building about rail, but we need to make it much, much bigger. Not In The New Republic, John B. Judis also highlights rail in his article, Not Doing Enough: Why I worry that Obama doesn't realize just how bad things are.

Remember the idea of the Shock Doctrine and disaster capitalism. Let’s not waste the political opening afforded by these financial and economic crises by being too timid in what we demand of the new Obama administration. Otherwise Wall Street and the disaster capitalists will win by default.

 

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Interesting

48 hours to cross Chicago for freight. Pretty astounding.

I think Obama is simply listening to a series of our corporate pals, this time with a more liberal bent (whatever that means these days) instead of digging out experts people who really know the details on what would be efficient, useful investment and where it needs to go.

It's like corporate lobbyists, philosophy and "who you know" still rule on high and the real experts, the real ones who could make the government effective and efficient....are sidelined.

Great post, I had no idea on rail infrastructure.

(don't ya love that EP is pure economics and not partisan, one could never get away with criticism, any politician, any party, on the political blogs! ;))

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