The Economist on privatizing Amtrak

The Economist says the same things I did a bit ago (only The Economist does so more concisely and clearly) about Senator Mica’s proposal that they privatize the Northeast corridor. There are some problems with the Economist’s argument, though:

Critics of Mr Mica note that Amtrak’s profitable north-east corridor operations subsidise less popular, less useful routes elsewhere in the country. Thus, selling off the north-east corridor could provoke a “domino effect,” leaving other, less profitable routes at risk, Rep. Nick Rahall (D-W.Va.) warned earlier this month. But that argument, which Mr Rahall apparently sees as a defence of Amtrak, is actually a bit of an indictment of the company. Economics, not nostalgia or politics, should determine where Amtrak operates. Right now, it’s often the opposite. Is it really necessary that Amtrak service Dodge City, Kansas (pop. 27,340)?

Ok, yes, it’s easy pickings to make fun of stops along the lines of the Dodge City types. Sure, no, they don’t really merit a stop, yeah, whatevs. But you can only carry the logic so far.

Network economics tends not to be like simple micro; there are useful hierarchies within networks, and it’s not always apparent where the efficient spatialcutoff for distributed, low-volume customers are, whether that means providing cable tv to low-density suburbs or Amtrack to Boston when the DC-NYC corridor probably pays the freight while NYC to Boston may not (it’s a matter of convention to lump the East Coast together, but it may not be the case that the whole of the corridor runs a profit, or enough of a profit that you’d want to run the whole corridor.) There comes a point where you can and do make money cross-subsidizing from your trunks to your distributors.

We’ve got history to work from: Amtrak didn’t start out as a gummint project. When the US deregulated intercity rail, the first thing all the rail companies did, besides jump up and down, was ditch their intercity passenger service because they couldn’t make any money on it. That’s why Amtrak doesn’t own its own tracks, and one of the reasons why, as a service, it’s running at a major disadvantage. Maybe everything has changed in the interim, but…

Edited to add:

Please see comments for the Transportationist, David Levinson, giving a history of Amtrak. I didn’t mean to say that Amtrak arose from the ashes of deregulation (but I wrote it that way…sloppy writing)…I meant to say that nobody has wanted the job of running anything remotely related to intercity passenger rail for about 50 years (though there are many HSR hopefuls), even though freight rail has stayed on as a profitable enterprise (except when I invest in it rrrrrr–not that I am bitter). Amtrack become an gummint problem after intercity passenger service was a lousy private sector problem. So why it would change at this point I have trouble understanding.

6 Comments

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6 responses to “The Economist on privatizing Amtrak

  1. Lisa, your sequence is wrong. Amtrak was created in the early 1970s to bail out the still regulated, still private RRs. Penn Central went broke in the mid 1970s. Conrail was created to bail out the NE freight RRs. The remaining private RRs were deregulated in the Staggers Act c. 1980. Conrail was sold off to Norfolk Southern and CSX (after another, more successful, round of freight RR mergers). Amtrak remains.

    There may be some network economics here, but I suspect the Northeast is highly isolatable from anything outside the NE.

  2. You’re right–I shouldn’t have been so sloppy with the way I stated it. My point was that we glued together Amtrak because nobody could make any money in the first place, and then when the Staggers act came along there was an agency in place for discarded service.

    On the second point, yes. But do you see where I am going? Ok, sure, don’t serve Dodge City. But I’m betting you can make similar arguments about profits. Does the Philly stop make any money, or is it just not particularly expensive to serve because of it’s spatial location? Or does it make money because enough NYers want to go there and back? (Right, because there comes a point that if you lop off too many connections on the periphery that the network loses value to the customer.

  3. at the risk of stating the obvious – there are defensible reasons for running service that’s not profitable. if we based all of our transit decision making on profitability, there would be no transit at all. one of the main advantages of the auto over transit is that the latter’s costs are much more amenable to arithmetic.

  4. Of course–that’s one of my points (not all parts of the network are going to yield profits, but you need some parts of the generating cash so that you can run the system, and if you allow private companies to cream off the parts of the network that do, actually, run a profit, that leaves your transit agency with fewer resources to run the rest of the system).

    A second point here–and this is a mistake that transit advocates make a lot–it’s probably wise not to conflate intercity passenger rail with public transit services you commonly encounter in cities. They may be the same types of technologies, but they are pretty different services, have somewhat different demand structures–and thus different markets.

    I’ve argued here before that I think public transit advocates can make the argument that intra-city services should just be treated like police/fire/water provision/garbage collection. What doesn’t get covered from the farebox gets covered from general revenues.

    The “we should run inter-city passenger rail” even if it doesn’t make money argument is less compelling to me. Because of the markets it serves, inter-city rail is much more like the airline industry than public transit in cities. Can I make an argument for running half-empty airplanes to tiny markets like Cedar Rapids? (Yes, senators from Iowa can and do, which is why we also wind up with Amtrak stations in places like Dodge City). If we do too much of that sort of thing, we make the system completely unsustainable financially, which why we worry about it. (The more money you toss into airports/stations that don’t serve many people, the less money you have to serve places where more people need service…)

  5. i agree that intercity rail is more like an airline in terms of service, but it’s (probably? hopefully?) more like a bus in terms of emissions and energy use. a thought experiment – put some proportion of people commuting from sacramento to the bay area (and vice versa) on amtrak’s capitol corridor. now put them on southwest. probably similar effects on congestion on I-80, but vastly different effects on energy use.

    this is the argument i’d push for subsidizing presently non-profitable routes or small markets.

  6. And that’s frequently the argument made, but it is seldom analyzed properly. If the intercity trunk systems that we have to operate with subsidies aren’t reallt getting many passengers, then we have to worry about whether we’re getting enough emission reduction *at all* to merit the construction and operation of the system.The question there becomes what are the $ per unit of emission saved and are there more cost effective ways of doing that than building what are very expensive rail systems that also cost us a lot to run? If the answer is no, then we can perhaps justify the subsidy if we can also show that our investments in emissions reductions are productive (we get more out of the reductions than we spend on getting those reductions. For example, most lifetime analyses show that you almost never save enough NOx operating rail as you generate building it, but you often save enough C02 in operation to justify building. (And in the end the NOx tradeoff may be well worth making in places where ozone isn’t a problem to get reductions in CO2).

    The subsidiary question is: are we happy spending billions on intercity rail to save a emissions when those dollars could be going to schools because we can also show real environmental benefits to education.