High-Speed Rail: Still a Good Idea

You may remember, back in August, economist Ed Glaeser’s series on high-speed rail at the New York Times’ Economix blog. Glaeser put together a back-of-the-envelope cost-benefit analysis of a hypothetical Houston-Dallas line, which purported to show that rail was a poor investment. You may also remember me responding in detail, and generally pointing out how woefully incomplete and misleading his analysis was.

To give an idea of the errors in his work, Glaeser made no allowance for population growth, and he assumed that the sole land use effect of high-speed rail would be to shift 100,000 suburbanites to the central city in both Dallas and Houston.

But these are absurd assumptions. The Census Bureau projects that America’s population will grow by 130 million by mid-century, and the National Academies’ Transportation Research Board estimates that America will add anywhere from 60 million to 100 million households in coming decades — nearly doubling the current number of housing units.

This suggests that there is enormous potential ridership growth in growing metro areas and large opportunities for land use shifts. But Glaeser pretends that the world will be more or less static in coming decades.

For these reasons and others like them, I’m not very happy with this week’s statement by Brookings’ Jonathan Rothwell that "Glaeser’s core approach is sound," and that Rothwell’s analysis of high-speed rail numbers "focus[es] on just those aspects
of Glaeser’s analysis which merit criticism: the interest rate and the
costs per passenger."

This is far too kind to what Glaeser himself said was back-of-the-envelope and which should not be interpreted to "represent … a complete evaluation of any actual proposed route."

Still, even Rothwell’s limited analysis of Glaeser’s model (see below
chart), using conservative but more appropriate data points for cost
per passenger and interest rate, shows that high-speed rail systems are
very likely to be worth the investment.

Where Glaeser’s data choices show construction of a Houston-Dallas rail line to be a money loser to the tune of $375 million, Rothwell’s show net benefits of $122 million for the same line. The figures for a hypothetical Los Angeles-Las Vegas line are better still — and one assumes that lines which are actually top-priority HSR corridors would perform significantly better.

Rothwell’s estimates do not include environmental benefits, nor do they attempt to take into account changes in land use. They don’t question other numerical assumptions of Glaeser’s, such as his estimate of the value of time for business travelers (which might, by itself, shift promising lines into profitability). And as Rothwell notes, his numbers — while different from Glaeser’s — are still pretty conservative.

In fact, any decision to build high-speed rail should focus on more than just the direct benefits to riders adjusted for environmental externalities. But just in case rail supporters were concerned that, if forced to argue on those terms, they would have difficulty pushing back against the Glaeser analysis, fear not — his is hardly the last or best word on the issue.

  • jimharper

    At best, a line can cover operating costs. That’s pretty good. Our other transportation infrastructure isn’t expected to do that. I’m pretty sure the sidewalk in front of my house is a money loser.

    It bugs me that we don’t have ANY high speed rail and the nay-sayers are already talking about a bridge to nowhere.

  • Come on Ryan,

    I know you know economics better than to repeat those unsound arguments. You know that the cost of capital for these risky projects will never be the feds fund rate. Do you really think that is a “more appropriate” interest rate, let alone opportunity cost of capital?

    If it’s such a good idea, economically, then don’t worry, entrepreneurs will do it – regardless of what you think of the idea. But, of course, entrepreneurs don’t have access to borrow at the fed funds rate….

    And the environmental “benefits” argument is bogus because tons of carbon will be used to build and operate high-speed rail. The only way the environmental case can be made is if compared to building an even-worse highway project (that shouldn’t be built anyway). If you really care about the environment, why not just argue to stop messing up the environment with these transportation boondoggles?

  • richard schumacher

    “transportation boondoggles”? When gasoline and jet fuel cost $5 per gallon should we be moving ourselves and our goods by bicycle?

  • The proof that “Market Urbanism” was not paying attention came here “If it’s such a good idea, economically, then don’t worry, entrepreneurs will do it”.

    Glaeser’s back of the envelope modeling at the outset was about the economic benefits, and not limited to the direct financial benefit of farebox revenue. When Ryan tore Glaeser’s arguments apart, it was on the same ground of economic benefit. And Rothwell’s figures are on the same ground.

    The fact that so much of the benefit of transport infrastructure cannot be captured as revenue is precisely why “entrepreneur’s” do not rush in to take over from local, state and federal government anytime there is a pause in roadwork expansion – “entrepreneur’s” wait until major right of way establishment costs are all sunk costs before they look to taking over toll roads, and those are of course resting on a massive cross-subsidy from public rights of way and zoning-mandated parking provision.

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