The US spends about 18% on health care, and many experts believe that a substantial share of that expenditure is wasted. I tend to agree with that view, and attribute the waste to massive government subsidies combined with severe restrictions on health care competition, both of which tend to drive up prices.
But this is not an easy problem to fix. If we were to cut health care spending to 10% of GDP, then health care providers would lose income equivalent to 8% of GDP, which is a really big number. One recent attempt to reduce health care expenditures was the “Cadillac tax” on expensive insurance plans. That tax was recently repealed, with substantial support for repeal in both political parties. It’s not popular to deprive a group of people of 8% of GDP.
Matt Yglesias has an interesting new post on the problems facing Amtrak. The new infrastructure bill authorizes $30 billion to improve passenger rail service in the northeast corridor. In places like Europe, that would be more than enough money to build a nice high-speed rail line from DC to Boston, which at the moment is the only part of the US where high-speed rail makes much economic sense.
While Yglesias is pleased with the push for more spending on infrastructure, he worries that Amtrak will end up wasting the money, as it is an extremely poorly run organization:
Amtrak . . . is run by people who are not curious about trains.
In March, Grabar interviewed Amtrak’s new CEO, William Flynn, and he asked him about the cost of the Gateway project “which is almost $5 billion a mile, and that’s many times the cost of similar projects in other countries. This is a recurring issue, as I’m sure you know, in tri-state area projects, where the cost is way out of whack with international best practices. What’s going on there?”
Flynn just has no answer for this. He doesn’t say “look, there’s a good reason and here it is.” And he also doesn’t say it’s a big problem and he’s working on fixing it. And he also doesn’t say he finds it puzzling and he’s looking into it. He just reiterates that he thinks the project is important.
Yglesias suggests that Biden bring in an expert from overseas to run Amtrak, as the current leadership is clearly in way over their heads. He points to the example of New York’s subway system, where city officials brought in an outside expert and service improved substantially.
Unfortunately, the gains did not last:
This then led to two problems.
One is that when you bring a skilled outsider in, he starts fixing some stuff and gaining credibility. But he also starts identifying stuff that for some reason or other he can’t fix and starts saying things like “I can’t fix this because of X Rule or Y Person or whatever we else.” Lifetime managers of dysfunctional systems learn to just live with these points of dysfunction, but outsiders have fresh eyes and they say “this is not how a world-class system would work.”
At that point you start making enemies, and either the politicians have your back or they don’t.
And in New York, they didn’t, seemingly in part because Andrew Cuomo was annoyed that Byford was getting so much praise.
As a result, Yglesias is a bit pessimistic about the prospects for Amtrak:
What I take from this is that an effort to make Amtrak good would probably fail because the relevant elected officials probably don’t actually want to make it good. But if they did want to make it good, then they could bring in an experienced passenger rail executive from a high-functioning European system and empower him to do some house-cleaning. It would be risky, but it would also be ambitious. This would say not just that the Biden administration is interesting in spending a lot of money on mainline rail, but that they actually want to create excellent passenger rail in the United States.
I am even more pessimistic than Yglesias. I doubt whether Biden would succeed even if he were to try to fix passenger rail service. Recall what Truman said as Eisenhower was about to take office:
He’ll sit here, and he’ll say, ‘Do this! Do that!’ And nothing will happen. Poor Ike—it won’t be a bit like the Army. He’ll find it very frustrating.
Of course Eisenhower did set up the interstate highway program. But that America is long gone.
If I had my way, I would not just bring in an outsider to head Amtrak; I’d farm out the entire project to foreigners. Management and engineering people would be from Western Europe and East Asia, while lower skilled workers would be from South Asia. I’d favor a project that used zero American workers, as neither our labor nor management has a comparative advantage in building passenger rail. But of course this won’t happen.
Then I would have Congress pass a law saying that the high speed rail project would be 100% immune from all environmental laws and regulations, and that environmental lawsuits to stop construction would not be allowed. That also won’t happen. People may say they favor high-speed rail, but do they actually favor the things that would be required to get the project done?
The root cause of inefficiency is misaligned incentives. Because Amtrak has no incentive to be efficient, they will not be efficient. Firms in the private sector have good reason to be efficient—fear of losing out to competition.
In fairness, it’s not easy to set up a competitive private rail network. Various developed countries have involved the private sector in their passenger rail service to a much greater extent than the US, but while the results are generally better than here, there are cost problems almost everywhere.
Interestingly, freight railroads in the US are privately run, and (along with Canada) they are the best in the world. So it’s not like Americans cannot do railroading; we cannot do passenger rail.
My general view is that it will never be possible to fix government entities such as the public schools or Medicare, and that the only real solution is privatization. You need a system where providers have a reason to be efficient, and Amtrak does not now and likely never will have a reason to be efficient. If you want good schools, you need competition.
We have an infrastructure bill, but I remain very skeptical as to whether we will actually get infrastructure.
READER COMMENTS
Rajat
Aug 3 2021 at 10:37pm
If only it were so simple, Scott! The Brits have more experience with privatisating trains than we Aussies, but I believe they’ve had some issues with route viability, fares and/or track maintenance. Someone from there may be able to comment.
More generally, though, privatisation has to be done right; and that means the sale conditions and regulatory settings are made with an eye to promoting competition rather than sales proceeds. In Australia, we have large and growing pension funds who loudly advocate for more infrastructure so they have a growing stock of largely risk-free assets to buy that offer much better returns than government bonds with guaranteed revenue growth in line with CPI plus scope for holding governments to ransom for making any changes or augmentations. And naturally they want insulation from any government-influenced risks. So if a competing port or tollway gets built, they are compensated. Of course, investors should be compensated for risks within governments’ control, but the clear delineation of these risks needs to be done thoughtfully and few governments seem capable of that. My own view is that though suboptimal, we need to starve the infrastructure beast until a need becomes absolutely compelling, and then all tenders should be made public for a period, allowing interested stakeholders and think-tanks, academics, etc to comment, so governments’ considerations and decisions are as transparent as possible.
Scott Sumner
Aug 4 2021 at 11:38am
Yes, there have been problems in the UK. Even so, the system worked far better after privatization than before, as evidence by rapid increases in ridership. Certainly their trains are far better than ours.
There’s also been a great deal of privatization on the Continent, and in places like Hong Kong.
Matthias
Aug 7 2021 at 4:56am
See https://en.wikipedia.org/wiki/Impact_of_the_privatisation_of_British_Rail
There’s still lots of regulation around British railways, so it’s amazing they are doing as relatively well as they do.
David S
Aug 3 2021 at 11:53pm
This post dovetails with a link Tyler Cowen has to a rather optimistic post by Austin Vernon on tunnels. I’m not going to hold my breath waiting for Elon Musk to revolutionize transportation technology in any format.
Incidentally, nearly every track mile Amtrak uses is shared with freight trains, and it would take God-like powers to create dedicated right of ways for a high-speed passenger network in high density urban areas. And to what end would such an effort serve? Passenger volume on trains is so tiny in this country that a major interstate rail system wouldn’t interest any sane private investor.
Amtrak will persist as a curiosity for decades. Cars and planes conquered human transport decades ago and any infrastructure improvements should be focused on incremental improvements in that area. Paid for by the mile.
Scott Sumner
Aug 4 2021 at 11:40am
Yes, I’d favor abolishing all of Amtrak except the northeast corridor, and then privatize that segment.
Matthias
Aug 7 2021 at 4:57am
Why not privatise the whole thing first, and then the new owner can disaggregate and shut down parts?
Alan Goldhammer
Aug 4 2021 at 11:18am
From where we live in Bethesda, it is both cheaper and faster to take the bus to New York compared to Amtrack. The pick up is five minutes (the Metro takes 25 minutes to get to Union Station) from our home and usually the trip is less than four hours if one leaves first thing in the AM. This was pre-pandemic and I don’t know how the bus service has made out over the past year.
Scott Sumner
Aug 4 2021 at 11:40am
Yes, intercity buses are underrated.
MarkW
Aug 4 2021 at 1:43pm
On the other hand, it may be a good thing that the U.S. is extraordinarily inefficient at building rail lines, since that reduces the chances of starting such projects in the first place. But failing that, it reduces the number of actually completed lines and miles and so minimizes the ongoing operational subsidies. I think it would be a bad thing if some supernatural force gave us free high-speed rail lines, since then we’d be stuck with the ruinous, never-ending cost of operating the damn things.
For intercity travel, I think a combination of of air, bus, and auto is ideal — reserving railroad rights of way for freight (which, as Scott notes, does work extremely well in the U.S. and without subsidies).
Scott Sumner
Aug 4 2021 at 11:55pm
Ideally, the supernatural force would give us a line in the NE corridor and nowhere else. That one could make a profit.
jj
Aug 4 2021 at 10:28pm
Scott’s plan needs a winning slogan: “Buy Unamerican”
Thomas DiMaio
Aug 5 2021 at 12:37am
One reason why high speed rail travel is given such a low priority is that Americans can afford to fly from Boston to Washington. That leaves the contractors, unions, and other rent seekers as the significant parties with interests in these projects.
That being said, commuter rail in the NYC area is generally in a state of collapse. Many rail one way commutes are 20 minutes longer than they were 15 years ago. There seems to be little acknowledgement from the politicians that there is any problem. Despite the economic importance of the rapidly deteriorating rail lines to/from NYC, Connecticut threw it’s money at a rail line for the lightly travelled New Haven-Springfield route. At this point the deferred maintenance includes upgrading infrastructure built during the Wilson Administration.
Despite all the chatter and proposed pork, the political will for real improvement is approximately zero.
Frank
Aug 5 2021 at 4:53pm
I expect that congestion charges and carbon taxes for road, rail, and air transport would give railroads an extremely good shot at profitability in the whole US.
MarkW
Aug 5 2021 at 5:09pm
For passenger rail, I doubt that. They’re going to be run by public or quasi-public agencies after all. And congestion charges? Most jobs are outside downtown where congestion charges would apply anyway (a trend greatly accelerated by the pandemic). Congestion charges would only exacerbate the exodus.
Frank
Aug 5 2021 at 6:11pm
Congestion charges would only exacerbate the exodus.
Make competing modes relatively more expensive and people buy less of it? Alas, no.
MarkW
Aug 6 2021 at 12:12pm
Make competing modes relatively more expensive and people buy less of it? Alas, no.
So you think that making it more costly to drive into congested city centers wouldn’t, on margin, reduce people’s desires to go downtown or the desires of companies to locate their employees there?
And as for carbon charges, intercity railroads really aren’t that all that great in the U.S. (not much better, per passenger mile, than autos or aircraft). Any marginal savings in fuel use could easily be swamped by the horrible organizational inefficiency of rail operations.
Frank
Aug 6 2021 at 9:17pm
Would, not wouldn’t. And best to check the facts.
MarkW
Aug 7 2021 at 8:25am
Here are some facts. First fuel efficiency per passenger mile in the U.S. by transportation mode. Second passenger miles by mode in the EU which, despite the huge rail investments, greater population density, shorter distances, high tolls, and extremely high gasoline prices still remains heavily dominated by auto and air (which together account for 80% of passenger miles).
There is no prospect of the U.S. building a comparable rail network nor of it raising fuel prices and tolls to European levels (nor, obviously, of moving our population centers closer together). But even if all of that magically happened, we’d still see at least European levels of driving and flying (certainly more flying, since ‘flyover country’ here is so vast).
And even after the pandemic, urban commuter rail volumes are likely to remain well below pre-pandemic levels as many companies and workers embrace at least part-time work-from-home options.
Frank
Aug 8 2021 at 3:30pm
Well, the first table shows that fuel efficiency per passenger mile is highest for rail.
The point is not that rail will again be a large share of passenger transport, but that it will be profitable in places where it is not now profitable.
Pigouvian taxes go into price, and price matters.
Frank Clarke
Aug 5 2021 at 12:04pm
Ask the wrong question; get the wrong answer.
http://dispatchesfromheck.blogspot.com/2011/12/how-do-we-pay-for-it.html
Floccina
Aug 5 2021 at 4:16pm
To give better incentives in Medicare, could we try giving Medicare recipients at age 65 a health saving account funded with $30k for them and then at 70 years old they get to keep what is left, then again at 70 fund their health saving account with another $30k for them and then at 75 years old they get to keep what is left. Etc. until death.
And never increase the $30k for inflation.
Floccina
Aug 5 2021 at 4:54pm
I neglected to say those health savings account amounts it would be like a deductible and so when the amount in the health saving account is used Medicare would pay for all the bills above that amount.
Phil H
Aug 6 2021 at 6:55am
Interesting that Scott still thinks rail is uneconomic. I was thinking that the rise of Uber might give a significant boost to rail, because it reduces the need for your own vehicle at the destination. But perhaps it isn’t working out that way.
SK
Aug 6 2021 at 3:06pm
This post begs the question: What exactly is the U.S good at where there is a high degree of gov. regulation?
Matthias
Aug 7 2021 at 5:03am
Do you mean good in an absolute sense or relative to other countries?
The US is good enough at agriculture to do lots of exports. But that sector also has lots of government interference.
Walter Boggs
Aug 6 2021 at 9:53pm
When my friends from the Netherlands say how superior their health care system is to ours, I reply that they are lucky to have the Dutch to run it for them.
Warren Platts
Aug 10 2021 at 3:36am
There is no need to import a bunch of foreign workers into this country when there are millions of unemployed American workers. If American freight railroads are the best in the world, then the “lower skilled” workers that construct those rail lines must also be the best in the world. Except for maglev lines and such, both freight and passenger trains run on the same rails…
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