There was a great discussion on Morning Joe today that truly captures the big picture and demonstrates how our small, petty politics will be our ruin. It was Joe, Mika, Thomas Freidman and Pat Buchanan. They got onto the subject of China and how they have set themselves up to dominate the world economy. They have a plan to secure their energy needs in the short term. While we send aid to Africa, China is investing in Africa and developing the continent as a new middle class for its products. They are investing in Venezuela and Iran and North Korea. They are building tens of thousands of miles of light rail and boat loads of nuclear plants domestically. They are not getting heavy into ship building, wind turbine manufacturing etc. On the flip side, from Joe Scarborough's own mouth, we have been paying for two wars and have no plan. Joe said that he was against the stimulus, but if they came forward with a 2 trillion stimulus that invested more in infrastructure etc., he would have supported that (I doubt it but interesting). So, anyway, this got me thinking that this would be an excellent and sane topic for discussion here. Forgetting about party, some people are beginning to recognize the horizon and our diminished place in it. Freidman compared this to our generations Sputnik. A wake up call for America to engage. But here is the problem. China is a centralized government that can do its own strategic plan without interference from a pesky democracy. They have a much higher degree of "socialism" that is used to strike fear in Americans. On both sides of the aisle, there is a certain degree of faith that the markets will simply have our economy evolve. Meanwhile, we fall further and further behind a country that doesn't not wait for evolution. They aren't waiting for Africa to emerge. Many countries there would not be good short term investments that private business in a free market would take on. They don't wait to develop a sound energy policy that is influenced by big oil on one side and environmentalists on the other. Freidman noted that Obama was elected in large part because Americans wanted our government to drop the petty politics and work on the big issues. I'm increasingly pessimistic on that front because it takes two to tango. Let's see with wall street reforms as Corker and others appear ready to break ranks and he claims that we will eventually end with a bill that gets 70 votes. Anyway, it was a fascinating discussion that gets at the heart of our issues. Government v. No Government and the balance. We have barely scraped these issues in the past. With high speed rail and a new smart grid, there have been some who say that government has to do this because it won't be profitable for private business until things are in place. A chicken/egg situation. Others have said, "we will have high speed rail when its a profitable enterprise for business." Discuss. Or we can talk about whether Hannah Montana is too slutty for the Christian/Country music market.
A centralized government with a planned economy like China's might lead to a competitive advantage in the world market, and it can also lead to mass starvation, as we've seen in their recent history. My thinking is that China has some competitive advantages right now, in addition to the fact that they get to do some more strategic planning than a democracy with a free market system does. This includes the fact that the nation is developing fast and there are many opportunities for entrepeneurship, and also the superior work ethics of its people, which never ceases to amaze me. But, my thinking is that if China had a free market system, while they might give up some control of their strategic planning, their competitive advantages would be even greater. Conversely, if the US had some leadership within its government that understands the intricacies of foreign trade, they could do some more strategic planning in terms of developing foreign markets, partnering with private industry, and without having to resort to centralized government policies.
Chris, I think you are using a false dichotomy here. There is a big difference between the Free Market and Decentralized Government. But even more bothersome is the idea that only government is capable of foresight and business is only capable of seeing the near term. It is completely false. There have been plenty of examples of government short term thinking, and plenty of examples of private market long term thinking. If you want to talk railroads, we can take the railway systems of France, the US and Great Britain. The French system was full of long term foresight. After the success of the Liverpool and Manchester Railway, tons of private builders wanted to build railways all through France. What emerged was the beginning of the BOT model of infrastructure development. France would charter a railway, and give the company a license to operate it over 30 years or so, and then it would be handed over to the government. They had a plan from the very beginning for a nationally cohesive system. They were thinking more than 30 years in advance. As such, they made sure lines were pretty straight, and that there was very little duplication of rail lines (efficient use of resources, right? I'll get back to that). The British system was more of a free-for-all. It was a bubble. As soon as the L&M Railway showed its success, hundreds of railways flooded parliament begging for the use of eminent domain for railway construction. The lines were mostly straight, but there was tons of duplication and it was very irresponsible in the short term, with Railway Mania resulting in an economic collapse that severely destroyed wealth of the middle class for almost a decade. The American system was quite different. Initially railways had some combination of eminent domain and land purchases, but mostly purchases. The railways were a little more curvy when they were purchased, because it is much more expensive to buy a straight line than a curvy one. There was little duplication. But then the great internal improvements dilemma flooded the US, and the idea of government run infrastructure eventually won over. Subsidies, subsidized loans, and grants flooded the railroad entrepreneur's coffers, and railroads sprouted up like weeds. Grants and loans were heavily subsidized, and were paid out on a per-mile-constructed basis, so naturally the railroads built as many miles as possible to get to where they wanted (curved tracks even where it was cheaper to build straight tracks, like for example on flat government lands in the west). The Credit Mobilier scandal rocked Congress, owing itself to the corruption of both businessmen and congressmen. And to this day, we are plagued with the curviest and slowest railroads, with unseen levels of duplication. Ahh, but there is a catch. High Speed Rail revolutionized transport, but it was never viable for heavy freight trains. France, having very little duplication, decided that if they had to choose between passengers and freight, that passengers were more important. As a result, freight trains died off, and now a huge percentage of freight now travels by truck (more than 90% of ton miles IIRC). Britain has the worst system overall, with mostly slow passenger trains and very little freight rail share (a smidge higher than France), but they have the most potential with their existing rights of way. They could be running HSR throughout the country by now, as well as have a large freight rail share if they could only figure out how they want their system to run. They started out completely private market, but then nationalized the system, and then subsequently privatized the operations but not the rails. Now you have private operators that would love to increase speeds (and probably can afford it) but cant because they don't own the rails, a population that wants higher speeds but isn't willing to subsidize their construction from general funds, and a freight rail market that is all but forgotten. And the US system is probably the most efficient rail freight system in the world. As far as I know there is only one other country with a higher rail freight share, but mostly because they don't have highways along their rail routes. The US system is hands down the most cost efficient in the world, with rail freight prices about 1/8th that of China and 1/6th to 1/4th that of Europe and Russia. There is tons of duplication, which allows for competition which drives down prices and increases use...but they are hampered by slow and curvy rights-of-way...which will never do for the more demanding passenger travel segment, especially in the days of travel options like airlines and interstates. If we want HSR here, its going to cost us. A lot. We don't have the existing resources to be able to build high speed tracks...they have to be acquired new. So yeah... who was responsible for the French system's foresight in passenger rail? The government. Who was responsible for the French system's lack of foresight in freight rail? The government. Who was responsible for the British system's Railway Mania-induced decade long recession? The private market. Who was responsible for creating the incredible potential in Britain? The private market. Who was responsible for the current suckiness of the British rail system? The government. Who was responsible for the American rail system's current freight superiority? The government AND the private market. Who was responsible for the American system's current passenger rail inferiority? The government AND the private market. I think generally speaking, anybody who likes to frame things like political issues in the form of dichotomies isn't likely to understand the incredible nuances that real analysis can uncover. I personally would love to have more High Speed Rail in the US, but it is going to be expensive, risky, and I definitely do not want to sacrifice our freight system's superiority just so we can match the status quo of passenger systems in Japan or France. I think we have a few corridors that could be wildly successful, but they aren't being planned well at all, and they are putting the legitimacy of government commerce operations in the US at a huge risk. Remember, the supporters of Amtrak have consistently stated that the reason for their failure is a lack of investment. What happens when we invest $80 billion into passenger rail in California and end up in bankruptcy? Furthermore, I wouldn't exactly classify China's infrastructure expansion as a huge display of wisdom and foresight. Where it comes to HSR, they already have the demand on their slow rail to justify HSR, due to the capacity increases that HSR allows. That could just as easily be considered short term thinking. Their current monetary policy has been proven very well to increase industrialization, as the US in the 1920's and Japan in the 1980's proved very well. Think about those periods for a moment and get back to me on whether they are thinking for the long term or the short term.
Lots of good points. But before we go down an unintended road, which I may have inartfully started given your post and ASF's, I'm not intending to make this an all or nothing argument over which system is superior. I guess that's the point. We move along without much of a plan with only polar political views grabbing for enough votes in the center to gain power. I was just intrigued to find a conservative like Scarborough lamenting the way we were falling behind China on several fronts. he didn't explicitly recognize the centralized nature of their government but the implication was pretty clear. I probably shouldn't have titled this with a "v." That is my fault. I guess what I want to throw out there to the libertarian-minded posters is that there is some role for government. How do we define/limit that and still compete globally. I'm no expert on China, but it seems to me that their success, when viewed against the historical examples of the USSR and the Eastern Block, is that they have welcomed aspects of capitalism and have actively gone out and entered the world market like an entity. Do we need to embrace some level of central planning to compete? Can we embrace that given the two party system that pits the two parties against each other on the most important issues. Dick Durbin was the other member of the panel this morning. He talked about France and nuclear power. For one thing, he said that they created one efficient model and duplicated it throughout France. They have also lapped us in terms of recycling spent material. Here, we waste tons inventing "new" plants everytime we build them. We haven't built a new nuclear plant in decades (even when republicans controlled congress and the WH.) We haven't seen a new oil refinery in 25 years. We simply aren't doing the things we used to do in this country. So, can the parties cede some control to an agency to coordinate? Can the parties drop their allegiance to special interest groups (ex. big coal and environmental groups) to advance a greater interest? So, my apologies for setting this up as an "either or" dichotomy. That was not my intent. I want to discuss how we can centralize certain long range planning issues and incorporate our private sector to compete. Mugatu, I love talking trains -- even though I'm just learning the basics. I agree with you about our great freight system. I also am intrigued by the potential benefits of high speed rail. I also see the cluster******** that has been Amtrak. I also like Obama's plan to build semi-high speed (that doesn't take the massive infrastructure re-tooling but can get us to 110 or 1120 mph) in targeted hubs and spokes in regions. I'd like to see private industry working within that plan. Can we entice BNSF to run passenger service again if we provide a better track in the midwest? How about Union Pacific, the Chessie system etc. I'm trying to identify targeted long term investment where government can be a catalyst, but good old-fashioned American business can be the driver in key areas. Transportation, energy, developing new international markets etc.
Funny you called it the Chessie System. It hasn't gone by that name since before I was born! Well, I know that the railroads here definitely take notice when companies like SNCF post billion euro profits. Do they want in the game? Of course they do. But there are some huge problems that they face. I think the biggest impediment may be cost. SNFC/RFF (the French railway infrastructure company) was able to build HSR on top of existing lines with very few modifications for about $15m per mile. American companies typically can build normal freight track (Class 5 or lower) for anywhere from $500k to $3k per mile (I don't know the exact numbers, these are my estimates). That is a huge disparity, and that is without taking into account the amazing amount of money they would have to pay to straighten their rights of way. The situation with property taxation complicates matters much more. Railroads, due to their fixed nature and very expensive alternatives, have been the target of local municipalities for decades. It isn't uncommon to find property tax rates for rail rights of way that are double or triple that of homes or businesses. Businesses can pack up and move, railroads can't. For this reason, when taxes go up, railroads just disappear. Now remember, railroads are already taxed at higher rates than other property, and now add in the fact that HSR raises property values by at least 5X, and you end up with MASSIVE increases in the cost of doing business. This would require a huge improvement in revenues to be able to handle without diving head first into bankruptcy. Can HSR provide those revenues? My guess is no, or else they would already be doing it. We could, however, change that in an instant. How about banning property taxation on all interstate railroads (using that handy little commerce clause)? It would instantaneously free up billions of dollars that can be invested in increasing speeds where passengers want it, and increasing capacity where freight is needed...both result in public benefit due to the environmental effects of rail vs the alternatives. Other problems lie with the FRA, but that's another topic for another day.
This is one of the most frustrating things for me. "Libertarians" (and I paint with a broad brush cautiously) and their fundamentalist opposition to any and all government regulation. I think you'd be a fool to overlook the fact that capitalism has done a ton for raising our standard of living, but I think you'd be an even bigger fool to discount the role of regulation in ensuring everyone has a boat (and that the bilge pumps of the big boats aren't just flooding the little boats) for the rising tide to float. There are just certain things unfettered markets can't handle well. And just because the regulation cannot be perfect, does not mean it cannot be better than no regulation at all. The problem is that "what" and "how much" are very much policy questions - and complicated ones very dependent on the particulars at hand - and not well suited to political absolutes. So we get stuck in this stupid situation where smart, policy oriented wonks are considered "snobby elites" who favor a Communist Takeover of Everything instead of people trying to find an optimal policy solution to tough regulatory problems. So, should the entire rail industry be nationalized? No! But that doesn't mean that the appropriate solution to transportation infrastructure is "do nothing and rely on the market to work it's way to the optimum solution on it's own". It is in our interest to have more robust transportation infrastructure (especially non-freight, but freight as well; rail is a large modal split, and in raw numbers growing... but not as fast as shipping by truck, or worse, air), and government can help coordinate that. It can also help direct research directives to emphasize things such as alternative energy research, rather than just waiting for "something" to happen.
If its regulation that is fair and non-intrusive and allows innovation, this "Libertarian" doesn't mind. And if the government is trying to coordinate and help railroad investment, rather than penalizing them for not complying with the whims of politicians and enemies, then this "Libertarian" doesn't mind. And if the government is helping to find alternative energy solutions without picking winners before they are economically viable, then this "Libertarian" doesn't mind. But cross those boundaries and I am bound to speak up.
Mugatu: Why did you exclude Japan and Germany from your analysis? I don't know anything about freight rail in Japan, but while the German situation is similair to the French one, it isn't quite as bad for freight...
I will begin by saying that I'm a free market believer. By trade, I'm a salesman and would love to be able to sell to whomever I want, whenever I want, at whatever price the market will bear. That being said, if you look at the macroeconomic environment, you have to realize that there are three sources of capital that drive our economy - individuals (buying things like iPads and 3D TVs), companies (buying things like backhoes, new buildings, etc.) and the government (buying a lot of stuff that doesn't even make sense to try to condense into a bullet point here). If individuals (i.e. consumers) aren't buying, and companies aren't buying, that only leaves one entity (absent, of course, external investment - see as reference: the Chinese) to pump money into the system to keep the wheels of commerce greased (for the slow ones out there, that's the government). If you have a situation, such as we have had, where consumers are tightening their collective belts becuase the individuals are concerned with job security, and companies aren't investing in infrastructure (plants, equipment, new workers, etc.) because they're concerned that consumers will not open their pocketbooks to buy their products, there's only one (see above caveat) entity left to pump money into the capital markets to keep things running. Now, we can spend all of our time worshiping at the altar of the free market and the evils of government involvement in the system, or we can realize that sometimes, sometimes, the government needs to step in and provide that cushion to get us through the long plane ride when we'd otherwise be sitting on bare metal beams. We can, of course, have a serious and constructive debate about the how those dollars are spent. But simply deriding all government spending as wasteful and useless is a non-starter (if anybody would like to have that debate, I'll be glad to pull up plenty of examples of a wasteful private spending).
I was mostly going off of countries that I am most familiar with. I'm familiar with Japan, but I don't know a thing about their freight operations. Germany is indeed better than France in freight rail by a small margin, but they still have much lower freight share than the US by a pretty wide margin. My biggest impression is that they have a very well integrated balance between metros, commuter rail, intercity rail, and high speed rail. I still don't know much about how the German network has evolved, so I can't really comment on it too well.