My Beef With Amtrakby
Bob Murphy
However, the one major exception was Kinchen’s reaction to my critique of the government-coddled Amtrak. Now on the one hand it’s quite churlish of me to sulk over this one criticism. On the other hand, it will be a good lesson in how a market economy works – and the flaws with government intervention – if I explain why Kinchen missed my point. (And if some readers decide to buy my book when the smoke clears, why, I won’t object.) Here is the relevant excerpt from my book:
Now I thought this was pretty standard fare for a book on free market economics. The only "work" I did here was to go find the numbers to document just how bad a particular government-subsidized enterprise was. But Kinchen strongly objected to my analysis. Here’s his defense of Amtrak’s subsidies:
First, some quick clarifications before I get to the heart of the matter. Of course I oppose subsidies for airlines and every other form of transportation. Indeed, that’s precisely why air service is so annoying. A recent Wall Street Journal piece confirmed that the reason your plane can be stuck on the runway – even though the weather is beautiful in your origination and destination cities – is that the FAA has allocated the flight route to planes from other areas experiencing storms. In other words, just as the government charges too little to use its roads and highways – leading to traffic jams – so too does the government charge too little for use of the airspace, leading to traffic jams in the sky. (Kinchen’s suggestion that I am ignoring government’s intervention in air travel is particularly strange, since my major example of private safety regulation is a quite radical case for abolishing the FAA and letting insurance companies inspect commercial jets.) A second clarification: I did not live in Nashville when I wrote the offending sentence. Far from being miffed at being excluded from the government goodies, I was listing the biggest cities that Amtrak didn’t serve at all. My point was that it’s hard to justify Amtrak’s economic inefficiency on the grounds that it is "serving the public," when it entirely skips many cities with over half a million residents! But now let’s get to the real lesson. In a market economy, a firm will stay in business only if its revenues cover its costs. To a true socialist, this criterion of the "bottom line" is an entirely arbitrary one corresponding to nothing "real." But the good economist recognizes that this is the market’s way of channeling scarce resources into the most desired ends. The crucial point is that the "costs" of production are really just prices of particular inputs. The steel, electricity, labor, and other resources used up by Amtrak could have gone into the production of other useful commodities or services. In a market economy, the way these resources are divvied up among their competing uses is to let their owners sell them to the highest bidders. If Amtrak can’t turn a profit because "costs are too high," that simply means that other entrepreneurs are willing to bid more on those same resources than Amtrak can afford to pay. And that means that the customers of those other firms are willing to spend more on those respective products than they are willing to spend on the services of Amtrak. Kinchen rests his case on the fact that Amtrak’s customers enjoy its service. That is certainly true; nobody’s forcing them to ride the train. That’s not the issue, however. The true economic question is whether the resources used in providing this service could have been devoted to other products or services that people would have valued even more than riding Amtrak. And because plenty of other firms are able to get more revenues from their customers, with which they can outbid Amtrak for these resources, that is prima facie evidence that Amtrak is wasting these inputs. This is a crucial point, so let me approach it from a different angle. Clearly the people who ride Amtrak benefit from the subsidies: They are able to get their service at a lower price. And clearly the people who don’t ride Amtrak but pay taxes lose from the whole scheme: They pay taxes for something that they never use. So how does Kinchen conclude that "the nation as a whole" benefits from the subsidies? He must think that the riders benefit from the subsidies more than the (non-riding) taxpayers lose. But that’s hard to fathom. If the government takes $50 out of my paycheck to hand over to someone else to help him pay for a train ticket, it sure seems that I’m out $50 and the other person at best is up $50. But then when you factor in the red tape and other distortions, the other person’s gain is much less than my loss. Society as a whole is poorer when government redistributes wealth.
October 15, 2007 Bob Murphy [send him mail] has a Ph.D. in economics from New York University, and is the author of The Politically Incorrect Guide to Capitalism. He has a personal website at ConsultingByRPM.com Copyright © 2007 LewRockwell.com |
In
a short piece like this I naturally can’t get into all the technical
economic arguments. For example, a Harvard Ph.D. would argue that
(say) the government can make society better off if it takes money
from our paychecks to spend on vaccinations or literacy. I deal
with claims like these in my book, but for the Amtrak case it’s
not necessary. There is no "spillover" benefit to society
at large from having Amtrak. If the benefits of Amtrak exceed its
costs, then it wouldn’t need government handouts to stay afloat.
And to cut off those subsidies wouldn’t necessarily spell the demise
of Amtrak, either. Firms are a lot more efficient when they face
the prospect of bankruptcy.