China's Fast Trains to Nowhere—President Obama Learns the Wrong Policy Lesson From Abroad Again


Exhibit One: President Obama has cited Spain's "successful" efforts at centralized solar planning:

"[T]hink of what's happening in countries like Spain … where they're making real investments in renewable energy. They're surging ahead of us, poised to take the lead in these new industries," declared then-President-elect Barack Obama back in January 16, 2009.

Spain's solar power fiasco has now gone bust.

Exhibit Two: In his most recent State of the Union speech, the president promised:

China is building faster trains and newer airports. … Within 25 years, our goal is to give 80 percent of Americans access to high-speed rail. 

With regard to high speed passenger rail, a wonderful op/ed in Sunday's Washington Post explains that the president is once again advocating a centralized top/down that has massively failed. As Post editorial page staffer Charles Lane reports China's railroad ministry …

… has run up $271?billion in debt — roughly five times the level that bankrupted General Motors. But ticket sales can't cover debt service that will total $27.7?billion in 2011 alone. Safety concerns also are cropping up.

[Deposed railroad minister] Liu's legacy, in short, is a system that could drain China's economic resources for years. So much for the grand project that Thomas Friedman of the New York Times likened to a "moon shot" and that President Obama held up as a model for the United States.

Rather than demonstrating the advantages of centrally planned long-term investment, as its foreign admirers sometimes suggested, China's bullet-train experience shows what can go wrong when an unelected elite, influenced by corrupt opportunists, gives orders that all must follow — without the robust public discussion we would have in the states.

The fact is that China's train wreck was eminently foreseeable. High-speed rail is a capital-intensive undertaking that requires huge borrowing upfront to finance tracks, locomotives and cars, followed by years in which ticket revenue covers debt service — if all goes well. "Any .?.?. shortfall in ridership or yield, can quickly create financial stress," warns a 2010 World Bank staff report.

Such "shortfalls" are all too common. Japan's bullet trains needed a bailout in 1987. Taiwan's line opened in 2007 and needed a government rescue in 2009. In France, only the Paris-Lyon high-speed line is in the black. …

Meanwhile, in the United States, Obama's high-speed rail plan, originally set at $53 billion over six years, has gotten a thorough democratic vetting. Three freshly elected Republican governors spurned federal dollars for high-speed rail, fearing a long-term burden on their budgets; homeowners in liberal Northern California are fighting construction through their neighborhoods; and the president agreed with Congress to trim current-year spending as part of a budget deal.

On the whole, I'd say China should envy us.

And the New York Times (home of fast rail pusher Tom Friedman) piles on. In an op/ed Stanford historian Richard White explains how subsidizing the transcontinental railroad was a financial flop requiring taxpayer bailouts in the 19th century. (Obama SOTU soundbite: "America is the nation that built the transcontinental railroad….")

As White reports:

In his State of the Union address, President Obama compared high-speed rail to the 19th-century transcontinental railroads as parallel examples of American innovation. I fear he may be right.

For the country as a whole, the Pacific Railway Act of 1864 and subsequent legislation subsidizing the transcontinental railroads — the lines that crossed the continent from the 98th meridian to the Pacific Coast — were the worst laws money could buy. By encouraging dumb growth, those laws sacrificed public good for private gain, and Americans came to regret it. …

Proponents of the transcontinental railroads promised all kinds of benefits they did not deliver. They claimed that the railroads were needed to save the Union, but the Union was already saved before the first line was completed. The best Western farmlands would have been settled without the railroads; their impact on other lands was often environmentally disastrous. For three decades California commodities could move more cheaply, and virtually as quickly, by sea. The subsidies the railroads received enriched contractors and financiers, but nearly all the railroads went into receivership, some multiple times; the government rescued others.

As more astute members of Congress came to recognize, the subsidies were a mistake. One described the major drawback of a proposal for the government to guarantee bonds: "If there be profit, the corporations may take it; if there be loss, the government must bear it."

After 1872, the country turned against the subsidizing of large corporations. It was a little late. Fraud and failure left a legacy that would lead to four decades of government attempts to get back what had so carelessly been given away. In the 1890s, Congress was still trying to recover money from the Pacific Railway.

Yet here we are again.

Yes, indeed.

Of course, my Reason colleagues have explaining for some time just how stupid centralized government rail planning is, here, here , and here.

And then there's nationalizing health care.