Matt Rose of BNSF fame made Trains newswire 10-31-08. Money is needed for transportation infrastructure.
Government enters the equation. Tax breaks for private rail, does it have the political capital to fly? Will it be "grants?" Nothing comes without strings.
What of the "passenger element?" Rose mentions it. This hits the biggest political nerve. What trade offs to passenger for freight lines?
This is nothing new. Land grants, Credit Mobilier, the ICC, the US Railroad Administration, etc. the political always been a factor.
Any opinions on how this will play out?
Depends on the poplular philosophy (politics?) over the next several decades. If we get over the fighting between so called Socialists and so called Conservatives...niether are totally what they seem or what the opposite side thinks they are...then we can get down to the business of working on the future infrastructure of this country to benifet both the public and business/commercial needs. Such projects don't necessarily help one side or the other, but usually, in the long run, both sides. The more we need in this country, the we need a closer working partnership between government and private enterprise.
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Well, if one thinks about the recent discussions about advertising done by CSX and NS in the public media, and you further contemplate the reality that the railroads are obviously not interested in getting John Q Public's shipping business (recall the old threads about "team tracks")...the answer becomes clear.
Taxpayer mindset is being recruited by these ads, so that when the RR's eventually try to take a grab at public funding, the con game will already be half complete.
We're playing the financial chess game again.....IF the something-for-nothing whiners in the other forum thread get their way and restrict the rate structure, the maintenance and expansion money has got to come from somewhere.
I would hate to see the federal gov't step in even if there seems to be a need. Funding of routes would almost inevitably become politicized, unlike a private corp. which has to make reasonably sharp guesses about where the money would most benefit the line's infrastructure. And of course we taxpayers pay for the dubious results. - a.s.
al-in-chgo I would hate to see the federal gov't step in even if there seems to be a need. Funding of routes would almost inevitably become politicized, unlike a private corp. which has to make reasonably sharp guesses about where the money would most benefit the line's infrastructure. And of course we taxpayers pay for the dubious results. - a.s.
Al,
I'll buy you an ice cream when I see you for that very good insight.
But Al, what if Big Bussiness Railroad comes to the government and proposes or asks that the governernment help it build additional capacity between City One and City Two proving to the government that it would be cheaper than building new highway infrastructure, cause less pollution, and create jobs beyond the construction period. In other words, what if the free enterprise system asks for the government help in order for it (free enterprise railroad) to survive with the side benefits of less government expenditure, cleaner air, less land use, and future employment? Is it all right for free enterprise to ask, and recieve, rather than to have government first offer and give? And the follow up question is, of course, if Big Business Railroad can't do the job, and government can't build the concrete infrastructure either, then what happens? Nothing is not the answer.
There are some clues in some recent happenings. One is the NS Heartland Corridor. It is getting done with Fed, state and NS money. The Fed money was an "earmark". The state justified the spending because it supported commerce at the port in Norfolk.
The second was the joint California/UP project to double track Donner. The UP backed out because the passenger provision was too onerous.
So, the answer is "it depends". The devil is always in the details.
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
henry6 al-in-chgo I would hate to see the federal gov't step in even if there seems to be a need. Funding of routes would almost inevitably become politicized, unlike a private corp. which has to make reasonably sharp guesses about where the money would most benefit the line's infrastructure. And of course we taxpayers pay for the dubious results. - a.s. But Al, what if Big Bussiness Railroad comes to the government and proposes or asks that the governernment help it build additional capacity between City One and City Two proving to the government that it would be cheaper than building new highway infrastructure, cause less pollution, and create jobs beyond the construction period.
But Al, what if Big Bussiness Railroad comes to the government and proposes or asks that the governernment help it build additional capacity between City One and City Two proving to the government that it would be cheaper than building new highway infrastructure, cause less pollution, and create jobs beyond the construction period.
If the extra capacity is needed, then the consumers of it will pay for it and private investors will provide the capital. They will do so for a return on their investment and a reward for their risk. To the extent the government gets involved, they merely dictate that we the taxpayers invest regardless of the return worthiness / risk of the investment. With government, these business factors are secondary, while their primary objective is the expansion of government. And the government also adds to the investment equation, their incredibly bloated overhead cost and their notorious inefficiency that naturally accompanies what amounts to a bureaucracy with unlimited power to spend other peoples’ money.
We can’t do anything about a private business asking the government for help. But we do have a say in whether the government says yes or no to the request-- for at least a couple more days anyway.
Most people in the transportation field believe there is already a capacity problem with surface transportation infrastructure and unless there is a significant increase in the rate of investment, the future does not look good. Capacity problems cause congestion which reduces the efficiency of the utilization of the vehicles used to haul freight, adds unproductive fuel consumption and labor costs. Additionally, just like anyother company operating at capacity, transportation companies will go for the freight producing the highest earnings and tell shippers that if they want to use the service, they are going to have pay.
All these added costs get past on to everybody not living in caves. Further, because of the fuel wasted while trucks and trains sit stuck in traffic, automobile drivers pay more for more for gasoline because of the increase in the demand for fuel.
Matt Rose was a member of the congressionally established National Surface Transportation Revenue Policy Commission. He and other leaders from government and the transportation industry made an in depth study on the needs for investment in transportation infrastructure over the next couple of decades. The numbers Rose is citing are from the report.
The railroad industry has estimated that they will only be able to come up with their own cash for about 75% of the infrastructure investment they will need for the next 20 years or so. Some in the industry are suggesting federal tax credits to cover the gap. Actually, I think the proposal is a pretty good deal for the Federal Government, as it is only being asked to kick in about 25% of the investment. In comparison, the Federal Government pays 80% of the investment in interstate highways.
I will be the first to admit that tax credits are little different than direct government grants, as both increase the cost to the taxpayer. With credits the railroads would pay less in taxes and the rest of us would have to make up the difference. However, the options are limited. We will either pay for investment in transportation infrastructure with our tax dollars or pay the price of a congested, sub standard transportation system.
"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics
Bucyrus henry6 But Al, what if Big Bussiness Railroad comes to the government and proposes or asks that the governernment help it build additional capacity between City One and City Two proving to the government that it would be cheaper than building new highway infrastructure, cause less pollution, and create jobs beyond the construction period. If the extra capacity is needed, then the consumers of it will pay for it and private investors will provide the capital. They will do so for a return on their investment and a reward for their risk. To the extent the government gets involved, they merely dictate that we the taxpayers invest regardless of the return worthiness / risk of the investment. With government, these business factors are secondary, while their primary objective is the expansion of government. And the government also adds to the investment equation, their incredibly bloated overhead cost and their notorious inefficiency that naturally accompanies what amounts to a bureaucracy with unlimited power to spend other peoples’ money. We can’t do anything about a private business asking the government for help. But we do have a say in whether the government says yes or no to the request-- for at least a couple more days anyway.
henry6 But Al, what if Big Bussiness Railroad comes to the government and proposes or asks that the governernment help it build additional capacity between City One and City Two proving to the government that it would be cheaper than building new highway infrastructure, cause less pollution, and create jobs beyond the construction period.
But Bucyrus, you left out part of my quote concerning what happens if government refuses to help the railroad improve its infrastructure. In other words, if Big Business RR can't attract the capital to improve its plant and government is not allowed to give aid of any kind, then what will happen? More and bigger roads, more pollution, and fewer employed? If there is a "yes" to that answer, is it a practical, responsible answer? And if there is a "no" answer then does that mean also that the government shouldn't build the roads, etc. either? And if nothing is done at all, then its is not that nothing happens but that the something could be loss of the economy to another region or state or a dangerous overload of the existing structures would occurs. And if so, it that the fault of Big Business RR, a.k.a. Free Enterprise, or the fault of government?
henry6 Bucyrus henry6 But Al, what if Big Bussiness Railroad comes to the government and proposes or asks that the governernment help it build additional capacity between City One and City Two proving to the government that it would be cheaper than building new highway infrastructure, cause less pollution, and create jobs beyond the construction period. If the extra capacity is needed, then the consumers of it will pay for it and private investors will provide the capital. They will do so for a return on their investment and a reward for their risk. To the extent the government gets involved, they merely dictate that we the taxpayers invest regardless of the return worthiness / risk of the investment. With government, these business factors are secondary, while their primary objective is the expansion of government. And the government also adds to the investment equation, their incredibly bloated overhead cost and their notorious inefficiency that naturally accompanies what amounts to a bureaucracy with unlimited power to spend other peoples’ money. We can’t do anything about a private business asking the government for help. But we do have a say in whether the government says yes or no to the request-- for at least a couple more days anyway. But Bucyrus, you left out part of my quote concerning what happens if government refuses to help the railroad improve its infrastructure. In other words, if Big Business RR can't attract the capital to improve its plant and government is not allowed to give aid of any kind, then what will happen? More and bigger roads, more pollution, and fewer employed? If there is a "yes" to that answer, is it a practical, responsible answer? And if there is a "no" answer then does that mean also that the government shouldn't build the roads, etc. either? And if nothing is done at all, then its is not that nothing happens but that the something could be loss of the economy to another region or state or a dangerous overload of the existing structures would occurs. And if so, it that the fault of Big Business RR, a.k.a. Free Enterprise, or the fault of government?
If Big Business RR can’t attract the capital to improve its plant then it should not, need not, be improved. So the answer to your question in that case is: Nothing will happen.
But you seem to be clouding the issue by attaching a rider to your premise. That is your stipulation that the improvement in your example not only is needed to serve the business of transportation, but it is also partly needed to serve a suggested societal need for reducing pollution and not having more and bigger roads. By the way, what is wrong with more and bigger roads?
Right now, rail is attracting traffic according to the economics of the road / rail option. If you get the government involved in mandating the rail option in the name of saving the environment, then you are overriding the free market economics, and imposing extra cost on the consumer in the process. It would be similar to what the government mandates for windmills and biomass generation are going to do to our electric bills.
Bucyrus If Big Business RR can’t attract the capital to improve its plant then it should not, need not, be improved. So the answer to your question in that case is: Nothing will happen. But "nothing" won't happen. There will be a consequence be it unsafe operations, total loss of operation, loss of jobs, undermining local economy, or any of a dozen other things. But you seem to be clouding the issue by attaching a rider to your premise. That is your stipulation that the improvement in your example not only is needed to serve the business of transportation, but it is also partly needed to serve a suggested societal need for reducing pollution and not having more and bigger roads. By the way, what is wrong with more and bigger roads? "Societal need". If business is an entity, does it not have a "societal" obligation for its own well being of safe, effecient,and economic operation as well as being, for lack of a better term, a "good neighbor"? Much of today's economic situation is because of big business' lack of social conscience. As for more and bigger roads: it may not be an option in crowded areas of the Northeast for example where in fact government planners at all levels have called a halt because of lack of physical room and air pollution standards. Plus, it is a given that rail can carry more more cheaply in most instances than truck...that's part of the reason trucking companies put thier trailers and containers aboard trains. Right now, rail is attracting traffic according to the economics of the road / rail option. If you get the government involved in mandating the rail option in the name of saving the environment, then you are overriding the free market economics, and imposing extra cost on the consumer in the process. It would be similar to what the government mandates for windmills and biomass generation are going to do to our electric bills. But the extra cost to the consumer will happen anyway, especially if "nothing" is done. Again it is a matter of private enterprise accepting some responsiblity for being part of our society, yes, but also, since our society is theoretically represented by government, then it is also incumbant upon our governement to set as a goal, to work for the betterment of all of society: people and corporations alike so that all will grow safely, efficiently, and profitably.
The one thing I didn't mention in my post above was the impact of inefficient transportation on the number jobs in our economy. If we have to pay more for items we need then it follows that we will have to do with less. Doing with less, means less things will be made and less people will be required to make goods and provide services.
Yes, it is very true that much of the consumer goods we buy are made somewhere else, but one of the recent bright spot in US business has been or ability to do well in the world markets for industrial, agriculture and mining products. A relavant questions is where will we be in those markets if the transportation cost of getting the products to the port of export increases because of an inefficient transport system.
henry6 Bucyrus If Big Business RR can’t attract the capital to improve its plant then it should not, need not, be improved. So the answer to your question in that case is: Nothing will happen. But "nothing" won't happen. There will be a consequence be it unsafe operations, total loss of operation, loss of jobs, undermining local economy, or any of a dozen other things. ...the extra cost to the consumer will happen anyway, especially if "nothing" is done.
Bucyrus If Big Business RR can’t attract the capital to improve its plant then it should not, need not, be improved. So the answer to your question in that case is: Nothing will happen. But "nothing" won't happen. There will be a consequence be it unsafe operations, total loss of operation, loss of jobs, undermining local economy, or any of a dozen other things. ...the extra cost to the consumer will happen anyway, especially if "nothing" is done.
But if there is a real need for an improvement then investors will finance it and the improvement will get done. So by definition, if it does not get done, there was no need for it. So if something that does not need fixing does not get fixed, I don’t see how you can conclude, to quote you:
No such consequences will flow from failing to fix something that does not need fixing. I also do not see how you can conclude that:
If nothing gets done because it was not necessary to do anything, then there will be no extra cost as a result. The extra cost results from doing things that don’t need to be done, and the insatiable need to expand a greedy government is often a reason why things get done that don’t need to be done.
BucyrusBut if there is a real need for an improvement then investors will finance it and the improvement will get done. So by definition, if it does not get done, there was no need for it.
That seem a little simplistic to me. I might be wrong, but doesn't the length of return play a major role on whether investors finance or not? It seems to me, we are in a day of "instant returns." If it takes more than a year or two to show desired returns, investors are not interested. There for, it puts the second sentence into question.
James
The Butler Bucyrus But if there is a real need for an improvement then investors will finance it and the improvement will get done. So by definition, if it does not get done, there was no need for it. That seem a little simplistic to me. I might be wrong, but doesn't the length of return play a major role on whether investors finance or not? It seems to me, we are in a day of "instant returns." If it takes more than a year or two to show desired returns, investors are not interested. There for, it puts the second sentence into question.
Bucyrus But if there is a real need for an improvement then investors will finance it and the improvement will get done. So by definition, if it does not get done, there was no need for it.
Well I am putting it in a rather simplistic way to make a clean point. We live in a tangle of real needs, agenda driven needs, public and private financing. And it is true that if the return is too long-term, it will discourage private investment. But if the return is too low, that will likewise discourage investment. Add to that the fact that somebody can easily make a case for need, and you have needs going unfunded. So there is a threshold at which a need is great enough to attract private investment. But if a need is not great enough to meet that threshold, I think that is excellent criteria for ruling out pubic financing of it. And even if a need registers above that threshold, I think that in most cases public financing would be worse than no financing. Every time we publicly finance the fulfillment of a need, the government grows bigger and better equipped to dredge up more needs.
In the 20th Century I can only think of one huge federally funded RR project: electrification of the PRR between Washington Union and NYC Penna. We aren't in such a grave depression yet that we can afford the likes of that!
I agree that generally it is the stockholders and management who take the risk and hope they will receive improved dividends if some of the profit is plowed back into infrastructure, and we all know how quickly a neglected pike can deterioriate: Look at Penn Central.
What I can't approve of is the federal gov't "investing" lots of money in railroads that are owned by private owners. This would be taking everyone's money to help enrich the owners of just one railroad, say; and if you specially priviilege BNSF, then UP and CN are going to holler. That's why I'm afraid of direct government investment, along with the practical decisions as to whether we want lawmakes deciding which RR cos to fund -- it's the old "creeping socialism" argument but fed funds might make it escalate at a gallop!
Some RR shareholders want insant high returns. Many corporate annual reports are "sales documents for stock" and show the company in the best light for shareholders and potential shareholders. If you look at CSX's annual reports for 2005 and 2006 (2007's is more service-oriented), CSX seems to be getting across the idea that investing in CSX is splendid and not so much discussing how they serve customera or find new revenue streams. Mutual funds -- the largest category of RR ownership usually -- sometimes are in a hurry and sometimes not to get enhanced revenues. And Warren Buffet owns about 17% of the BNSF, yet we don't see him selling out in a slump. We also dont't see him lobbying for federal funds for a new Mississippi Bridge, not that I know of.
Can anyone imagine -- if it came to that -- our fed gov't seizing control of the railways with the express purpose of making them more productive? That happened during WWI and it was a huge mistake. That's what we get when pols ignorant of corporate possibilities try operating things.
I suppose a case could be made that the gov't could offer infrastructure bonds -- which if marketable would work as well as loan guarantees are supposed to. That still begs the question of what co's are getting the new gov't largesse. Remember that electrification of the NEC fell to Amtrak, which technically belongs to everyone, not specific shareholders and officers, unlike NS or CSX. Prior sites have discussed this manner of funding and the feasibility of electrifying BNSF's Southern Transcon (Chgo - LA). There really is no need to speed up that route as to freight. Environmental concenrns might trump the deal, but then we'd have long financing and construction issues both of the RR and of nuclear(?) reactors. - a. s.
BucyrusEvery time we publicly finance the fulfillment of a need, the government grows bigger and better equipped to dredge up more needs.
I don't want that, either. OK I am learning here, please, be forgiving. Investors didn't see the need for rail in Southern Wisconsin. The state did and bought the right of ways. Because of this, there is rail service in S. Wis. today. Is this the exception to the rule?
Also, as AL mentioned, what about bonds or loans from government?
The Butler I don't want that, either. OK I am learning here, please, be forgiving. Investors didn't see the need for rail in Southern Wisconsin. The state did and bought the right of ways. Because of this, there is rail service in S. Wis. today. Is this the exception to the rule? Also, as AL mentioned, what about bonds or loans from government?
OK. You are asking the questions that undercut all contemporary rhetoric as these are things that have been going on since the inecption of the country from turnpikes and roads to canals and waterways and on to railroads. Federal and state or other governments will insure or issue bonds, make loans or grants, or simply buy up to assure. It is not a question so much as do we want to go back to 1700 something, but how could we? We are here because all these things have happened up to now and can't be undone. And I am not sure that everytime government gets into something it gets bigger isn't more rhetoric in itself rather than total fact. I am afraid that if we pulled government out of the trucking business, the airline business, the banking business, the mortgage business, etc., the country would collapse in its entirety. And neither the extreme left nor the extreme right left to thier own devices have the morals or the means to bring it back correctly; niether extreme can be trusted.
henry6 And I am not sure that everytime government gets into something it gets bigger isn't more rhetoric in itself rather than total fact.
And I am not sure that everytime government gets into something it gets bigger isn't more rhetoric in itself rather than total fact.
It is total fact.
Bucyrus The Butler Bucyrus But if there is a real need for an improvement then investors will finance it and the improvement will get done. So by definition, if it does not get done, there was no need for it. That seem a little simplistic to me. I might be wrong, but doesn't the length of return play a major role on whether investors finance or not? It seems to me, we are in a day of "instant returns." If it takes more than a year or two to show desired returns, investors are not interested. There for, it puts the second sentence into question. Well I am putting it in a rather simplistic way to make a clean point. We live in a tangle of real needs, agenda driven needs, public and private financing. And it is true that if the return is too long-term, it will discourage private investment. But if the return is too low, that will likewise discourage investment. Add to that the fact that somebody can easily make a case for need, and you have needs going unfunded. So there is a threshold at which a need is great enough to attract private investment. But if a need is not great enough to meet that threshold, I think that is excellent criteria for ruling out pubic financing of it. And even if a need registers above that threshold, I think that in most cases public financing would be worse than no financing. Every time we publicly finance the fulfillment of a need, the government grows bigger and better equipped to dredge up more needs.
The premise that if there is a real need, then private financing will fulfill the need is faulty because it assumes that there are unlimited private funds. That is simply not the case. Suppose there is a need for something but the activity to produce that something is only going to pay a return of say 1%. Do you think that there is any chance that such an activity is going to attract investors?
Consider the DM&E's proposal to build into the Powder River. It was believed that the added competition for hauling that coal would reduce the delivered cost of coal to a number of utilities in turn benefiting the utility customers. Unless they were totally brain dead, you would have to think that the folks had developed plan to make a profit on the business, but it seems obvious that there wasn't enough profit in the plan to attract private investment.
If your criteria for the establishment of a business activity is that it must only start if it can obtain funds from private investment sources, then you should expect to be doing without a lot of needs. By that standard, there would not be an Interstate Highway System. Did we need that for sure? Perhaps not, but I can give you this persoanl anecdote. In 1958 my father drove me from our home in Northern Wisconsin to Chicago to begin my college work. The trip on the standard two lane highways of the day took almost twelve hours. Ten years later, I could make the same trip in half the time. Now I didn't need to make the trip in half the time, because I couldn't say I would be able to put the time I saved to productive use. On the other hand, I can assure that the trucker, the person traveling for business purposes or the repair man on his way to a location did and does make productive use of the time saved. All that means is a reduction reduction of the cost for doing business-cost savings that ultimately make it to the consumer.
I hate to break it to you, but your belief that government funtionally cannot make productive investments is an ideology that does not hold up to careful scrutiny. The wealthiest countries in the world have all made heavy use of public funds to develope their economies, most with a far greater proportion of their Gross Domestic Product than we spend in the US. Those that haven't or won't find themselves in the second or third tier in the wealth lineup.
By the way, just because that an activity is funded by private investment doesn't mean that the consumer of the product doesn't pay for that investment. The investor expect a payment of interest or dividends for providing the funds, in turn the company that borrows the funds expects to collect enough in the proceeds from the sales of their product and will price accordingly. Who then pays?
Bucyrus henry6 And I am not sure that everytime government gets into something it gets bigger isn't more rhetoric in itself rather than total fact. It is total fact.
True, but look to individual cases:
What is the most unnecesssary domestic canal the U.S. built post-WW II? Probably the Tennessee-Tombigbee canal, which the Army Corps of Engineers decided was vitally necessary, but has not lured domestic shippers who weren't there to begin with. It is, however, a haven for large-mouth bass fishermen. (Talk about unintended consequences!),
Financially, what is the most messed-up major component of transportation? Probably the passenger airlines, despite the fact that the fed gov't has helped build them terminals, set up ATC towers and training, even nursed at least one through bankruptcy that busted the union but kept the planes flying (United).
What is the most neglected part of US transportation infrastructure today? Probably bridges and elevated roads, both in and ot of the Interstate program. I am not plumping for privtate ownership, but if you watched PBS' series on infrastructure last week, you'll recall that some very serious (and non-libertarian) experts say that bridges and elevated roads in the Interstate system may have to charge tolls because there simply isn't enough money in general revenue or from the gas tax.
What is the best-running major component of freight transportation today? Arguably the Class One's. They turn a profit, pay dividends, yet fund their own projects. They have gotten much better at marketing. Very roughly speaking, since 1980 the Class One's are hauling half again as much freight with three-quarters the route miles and one third fewer employees.
What freight railroads could benefit from federal largesse? It would be fun, say, to electrify the BNSF Southern Transcon (Chgo- LA) but it is far from vital. Santa Fe and BNSF have proved repeatedly that a "hotshot' IM can run the full 2,100 miles at roughly Super Chief average speeds (just under 40 hours), but it isn't necessary since most shippers can live with the 54 or so hours IM can take. Wouldn't it be fun anyway, for the IM's to leave Chicago much later (say 11:00 p.m.) and get into L.A. - Long Beach much earlier, before the ports open? And therefore have only one night on the road and fit shipping windows of during-the-day uploading and early a.m. dropoff? That would be roughly a 30-hour schedule, requiring an average speed of 70 mph or more, better than PRR's GG-1 pulled NY - Washington passenger trains of the fifties and sixties. No market for that exists, or at least not enough for the BNSF to spend its own money for such a major project, straightening curves, accelerating straight stretches, closing countless public and private grade crossings.
Sure, that would be fun for us fans, but IMHO if the gov't wants to improve infrastructure, the first billions, after bridges and elevated roads, would better be spent upgrading the electric grid, which is a mess in most regions and terribly outdated.
I do understand that the Erie Canal had public help, that the original Pennsylvania "Main Line" was a state-sponsored canal, the western RRs (particularly UP) got all kinds of help through the "checkerboard" land-grant system, and that metropolitan public transit essentially had to be "socialized" in 1971. But I don't advocate spending money on a lrelative luxury when this nation has so many screaming necessities left unfilled.
BTW I would like to see Amtrak get lots more money. They are federalized, subject to the political process, and cash-starved. - a.s.
jeaton Bucyrus The Butler Bucyrus But if there is a real need for an improvement then investors will finance it and the improvement will get done. So by definition, if it does not get done, there was no need for it. That seem a little simplistic to me. I might be wrong, but doesn't the length of return play a major role on whether investors finance or not? It seems to me, we are in a day of "instant returns." If it takes more than a year or two to show desired returns, investors are not interested. There for, it puts the second sentence into question. Well I am putting it in a rather simplistic way to make a clean point. We live in a tangle of real needs, agenda driven needs, public and private financing. And it is true that if the return is too long-term, it will discourage private investment. But if the return is too low, that will likewise discourage investment. Add to that the fact that somebody can easily make a case for need, and you have needs going unfunded. So there is a threshold at which a need is great enough to attract private investment. But if a need is not great enough to meet that threshold, I think that is excellent criteria for ruling out pubic financing of it. And even if a need registers above that threshold, I think that in most cases public financing would be worse than no financing. Every time we publicly finance the fulfillment of a need, the government grows bigger and better equipped to dredge up more needs. The premise that if there is a real need, then private financing will fulfill the need is faulty because it assumes that there are unlimited private funds. That is simply not the case. Suppose there is a need for something but the activity to produce that something is only going to pay a return of say 1%. Do you think that there is any chance that such an activity is going to attract investors? Consider the DM&E's proposal to build into the Powder River. It was believed that the added competition for hauling that coal would reduce the delivered cost of coal to a number of utilities in turn benefiting the utility customers. Unless they were totally brain dead, you would have to think that the folks had developed plan to make a profit on the business, but it seems obvious that there wasn't enough profit in the plan to attract private investment. If your criteria for the establishment of a business activity is that it must only start if it can obtain funds from private investment sources, then you should expect to be doing without a lot of needs. By that standard, there would not be an Interstate Highway System. Did we need that for sure? Perhaps not, but I can give you this persoanl anecdote. In 1958 my father drove me from our home in Northern Wisconsin to Chicago to begin my college work. The trip on the standard two lane highways of the day took almost twelve hours. Ten years later, I could make the same trip in half the time. Now I didn't need to make the trip in half the time, because I couldn't say I would be able to put the time I saved to productive use. On the other hand, I can assure that the trucker, the person traveling for business purposes or the repair man on his way to a location did and does make productive use of the time saved. All that means is a reduction reduction of the cost for doing business-cost savings that ultimately make it to the consumer. I hate to break it to you, but your belief that government funtionally cannot make productive investments is an ideology that does not hold up to careful scrutiny. The wealthiest countries in the world have all made heavy use of public funds to develope their economies, most with a far greater proportion of their Gross Domestic Product than we spend in the US. Those that haven't or won't find themselves in the second or third tier in the wealth lineup. By the way, just because that an activity is funded by private investment doesn't mean that the consumer of the product doesn't pay for that investment. The investor expect a payment of interest or dividends for providing the funds, in turn the company that borrows the funds expects to collect enough in the proceeds from the sales of their product and will price accordingly. Who then pays?
If there is a need for something that only will return 1% to investors, then it must not be much of a need. If it were a big need, it would return more on the investment. That is the way the free market sorts out what is worth doing and what is not. I agree that there are not an infinite amount of private funds. But the same is true of public funds. But fundamentally, there are more private funds than public funds available because public funds are reduced by administration costs of the government, and furthermore, all public funds are available as private funds.
With regard to needs, I think the one with the need should pay for it. But the term, need, as a noun, seems to be a recently created term of empowerment with the implied definition that somebody else should pay for it.
I am not saying that the fed. gov't NEVER invests or builds wisely, but I am saying it has two major strikes against it: (a) the funding is by definition politicized, relying on Congress; and (b) most (not all) of Congress puts all its marketing skills into re-election campaigns, not becoming instant experts on diverse industries or scoping out markets -- which is probably not possible anyway.
Bucyrus furthermore, all public funds are available as private funds. Please, explain, I don't understand this statement.
So, by your statements, if BNSF can pay for only 75% of the improvements needed over the next 20 years, BNSF does not truely need all of those improvements. Or, did I misunderstand something?
FYI: a parallel thread about upset shippers has some intersting insight and perspective into these very same arguements and statements
The Butler Bucyrus furthermore, all public funds are available as private funds. Please, explain, I don't understand this statement.
Bucyrus furthermore, all public funds are available as private funds.
Please, explain, I don't understand this statement.
I said all public funds are available as private funds.
That statement about the sufficiency of the amount of investment capital available was in response to this statement by jeaton, which was in response to what I said earlier about letting the private sector do all financing. jeaton said:
“The premise that if there is a real need, then private financing will fulfill the need is faulty because it assumes that there are unlimited private funds. That is simply not the case.”
I take the implication of this statement to mean that, since the private sector only has so much funds, the government sector can step in and make funds available if needs exceed what the private sector can provide. I disagree with that premise for the following reasons:
Nothing I have said assumes that there are unlimited private funds. Private funds are not unlimited. There is only so much money in existence at any given time. All of it is available for investment if the investment pays enough. Basically the non-government or private sector owns all of that money because the private sector produced it. The only way the government can invest any of that money is if they take it away from the private sector. The issue of how much they can take is the centerpiece of an eternal tug-of-war between the private and public sectors.
Since the public sector produces nothing and therefore creates no money of its own, it would take all the money the private sector has if not for the resistance put up by the private sector. In economic terms, government is a beggar with power.
So when I say all public funds are available as private funds, it simply means that there are no public funds unless they are taken from the private sector. All public funds already exist as private funds. So it is faulty to conclude that if an economically legitimist need is too large to attract sufficient private funds, then the public sector can make up the difference by providing public funds.
Yet government is often successful in making this case. They are typically successful in cases where the legitimate need is not sufficient to attract all the private capital it requires, so government persuades the public that there is some greater good that redounds to society at large. But whether or not this is true, in economic terms, government is not an investor with its own money. Government is only a middleman in the transaction, and as such, they take what amounts to a commission on the deal. They impose an added cost on the transaction that would not exist had the project been financed privately.
Bucyrus Since the public sector produces nothing and therefore creates no money of its own, it would take all the money the private sector has if not for the resistance put up by the private sector. In economic terms, government is a beggar with power.
On the contrary, public funds invested in the Interstate highway system opened up many money making opportunities in transportation and its attending fields including, but not limited to, vehicle sales, gasoline sales, nationwide restaurant chains, local and nationwide hotel chains; industrial development in many communities, etc. And the creation of these industries and services accompanied by the paychecks produced, have given back monies to the governments in the form of income, sales, and other taxes. The government's investment in Conrail paid itself back not just in stock sale but also in bolstering the economy (tax base) of much of the east. Early governments bonding, granting, loaning and legislating allowed for turnpikes, canals, waterways, and railroads to build and expand the economy. The airline industry is supported by government military r&d, federal operation of airways, and owned and owned and operated airports all of which supposedly have benefits which go directly into the communities and their governments. Oh, there have been governement boondogles, no one is denying that. Private Sector Business has laid many bombs itself from products and service that were not needed, wanted, or viable from the start to Big Businesses missing the mark with things like the New Coke! Unfortunately to idealogues of both sides there is only black and white, only what thier leaders espouse, with the inability to see through the fog to the other side. In the 60's we had left wing radio, today it the right wing. Once a statement, right, wrong, or indifferent, is put into the air, it is there forever no matter how many corrections and disclaimers are made afterward. Today the internet carries this false information further by being in the bits and bytes uinverse forever often years after the fact coming back to haunt.
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