Prop 1A as Economic Stimulus

One of my most consistent arguments for high speed rail has been that it will provide a significant economic stimulus to our state at a time when we badly need it. Yesterday's Los Angeles Times put some flesh on that argument by examining the impact of the 2006 infrastructure bonds, which are just beginning to turn into actual projects on the ground:

Without this money, "the construction industry would be out of business," said Rich Gates, president and general partner of Silva Gates Construction in Dublin, Calif. "This is kind of the drip of the IV to keep us going."

The governor's decision to turn on the bond money tap allowed Silva Gates to bid successfully for three freeway projects in the Sacramento and San Francisco Bay areas.

Every $1 billion in public works spending creates approximately 18,000 jobs, according to a formula developed by the Commerce Department.

By that formula Prop 1A alone would create around 180,000 jobs. The California High Speed Rail Authority has been more conservative in its estimates, giving a figure of 160,000 construction jobs.

Schwarzenegger's spending plans, though substantial, won't do more than soften the blow to construction that's left thousands of houses half-built in abandoned tracts up and down the state, said Stephen Levy, director and senior economist at the Center for the Continuing Study of the California Economy in Palo Alto.

"This is one of the few things that state and local government can do to help in the short run" and to invest in improvements that will be in place once the economy turns around, he said. But, "if you're down by a dollar, and this helps by a penny or two, you don't want to overstate its magnitude."

I don't disagree with that, and I don't want to overstate the matter. Prop 1A isn't going to lift the state out of recession single-handedly. But it WILL help matters and create jobs at a time when we need as many jobs as we can get - a state with a 7.7% unemployment rate isn't in a position to turn down 160,000 jobs.

Those jobs have a catalyzing effect on the economy, by the way:

Getting money quickly through the transportation planning and approval process helps the construction industry, business in general and the state as a whole because of California's need for more roads and less traffic congestion, said Dan Dunmoyer, the governor's cabinet secretary and a key liaison to industry. "It's very useful now, but we would be doing this even if our economy was roaring," he said.

"Construction jobs are what you'd call high-powered jobs," said Jack Kyser, chief economist at the Los Angeles County Development Corp. Highway projects not only pay good wages to carpenters, ironworkers and operating engineers but also create a ripple effect for a slew of people working for companies that supply building materials, heavy equipment and related goods and services, he said.

These are jobs that cannot be easily outsourced. HSR's long construction schedule is a plus for these companies, from haulers to contractor wholesalers, as well as for their employees. They all get a stable source of money that will keep them in business for many years. That in turn makes them more likely to spend on other services, from a restaurant to home furniture to a weekend vacation here in our Golden State.

Up in Washington State the rule of thumb was that one Boeing job created three jobs in the community, from waitresses to mechanics to hairstylists. Whatever the actual number here in CA, these jobs sustain small businesses and help keep money within the community and the state, which then generates more tax income - something California can't exactly afford to turn down either.

HSR has many other benefits alongside economic stimulus - providing an alternative form of travel that's environmentally friendly, reduces carbon emissions, isn't dependent on ever-rising oil prices, easing congestion on roads and airports. But the economic stimulus IS a significant part of the picture, something that Californians should find quite compelling.

Oil Prices Soar

Up by $31 in the last couple days according to the New York Times, currently at $122/bbl. Sure, crude prices have been coming down since their July peak, but as I explained last month the long-term trend remains upward for fundamental reasons, including peak oil and the global surge in oil demand.

Even if oil prices were to level off around $100/bbl high speed rail would be a good deal for Californians. But what this recently rally reminds us is that upward pressure is still there and the days of $100/bbl are probably over. We've seen 30% year over year increases in the price of oil since 2002. As we know, this has a dramatic ripple effect throughout our transportation system. The airline crisis is one of them, as higher fuel costs lead airlines to cut routes, flights, and raise fares.

The only way out of this is to build sustainable mass transit that is fast, reliable, and not dependent on oil. High speed rail meets all those needs. We've already waited long enough - time to get started by passing Prop 1A.

"That's A Lot of Supertrains"

So says Atrios, commenting on the stunning $700 billion bailout plan proposed by the Bush Administration for the financial markets. That would pay for around 17 and a half California High Speed Rails, at the current cost estimate of around $40 billion.

While something needs to be done about the credit markets, several leading economists are saying this is a bad deal. This isn't an economics blog, but you don't need an econ degree to understand common sense about our financial priorities. The US government can find $700 billion to bailout a bunch of bankers who made predictably bad loans, but we're to believe there's just no money for a relatively cheap high speed train? One that would create a significant near-term economic stimulus for California, through the creation of at least 160,000 jobs, and an even larger long-term economic boost through job creation, gas savings, lesser carbon emissions, and the green dividend.

The problem is not that HSR costs money we don't have. It never was the problem. Both California and the USA have more than enough money to build and operate HSR. No, the real issue is one of priorities. Since the 1960s this country has believed that passenger rail is not worth saving, that we would do just fine to build an economy based on freeways and ever-complex deregulated financial instruments. 2008 ought to suggest how well that worked out.

Those who criticize HSR do so because they do not believe passenger rail is a priority. They're the same people who look at a $3 billion cut to California public transportation and clap their hands. The considerable fiscal benefits don't sway them, giving Californians a real and true choice doesn't sway them, and as we saw even good old truth won't sway them.

Nobody expects to really see $700 billion spent on "supertrains" (although if it's between that and a blank check bailout, I'm for the trains). But it does suggest that if the US government can seriously consider such a move, surely it should not be difficult to find the money to build high speed rail. This nation is going to have desperate need of economic stimulus, sustainable transportation, and reliable and safe infrastructure. California high speed rail offers all of that. Rather than mortgage our nation's future to prop up the bad choices of the past, it makes so much more sense to spend some money we have now to prepare ourselves for the future.

Truth vs. Truthiness on Prop 1A

I've been regretting not having the time to write a thorough deconstruction of the Cox-Vranich HSR denier report. But the nice thing about high speed rail is that we have a genuine popular movement behind it. This blog is a part of that movement; whether we're a significant part or not I leave for you to decide. For example, this blog isn't just about me and what I choose to write about - we have some of the best and brightest commenters I've ever seen on a blog. They raise the level of discussion and provide the most complete insight on California's HSR project anywhere online.

One of our commenters, "mike", offered an excellent takedown of the HSR denier study in the comments to Thursday's post. I'm reproducing it here on the main page in its entirety, because "mike" does an excellent job of exposing what Stephen Colbert so memorably called truthiness - if something feels true, it is true, even if the facts don't support it at all. The Cox-Vranich study is a classic example of truthiness - it confirms the beliefs of those who already hated HSR, even though even a cursory glance shows its basic arguments to be unusually flawed.

Without further ado, here's "mike":

***

Robert & others:

Intellectual garbage collection is dirty work, but someone has to do it. Here is an analysis of the important points stressed by the Cox-Vranich (C-V) report:

Projected Ridership:

C-V's ridership figures are wildly inaccurate. Using C-V's preferred measure, JR Central reported 2007 ridership of 80 million passenger km per Shinkansen route km (44.5 billion passenger km / 552 km route). In the "high" scenario, CA HSRA is forecasting roughly 27 million passenger km per HSR route km (30 billion passenger km / 1,120 km route). So C-V's claim that CA HSRA is using numbers higher than those achieved on any other system in the world is absurdly false - in fact, CA HSRA's numbers are only 1/3rd of what has been previously achieved.

JR Central's Shinkansen is the densest ridership in the world. A more informative comparison would be the TGV or the new Taiwan HSR (THSR). We don't have passenger-km ridership for those lines, but we can compute passengers per route-km. The TGV Paris Southeast (PSE) line gets 45k passengers per route-km (20 million pax / 448 route-km) while the THSR gets 101k passengers per route-km (34 million pax / 335 route-km). CA HSR is forecasting a high of 80k passengers per route-km in 2030, or around 56k passengers per route-km at today's populations. This is slightly above TGV PSE but well below THSR. It does not seem unreasonable since the LA Metro Area is larger than Paris Metro Area or the Taipei Metro Area. And more importantly, the SF Bay Area is twice as large as the Kaoshiung Metro Area and four times as large as the Lyon Metro Area.

Cost Overruns:

C-V project an expected cost overrun of 33%. IMO, this is the most reasonable part of their report. There is some non-zero probability that this could happen. In contrast, their other claims are laughably inaccurate. That said, cost overruns are a potential flaw of any infrastructure project, so if they want to make their argument based on cost overruns then they have to oppose virtually all public infrastructure projects (which, being associated with the Reason Foundation, they might, though Wendall Cox does seem to love building highways).

[Note from Robert: I agree, though I think we are also right to insist that cost overruns be discussed with respect to reason and evidence. C-V treat them like some inexorable law of physics, which is nonsense.]

Operating Costs:

C-V claim that operating costs will be 4.8 cents/seat mile rather than the 3.5 cents/seat mile. This sounds troubling until you consider that the operating costs for US airlines are 11.9 cents/seat mile (April 2008), and on the short California routes they will be closer to 14-15 cents seat/mile. AAA estimates average car or truck operating costs at 17-24 cents/mile (sedan is lowest, SUV is highest) So even using C-V's own figures, HSR can undercut airlines by 65%! More likely, HSR would undercut airlines by, say, 35% and then give the additional 30% back to the state (or, in the first couple decades, use it for system expansion).

Cost of Alternatives:

C-V get really outlandish here. They use an average cost of $6 million/lane mile for highway widening projects despite the fact that most recent Caltrans highway widening projects have averaged around $20-40 million/lane mile. More incredibly, they use an average cost of only $33 million/lane mile for a new Bay Bridge despite the fact that the current one (which should be much cheaper than a future one, given their argument about escalating costs) cost $260 million/lane mile!! CA HSRA's cost projections are not going to be exact, but they will never be anywhere as wildly inaccurate as C-V.

Trip Diversions:

C-V claim that CA HSR will divert a total amount of highway traffic equivalent to only 175 lane-miles of capacity. This claim does not pass the laugh test. Using C-V's own (very low) ridership estimates, HSR will carry at least 35-46 million passenger-miles per weekday. 175 lane-miles of highway capacity is only sufficient to transport 4-5 million vehicle miles travelled per day, so by C-V's own calculations only about 1 in 10 HSR riders will be a road-diverted driver. They also claim that HSR will have limited success in capturing airline passengers, so fully 80% or more of the passengers in their ridership forecasts are induced demand! This is an incredible result that no reasonable economic model could generate. It also strengthens the case for HSR, rather than weakening it, because induced demand is better than demand captured from other modes. If HSR steals people from highways or airplanes, all that we can conclude is that it provides a product that is at least as good as those modes. But if HSR induces new travel, we can conclude that it is providing a product that is far superior to those modes, since people who before refused to use either air or highways are now being induced to travel by the new superior modal option.

Composition of Passengers:

C-V complain that CA HSRA's ridership numbers are over-optimistic because almost no one will ever choose HSR over driving for shorter, commuter-like trips (under 100 miles). At the same time, they claim that the low-speed Northeast Corridor is instructive for projecting what CA HSR ridership might look like. The NEC serves around 10 million long-distance intercity riders per year and 60 million shorter-distance, commuter riders per year. Thus the ratio of short-distance to long-distance riders is 6:1. Even if we omit Metro North's New Haven line, the NEC still serves over 30 million shorter-distance riders per year (ratio of 3:1). C-V's claim that shorter-distance riders will comprise only a trivial fraction of HSR riders is thus completely refuted by the NEC data that they themselves argue should be instructive.

In summation, given the horrible factual inaccuracies of the report (so bad that some of them must be intentional), I agree that going forward it is sufficient to dismiss anything from the Reason Foundation or these authors by simply noting that their track record on telling the truth is abysmal.

At the same, the fact that even under Cox and Vranich's own figures, HSR has a cost advantage of around 3:1 vis a vis airlines and 4:1 vis a vis cars should give us a great deal of confidence in its ability to successfully attract ridership and generate a substantial operating profit.