Can the Railroad Save Our Economy?

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Ferrous Metals, Macroeconomics

Over a hundred years ago, the railroad system was the most thriving business in America.  The railroads provided thousands of jobs. They were the primary source of transportation, and created an enormous demand for steel which led to the industrial revolution.  The early 1900’s were the glory days for the railroads.  There were countless opportunities during those times and entrepreneurs like Carnegie and Frick saw them and made fortunes in the steel industry.  Fast forward to the 1950’s and it was all lost. Cars, trucks and airplanes were mass produced, and had become the preferred way of traveling on the newly built interstate highway system.  The interstate/intercity railroads were left to rust away.

Today we are asking ourselves, should we revive this once booming industry?  With the economy in the tank, unemployment rates on the rise each quarter, and higher airfare rates, people have started to take a second look at the railroads.  Currently, Amtrak uses 15% of America’s railroads; the other 85% is used for freight.  I think it’s time that we take a step back and seriously consider rebuilding the railroad infrastructure in the U.S.  Obama has proposed an 800 billion dollar plan to help rebuild infrastructure in the U.S. Perhaps some of this money should go toward a high-speed bullet train system like Japan’s.  Imagine being able to take a non-stop train from New York to Chicago, to Los Angeles, in under a day. 

A new web of high-speed bullet trains in the U.S. could also help out the Detroit automakers.  They could manufacture the passenger and luggage cars, and the train engines.  In addition, a new railroad system would create a huge demand for  complementarities to go in the rail cars, such as stampings, and foam for seats.

The one question to ask ” should the government stimulate the economy by building up the railroads ” has not yet been tackled by Congress.  I’ve seen first hand how ineffective the unions can be in Chicago.  A two mile strip of road by my house has been under construction now for a year, and will not be completed until 2010.  However, that’s in Illinois, and we all know about how well things are run here and in Chicago.  Would a better approach to the railroad system be to allow the private sector to build these new railroads?  Or would that defeat the purpose of the government’s plan to stimulate the economy by creating jobs? Of course not everyone is going to be in favor of a new high-speed railroad system in the U.S.  The trucking industry would most likely see a huge drop in sales, because a single intermodal train takes up to 280 trucks (equivalent to more than 1,100 cars) off our highways.  From the trucking industry stand-point, this number potentially damages their business.  From a taxpayer stand-point, the case for rail is compelling.  With fewer trucks and cars off the roads, not only are the roads safer, but they are kept in better condition. This results in less money needing to be spent on repairs for the highway from the trucks wear and tear.  Also, let’s not forget about the airline industry.  They are already struggling with higher fuel costs, and with the introduction of a new railroad system the demand for plane tickets would drop drastically.

Finally, we look at the cost of what a high speed train system would cost here in the U.S.  For my analysis, I used the latest estimates from California’s bullet train proposal which would connect Los Angeles to San Francisco.   The track distance would be roughly 350 miles, and the cost for the project was estimated at $9.95 billion.  At these costs, each mile of track would equate to $28.4 million.  Obviously, this would be a very expensive project, but there would be many positive long-term benefits for the economy and the travel industry.  Right now Obama is urging Congress to pass the $800 billion infrastructure plan, which will help with rebuilding schools, roads, and factories.  If you are in the steel industry you definitely want to be pushing for an infrastructure plan to rebuild the railroads.  America would not be where it is today without the railroads, and I would hate to see our country pass up on this amazing opportunity to re-build America’s infrastructure.

–Tom Scanlan, Research Assistant

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