Sunday Train: Ed Morris Duped by Libertarian HSR Hackery

Burning the Midnight Oil for Living Energy Independence

Freakonomist Eric Morris finishes up his tag-team attack with Ed Glaeser on the HSR policy with a post that confesses to the hack jobs both are doing on HSR policy - but works hard to spin the confession into a defense of the hackery.

Eric Morris's efforts have been clearly the weaker of the two, to the point where Ryan Avent, who wrote blog posts to pick apart the analytical flaws of Ed Glaeser's four part series as well as the first posts by Eric Morris, responded to Eric Morris' last effort via twitter:

@ryanavent: Eric Morris closes HSR series by referring readers to Randal O'Toole. You know, in case you thought he and Glaeser were aiming for an honest critique

The main takeway point from below?

So the bait and switch is as follows. By overstating the costs and understating the benefits of Express HSR, "it costs too much", or is only useful in a very few special cases, and therefore we cannot afford its "transformative benefits". And by ignoring the fact that the benefit of investing in Emerging HSR is greater than the cost, and focusing on dismissing the quality of the benefits, the Emerging HSR is "unworthy" of investment because it is not "transformative" enough.

The "Libertarian" Alliance

Randal O'Toole, for those who do not know, is the "Libertarian" anti-HSR propagandist working for the Cato Institute, with corporate sponsors that might have an interest in the High Speed Rail debate including: the American Petroleum Institute; ExxonMobil; General Motors; Honda North America; Toyota Motor Corporation; and Volkswagen of America.

Oh, and by the way, buying propaganda for your corporation propaganda doesn't really cost all that much. According to Sourcewatch (above link), for example, Cato's corporate haul came to under $700,000 total in 2006, and that will cover a wide range of pro-corporate propaganda on health insurance reform, regulating the corporate ability to dump unlimited amounts of CO2 into the atmosphere, pollution regulation and, yes, transportation policy that may shift consumer buying habits and help a nation reduce its addiction to your product. A few $10,000's spread to a handful of foundation-supported propaganda mills, repeated by a few dozens of corporations, and you've got a tidy little propaganda industry, for very little outlay.

Now, it sure does look bad that Eric Morris' is willing to elevate Randal O'Toole to "articulate critic" status. But, what about the hypothesis that he's just too busy to read O'Toole's work and compare it to non-partisan information sources to understand that O'Toole is a hack? That is, maybe Eric Morris has been duped instead of trying to deliberately mislead?

The answer is, of course, maybe he is. I don't know from any other source what species of partisan hackery this is. For all I know, Eric Morris could be engaged in deliberate deception, or he could be using his reputation to push an argument without investing enough time and trouble to get to the bottom of the matter. The only place I can look for clues is his arguments themselves.

One point to understand is that the partisan hack job will continue:

A couple of caveats are in order. First, transportation investments are highly context-sensitive; Dallas-Houston may not pencil out, but other lines may have more potential. Glaeser and I will return to this in a couple of weeks.

... so it is in any event necessary to be prepared for further partisan hackery.

Also, note the admission that this is a coordinated attack by two of the NYT conservative economic bloggers - here Eric Morris admits to the coordination.


The Attack on the Express HSR Policy Plank

The second caveat:

we have been considering a true electric high-speed rail system with average speeds of 150 m.p.h. or more. Florida has flirted with such a system, but currently only California is in the advanced stages of planning one. This is where much if not most of the stimulus money will eventually go.

That is, they were focusing on a hypothetical under 300-mile Dallas/Houston corridor where they presume the ridership potential of 1.5m - a distance that makes a far less expensive Emerging HSR another option - in order to critique the California HSR system, where well over 300 miles separates the LA Basin from the Bay, with several cities over 100,000 along the alignment between the two, and where the potential ridership is in the 10's of millions.

There is not the slightest indication that there will be any significant funding at all for an Express HSR corridor with ridership projected to be 1.5m. Its like "proving" that a large roast turkey cannot feed a family of four at Thanksgiving by working out whether a small roast squab can feed a family of four - there is no reason for focusing on a hypothetical route with a presumed ridership of 1.5m as an Express HSR except to get the answer "costs greater than benefits" which can then be turned into a talking point, "Express HSR costs are generally greater than benefits".


The Attack on the Emerging HSR Policy Plank

Eric Morris kind-of acknowledges (without recognizing) this critique:

The proposals on the table for the rest of the nation are currently much more modest; while electric HSR is the endgame, for now plans focus on maintaining what we have or on raising the top speeds of existing Amtrak trains (outside the Boston-Washington and Los Angeles-San Diego corridors) from 79 m.p.h. to 110 m.p.h. This sounds quite fast, but average speeds would be well below the top speeds; we’d be looking at an effective increase from about 40 to 50 m.p.h. to about 70 to 75 m.p.h.

I added the emphasis: "Electric HSR is the endgame". Reading it through, you'd think "Electric HSR"="Express HSR" ... but it doesn't. Where the cost of a new Express HSR corridor is not justified, there is the option of directly upgrading an Emerging HSR to an electrified 125mph Regional HSR corridor. And since well-chosen Emerging HSR corridors will gain the ridership to generate operating surpluses, they can fund the state side of the capital investment themselves with revenue bonds.

We then see Morris channeling his inner O'Toole with the following bit of blatant [self?/deliberate?] deception:

But even this more modest strategy is not inexpensive. Current estimates are vague, but one puts the cost of upgrades to three comparatively modest Midwest segments (Chicago-St. Louis, Chicago-Detroit, and Chicago-Milwaukee-Madison) at $4 billion. This totals out to $200 per resident of those cities, a considerable amount given that most of those people will use the service rarely, if at all.

There are four deceptions here. I will take them in ascending order.

Cities at the end points are not the sole beneficiaries. With stations every 30 to 50 miles, leveraging the express connections between the large metro areas with all-stations services using the same infrastructure, there is substantial service provided to smaller cities, suburbs and rural areas in between the cities at both ends of the corridor. And these corridors are the seed corridors in a network, so as the network expands, these corridors will also serve population centers outside the corridors.

Second, Morris says "$200" with no time frame. Ed Glaeser presented capital costs in annual terms, because the scenario was already biased to give massive net costs. But taking Eric Morris' "$200 per resident" at a 3% real discount rate on publicly finance investment gives an annual capitalized cost of under $10.25.

The annualized cost under $10.25 per year is the far more reasonable number to state. However, "Under $10.25 per person per year" sounds far too reasonable for infrastructure similar to an airport that many residents will use, but most residents will use only rarely. And Morris undercounts the of population served, so that'll be well under $10 per person per year for access to a new transport choice, far less exposed to the risk of oil price shocks.

Third, Morris treats the Emerging HSR as if there is no congestion cost or capital cost saving in the transport capacity going by rail instead of air or road. This is a point that was a major part of Ryan Avent's earlier critique of Ed Glaeser's conclusion of his part of this tag-team effort:

Glaeser seems to believe that in coming decades congestion costs will cease rising; otherwise he'd build future increases into his model. He seems to think that the addition of over 100 million new Americans need not lead to any new infrastructure investment; otherwise he'd compare the economic benefits and life-cycle emissions of rail investments to alternative investment plans.

The fourth and largest deception here - the most blatant partisan sleight of hand - is that Morris is talking about capital cost per person - abandoning the analysis of costs versus benefit. If there is more than $200 in economic benefits "per person" for the $200 in spending "per person" ... what is the point of focusing on gross cost "per person"? If there is a net benefit, what is important is that net benefit means more opportunity to do more things later.

This biggest deception opens the door for this bait-and-switch:

Moreover, this path will not have the transformative environmental benefits that HSR backers tout, since the services in question will use diesel trains and will not travel at game-changing speeds.

This bait and switch seems likely to be the basis of their next series promised in a few weeks time. But like a street corner con game of Three Card Monte, you can't be fooled if you know the trick of the game.


A Rhetorical Game of Three Card Monte

The most capital efficient Emerging HSR corridors are justified in terms of their transport benefits per dollar, and also offer net enviromental and energy benefits, in terms of reduces CO2 emissions, increased energy efficiency, reduced oil dependency, the opportunity to upgrade to no oil dependency, and support for Transit Oriented Development, both directly at Emerging HSR stations and indirectly at stops on local transport routes that become financially stronger as a result of their connection at the HSR station. (see zOMG These Aint Real HSR Trains!")

Meanwhile there are a select few Express HSR corridors, such as the San Francisco Bay to the LA Basin, that are justified on their transport benefits alone, when the cost of other ways of providing the same transport benefit is taken into account. Following the path sketched by Ed Glaeser, that result is to be reversed by ignoring the cost of other ways of providing the transport capacity needed for population growth in coming decades.

Other Express HSR corridors will require Emerging HSR corridors to lead the way, building potential ridership, fostering growth of local rail transport, and improving rail access to large metro areas, before they will be cost-effective.

So the bait and switch is as follows. By overstating the costs and understating the benefits of Express HSR, "it costs too much", or is only useful in a very few special cases, and therefore we cannot afford its "transformative benefits". And by ignoring the fact that the benefit of investing in Emerging HSR is greater than the cost, and focusing on dismissing the quality of the benefits, the Emerging HSR is "unworthy" of investment because it is not "transformative" enough.

The fact that Emerging HSR corridors can be upgraded to all-electric Regional HSR corridors and can also reduce the costs and amplify the benefits of newly constructed Express HSR may be simply ignored, since most people will be unaware of it. The less people know, the more likely the bait-and-switch will work.


Don't Think About Congestion Costs!

Finally, in not considering the costs of other ways to provide the same transport capacity, Eric Morris opens the way for the biggest deception of all:

Costs in the real world are quite different. HSR is an exciting idea, and if we could make it appear by magic wand it’d be a terrific addition to our transportation network. But everything has a price, and the way things currently stand, the projected costs look like they outweigh the benefits. If the thought of some ominous budget numbers lurking on a piece of paper in far-off Washington doesn’t move you, consider the opportunity costs of this spending, in terms of health care, education, the economy, defense, or a (more effective) method of slowing global warming. Or if you want to keep the money in the realm of transportation, it could go to address what I consider to be the more serious problem we are facing: moving people around within our cities, not between them.

And so we finally see the hook that the so-called "Libertarians" would seem to have used to snare Eric Morris into spending his reputation on promoting their anti-HSR attack: that HSR and local public transport are rivals, and if only we do not spend on HSR, we can use those resources for better local transport.

For this, the deception on costs versus benefits would seem likely to be self-deception, since the opportunity of not engaging in investment in transport infrastructure with economic benefits outweighing the economic costs is less capacity to deal with everything else. That is, not investing in a net benefit does not "free up" resources for anything else.

In addition to this self-deception, Eric Morris also requires a substantial amount of political naivete. And in this case it is a trained naivete, one that is likely to be reinforced by experience in public transport policy over the past three decades.

Ever since the rise of Reaganism, our transport policy on everything except roads and air travel has been increasingly plagued by false choices between projects when, based on the benefit/cost ratios of road projects we fund, all of the rival transport projects ought to be funded. We have pushed the benefit/cost ratio required for local light rail funded by New Starts, for example, to dizzying heights - heights that would bring most road projects to a screeching halt - while at the same time discounting "benefits" that do not contribute to sprawl.

And this has fed the reflex assumption between backers of one public transport choice that they are engaged in a death match for funds with backers of other public transport choices.

But, politically, all three tiers of HSR are different. All of them offer advantages that extend out into suburban and rural areas. That makes it possible for the three tiers of HSR to make political alliances in places that are used to seeing local rail as spending for "big cities" alone.

Which means that instead of cut throat rivalry, HSR is a political coalition builder for local transport spending. Not only does HSR offer functional benefits to local public transport in suburban areas where they tend to be weak, and joint investment in infrastructure that benefits both HSR and local public transport (see A False Contest Between Local Rail and HSR to Kill Off Both) ... it also offers the opportunity to build a coalition in support of rail investment that represents a majority of the nation.

And that coalition offers the prospect of far greater investment in local public transport corridors than single-interest-group politics has shown any ability to deliver over the past thirty years.

Of course, the Cato Institute are being hypocrites when they raise this sort of argument, since they fight just as hard against investment in local rail transport as they do against investment in HSR. So, assuming that Eric Morris is sincere in this argument, its clear that he's been duped into attacking the policy that has the best prospects of shifting the political environment in favor of the substantial investment in local sustainable transport that we so urgently require.

The so-called "Libertarians" fighting against a broader range of transport choices understand that HSR is the camels nose in the transport tent. Some of their funders, such as the Petroleum Institution and ExxonMobile, likely understand.

But Eric Morris seems to have been duped into arguing that the camel's head should be pushed out of the tent because he wants to make room for the rest of the camel.

A Brawny Recovery Instead of Unsustainable Consumption-Led Growth

Burning the Midnight Oil for a Brawny Recovery

On Agent Orange, bonddad writes:

Among the most important of the rules Rosie laid down, in my opinion, is #12: Get the US consumer right and everything else will take care of itself. The reason is fairly simple: The U.S. consumer has the biggest balance sheet on the planet. The U.S. consumer represents 70 percent of our GDP and about 18 percent of global GDP.

This is, however, following the entrenched habits of thought that got us into this mess in the first place. In a comment in reply, I write:

The problem with the 70% figure ...
... is that only a portion of that is free-standing spending, that is not financed out of income. Sustainable growth in aggregate demand occurs when there is a sustainable increase in spending that is not financed by income ... because the portion that is financed by income follows growth in incomes, it cannot lead growth in income.

If we are importing roughly 1/5 of our GDP, 15% of that consumption is imports and 55% is domestic.

If our income-expenditure multiplier is around 1.5, that implies about 2/3 leakages, 1/3 income financed consumption of domestic goods and services. So 55%-33%= about 22% debt-financed consumption of US goods and services that acts as a domestic growth driver. The rest of the 70% figure is domestic recirculation of income and income spill-over to the rest of the world.

Now, that is still a big chunk of change, and under Bushonomics, with the anti-export and anti-real-investment policies that were in place, was the main growth driver we were counting on.

However, it is clearly a growth driver that we can replace if we pursue an aggressive plan of government investment in energy efficiency and infrastructure in support of sustainable energy independence, combined with government policies that ensure ongoing growth in private investment in energy efficiency and production of energy for sustainable energy independence.

And unlike the growth regime founded on unsustainable increase in degree of leverage, its a growth regime founded on the real increase in both the quantity of domestic resources and the efficiency with which they are used.

Certainly, as our economy has evolved in the past three decades, debt-financed consumption has become the largest of the four sources of new injections into Aggregate Demand:

• Government spending, which creates new fiat-currency
  
• Real investment in new productive capacity, which is based on newly created credit-money
  
• Debt-financed consumption, which is based on newly created credit-money
  
• Exports, which is based on either kind of newly created money, depending on the source of the domestic currency flows into the foreign exchange market that were the ultimate source of the domestic currency paid for the exported products
  

The Brawny Recovery strategy shifts the focus, toward the transitional economy in which investment in the foundations of a sustainable economy are the source of new aggregate demand.

It Need Not Be a Calamity

Burning the Midnight Oil for Living Energy Independence

Betwixt and Between, I find myself. I observe the validity of D00m.P0rn shrill warnings about the future ... when seen as possible outcomes rather than when seen as certainties. Yet I also see the potential for better outcomes.

And with respect to the strategy of sitting on the sidelines, weighing the likelihood of one versus the other ... I'm against it. Simply the decision to sit on the sidelines makes the calamity more likely as a result. So I am for getting into the fray and trying to make the calamity less likely and the hopeful outcome more likely.


The Calamity Cavalcade

As far as potential calamities, we do not have to look far for those.

We are on track to have a higher concentration of CO2 in the atmosphere than at any other time in the Holocene. We are engaged in this experiments with absolutely no serious evidence to suggest that it is known to be safe. Indeed, those benefiting in the short term from the reckless experiment will even try to reverse the sane burden of proof and place it on those who do not approve of undertaking the reckless experiment.

The argument being, in essence, that if you are driving through a thick fog, then as long as you don't see any cars coming, its OK to speed.

And of course, before the peril of climate chaos came to our attention, there was already the risk of ecosystem collapse hanging over our head, as more and more populations on the planet rely on an industrial technology that is quite clearly ecologically unsustainable and therefore certain to collapse sooner or later, unless we restructure our technological base to approach sustainability faster than we approach ecosystem collapse.

And then of course, even before the risk of ecosystem collapse was widely understood, the threat of nuclear holocaust.

Flood, Nuclear fire followed by Nuclear Winter, Famine and Plague ... and all three involved in or certainly leading to War ... surely rather than Four Horsemen of the Apocolypse, there is a whole Cavalry Unit.

Against that backdrop, it may seem provincial to worry about a mere collapse of a single national economy from first world to banana republic status, but that is the specific calamity that I am focusing on here.


The Structural Import Dependency

When I was growing up and became old enough to notice such things, Brazil was the code-word to be used for runaway inflation. While it was responsible for an impressive amount of industrialization during the 40's and 50's, Brazil's import-substitution policy eventually ran into a structural flaw. That was, as Brazil moved into more and more complex manufactures, the capital intensity of the new industries kept rising. Which meant more and more funds required to buy the capital equipment, produced overseas.

And yet, more and more of the "import substitution" involved creation of new income to demand new consumption, rather than swapping existing imports for domestic products. So the current account benefit of the policy, in terms of imports actually saved, tended to shrink, and the current account cost of the policy, in terms of structural dependency on imports of productive equipment, tended to rise.

Then the first Oil Price Shock hit, and its current accounts got into serious trouble. Conventional exports of tropical commodities had their prices hammered by the various oil price shock recessions, while Brazil was hit by an unexpected rise in the price of oil.

The need to recycle the oil revenues meant that for a while Brazil could close the gap with borrowing. But over time, debt service from borrowing made the gap in the current account even worse, and as the Brazilian economic position looked less rosy, Brazil started to find it harder to attract capital inflows to balance the current account deficit.

So the exchange rate started dropping.

Now, what happens when you are in an economy with a structural dependency on imports, and your exchange rate starts dropping? You need the imports ... all manner of industries will shut down without an ability to import parts and materials ... so you have to throw more of your domestic money at the foreign exchange (FX) markets, so your exchange rate falls, so you have to throw even more of your domestic money at FX markets, and etc.

Meanwhile the costs of production are going up, so there is cost-push inflation. If you are also trying to maintain the legitimacy of government by maintaining demand in the face of falling real income ... that is a recipe for hyperinflation.


That's Brazil ... what does that have to do with the US?

OK, so that's the Current United States Option Number 1. The US, after a 30 year diversion from the industrial development policies we pursued from the 1790's to the 1970's, is heading in that direction, should the price of crude oil return to its pre-Panic of 2008{1} levels.

And if the global recover is strong enough, it will, of course. Supply of oil is like the figure to the right. A steep enough drop in demand will leave oil selling for the cost of production, and then push the price down further, as the oil that is more expensive to produce drops out of production. On the other hand, once we hit the amount of supply available in a given period of time, the price will just keep going up until potential buyers are squeezed out to match the amount of oil available.

On the other hand, its not just the structural dependency that leads to the runaway inflation. There's also the policy that is founded on refusing to face up to the structural dependency, pumping up demand even though it leads to a free fall of exchange rates in FX markets.

Indeed, an international consensus emerged among the high income countries as to what to do when a country is faced with that kind of position. In order to ensure the ability of the country to meet its foreign obligations, it must through its economy into an extended period of depressed economic activity. Then collapsing incomes will mean fewer imports, and willingness to work at near starvation wages and attract foreign direct investment.

The "Washington Consensus".

A bit more pleasant, of course, if you are propounding it in the air conditioned meeting rooms of a five star international hotel in the capital of the country that has to impose a depression on its economy as part of an "economic restructuring" ... than if you have to live through it as an ordinary citizen of that country.

So that's option 2. We work to ensure that the recession continues on as an extended depression. First, as the consumer of roughly a quarter of the world's crude oil, that in itself will have keep the price of crude oil down. And second, by depressing our incomes and depressing the domestic prices of our real resources, we reduce our imports across the board while making the US more attractive for capital inflows aiming to exploit our real resources for export.

There is the choice between the Devil and the Hard Place, or the Rocky Shore or the Stormy Strait.


But It Need Not Happen: Option Three

But we know what the holes in the US current accounts are. We don't make much of anything that other people want to buy except for armaments and, like a banana republic, natural resources. And for armaments, we are half the world demand, while for natural resources, we are a net importer when Energy resources are taken into account.

An economy like the US that cannot power itself without imports is in an even more exposed position than an economy like Brazil that cannot equip itself without imports. You can ration, defer or postpone investment in equipment for a period of time and still keep the economy ticking over. This is much harder with the energy required for residences and workplaces, for transport to work, for shipment of goods, and for harvest of food and other natural resources.

But ... well, we know this. We have known since the 1970's that we would become increasingly dependent under the Old Energy Economy. We have known since the 1970's that our four centuries of energy self-sufficiency since European Settlement of the eastern seaboard of North America would be coming to an end unless we made substantial changes.

And then our ruling elites collectively decided to pretend that social division of national product is a more fundamental question than the ability to continue producing it, and we descended into the last thirty years of the wealthy focusing in grabbing a bigger share of the pie, while assuming that the baking of the pie would magically take care of itself.

But ... still, the fundamental physical reality is still there. Option Three involves reconnecting to physical reality and leveraging enough of our strengths while eliminating enough of our weaknesses so that the risk of collapse does not become a certainty of collapse.

According to the rough estimates of the Global Footprint Network, we have twice the world average biocapacity per person. That means that we should aim for more than just Sustainable Energy Independence ... we should aim for Sustainable Energy Abundance, taking care of all of our own needs with renewable, sustainable energy and providing energy for a value added products made with a surplus.

Pursuing the narrower technical and broader technological capabilities to meet that goal also means producing the equipment to harvest that energy. And since, unlike armaments, the biocapacity of the rest of the world is many times the biocapacity of the US alone, that will be an ability to produce things that many countries in the rest of the world will wish to buy.

And, indeed, unlike the armaments industry, the equipment to harvest sustainable renewable energy is an export that enriches rather than impoverishes the country that is our customer. And selling exports that enrich rather than impoverish our trading partners is a more sustainable long term proposition in a commercial sense as well.

Of all the high income nations of the world, we have done the most to allow our real productive capacity to stagnate and then decline. That means that, yes, pursuing the SEA Strategy ... the Sustainable Energy Abundance Strategy ... will involve quite a bit of investment in productive capacity to produce the equipment to produce the equipment to harvest the energy.

Government must intervene to ensure the market for Sustainable Energy, and intervene to ensure that there is US capacity to sell into that market. The alternatives are hyperinflation or ongoing stagnation.

But ... if government does intervene in this way, we can steadily cut into our structural current account deficit. Indeed, in terms of our external accounts, the SEA Strategy is self-funding, since the extra imports from the extra demand will be compensated for by reducing our dependence on energy imports.

_________________
Notes.

{1. This is before living memory, but now that we have returned to the boom and bust economic structure of the "Gilded Age", we may as well recall that the "Panic" that launched a period of "depressed activity" is name by the year that the financial crisis first hit, not by the duration of the period of depressed economic activity. Just as the depressed period of economic activity after the Panic of 1993 lasted from roughly 1993-1996, so too the depressed period of economic activity following the Panic of 2008 will last from the end of 2007 through early 2009 at the soonest, and possibly through to 2010 or 2011.}