I’ve been kind of assuming that building a true nationwide high-speed rail network would be unrealistically expensive. According to HSR opponent Tad DeHaven, however, I’m way off base and it’d actually be kind of a bargain. Or as he puts it:
Federal taxpayers can’t afford high-speed rail in California or anywhere else. A Cato essay on high-speed rail points out that the cost of California’s HSR could be $81 billion and a national system could cost $1 trillion. Samuelson is right: the Obama administration’s HSR dreams “represent shortsighted, thoughtless government at its worst.”
To get specific, the Cato essay in question is from car-subsidy shill Randal O’Toole and clarifies that for this bargain basement price we’d be getting real HSR and not the Obama’s kinda sorta fast trains:
Thus, the costs of a true high-speed rail system would be far higher than the costs of a medium-speed system on existing tracks, as envisioned by the Obama administration. To build a 12,800-mile system of high-speed trains would cost close to $1 trillion, based on the costs estimates of the California system. It is unlikely that the nation could afford such a vast expense, particularly since our state and federal governments are already in huge fiscal trouble.
Taking California construction costs and projecting them nationwide seems methodologically unsound to me since California is an above-average cost jurisdiction. And keep in mind that this is a policy brief from a guy who’s entire job is to talk smack about federal investments in rail. So what he’ll have done to produce the $1 trillion number is at every step of the way shade things in a high cost direction. But let’s stick with the trillion.
Currently, the government needs to pay 4.1% interest on a thirty year bond. And according to the handy dandy amortization-calc.com to amortize a 30 year loan of $1 trillion at an interest rate of 4.1% per year would cost $57.99 billion a year for thirty years. Note that’s in fixed, nominal terms, so while it’s a fair amount of money in the short term by the 2030s it’ll be a joke relative to our Nominal GDP. Contrast that to the $708 billion FY 2011 budget request the Obama administration submitted. It seems to me that an 8.1 percent reduction in defense expenditures in order to create a transformative nationwide new infrastructure program would be a no-brainer.
Of course the larger moral of the story here is that with government borrowing costs currently very low and large quantities of workers and other resources idle, it makes a ton of sense to borrow large sums of money to invest in useful projects. A trillion dollars is a lot of money. And at a higher interest rate, the return on investment you’d need to justify borrowing it might be quite large. But at today’s rates and with plenty of genuinely idle resources around the situation is quite different. With high unemployment and a frontloaded pace of construction, the $57.99 billion in annual debt-finance costs would be partially offset in the short-term by increased income and FICA revenue, decreased Unemployment Insurance outlays, and spillover benefits to retailers and other service professionals who would benefit from the increased pace of economic activity.
Let’s do it!