Despite the fact that we are one of the more free economies on Earth, we have our share of failed socialist experiments, the most notable being our national passenger rail service, Amtrak. As it is now the target of renewed funding, after being forced in the Bush years to discontinue the routes suffering the greatest losses, I expect it to continue for decades to come as a sink hole for tax dollars.

Now, let us start by explaining why Amtrak failed, or rather why passenger only rail works some places and not in others.

In many European nations, rail works. Passenger only lines work where there are a few discrete population centers, close to one another, and passengers who will use rail to travel regularly from one to another. That is why Amtrak makes money in the northeast and parts of the west coast. There are enough passengers to support those routes. On the other hand, long distance, cross country routes simply do not make enough to cover costs. However, our government, envious of Eurail and other socialized rail networks, simply refuse to believe this and continue to throw good money after bad.

"Wait!" some of you may be saying, "How did the railroads make money before they were nationalized?" Well, the answer is, they didn't. Some local rails made money in limited markets, but log haul routes were always run by companies which ran both passenger and freight. They would either intermingle passenger and freight, or, more often, use passenger runs as a means to offset the cost of a "dead head" engine, that is, when they had to move an engine form A to B to pick up a freight load at B, but had no cargo to haul from A to B, they would slap on passenger cars to help partly offset the costs of the run. It would still lose money, but usually less than the cost of a solitary engine with full crew.

However, the government, in its infinite wisdom, split apart the passenger and freight functions. Based on their attempt to emulate city passenger lines and Eurail, they imagined that passenger and freight could both be profitable, completely ignoring the economics of the situation, and ensuring decades of Amtrak underperformance, often failing to cover even 2/3 of their operating costs.

Of course, many believe that the government MUST run passenger rail because "the market failed", but, once again, the myth is not quite accurate, and is instead another example of the free market being blamed for the failings of government intervention.

You see, the rail systems in the US have never been quite "free". Even before the transcontinental lines, railways were subject to countless local regulations, often actually little more than effort at extortion by local legislatures. However, the real problems did not begin until it was decided national prestige required a cross country railway. In trying to encourage such a venture the government handed out massive subsidies in terms of cash, land and other inducements. And as a result, the transcontinental railway was built with insufficient though of economic viability. And so, when hard times hit, these railways suffered greatly. (In contrast, the Great Northern, built with private funds, weathered the economic storms of the 19th century quite well.) And so, blaming the free market, the government intruded more and more into rail matters, until eventually nationalizing the railways.

And, as with public education, we have become so used to this situation that we do not even question it. However, why must the government run the railways? All the arguments used to support nationalized rail were once used to support the postal service, until UPS, Federal Express, DHL and others showed that there was profit to be made when things were run efficiently. Similarly, many small local rail systems show rail travel can be profitable, and, if we allowed cargo companies to run passenger runs, we would find that even cross-country rail can exist within a profit making enterprise.

However,  as with education, we have become so used to a nationalize rail system that I doubt anyone will even propose privatizing the railways. Not only are we used to  a nationalized rail system, but we also have come to think of "passenger rail" as something separate from freight, and thus we have a mental model sure to lose money. Only by not only disbanding Amtrak, but allowing the freight lines to run passenger cars as well.

But given the current climate I doubt we will see any reforms in this direction. Instead we will continue to lose money on unprofitable passenger lines, senselessly segregated from freight service.

POSTSCRIPT

I may return to this topic in another post, as the rails are a perfect example of how government, lacking a profit motive, can make changes which make no economic sense and get away with it. (eg. splitting freight and passenger, or continuing unprofitable lines) It is also a great example of how government intervention often has results which are blamed on the free market. And, finally, the outright extortion the NY city council and others engaged in with rail and ferry lines during the 19th century is interesting in light of the any modern variations we continue to see today. (eg the tobacco shakedown suits, or the ADA compliance suits in CA)