Trumped! A Nation on the Brink of Ruin... And How to Bring It Back

by David Stockman

  Indeed, we do not need any more federal subsidies for any category of infrastructure—especially transportation. For instance, airport capacity and modernization is already being funded at $36 billion per year mainly from ticket taxes, general aviation user fees and the like.

  If that isn’t enough, as indicated by air-traffic congestion and crowded airports, there is a simple solution. The 10 percent of the population that accounts for 90 percent of air travel should pay for higher investment spending via increased user charges on their tickets or landing fees on their G-5s.

  Likewise, if the $65 billion currently being spent to subsidize the capital and operating costs of local mass transit systems is not enough, then let local taxpayers absorb the burden, not unborn generations that will inherent the nation’s $19.4 trillion public debt.

  And when it comes to enhancing real economic productivity and growth, nothing could be more inimical than to pour tens of billions into hopeless white elephants like Amtrak and the Obama Administration’s high-speed rail boondoggle.

  In short, the infrastructure bleaters have it exactly upside-down. The economic crisis confronting the nation is owing to the state getting way too big, not because public spending on infrastructure or anything else has been shortchanged.

  THE HOARY MYTH OF CRUMBLING BRIDGES FALLING DOWN

  As I indicated earlier, the mythology about crumbling bridges is especially egregious and is based on the occasional bridge failure that becomes a momentary cable news sensation. But these stories are not representative of the actual facts and deserve a special debunking because the “crumbling bridges falling down” story has become a symbol of the entire phony campaign for massive infrastructure spending and borrowing.

  And that gets us to The Donald’s crumbling bridges. Nowhere is the stark distinction between myth and reality more evident than in the case of the so-called deficient and obsolete bridges.

  To hear the K Street lobbies tell it, motorists all across America are at risk of plunging into the drink at any time, owing to defective bridges. Even Ronald Reagan fell for that one.

  During the long trauma of the 1981–82 recession, the Reagan Administration had stoutly resisted the temptation to implement a Keynesian-style fiscal-stimulus and jobs program—notwithstanding an unemployment rate that peaked in double digits.

  But within just a few months of the bottom, along came a Republican secretary of transportation, Drew Lewis, with a presidential briefing on the alleged disrepair of the nation’s highways and bridges. The briefing was accompanied by a Cabinet Room full of easels bearing pictures of dilapidated bridges and roads and a plan to dramatically increase highway spending and the gas tax.

  Not surprisingly, DOT Secretary Drew Lewis was a former governor and the top GOP fundraiser of the era. So the Cabinet Room was soon figuratively surrounded by a muscular coalition of road builders, construction machinery suppliers, asphalt and concrete vendors, governors, mayors and legislators and the AFL-CIO building-trades department.

  And if that wasn’t enough, Lewis had also made deals to line up the highway safety and beautification lobby, bicycle enthusiasts and all the motley array of mass transit interest groups.

  They were all singing from the same crumbling infrastructure playbook. As Lewis summarized and Donald Trump is apparently now channeling, “We have highways and bridges that are falling down around our ears—that’s really the thrust of the program.”

  EVEN THE GIPPER FELL FOR FALLING BRIDGES

  President Reagan soon joined the chorus:

  “No, we are opposed to wasteful borrow and spend,” he recalled. “That’s how we got into this mess. But these projects are different. Roads and bridges are a proper responsibility of government, and they have already been paid for by the gas tax.”

  By the time a pork-laden highway bill was rammed through a lame duck session of Congress in December 1982, the president’s speechwriters had gone all-in for the crumbling- infrastructure gambit.

  Explaining why he signed the bill, the scourge of Big Government noted, “We have 23,000 bridges in need of replacement or rehabilitation; 40 percent of our bridges are over 40 years old.”

  So here we are 34 years later, and those very same bridges are purportedly still falling down!

  THE “DEFICIENT” BRIDGES OF MADISON COUNTY

  But they aren’t. What we are dealing with can best be described as “The Tale of Madison County Bridges to Nowhere.”

  In fact, there could not be a more striking example of why Donald Trump is way off the deep-end with his half-trillion-dollar infrastructure boondoggle, and also why the principle that local users and taxpayers should fund local infrastructure is such a crucial tenet of both fiscal solvency and honest government.

  In this context, the crumbling-bridges myth starts with the claim by DOT and the industry lobbies that there are 63,000 bridges across the nation that are “structurally deficient.” This suggests that millions of motorists are at risk of a perilous dive into the cold waters below.

  But here’s the thing. Roughly one-third, or 20,000, of these purportedly hazardous bridges are located in six rural states in America’s midsection: Iowa, Oklahoma, Missouri, Kansas, Nebraska and South Dakota.

  The fact that these states account for only 5.9% of the nation’s population seems more than a little incongruous but that isn’t even half the puzzle. It seems that these thinly populated town and-country states have a grand total of 118,000 bridges.

  That is, one bridge for every 160 citizens. Men, women and children included.

  And the biggest bridge state among them is, yes, Iowa. The state has 3 million souls and nearly 25,000 bridges—one for every 125 people.

  So suddenly the picture is crystal clear. These are not the kind of bridges that thousands of cars and heavy-duty trucks pass over each day. No, they are mainly the kind Clint Eastwood needed a local farmwife to locate—so he could take pictures for a National Geographic spread on “covered bridges.”

  Stated differently, the overwhelming bulk of the 600,000 so-called “bridges” in America are so little used that they are more often crossed by dogs, cows, cats and tractors than they are by passenger motorists.

  These country bridges are essentially no different than local playgrounds and municipal parks. They have nothing to do with interstate commerce, GDP growth or national public infrastructure.

  If they are structurally deficient as measured by DOT engineering standards, that is not exactly startling news to the host village, township and county governments that choose not to upgrade them.

  So if Iowa is content to live with 5,000 bridges—1 in 5 of its 25,000 bridges—that are deemed structurally deficient by the DOT, why is this a national crisis?

  Self-evidently, the electorate and officialdom of Iowa do not consider these bridges to be a public-safety hazard or something would have been done long ago.

  The evidence for that is in another startling “fun fact” about the nation’s bridges. Compared to the 19,000 so-called “structurally deficient” bridges in the six rural states reviewed here, there are also 19,000 such deficient bridges in another group of 35 states—including Texas, Maryland, Massachusetts, Virginia, Washington, Oregon, Michigan, Arizona, Colorado, Florida, New Jersey and Wisconsin, among others.

  But these states have a combined population of 175 million, not 19 million as in the six rural states; and more than 600 citizens per bridge, not 125 as in Iowa. Moreover, only 7 percent of the bridges in these 35 states are considered to be structurally deficient rather than 21 percent as in Iowa.

  So the long and short of it is self-evident: Iowa still has a lot of one-horse bridges, and Massachusetts—with 1,300 citizens per bridge—does not. None of this is remotely relevant to a purported national-infrastructure crisis today—any more than it was in 1982 when even Ronald Reagan fell for “23,000 bridges in need of replacement or rehabilitation.”

  CALIFORNIA CAN PAY FOR REPAIRING ITS OWN BRIDGES

  Yes, the few th
ousand bridges actually used heavily in commerce and passenger transportation in America do fall into disrepair and need periodic reinvestment. But the proof that even this is an overwhelmingly state and local problem is evident in another list maintained by the DOT.

  That list is a rank ordering called “The Most Travelled Structurally Deficient Bridges.” These are the opposite of the covered bridges of Madison County, but even here there is a cautionary tale.

  It seems that of the 100 most heavily traveled bridges in the U.S. by rank order, and which were in need of serious repair in 2013, 80 percent of them are in California!

  Moreover, they were overwhelmingly state highway and municipal road and street bridges located in Los Angeles, Orange County and the Inland Empire. Stated differently, Governor Moonbeam has not miraculously solved California’s endemic fiscal crisis; he’d just neglected the local infrastructure.

  There is no obvious reason why taxpayers in Indiana or North Carolina need to be fixing California’s bridges so that the latter can continue to finance its outrageously costly public-employee pension system.

  And so it goes with the rest of the so-called infrastructure slate. There is almost nothing there that is truly national in scope, and little that is in a state of crumbling and crisis.

  Indeed, the one national asset—the Interstate Highway System—is generally in such good shape that most of the “shovel ready” projects on it back during the Obama stimulus turned out to be resurfacing projects and over-passes to nowhere.

  Most of the resurfacing jobs, for example, were not yet needed and would have been done in the ordinary course anyway. Likewise, the construction of new overpasses mostly occurred on lightly traveled country roads that had happily been dead-ends for decades.

  One thing is clear. There is no case for adding to our staggering $19.4 trillion national debt in order to replace the bridges of Madison County; or to fix state and local highways or build white elephant high speed rail systems; or to relieve air travelers of paying user fees to upgrade local airports or local taxpayers of their obligation to pay fees and taxes to maintain their water and sewer systems.

  At the end of the day, the ballyhooed national infrastructure crisis is a Beltway racket of the first order. It has been for decades.

  And now even The Donald has taken the bait.

  AMTRAK—A NATIONAL HAZARD AT ANY SPEED

  Amtrak’s May 2015 tragic accident in Philadelphia was yet another occasion for the crumbling infrastructure lobbies to beat the tom-toms for more spending.

  But the real hazard here is Amtrak itself. For more than 40 years it has been a colossal waste of taxpayer money and the very embodiment of what is wrong with state intervention in the free market economy.

  Worse still, the pork barrel politics that drive its handouts from Uncle Sam virtually guarantee that as time goes on, Amtrak will become an increasing hazard to public safety, as well.

  It seems like only yesterday, but one of my first assignments as a junior staffer on Capitol Hill was to analyze the enabling legislation that created Amtrak in the early 1970s. I was working for an old-fashioned conservative congressman, and his first question was, “How will it ever make a profit when we are running the trains from a congressional hearing room in the Rayburn Building?”

  He couldn’t have been more clairvoyant. While its sponsors claimed Amtrak would be spewing black ink by 1974, the answer to my boss’s question was simple: never!

  But you didn’t need to wait 42 years to prove it. There is not even a remote case that subsidizing intercity rail travel is a proper or necessary function of the state.

  Amtrak accounts for well less than 1 percent of intercity passenger miles. On every one of its 44 routes, there are bus- and air-travel alternatives. And that is to say nothing of automobile travel—in cars with drivers today or in the driverless kind tomorrow.

  Moreover, the evidence overwhelmingly shows that passenger trains will never be economically competitive outside of a handful of densely populated corridors. By contrast, what was absolutely guaranteed from day one back in 1970 is that a government-controlled passenger rail system crisscrossing the United States would become a monumental congressional pork barrel—an endless rebuke to rational economics.

  And that it has. The cumulative taxpayer subsidy since 1972 totals more than $75 billion in dollars of today’s purchasing power. During the span of nearly a half century, Amtrak has operated upwards of 40 routes that have never, ever made even an operating profit.

  WHY AMTRAK IS AN ECONOMIC LOSER

  Yet the operating-profit test is itself a red herring. Like its aviation competitors, Amtrak is massively capital intensive.

  It maintains 21,000 miles of track, 100 rail stations, operates around 2,500 locomotives and passenger cars, and requires an extensive, costly infrastructure of communications and signaling systems, electric traction networks and a huge array of bridges, tunnels, switching yards, repair facilities, fencing and other right-of-way improvements and ancillary buildings.

  On a replacement basis, its entire capital asset base would easily amount to $50 billion (about $40 billion of track and infrastructure and $10 billion of rolling stock).

  And that giant figure underscores the economic part of the Amtrak hazard. Even with a generous assumption that the useful lives of its equipment, rolling stock and infrastructure would average 25 years, Amtrak’s economic depreciation would amount to $2 billion per year.

  Since it generates roughly 8 billion passenger miles annually, this means that its capital- consumption expense amounts to about 25 cents per passenger mile.

  So here’s the thing. The average airline fare in the U.S. is about 15 cents per passenger mile, and the average inter-city bus fare is about 11 cents per mile.

  Now how in the world does it make sense to operate a lumbering passenger rail system in which the true economic cost of its capital assets alone is 65 percent to 130 percent higher than the profitable fares charged by the perfectly adequate and available alternative modes of transportation?

  Stated differently, you are deep in the hole before you start even one Acela train on its route between Washington and Boston or one long-distance train on its 1,750-mile route between Chicago and Los Angeles.

  But in the operations department, it goes without saying that Amtrak—burdened as it is with its endless array of congressional mandates and directives—is not exactly a model of efficiency or financial discipline.

  Thus, Amtrak’s fully loaded wage-and-benefits tab is about $2 billion per year and is spread over 20,000 employees. Needless to say, at $100,000 per employee Amtrak’s costs are not even in the same zip code as its far more efficient for-profit competitors in the airline and bus transit industries.

  On top of its massively bloated and featherbedded payroll, Amtrak also generates another $1.3 billion of expense for fuel, power, utilities, supplies, repair parts and operational and management overheads. Accordingly, its total operating budget at $3.3 billion amounts to about 40 cents of expense per passenger mile.

  That is, its operating costs are 3–4X the ticket price of its air and bus competitors!

  The economic arithmetic is thus insuperable. On a system-wide basis, Amtrak’s combined capital and operating expense would amount to about 65 cents per passenger mile if it were honestly reckoned.

  That is, in the absence of federal and state subsidies and the implicit subsidies that private railroad companies transfer to Amtrak via deeply below-market fees for utilization of their tracks and facilities. Indeed, 95 percent of Amtrak’s route-miles and 70 percent of its passenger-miles are generated on lines leased from freight railroads, which—owing to regulatory mandates—Amtrak pays only a trivial 2 cents per passenger mile. This figure is not remotely reflective of the real economic costs.

  By contrast, Amtrak’s ticket revenues amount to hardly 30 cents per passenger mile. So, contrary to Amtrak’s claim that it has nearly reached break-even, its true economics reflect the very opposite. N
amely, a giant political pork barrel in which system revenues cover less than 45 percent of its all-in economic costs to society.

  Nor can this disability be remedied by reforming the system and paring back its routes to just the profitable corridors. Even the Northeast corridor generates only 10 cents of “operating profits” per passenger mile. Throw in the capital costs and even Amtrak’s so-called profitable lines are still deeply underwater.

  To wit, a recent inspector general report estimated that the replacement cost of the Northeast-corridor infrastructure alone was about $15 billion, which would amount to $400 million per year on an amortized basis or 20 cents per passenger-mile. Add in another 5 cents per passenger-mile for locomotives and rail cars and you have 25 cents of capital costs.

  So there is a reason why even the Northeast corridor has never been privatized. It would lose at least 15 cents on each of the 2 billion passenger miles that Amtrak’s Northeast corridor generates annually in the absence of much higher fares.

  These baleful facts regarding the Acela and regional routes in the Washington-Boston corridor are damming enough. Yet the rest of the system embodies just plain insensible economic waste.

  The aforementioned Chicago-Los Angeles route, for example, has operating costs of 35 cents per passenger mile; and total costs with capital consumption would be at least 50 cents per mile—even giving allowance for the lower capital intensity of long-distance routes.

  The problem is that you can get an airline coach fare today between the Chicago and Los Angeles pair for $200, or 11 cents per mile. And you don’t need to spend 22 hours on the train, either.