Capitalism Guide Author Responds

As a follow-up to our last entry, I can assure you that while author Bob Murphy ostensibly responds to the criticism of his one-sided attack on Amtrak, Murphy artfully dodges any points of substance.

Quoting his own book, Murphy repeats one of the most bunk but oft-repeated talking points against Amtrak:

On one of its worst lines, the Sunset Limited connecting Los Angeles and Orlando, Amtrak lost $433 per passenger. Your tax dollars would have been saved if the line had been scrapped and Amtrak’s customers given plane tickets instead.

Ignoring the fact that per-passenger loss is a meaningless figure relative to actual transportation output, and that the Sunset by virtue of thrice-weekly operation has fixed overhead costs allocated to far fewer operations than most routes, the real foil to Murphy’s canard is that there is little or no commercial air service between many of those cities and to other destinations in the Amtrak system where connecting passengers are headed.  Even if there were, according a study cited by the Midwest High Speed Rail Association, 90 million Americans are unable to or refuse to fly.  “Let them eat cake” is an irresponsible policy, especially with the coming demographic tidal wave of aging Americans who will be compelled to give up driving or flying.

Even if everyone could fly, I suspect the necessary private charter between Lordsburg, NM and Lake Charles, LA would cost a bit more than $433 per passenger.

But Murphy claims piousness on aviation subsidies:

Of course I oppose subsidies for airlines and every other form of transportation. Indeed, that’s precisely why air service is so annoying.

Great, then I trust that Murphy would be willing to mitigate the effects of a heavily-slanted playing field that has given private commercial aviation an enormous advantage over the past half-century.  The only logical way to do that is to make up for lost time in developing other modes, not a pie-in-the-sky dream of walking away from any more subsidies for anyone and expecting the free market to work.

Alas, in Murphy’s world of “subsidies for me, but not for thee,” Amtrak is supposed to be held to a standard not applicable to any other mode:

But now let’s get to the real lesson. In a market economy, a firm will stay in business only if its revenues cover its costs. To a true socialist, this criterion of the “bottom line” is an entirely arbitrary one corresponding to nothing “real.” But the good economist recognizes that this is the market’s way of channeling scarce resources into the most desired ends.
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If Amtrak can’t turn a profit because “costs are too high,” that simply means that other entrepreneurs are willing to bid more on those same resources than Amtrak can afford to pay. And that means that the customers of those other firms are willing to spend more on those respective products than they are willing to spend on the services of Amtrak.

What it actually means is that the costs of intercity passenger transportation—especially on the capital side—are so great, with such little return, that a market failure comes into play, with no private investors willing to meet the societal need for strong infrastructure.  Japan was able to privatize operation of its immensely popular passenger rail operations only after an $80 billion public capital outlay, and substantial tax breaks.

But obviously Amtrak is just giving away the store:

Clearly the people who ride Amtrak benefit from the subsidies: They are able to get their service at a lower price.

In fact, Amtrak charges what the market will bear (except in the few places where states subsidize the fares).  Mr. Murphy might not realize that a peak Acela Express ticket between Washington and New York can reach over $300, competitive with air shuttle fares.  The biggest hindrances Amtrak has had to operating in a businesslike fashion have been decades of year-to-year funding that has left the organization unable to engage in strategic long-term planning, and politically-based micromanaging language in the annual appropriations bills that have forced questionable business mandates on Amtrak.

And clearly the people who don’t ride Amtrak but pay taxes lose from the whole scheme: They pay taxes for something that they never use.

By that logic, I eagerly await to have my federal taxes not support any more expansions or maintenance of I-24 or I-40 in Murphy’s hometown of Nashville.  Hey, it’s my money, right?  Subsidies for me, but not for thee?

In a short piece like this I naturally can’t get into all the technical economic arguments.

That would be because there are none, Mr. Murphy.

—Matthew Melzer

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