Should We Rail Against Today's Rail Subsidies Announcement?

Jobs programs helping to alleviate 10% unemployment are great. But what's not so great? Slow-moving jobs spending on initiatives that are likely to be money losers in the long-run and mostly benefit foreign companies. In light of that, how should we think about President Obama's announcement of new high-speed rail initiatives? I think there are a few things to consider.

Here's the news about the two most major projects, via Reuters:

The largest of the $8 billion in rail grants, which originated in last year's economic stimulus package, will go to major corridors, with more than one-quarter of the funds dedicated to California.

The state will get $2.25 billion for a 400-mile connector between Los Angeles and San Francisco, with trains designed to travel up to 220 miles per hour (354 kph), U.S. transportation officials said.

Florida will receive $1.25 billion to develop an 84-mile link between Tampa, Orlando and Miami. Trains would reach 168 mph (270 kph).

To be clear, these aren't commuter rails. They are for regional travel between large metropolitan areas. That means they will be used primarily for business travel and some leisure travel. So, in order for these rails to be successful, there would have to be a great deal of demand for business travel between the cities they serve.

For the Los Angeles-San Francisco route, that may be the case, but I'm not entirely sure. According to the rail website, it will be significantly slower than the flight. For example, the LA-San Fran route takes one hour and 15 minutes by plane, but two hours and 40 minutes by train. But from San Diego to San Francisco, a flight would take just an hour-and-a-half. It would take the rail about four hours. So it depends on how many travelers will prefer to spend more time on a train than they would have in a plane. And the further south you get from Los Angeles, the less likely you're willing to make that tradeoff.

Florida has an even worse problem. It has far less business and industry than California. Now you're talking about Miami, Tampa and Orlando having enough business travelers to satisfy the demand for the rail. I think that's highly unlikely. It may get more leisure travelers than the California rail, given the Orlando theme parks, but I'm not so sure. It helps to have a car in Orlando. Moreover, if it's a family trip, will there be any cost savings by buying 4 or 5 round trip train tickets versus the gas to drive to Orlando? It's not that far a drive from either location.

I am also a little troubled by this from the Reuters article:

Many of the companies are based overseas since the U.S. virtually abandoned rail development in the 20th century to focus on highway development.
Transportation officials say companies with potential commitments on the table include: General Electric Co's transportation unit; Canada's Bombardier Inc; French consortium Alstom; Germany's Siemens; Lockheed Martin Corp; Korea's Hyundai Rotem Co, Hyundai Motor Co's heavy industry unit, and Japan's Nippon Sharyo Ltd.

So what you're saying is that, of the seven most major companies that will profit from this government-sponsored endeavor, five are foreign-based? I'm not a protectionist by any stretch of the imagination, but I would have liked to have seen more U.S. government stimulus money going towards an industry where American companies would more likely benefit.

Finally, I also worry about how long it will take to break ground on these rails. The government will have to acquire or seize additional land to build the routes and stations. There will be permits involved and lots of logistic headaches to be had. After all, it's been nearly a year since the stimulus passed, and we're just now hearing the announcement of these initiatives. The projects are hardly shovel-ready.

I'm not convinced these rail initiatives are the best use possible of stimulus money. But here's hoping that I'm wrong: I'd be very happy to see these projects quickly create thousands of jobs, benefit mostly U.S. companies and turn out to be wildly popular. While I love the idea of a high-speed rail, I am not persuaded that these U.S. cities have high enough population density to make the rails profitable.