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Losing Money by Saving It



April 29, 2013 – Comments (3)

Board: Macro Economics

Author: Goofyhoofy

The Harvard Business Review has an interesting article about high-speed rail (in China) which I think illustrates something I've believed for a long time: there are invisible costs as well as visible ones, but the only ones anybody talks about are the ones you can see today.

Research (of the Freakonomics variety) has demonstrated that China's high-speed rail causes a wealth multiplier effect among connected "second tier" cities as compared with unconnected ones. To put more familiar names in place: Philadelphia is 1 hour, 15 minutes from New York. If a high speed rail line were instituted, that time would drop to 35 minutes, making it feasible for many more people to live in Philadelphia (or environs) and work in New York than is now practicable. That would, if the research is accurate and transferable, mean that incomes and property values in and around Philadelphia would rise more quickly, which would mean that taxes would rise, which would mean that more infrastructure could be built and maintained. A city like Hartford, a similar distance away, would get no such "benefit."

It would also mean that New York would have "more recruiting tools", especially important for industries which New York has which Philadelphia does not (radio and television networks, magazine and book publishing, investment banking, and so on) which would help New York as well. It could support "more industry" without the attendant costs of housing people, etc.

This seems a reasonable point of discussion given the veto of New Jersey's governor of the third tunnel to Manhattan because of potential cost overruns. While that may be true, and therefore the state has "saved costs", it probably also cost itself in future growth - which is unknowable and unquantifiable, of course - so the Governor looks good to constituents even as the decision may be short sighted. Visible costs, invisible benefits.

[I am not condemning him for the decision, I don't really know all the ins-and-outs of what the contract would have required, and though I read about it at the time I don't even remember the figures, only that the costs were to be split between NY and NJ, with some Federal dollars in the mix somewhere.]

It's a point meant only to be illustrative, not definitive. There are infrastructure projects which are surely pork (the Bridge To Nowhere) as well as those which enhance commerce and make an economy thrive (Erie Canal.)

There are other issues as well. Surely a third tunnel would benefit northern New Jersey far more than those who live in the bottom half of the state. Is it fair to have all residents pay, when the benefits flow disproportionately to some? (If the answer is no, then we shouldn't build subways until we can put a stop within 100 feet of every door, and Interstates shouldn't have cloverleafs because those benefit landowners nearby and not communities far from the interchange.)

Anyway, the link is provided, if you're interested. I was reminded of it because of Yoda's post on the Port Authority Bridge being constructed under a slightly new (private) model, even though the costs for taxpayers and benefits will probably be pretty much the same. (And, as long as I'm rambling, the Chicago Parking Meter deal was a bad deal before it was signed and is worse now. The private agency has only one goal: to maximize revenue and profits. The City has several goals, including keeping downtown merchants from going under because nobody can afford to park anywhere in the Loop, and that contract does not serve that aim at all. A hollowed out city which supports only very-high-income jobs at the Chicago Mercantile Exchange is probably not the best idea for Chicago's future. It was and is a predictably bad contract, but that doesn't mean that all of them are.) In this case, it's "visible revenue, invisible costs."

3 Comments – Post Your Own

#1) On April 30, 2013 at 8:05 AM, jiltin (45.18) wrote:

Here is another High Speed Rail project between San Francisco and Los Angeles. 

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#2) On April 30, 2013 at 2:44 PM, ikkyu2 (98.17) wrote:

There are no 'second tier' towns on the proposed SF-LA route -  one of the reasons there's a lot of opposition to it.  I happen to live halfway between SF and LA - on the coast - and the good that high-speed rail access would do my little town is practically uncountable, it'd make it from a sleepy little tourist cow town to a metropolitan mecca.

But it ain't happening.

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#3) On May 01, 2013 at 6:02 AM, 1797255671 (< 20) wrote:

If your savings aren't growing at the same rate, that money is essentially losing value each year. Inflation is the gradual increase in the cost of goods and services year over year.

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