Boondogglers Love a Train

In his SOTU address, Obama announced that there would be new railroad construction. Why railroads?

There is a piece of property in eastern Oregon that is near and dear to my heart. It has four dilapidated log shacks on it. The shacks are next to a stream that holds rainbow and brook trout. There are meadows that support cattle, deer, and elk. You can get lost in the vast forest. My distant relatives own it. I always dreamed of owning it one day. It's a mile by mile stretch of land.

How could one family, in fact one person for a while, own such a large piece of fertile land? Railroads. You see, when the first railroads conquered the west, the government was involved. Kinda like today. One of the things they did was grant large stretches of land to the railroads. And the railroads need large tracks of land to build on ... makes sense, right?

Funny thing is, there's not a railroad within a hundred miles of this property. My relative was an exec for the railroad. As a bonus they comped him this land. Get it?

Warren Buffet has been purchasing railroads for a while. Not because they have great P/E, but because of their great book value. In other words, they don't earn much for how much they cost, but they own a lot of capital for how much they cost - capital that used to be ours.

Let me quickly rant about some of the problems with trains, then I'll give the closer. Trains have limited destinations; unlike automobiles, planes, or boats, a train is limited to the few tracks that have been built for it. Following the last point, you have to have a secondary mode of transportation to get to one of the train's fixed destinations; meaning you've already invested in a car, bicycle, bus, etc. Unlike private vehicles (cars, bicycles, private watercraft) trains only work on schedules; you can't just hop into your train and go; this creates inefficiencies. Our highway system already connects destinations the trains are proposed for, creating a competition for public funds in the creation and maintenance of these redundant systems.

The closer. When the government is not involved in a venture, capitalists must decide whether they will at least break even on their investment. In other words, will people pay enough for the product/service I am creating so that I can recoup my money? And people (as a group) will only pay enough to offset the costs of the product/service if it gives them equal or greater value. If entrepreneurs thought there was going to be large demand for a railroad, the government wouldn't need to be involved. Investors would front the money knowing that people would gladly pay to ride the trains (or companies would pay to haul cargo) and that investors would recoup their outlay. In fact, the government wouldn't bother considering railroads if they were an efficient mode of transportation, because one or more would already be in the works or operating. Why aren't there already private railroads like the ones being proposed? Because it's a bad investment. People don't want them and won't use them enough to justify the outlay of capital. Investors know this.

Instead, railroads have and will be used to syphon wealth from tax payers into the hands of politicians, their contributors, and railroad executives. History repeats itself.