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Amtrak's New Clothes

Tags U.S. EconomyProduction Theory

02/14/2002Gregory Bresiger

Government rail buffs, bureaucrats, and the friends of big government are resting easy these days. The big bad Amtrak Reform Council, which was charged with cleaning up the mess created by almost 32 years of government passenger railroad system, turned out to be nothing more than a cute little poodle. The council offered no radical privatization conclusions.

Privatization is an option seldom discussed, even though, according to government figures, taxpayers over the past three decades have had to ante up at least, $25 billion--and that is likely an understatement--to keep Amtrak running. The Amtrak Reform Council, on a mission to keep the federal government in the railroad business, has advocated one modest reform that is timid and that isn't even a halfway measure to true privatization.

Amtrak was sold to taxpayers back in May 1971 as something that would be superior to privately owned passenger railroads, and with the promise that the government would make money running trains. That's something that Amtrak has never done in its sorry history. Indeed, it has never once even come close to breaking even, nor does it have any prospect of doing so in the future.

Make a profit? The joke is on the taxpayers, who can't even get straight answers. That's because the government can't agree on how much Amtrak's deficits have been and will be. For instance, in a 1998 report, Amtrak projected an overall cash loss of $2.1 billion from 1999 through 2003. The U.S. Department of Transportation's inspector general, however, in an apotheosis of understatement, said, "several of Amtrak's financial projections are at risk of not being achieved." (No kidding!)

The inspector general said the losses in that period would be closer to $2.9 billion--this on top of the $21.8 billion that independent observers estimate Amtrak lost from 1971 through 1998, the first 27 years of its egregious existence. Almost all these numbers can be called into question, however, because the government appears to be cooking the books.

In its report, the Amtrak Reform Council recommended that this disastrous government business be split into three entities. One would be a federal oversight company; the other two would be subsidiaries. One of the subsidiaries would run the trains for three to five years, after which Amtrak routes--if they were being run efficiently, which they never have been in the years of government ownership--could be sold to the private sector. The other subsidiary would own and maintain the Northeast Corridor, the only part of the system that, under intelligent ownership and management, could conceivably make money, or at least break even. 

Even these pathetically feeble recommended reform measures, which merely hold out the possibility of minimal private operation of the railroads, would be unlikely to remove the burden of taxpayer handouts, the Amtrak Reform Council admitted. According to its report, "Competition would help minimize losses, but in all likelihood would not eliminate the need for operating subsidiaries." 

Absent in this report: A simple proposal to sell off the system, line by line, to the best private rail operators, who would be allowed to raise and drop rates and to expand and discontinue routes as they please. These, of course, are basic rights of any business, but they are rights that were denied to railroad companies in the twentieth century. As a result, many of those companies were driven slowly into bankruptcy by the confiscatory rates of the Interstate Commerce Commission,1 which denied many carriers permission to discontinue routes that probably would have saved them in the 1950s and 1960s.

Amtrak bureaucrats--who offered no icon or link for taxpayers trying to obtain the Reform Council report on their Web site--reacted as though the report was a vindication of their 30 years of management.

"It is important to recognize that we have a policy problem, not an Amtrak performance problem," Amtrak said in a self-congratulatory press release. (So, for example, the fact that Amtrak's much-celebrated Acela Express between New York and Boston is really not a high-speed train--it doesn't even go 150 miles per hour in most places, and that's slower than its predecessor, the Metroliner, did some 31 years ago--does not constitute "a performance problem.") 

Nevertheless, our Amtrak friends want credit for all this. "Under current management over the last five years," the press release continued, "total revenues have grown by 38 percent and nationwide ridership has risen by 19 percent." And in this period, the Amtrak bureaucracy--using taxpayer dollars--reminded Americans, "federal operating support has been cut by more than 80 percent." Yet Amtrak continues to swim in red ink. (Gracious! How could anyone be so critical of Amtrak!). 

But don't fear for our railroad bureaucrats. Even these rather modest reform proposals will have plenty of enemies in Congress, who consider minimal privatization to be tantamount to the end of the world. "I don't know why they divided it like that," said Senator Ernest Hollings (D-S.C.), chairman of the Senate Commerce Committee. "You've got to have one reliable system that's funded." One wonders what the senator thinks happened to the billions of dollars of funding over the past three decades.  

Actually, in a perverse sort of way, the Amtrak bureaucracy was right when one of its spokesmen was quoted in The Wall Street Journal as criticizing the reform council's report. The Amtrak spokesman argued that the report's conclusions were merely "rearranging the boxes" and that they "sidestepped the issues that should be dealt with first, namely the size and nature of the system and the level of funding necessary to support it." 

Funding, of course, is the name of the game. According to a 1997 congressional mandate, Amtrak is supposed to be self-supporting by the end of this year, a prospect that can never happen as long as pols are calling the shots of a system whose labor practices, management, and even routes were politicized from day one back in May 1971. Amtrak was doomed from the start to red ink and the incompetence that characterizes so many government departments.

At Amtrak's inception, President Nixon and his Transportation secretary, John Volpe, pushed for this national railroad system. Supporters of the government railroad system "wanted it to make a profit, but also maintain nationwide service, thus requiring continuation of unprofitable service," according to a historian friendly to Amtrak (Amtrak: The History and Politics of a Railroad, by David C. Nice, p. 9).

Thirty years later, the politics are still present. Indeed, the Amtrak bureaucracy is ready to do almost anything to convince the general public--and, more important, its paymaster, Congress--that it alone, not any private company, knows how to run passenger railroads. But recently there have been some problems there. 

The reform council, in its report, said Amtrak is hobbled by "a lack of congressional confidence in Amtrak as an institution." (They're not the only ones. My wife and I stopped riding Amtrak from New York to Pittsburgh and back when we consistently rode dirty trains that were four hours late). But Amtrak, in its press release, is betting that "these are matters only federal policymakers, not the council, can and must decide soon." Translation: We're betting on the pols, whom we know we can lobby into giving us billions more of taxpayer dinero.

And I thought it was the taxpayers, groaning over their $25 billion contribution (sic), who might have some say here! It's time for taxpayers to speak up and put an end to another hopeless government bureaucracy that never keeps its promises, but never stops demanding more and more money.


  • 1. I cannot resist an aside that is an example of this we-can-steal-your-property-slowly policy. In New York City, under what most people regard as the golden era of the subways, most lines were privately operated and built. Regulators and pols made a big deal of never allowing the fare to rise above a nickel in this 40-year period. The nickel fare, when the system started at the turn of the twentieth century, was sufficient. By 1940, when the last private lines were bought out by the government, the private operators couldn't sell out fast enough. After the inflation of World War I, which had ended in 1918, the private management found its revenue was insufficient. It was stuck with the inadequate five-cent fare. I wonder if it would be possible to freeze taxes for 40 years? I wonder how many "patriotic" liberal Americans would be willing to freeze their salaries for 40 years?

Gregory Bresiger

Gregory Bresiger (GregoryBresiger.com) is an independent business journalist who has worked for the New York Post and is the author of a history of Social Security, “The Revolution of 1935, available at Mises.org. 

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