Indiana Needs “Higher Aspirations” According to one Economist

Posted on November 30, 2010 by

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Morton J. Marcus, economist formerly with the Kelly School of Business at IU, thinks that Indiana needs to reclaim its dominant position in transportation from 1916.

Citizens and their leaders should adopt a new level of aspiration, one that stirs the imagination and demonstrates our competitive competence. Hoosiers should discard the cloak of indifference that too many wear with pride.

Whenever a state subsidized economist calls for heavy spending of the state for the greater good of the people, or in this case to reclaim our dominance in transportation, these arguments should be met with heavy skepticism.  This skepticism should exist because the economist is paid by the very institution they are advocating.  If they work for a business and make a material claim in favor of a business our skepticism would be automatic.  However, it seems necessary to constantly remind folks that government paid academics are not neutral when being paid by the government just like cops aren’t neutral as they receive overtime pay for handing out questionable tickets that incentivize citizens to challenge them in court.  Skepticism established.

In Kokomo, Indiana, Mayor Greg Goodnight is leaving the city with a huge recurring expenditure with the bus system that was adopted during stimulus spending.  The money that was spent for this bus system could have been used for something else, anything else, but the taxpayer should spend their own money and not have it taken from them.  Instead Kokomo taxpayers are now on the hook for years to come for something that came about during panicked stimulus spending.

We should definitely be skeptical of both government paid advocates of government projects as well as panicked stimulus projects that leave taxpayers on the hook for years to come.

Morton continues his argument with the following:

Once more let us be THE center for the American transportation industry. Let Indiana show the nation what a comprehensive, modern transport system serving urban and rural areas looks like. It’s not too expensive to do in Indiana, the smallest state west of the Alleghenies. We have no wide rivers to bridge, no mountains to bore through. Indiana has 15 cities of 50,000 or more persons plus 550 places of smaller numbers, an ideal setting to test various combinations of transportation options.

This is not the worst argument in the world.  After all, if money is to be spent anyways shouldn’t it go towards infrastructure that could facilitate increased innovation, mobility, and all those other things policy makers jabber on about?  Let’s take a closer look at the arguments for and against high-speed rails.

First, part of the funding for the high-speed rails will come from stimulus money that is designated for states who have a budget surplus like Indiana.  If WE don’t spend the money someone else will.  Second, Indiana is well adapted for rail which would have likely thrived in the absence of government built roads and the nationwide interstate project which undercut rail usage in the past and caused them to go out of business.

I think both of these arguments are highly inadequate.  As a counterpoint to the first argument I would like to point out that printing money out of thin air to “stimulate” the economy doesn’t cause more goods to come into existence.  In fact, with a higher supply of money and lower employment we have less goods produced with more money in the market which sets the stage for heavy inflation.  With long-term projects like high-speed rail we are likely to experience heavy inflation risk and the initial funds set aside for the project will become inadequate to complete the project.  Whoever is Governor at the time will be accused of mishandling the rail project and economists like Morton will be mystified but will nonetheless assert his new opinion.

With projects like this there will be heavy use of eminent domain.  Though it is possible to build long stretches of rail without the use of eminent domain it is much more expensive.  James J. Hill built a railroad across the United States without subsidies or the use of eminent domain… but this was before our government took it upon themselves to upend the free market and create roads that, as I mentioned above, totally undermined rail.  Our pervasive and ingrained infrastructure is the nail in the coffin for any non-government creation of new rail nowadays.  If we want it then government must build it (this is a contradictory statement.. if we want it then government wouldn’t have to build it.. but it’s too late to discover if we wanted it).

The free market will likely not build rail in the near future NOT because Indiana is not suited for it, Indiana is, but because we already have roads in place that compete heavily for business with rail.  Furthermore, it’s hard to change people’s habits.  We are heavily invested in driving with our expensive vehicles, daily habits, business locations, etc.  If the government changes it’s emphasis from roads to rail it will destroy a lot of businesses and will create the incentive for new ones to take their place amidst HEAVY transaction costs for private industry.

If we had opted out years ago when our Federal central planners were destroying property rights and building roads we would likely have high-speed rail already and be much less reliant on foreign fuel.  Instead we have a governor who is emphasising road production in his “Major Moves” initiative on the eve of stimulus sponsored rail projects.

Yes, we can have both rail and roads, but overproduction of both not only costs a lot but it destroys a lot of property.  We cannot go back an undo the damage we have already done but we don’t have to continue.  Instead, I would suggest the government stepping out of the transportation business altogether.  Issue shares for roads to all taxpayers in Indiana and be done with it.  Let the free market take it from there.  If roads prove to be unprofitable then they will slowly diminish and become replaced by rail or be destroyed and used for something else.  Policy makers will no longer guess at what people want, people will choose.  Sure, this may be an unprecedented and extreme measure but so was deposing Kings and achieving Constitutional democracy.  Higher Aspirations need to come from the people.. not their “leaders” or overlords.

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