The Mises Institute monthly, free with membership

Sort archived Free Market articles by: Title | Author | Article Date | Subject

March 2002; Volume 20, Number 3

Financial Train Wrecks Ahead

by Gregory Bresiger

On May Day 1971, the National Railroad Passenger Corporation, later known as Amtrak, took over a group of overregulated bankrupt private railroads. Officials of Amtrak, which is a blending of the words American and track, announced that the government would make money on these bankrupt railroads. The public sector, they said, was going to do what the private sector couldn’t.

Three decades later, and with some $25 billion of red ink, Amtrak is nowhere near breaking even. Amtrak making money is a laughable idea. Even many of Amtrak’s original proponents are now calling for its liquidation. 

Amtrak’s net loss was $768 million last year. Its previous year loss was $702 million. Yet, in a typical bureaucratic manner and using language that sounds very much like Newspeak, Amtrak’s executives, in their latest annual report, congratulate themselves.

“While Amtrak saw business growth in 2000, it also dealt with financial challenges associated with the delayed receipt of high-speed rail equipment.” (Amtrak’s high-speed equipment is a joke. Amtrak’s “high-speed” trains are much, much slower than their European and Japanese counterparts.) “Amtrak’s budget result was negative $109.5 million, which includes federal payments which support operations and excludes significant charges which do not require funding in the current years,” according to the report. 

So how did they end up with “negative $109.5 million” when the net loss was $768 million? Well, the executives say this gap was caused by “the cumulative effects on prior years of accounting changes pertaining to state capital contributions and start-up costs.”

Right.

But almost everything in Amtrak’s reports and public statements is gobbledygook, designed to lead the public to believe that Amtrak is a great railroad, that its losses are becoming smaller, and that any calls to privatize it are wrong. The deception extends to disingenuous ridership numbers. In a 1995 ad in the Wall Street Journal, Amtrak claimed that, “last year 55 million passengers rode Amtrak-operated trains.” Here is another example of Amtrak’s style of Newspeak.

Amtrak officials were overcounting by 33 million passengers and using the same kind of torturous logic that turns a $768 million loss into a $109 million loss. Their sleight of hand counted commuters on trains financed by agencies that contract with Amtrak for services. These are definitely not Amtrak riders. If Amtrak died tomorrow, those 33 million riders would not have their service interrupted, yet then-Amtrak President Tom Downs called these riders, “the soul of Amtrak.” 

But by any measurement, and no matter who is cooking the books, Amtrak is a gross failure. Promises to the contrary, it has never recorded a profitable year or even one in which it broke even. 

Make a profit? Amtrak could never make money because its operations and routes are determined, not by maximization of revenues and careful cost controls, but rather by pols who want special trains to nowhere and union leaders who expect their members to receive raises regardless of the quality of the service. (In certain instances, outdated work rules have called for six years of severance for laid-off Amtrak workers.) Republicans, who had their chance to kill Amtrak when they controlled the entire Congress in the 1990s and when Republican administrations were in power in the 1980s, have generated the same pork as Democrats in using Amtrak as a way of generating political power with constituencies back home.

For instance, Pennsylvania Congressman Robert Walker was a fierce critic of Amtrak in the 1990s, but when Amtrak announced it was going to eliminate some of its Keystone service, which ran through his district, Walker was angry. He wrote that what Amtrak had done was “outrageous, unnecessary and thoroughly incompetent.” In 1996, then-Pennsylvania Governor Tom Ridge, supposedly a staunch opponent of big government, called for Amtrak subsidies to continue at the same level. Amtrak had just announced a $235 million diesel locomotive order from a contractor in Erie, Pennsylvania. 

Republican promises to close down this ridiculous and hopeless bureaucracy are nothing but hot air. They have been about as credible as the promises of Ronald Reagan in 1980 to shut down the US departments of Education and Energy. Like Amtrak, these government agencies haven’t died in the last two decades—they’ve grown fatter.

Even many early supporters of Amtrak are ready to throw in the towel. Writes Jonathan Yardly of the Washington Post, “Privatization is hardly the answer to all of government’s programs, but in [Amtrak’s] case it’s the only answer.” 

But, many Republicans and Democrats will be tempted to come up with still another Amtrak “grand reform” plan. Amtrak can no more be reformed than the Soviet Union’s communistic economy could be. It can only be liquidated. It’s time to reverse the awful heritage of a May Day of more than thirty years ago.

* * * * *

Gregory Bresiger is a business writer and editor in Kew Gardens, New York (gbresiger@hotmail.com).

Back

Image of Mises Coat of Arms Ludwig von Mises Institute
518 West Magnolia Avenue
Auburn, Alabama 36832-4528

334.321.2100 · Phone
334.321.2119 · Fax
contact@mises.org
AOL-IM: MainMises

Contact us button
Mises.org Menu