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So how goes the Great Kansas Supply-Side Tax Cut Experiment? It has been much criticized by liberals and the national media over the past three years. In the new National Review, Henry Olson also argues the growth impact of the tax cuts — the top personal income tax rate was reduced to 4.9% from 6.45% and eliminated for small business owners who file as individuals — has been iffy at best, the deficit impact great: “Fiscally, Kansas’s supply-side experiment has been lots of pain with little or no gain.” (Olsen prefers the more middle-class-centric approach of Gov. Scott Walker in Wisconsin.)
But over the weekend, the Wall Street Journal published a note from Andrew Wilson of the St. Louis-based Show-Me Institute that presented a differed take. While Kansas Gov. Sam Brownback said the state’s “new pro-growth tax policy” would be “like a shot of adrenaline into the heart of the Kansas economy,” Wilson offers a positive, though subdued, conclusion, “… if Kansas hasn’t exactly catapulted into the front ranks in economic growth and employment, then it has at least moved a long way from the stagnation of recent decades.”
He points out, for instance, that from 1998-2012, “Kansas ranked 38th in private-sector job growth, according Bureau of Labor Statistics data crunched by the Kansas Policy Institute. In 2013—the first year after the tax reform—the state climbed to 27th place, and in 2014 it moved to 21st, placing it in the top half of states.” Also: ” In the second half of 2014, hourly wages in Kansas grew 3.5%, according to BLS data, far faster than the national average of 1.9%.”
Some good things to do seem to be starting to happen in Kansas. Faster private job growth, faster income growth. But overall is Kansas’s economic performance really so distinctive? What economist Scott Sumner said last summer about Kansas has really stuck with me: “I consider myself a moderate supply-sider, but I certainly wouldn’t expect such a tiny tax cut to significantly affect behavior. And any effects that did occur would happen very gradually, over a period of many years.”
For instance: While its jobless rate fell 1.2 percentage points from March 2013 to March 2015, the national jobless rate fell by 2.0 percentage points. And among its four neighboring states, the jobless rate fell by an average of 1.6 points. And although Kansas’s employment rate — the number of non-military, non-jailed adults with jobs — rose by 0.9 percentage point over that two-year span, it rose by nearly as much, 0.8 percentage point, among its neighbors and America overall. On the other hand, the Kansas labor force participation rate is stable, while the Group of Four has declined as has that of the national economy. Of course, momentum could be building as longer-term, supply-side incentives have changed. Maybe another two or three years on, the differences will be more dramatic.
Oh, but then there is the deficit issue, which Wilson doesn’t really counter: “Critics contend that Mr. Brownback’s tax cuts have blown a hole in the state budget—$344 million in the 2015 fiscal year and $600 million in the next. The governor is filling those gaps by moving money from highway projects and delaying some public pension contributions. He has also proposed raising cigarette and alcohol taxes and pausing some of the tax cuts still scheduled to take effect.”
So in microcosm, the Kansas experiment tends to reinforce some basic notions about tax cuts: (a) they certainly can be growth positive, (b) supply-side impacts take longer to play out, and (c) they are unlikely to be self financing. So cut with caution and purpose. Watch the budget. And keep expectations modest over the near term.
View related content: Pethokoukis
— “Human Dignity” – Build a pack-and-go housing solution that provides efficient water, electricity, and sanitation. The solution must be scalable, deployable in one day, have a life of at least six months, and be adaptable to multi-terrain and climate condition.
— Food: “Global Water Crisis” – Create a mass-market, scalable technology that will reduce water usage in farming by 70% per acre, while maintaining competitive pricing for produce. The technology will reduce farmers’ dependence on water for food production, and reduce consumer costs
— Work: “Robin Hood Bond” – Create a financial instrument for low-income populations that has a better risk-adjusted return than a junk bond
— Mind: “Big Wisdom” – Create an artificial intelligence capable of aggregating collective wisdom. The solution will give everyone on earth as much access to our collective wisdom as we currently have to factual information
— Health: “Healthy America” – Design a personal health score, aggregate data across diverse populations, demonstrate a sustainable improvement in health of 25 percent over six months, and scale to a larger population for one year
— Wild Card: “Waste to Wealth” – Create a technology that is able to sort and process 95 percent of landfill waste in an immediately profitable way
More of this, please …
No, CEOs don’t make nearly 400 times what the average American worker makes. Not even close [Updated]
The big bosses are taking all the money! USA Today dutifully reports: “CEOs in the AFL-CIO’s pay database released Wednesday earned an average of $13.5 million last year, which is 373 times more than the $36,000 per year paid to the average production and nonsupervisory worker, says the AFL-CIO. CEO pay in the AFL-CIO study increased 16% in 2014.”
According to the union, that CEO-to-worker pay ratio pay is “simply unconscionable. … It doesn’t have to be this way. Lawmakers should raise the minimum wage and protect U.S. workers by not engaging in bad trade deals. Corporations should pay their employees a living wage. And workers should have a collective voice on the job to demand their fair share.”
But before we do all that supposedly wonderful stuff that the AFL-CIO wants us to do, let’s take another look at those numbers. As my AEI colleague Mark Perry points out, you really shouldn’t compare — as the AFL-CIO does — the wages of the average worker to the compensation of CEOs at a few hundred, large companies, often multinationals. In 2014, the BLS reports that the average pay for America’s 250,000 chief executives was only $181,000. So the CEO-to-worker pay ratio for the average CEO compared to the average worker is only about 4, not nearly 400.
And if you calculate the CEO-worker pay ratio at the 100 largest US companies — which I did using 2013 PayScale data — it works out to 79-to-1 — a fraction of what the exaggerated AFL-CIO analysis finds. Only five companies had a ratio of over 200-to-1, by the way, that year.
Well, maybe even that 79-to-1 ratio is too rich for you. Take Northrop Grumman, where the ratio was about 80-to-1. If the entire $6.2 million compensation of its CEO that year was redistributed to workers, it would have only increased their paychecks by $100 or so.
And what is driving higher CEO pay? Is it mostly greedy CEOs manipulating compliant boards? Here are Steven Kaplan and Joshua Rauh in the paper “It’s the Market: The Broad-Based Rise in the Return to Top Talent” taking issue with that theory in favor of technology:
Our evidence is not obviously consistent with those who suggest that the increase in pay at the top is driven by a recent removal of social norms regarding pay inequality. While top executive pay has increased, so has the pay of other groups, who are and were less subject to disclosure and, arguably, less subject to social norms. This is particularly true of private company executives and hedge fund and private equity investors. Overall, we believe that our evidence remains more favorable toward the theories that root inequality in economic factors, especially skill-biased technological change, greater scale, and their interaction. Skill-biased technological change predicts that inequality will increase if technological progress raises the productivity of skilled workers relative to unskilled workers and/or raises the price of goods made by skilled workers relative to those made by unskilled workers. For example, computers and advances in information technology may complement skilled labor and substitute for unskilled labor. This seems likely to provide part, or even much, of the explanation for the increase in pay of professional athletes (technology increases their marginal product by allowing them to reach more consumers), Wall Street investors (technology allows them to acquire information and trade large amounts more easily) and executives, as well as the surge in technology entrepreneurs in the Forbes 400. Globalization may have contributed to greater scale, but globalization cannot drive the increase in inequality at the top levels given the breadth of the phenomenon across the occupations we study.
Hopefully, enough reality checking will stop politicians from doing this: “Striking a populist note, Clinton, who announced on Sunday she was running for president in 2016, said American families were still facing financial hardship at a time ‘when the average CEO makes about 300 times what the average worker makes.'”
Update: Some have pointed out that I am comparing apples and oranges. The criticism: AFL-CIO numbers include stock compensation — which was not readily apparent to me from the web site — while the Payscale numbers are only cash compensation. OK. Now it holds true, as I explain above, that comparing CEO pay at a few hundred big, often multinational companies to the pay of all workers is also apples and oranges.
Anyway, the AFL-CIO points out that “production and nonsupervisory workers took home only $36,134 on average in 2014.” The 2013 Payscale numbers, on the other hand, compare CEO cash compensation at the 100 largest public companies to the workers at those companies. But the median pay of those workers was nearly $70,000 a year, almost twice the average worker. So if the average big company CEO makes around $13 million (all inclusive) and the average big-company worker makes around $70,000, then the CEO-worker gap is around 186-to-1. That is twice my estimate above, but half the AFL-CIO estimate.
View related content: Pethokoukis
In a Bloomberg opinion piece, “Americans Warm to Redistribution,” Christopher Flavelle writes, “The erosion of the U.S. middle class is changing how Americans see themselves. It might also be changing the way they view government redistribution of wealth.” Well, wouldn’t you kind of expect it to after (a) at least a decade of middle-class stagnation, (b) greater high-end inequality, and (c) a financial crisis and near-depression that many blame on Wall Street bankers?
So given that tailwind of circumstance, the Gallup poll (see above) Flavelle highlights should not be so surprising — a marked increase since the late 1990s. Yet this other Gallup poll, like the one above, seems to suggest an overall stabilization of these numbers in recent years.
But do these results really drill down into what people think more concretely? AEI’s Karlyn Bowman and Heather Sims express doubt in a recent blog post:
Polls show that in the abstract, people think government should do more to address inequality, but they do not believe government has a responsibility to do so. Perhaps most importantly, many Americans are skeptical about what government can do about the income gap. A Selzer & Company/Bloomberg survey shows remarkable stability on this point. Since December 2013, Bloomberg has asked three times whether government should implement policies designed to shrink the gap or stand aside and let the market operate freely even as the gap gets wider. Although Americans divide evenly on the question, a significant chunk of the population—between 43 and 47%—believe government should stand aside even if the gap grows. A large majority of Republicans (75%) and a slim majority of independents (52%) also want government to stand aside, compared to 22% of Democrats. …
Americans may also be skeptical of government efforts to reduce income inequality because they see the income gap as a fact of life — an immutable byproduct of the operation of a free-market economy. In January 2014, Fox News asked registered voters, “How do you feel about the fact that some people make a lot more money than others?” Sixty-two percent responded that they were okay with it because that’s how our economy works. Sixty-nine percent of Republicans, 54% of Democrats, and 65% of independents gave that response. Twenty-one percent of registered voters said, “It stinks, but the government should not get involved,” and 13% said, “It makes me angry, and the government should do something about it.”
Yet another reason may be that, at a more fundamental level, Americans have more faith in themselves than the government to improve their lots in life. In a February 2015 Pew poll, a substantial majority (64%) of Americans said the statement “Most people who want to get ahead can make it if they’re willing to work hard” comes closest to their own views. One-third said “Hard work and determination are no guarantee of success for most people” came closer. When Pew first asked this question in 1994, 68% said people who want to get ahead can make it if they’re willing to work hard. Thirty-percent said hard work is no guarantee of success. Americans still think it’s possible to move up. A strong and stable belief in their own abilities may incline people against a greater role for government to help them “get ahead.”
I would also point out a survey last year from GlobalStrategyGroup, where voters said they prefer a presidential candidate focused on “more economic growth” versus “less income inequality” by 80% to 16%. Likewise, voters prefer by 62% to 33% a candidate focused on “economic growth to provide more opportunities for everyone to succeed” versus one focused on “economic justice to level the playing field for middle and low-income Americans.”
From “Economic and environmental impacts of fracked shale gas” by Catherine Hausman and Ryan Kellogg (via VoxEU)
The fracking revolution has happened incredibly quickly, with natural gas output in the US increasing by 25% in just six years. … Between the price fall and the expansion of quantity consumed, we estimate that in 2013 fracking made buyers of natural gas $74 billion better off. Some of these gains accrued directly to households in the form of lower utility bills, while other gains went to commercial and industrial users. Even more gains were seen in the electric power sector as a direct result of lower input prices.
However, we estimate that producers have, on net, lost because of fracking (a $26 billion loss in 2013) – for them, the price decline has outweighed the quantity expansion. Moreover, while states such as Pennsylvania with large amounts of shale gas have benefited, states with primarily conventional reserves have on net lost because of the price decline.
Overall, we calculate that the private gains to consumers and producers from shale gas, not including environmental impacts, totalled $48 billion in 2013. This is about one-third of 1% of GDP, around $150 per capita.
But there is also this possible mitigating factor:
The gains to households and industries must, of course, be weighed against environmental impacts. The scientific literature on fracking’s environmental effects is accumulating, but much remains uncertain. Take, for instance, the impact of fracking natural gas on climate change, where three mechanisms are at play:
First, with greater natural gas consumption comes higher CO2 emissions produced during combustion;
Second, and counteracting some of the first effect, is the displacement effect on coal – when natural gas power plants substitute for coal-fired plants, CO2 emissions decrease;
A third effect, which is harmful for climate change, is the leakage of methane, a powerful greenhouse gas, from the natural gas supply chain.
While measuring the first impact – greater natural gas combustion – is easy, a precise understanding of the second two impacts remains elusive. The coal displacement effect depends on how coal markets around the world re-adjust, and more research is needed on this area. Also, the methane leakage rate is much debated by scientists. Overall, past researchers (McJeon et al. 2014, Newell and Raimi 2014) have concluded that fracking could either increase or decrease total greenhouse gas emissions. We show that plausible bounds on the greenhouse gas costs from shale gas for 2013 are $3 billion to $28 billion. At the most extreme, if methane leaks are quite high and if no coal is displaced, the climate change impacts could erase about half of the welfare gains from fracking.
So maybe $75, then.
The Wall Street Journal reports that “private forecasting firm Macroeconomic Advisers on Thursday said its monthly estimate showed GDP fell an inflation-adjusted 1% in March, the largest drop since December 2008, ‘when the U.S. economy was in the throes of recession,’ the firm said. Monthly GDP had climbed 0.3% in February and ticked up 0.1% in January after falling 0.4% in December, the firm said.”
Now there is a big caveat here, according to the firm. The labor dispute at West Coast ports led to a large, but temporary, drop in exports. So the GDP number overstates any weakness in the economy. But, but, but … even with that addendum, things aren’t going gangbusters right now. First, it now looks like the economy contracted by at least a full percentage point in the first quarter. Second, second-quarter GDP estimates are also coming down. JPMorgan, for instance, yesterday cut its forecast to 2.0% from 2.5% and noted, “First half GDP growth averaging 0.5% is pretty disappointing.” Third, the WSJ’s economic survey now pegs full-year GDP growth at 2.2%, a bit slower than last year’s 2.4%. Fourth, the Fed’s Labor Market Conditions Index — Janet Yellen’s jobs dashboard — “fell into negative territory in March and April for the first time since a brief spell in 2012,” according to Goldman Sachs. So perhaps the weak growth is leaking into the labor market, though real-time indicators are more positive — for now.
In any event, 2015 is shaping up as another year of stagnation rather than (finally) acceleration.
View related content: Pethokoukis
My must reads of the day:
The arguments that convinced a libertarian to support aggressive action on climate – David Roberts | “Nobody would manage risk based on the most likely outcome in a world of great uncertainty.”
Scarce Skills, Not Scarce Jobs – James Bessen | “Yet although these technologies eliminated some jobs for clerks and warehouse laborers, they also created new jobs by creating new capabilities. However, these new jobs require specialized skills among both the managers and technicians, who typically have college degrees, as well as among the less educated operational occupations. Workers who have these skills, often learned on the job, are actually in short supply.”
Senator Warren Means Well, But She’s Dangerously Wrong – Frances Copppla | “In a financial crisis, Bagehot’s Dictum does not work. Asset prices fall rapidly, rendering insolvent institutions with trading books that must be marked to market. Consequently, market participants are unable to decide who is solvent and who is not. They become unwilling to lend to each other: short-term lending markets such as repo and commercial paper freeze and market rates rise exponentially. … In such a situation, it is not possible for the Federal Reserve to determine whether or not a bank is solvent, and it is very unwise for it to attempt to do so.”
The Ultimate Interface Is Your Brain – Ramez Naam | “Neural implants could accomplish things no external interface could: Virtual and augmented reality with all five senses; augmentation of human memory, attention, and learning speed; even multi-sense telepathy – sharing what we see, hear, touch, and even perhaps what we think and feel with others.”
MIT economist explains why randomized trials can improve medical care – Q&A with Amy Finkelstein
Preschool By State: Who’s Spending And What’s It Buying? – Cory Turner
The Miracle the Middle Class Is Waiting For – Bloomberg Editors | “The pressures on America’s middle class confront America’s political leaders with their hardest possible test — one that, to be frank, they’re going to fail. That’s because the problem doesn’t lend itself to one-shot fixes. Instead, it requires a lot of smaller ideas all pulling together. In Washington, this kind of strategic coherence doesn’t come naturally.”
If you are a state governor or big city mayor and want to cut taxes, don’t expect those tax cuts to automatically boost economic growth and pay for themselves. Those tax cuts might not boost growth much at all, actually, depending on how you do it. And if they do boost growth, it might take awhile. So you need to think about why you are cutting taxes.
So how about this: Cut top tax rates to attract star scientists to your state or region. Why would this be a good idea? Well, star scientists may well be top one-percenters who’ll buy a big house, a nice car, lots of pricey electronics. But that is hardly the most important reason. From the new paper “The Effect of State Taxes on the Geographical Location of Top Earners: Evidence from Star Scientists” by Enrico Moretti and Daniel Wilson:
… more fundamentally, star scientists are an important group of workers because their locational decisions have potentially large consequences for local job creation. Unlike professional athletes, movie stars and rich heirs – the focus of some previous research – the presence of start scientists in a state is typically associated with research and production facilities and in some cases, with entire industries, from biotech to software to nano-tech.
And lower taxes, the researchers find, can help attract those valuable star scientists:
For taxpayers with income at the 99th percentile of their state, we find a long-run elasticity of about 1.7: a 1% decline in after-tax income in state d relative to state o driven by a change in the MTR for the top 1% of income earners is associated with a 1.7 percent increase in the number of star scientists who leave state o and relocate in state d in the long-run. As an illustration, our estimates imply that the effect of New York cutting its marginal tax rate on the top 1% of earners from 7.5% to 6.85% in 2006 was 12 fewer star scientists moving away and 12 more stars moving into New York, for a net increase of 24 stars, a 2.1% increase. … Overall, we conclude that state taxes have significant effect of the geographical location of star scientists and possibly other highly skilled workers. While there are many other factors that drive when innovative individual and innovative companies decide to locate, there are enough firms and workers on the margin that relative taxes matter.
Twelve new scientists? That’s it? Hardly seems worth it. But if those few transfers start what becomes a mini-Silicon Valley or tech cluster in your state, it just might be. Seattle, for instance, got lucky when two former residents decided to move back in 1979, as Fast Company tells the tale:
But in 1979, Seattle was the last place you’d think to find a growth business. It had more in common with today’s Rust Belt than Silicon Valley—its economy centered on a declining manufacturing base and the lumber industry, both of which were shedding jobs. Starbucks was just a tiny local company with three stores serving standard-issue coffee. The Economist had labeled Seattle the “city of despair” and a billboard appeared saying “Will the last person leaving Seattle—turn off the lights.’
So what changed? Two Seattle natives decided to move their 13-employee company there in 1979 from Albuquerque. The two natives were Bill Gates and Paul Allen. And the company was Microsoft. Is it possible to ascribe Seattle’s entire economic trajectory to just one company? Well, today over 40,000 people work at Microsoft in the region, and 28,000 of them are highly paid engineers. Approximately 4,000 businesses have been started by Microsoft alumni, many of which are in the region. Just one of these companies, RealNetworks, employs 1,500 people. Expedia, originally a Microsoft spinoff, employs another 14,000. The Gates Foundation itself has another several hundred employees. The economist Enrico Moretti estimates that Microsoft’s growth has directly created 120,000 regional jobs for services workers with limited educations (cleaners, taxi drivers, carpenters, hairdressers, real estate agents, etc.) and another 80,000 jobs for workers with college degrees (teachers, nurses, doctors, architects).
The growth of Microsoft also influenced Jeff Bezos to locate Amazon there in 1994 when he was looking for a city with ample tech talent to build an e-commerce company. Today, about 17,000 of Amazon’s 51,000 employees live and work in the Seattle region. If Microsoft had not been there, Bezos could easily have migrated elsewhere. The day-to-day needs of these 17,000 Amazon employees have given rise to another 85,000 skilled and unskilled service jobs locally. That’s another 100,000 jobs.
It’s hard to imagine that two people transplanting their then-tiny firm to their hometown could change a city’s economic history for decades to come. Yet this phenomenon isn’t uncommon. You can see similar impacts with Dan Gilbert relocating Quicken Loans to downtown Detroit and Tony Hsieh moving Zappos to downtown Las Vegas—these effects are simply easier to see because these firms already have thousands of employees. In Microsoft’s case the company had yet to grow and mature.
Love that story. But there is a caveat: “Of course, taxes are not the only factor that determines the location of star scientists. Indeed, we find no cross-sectional relationship between state taxes and number of star scientists as the effect is swamped by all the other differences across states. California, for example, has relatively high taxes throughout our sample period, but it is also attractive to scientists because the historical presence of innovation clusters like Silicon Valley and the San Diego biotech cluster. Indeed, California does not lose stars to Texas, even though Texas has no personal income tax and a low business tax rate.” And darn California’s temperate Mediterranean climate! Oh, you might want to take a look at regulation, too.
So the Fed’s fancy, 19-factor Labor Market Conditions Index — Janet Yellen’s jobs dashboard — “fell into negative territory in March and April for the first time since a brief spell in 2012,” according to Goldman Sachs. (See above chart.)
I mean, that hardly seems like good news. Nor maybe is a weakening in the LMCI super-surprising given the slow GDP start to the year. But if it is bad news, how bad is it? Is it losing-jobs bad? Not so bad, argues an upbeat Goldman. The firm’s own labor market tracker still “remains consistent with clearly above-trend growth.” And the Kansas City Fed’s job market index, specifically the part showing momentum, “remains in expansionary territory despite a recent decline.” But this is most persuasive to me:
… the most recent raw readings in all three of the highest-profile labor market indicators also cast doubt on the idea that the US labor market has entered a contraction. These include nonfarm payrolls (up 223k in April), the unemployment rate (down 0.3 percentage points in the past three months), and initial jobless claims (down to the lowest 4-week average since 2000).
For what it’s worth, JPMorgan seems to agree with that overall assessment. In a morning note today: “The favorable news in the claims data suggests that the weak growth from the past few months has not caused an increase in layoffs or any significant deterioration in the labor market.”
Fingers crossed …
Breaking! There’s a major disaster with possible public policy implications! Scramble the hot takes! (I know I often do.)
Here we go: “Amtrak needs help,” asserts the New York Times editorial page. But maybe the “world will lose nothing if the government winds down Amtrak by selling off its profitable lines in the Northeast to a competently-managed private company and scrapping the rest,” as the Washington Examiner argues. Then again, the Center for American Progress claims “Congress’ refusal to acknowledge Amtrak’s predicament has made American trains so inefficient that it’s actually having a dampening effect on ridership growth.” Yet National Review’s Ian Tuttle counters that “Amtrak’s history of fiscal chaos suggests that the service’s problems are not the product of congressional stinginess, but of a faulty assumption (that America needed a passenger rail service) compounded by decades of mismanagement.”
Just privatize it! (Probably won’t happen.) Just throw more money at it! (Probably shouldn’t happen.) Are there any other options? Transportation blogger Alon Levy offered a different path forward in a fascinating 2012 blog post where he sketched out a medium-term future that depicted a profitable Amtrak of surging ridership and high-speed rail. Here are its guts:
Amtrak had initially proposed to spend $117 billion on implementing high-speed rail on the Northeast Corridor between Boston and Washington, but backlash due to the plan’s high cost led to a scaling back behind the scenes. After the regulatory reforms of 2013, a new team of planners, many hired away from agencies in Japan, France, and Switzerland, proposed a version leveraging existing track, achieving almost the same speed for only $5 billion in upfront investment. They explained that the full cost of the system would be higher, but service could open before construction concluded, and profits could be plugged into the system.
To get the plans past Congress, President Barack Obama had to agree to limit the funds to a one-time extension of Amtrak’s funding in the transportation bill S 12, which would give it $13 billion for expansion as well as ordinary operating subsidies over six years. To defeat a Senate filibuster, the extension had a clause automatically dismantling Amtrak and selling its assets in case it ran out of money, leading to the first wave of resignations by longtime officials. …
Despite assurances that both the cost and the ridership estimates were conservative, the program was plagued with delays and mounting costs, and to conserve money Amtrak needed to cancel some of its money-losing long-distance routes and engage in a controversial lease-back program selling its rolling stock to banks. The modifications required to let the Shinkansen bullet trains decided for the system run in the Northeast pushed back the completion of the first run from the middle of 2015 to the beginning of 2017 … 2017 was also the last year in which Amtrak lost money. … To simplify its temporary deals with track owners in Connecticut and Massachusetts, it made a complex deal with the Northeastern commuter railroads in which it took over operations, with existing amounts of state money lasting until 2022. The primary purpose was to allow rapidly moving workers between divisions, away from commuter trains, which were being streamlined to reduce staffing, and toward the growing high-speed rail market. A similar deal was made in California, where Amtrak leveraged its operation of commuter trains in the Los Angeles and San Francisco Bay Areas and its fledgling profits to take control of the California High-Speed Rail system, whose initial operating segment opened in 2019.
Although industry insiders believed that the takeover was intended entirely to streamline labor issues, in 2020 Amtrak announced a reorganization, in which commuter trains within each metropolitan area would be run without respect for state boundaries or previous agency boundaries. Starting with the preexisting fare union with the MBTA, from which it bought Boston’s commuter rail operations, it entered into fare union and schedule coordination agreements with the major cities in the Northeast and California, allowing the local commuter rail lines to act as complements to the urban subway networks. …
Together with aggressive construction of extensions and long-desired urban commuter rail projections, usually at much lower cost than advertised in the 2000s and 10s, the changes led to a rapid increase in ridership. Together with the commuter lines, Amtrak’s ridership was 700 million in 2020. By 2030, it had risen to 4 billion. By then, high-speed lines opened along more corridors, connecting from the Northeast to Albany, Buffalo, Pittsburgh, and Atlanta; from California to Phoenix and Las Vegas; and in the Midwest from Chicago to Cleveland, Detroit, and St. Louis. Most, though not all, are operated by Amtrak, with seamless inter-railroad operation through trackage rights, and in many of these cities, beginning with Chicago, the local transit agencies engaged in the same commuter rail modernization afforded to the Northeast and invested in additional rapid transit or light rail lines. The effect on the share of commuters using public transportation to get to work was large. In the Philadelphia region it rose from 12% in 2020 to 36% in 2040, in the Chicago region it rose from 15% to 39%, and in the Los Angeles region it rose from 9% to 40%.
All that by the year 2042! Now I don’t know to what degree all or any of what Levy outlines is practical or even possible. And, yes, it seems like a highly technocratic approach. But it doesn’t seem unreasonable that a far more logical and rational rail system is a possible. Here is Reihan Salam on the above idea:
One of the key moves in Levy’s imaginary Amtrak revival was a takeover of commuter rail services in the Northeast and California, followed by an aggressive rationalization of route structures and labor practices as the commuter rail services started to be run without respect to pre-existing agency boundaries. In the New York metropolitan area, for example, what had been Metro-North trains could be used on NJ Transit routes and vice versa, thus improving efficiency. Levy’s scenario might seem too good to be true, but the political foundations of his turnaround — reform of the labor regulations that have stymied productivity gains in the passenger rail industry, the use of a trigger that would dismantle the system if it failed to meet concrete goals — are worthy of consideration.