Amtrak Needs Privatization, Not More Subsidies

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Last week witnessed a tragic train derailment on the Amtrak line that connects major East Coast cities. While the exact cause of the accident is not known yet, within two days liberal politicians had seized on the occasion to demand larger subsidies for Amtrak. In fact, the events of last week show the precise opposite-Amtrak should not receive a larger subsidy, but rather should be sold off and privatized.

Currently, Amtrak receives more than $1 billion in funding from Congress although it still manages to lose money. Amtrak was in the process of completing the installation of a new safety system called positive train control which should prevent exactly the sort of accident that just occurred. While Amtrak could certainly have finished installing better safety systems sooner, the delay cannot be blamed on lack of federal funding.

First, Amtrak had the physical components of the positive train control system in place on the line where the accident happened and was waiting to acquire the spectrum needed to operate the system. Money was not delaying the project; it was a simple case of bureaucracy moving slowly. Second, Amtrak can always get more money by raising ticket prices; more federal subsidies are not their only option for increased revenue. In fact, Amtrak is in the process of raising prices right now. Third, the line on which the accident occurred actually makes money for Amtrak. Normal businesses would invest to protect their money-making products.

Amtrak carries about 30 million passengers per year. Amtrak does not provide statistics on how many different individuals this represents. However, given that over 11 million passengers rode on the northeast corridor trains which are most suited to commuting and that some people commute daily or weekly on Amtrak trains, it seems likely that the actual number of distinct people riding Amtrak annually is a much smaller number, more on the order of 5 million people.

This leads to the question of why Americans taxpayers should subsidize a rail service that only somewhere around one or two percent of Americans actually use. The clear and obvious answer is that they should not be.

While Democratic leaders are calling for more federal funding, the problem is not a lack of subsidies but instead that Amtrak's leadership is divided between serving its customers and serving the political benefactors who provide it with about $1.4 billion per year. If Amtrak was privatized, it could focus solely on serving its customers. If those customers were concerned with safety, then Amtrak would prioritize safety improvements because that would be a necessary step to staying in business.

Amtrak collects about $2.2 billion in revenue from passengers to go with its $1.4 billion in federal funding. If sold for a fairly low valuation for a railroad, Amtrak would sell for around $6.5 to $7 billion. That money either could be used to reduce the federal budget deficit or the government could hand the money back to the purchaser to make capital improvements to the Amtrak system. Either way, the federal government would save the $1.4 billion each year that it has been providing to Amtrak.

After privatization, Amtrak will know that federal government subsidies are not available to it and will focus on serving its customers and turning a profit. That may mean that some routes are discontinued or continue operating with fewer scheduled trains. At the same time, some routes, such as those in the northeast corridor, may see an increase in the quality and frequency of service as Amtrak responds to the level of consumer demand in the free market.

Train travel is already ten times safer than driving in terms of deaths per mile traveled. It is possible that riders do not want to pay more for train tickets in exchange for safety improvements. After all, Amtrak is actually ahead of many private railroads in installing the positive train control safety systems. However, if riders demand it, a private, profit-oriented railroad will provide it.

If people want Amtrak to be responsive to the desires of its riders, the best path is not more government subsidies. Rather, the opposite path-privatization-is the correct track to ensuring that passengers are listened to instead of politicians. As long as Amtrak is partially dependent on taxpayer funding, passengers take a back seat to the political process. To put the passengers first, make them pay the full cost of their rides.


Jeffrey Dorfman is a professor of economics at the University of Georgia, and the author of the e-book, Ending the Era of the Free Lunch

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