Anyone who has been to Europe knows that trains are a fundamental part of the European transportation system. Europe is widely hailed as the Holy Grail of transportation because of its widespread use of trains instead of cars, while the United States is widely criticized for its reliance on cars and trucks. But Europeans have achieved this goal by spending far more money than Americans on subsidies, which has led to many unintended consequences.
Germany spends more than six times as much as the United States on its state-run rail company, Deutsche Bahn. The German federal government alone will spend $13.3 billion (€11.4 billion) in rail subsidies in 2018, compared with $2 billion the U.S. federal government will give Amtrak. While the United States spends about $6 per person per year, Germany spends more than $160 because its population is much smaller.
Despite the subsidies, Deutsche Bahn has continued to pile up debt over the past decade, now exceeding $20 billion (€17.6 billion). Amtrak, by contrast, has more than halved its debt since 2008, to just $1.2 billion last year. Germany is no exception, with subsidized trains in France and Italy in even worse financial shape and spending more per capita.
European social engineers have been waging a war against cars for years and have used many tools to attack them. Train subsidies are financed by high taxes on car use, especially on gasoline. Europe’s trains are financed by the highest fuel taxes in the world.
Source: US Department of Energy and Bloomberg
Rising fuel prices coupled with subsidies for alternative modes of transport such as trains are leading to a significant decline in car ownership and use. But despite the huge amount of taxes and subsidies, nearly 80% of Europeans choose to bear the cost and travel by car, demonstrating the value and convenience that cars offer.
Proponents of rail subsidies argue that such funding is necessary to provide affordable transportation for low-income citizens. But if car taxes were lower, low-income citizens in Europe would need less rail subsidies, because they would be able to own a low-cost car like almost all American families.
On the other hand, advocates argue that subsidies reduce fatalities because cars are 17 times more dangerous than trains. Trains are safer than cars, but increased use of trains does not completely replace car use. Trains also replace airplanes, especially on routes where travel times are similar. But because planes are six times safer than trains, train subsidies can increase fatalities among people who give up flying to take trains. Reducing fatalities is a strong argument, but resources could prevent more deaths if they were spent on improving road safety rather than subsidizing trains.
Moreover, rail subsidies distort travel behavior and long-term business decisions in unpredictable ways. The relatively low price of train travel encourages travelers to choose trains over cars or planes even if it takes them longer to reach their destination, causing millions of people to change their decisions and lose hours of their lives.
Supporters claim that trains improve the environment by reducing the use of cars and planes. However, the innovation makes cars more fuel efficient and less expensive. A study that took into account the lifetime pollution caused by different modes of transportation, including their manufacture, showed that trains can have a worse environmental impact than cars.
On the other hand, planes are considered more environmentally friendly than trains. Even the European Union has acknowledged the superiority of planes, and is surprised by national politicians’ irrational preference for trains.
Although trains are safer than cars, innovation has made cars safer over time. Developments such as self-driving cars could make transportation safer, faster, and cleaner. However, if governments choose trains over cars in the transportation market, it would stifle innovation in both industries, because lower demand for cars would make new products unprofitable and reduce the incentive for trains to innovate to compete with cars.
If left to private enterprise and consumers, innovation could cut costs and improve trains. Texas Central Partners, for example, has announced it will invest $15 billion to build a high-speed train between Houston and Dallas starting in 2019 without any state or federal support. California, by contrast, has been trying to build a high-speed train for years. The latest cost estimates for the California project are $77 billion, and could rise to $98 billion.
Commuters and passengers take many factors into account when choosing their preferred mode of transportation. While some government officials embrace the train doctrine, evidence suggests that it is more complex and that train subsidies have negative consequences for government finances and people’s lives.
Trains may be fun to play with, but people’s wallets and choices are not a toy for policymakers. The American system is far from perfect, but it is cheaper, faster, and allows citizens more choice than the European system. As Milton Friedman said, “No one spends someone else’s money as wisely as he spends his own.”
Daniel DiMartino is a contributor to Economics 21. You can follow him on Twitter @DanielDiMartino
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