This is economic madness when the UK faces its worst-ever peacetime fiscal crisis. Given the history of big government projects, the final cost could end up being closer to £40 billion or perhaps even more. One should also factor in the “deadweight” losses produced by the higher taxation needed to fund such a scheme, as well as the cost of the operating subsidies once the line opens. And all this expenditure would be focused on about one per cent of the UK’s passenger traffic, making the proposed scheme extremely poor value for money.
If high-speed rail makes no sense in Britain, then the economic case is even weaker in the United States. American cities tend to have low population densities and in most cases there are very long distances between them, making rail a highly unsuitable mode of passenger transport. Accordingly, Amtrak, which operates inter-city services, has required substantial ongoing government aid since its formation in 1971.
The fact that high-speed rail in America is not economically viable is implicitly recognised by its inclusion in President Obama’s mammoth Recovery and Reinvestment Act. The costs of construction and operation clearly cannot be covered by passenger fares. Instead, general taxpayers must bear the burden, starting with an $8 billion government down payment.
Accordingly, it seems highly likely that Obama’s support for high-speed rail is based on “pork-barrel” politics and rent-seeking behaviour rather than any genuine economic rationale. Concentrated interests such as local politicians and transport bureaucrats may gain a great deal from high-status grand-projets - at the very least they visibly demonstrate to voters success at obtaining resources from the Federal Government. The victims of government largesse, taxpayers, as a dispersed and fragmented interest group, find it almost impossible to organise in opposition.