Quick Lesson from the Railroad


Below the Line
It appears his point is going to be that government-supplied economic incentives are prone to abuse, and he says something to that effect:
Mark_Pribonic said:
Here we are 138 years later with many people still believing in the economic virtues of subsidies from farm programs to energy development.
...but then I read that the author, Mark Pribonic, is an Investment Banker. I smell hypocrisy.

He works for a business that pays half the tax rates that we who work for a living pay. (Now that I am Management, many may think I do not work. But I still pay taxes as if I had worked for my income.:) )

Maybe he narrowly defines "subsidy" as direct payments from the government. If that is the case, "energy development" is a bad example, since most energy subsidies are tax offsets or credits.

On second thought, when he criticizes subsidies for "energy development", he is probably not talking about the tax bonanza that goes to the oil companies. He is probably referring to those research programs that might help us find ways to reduce our dependence on foreign oil (and our dependence on giant oil companies).

I am not saying that Investment Banking firms are inherently evil. For example, Goldman Sachs shows concern about the environment by sending its bankers home each night in hybrid limousines. (I could not confirm whether they ride to work each morning in turbojet helicopters.)

Looking at some of Pribonic's other writing, I find that this same fat-cat author apparently wants to take away my parent's Social Security, and stop government subsidy of company or union retirement plans that are underfunded or suffer from mismanagement. Or I may be reading too much into what he says...
Mark_Pribonic said:
Where is it found within the framework of the Constitution — or more importantly in the laws of nature — that individuals have an inherent right to retire?
Isn't that what they once said about slaves?


Well-Known Member
I dare say the hypocrisy is likely to continue to grow if current trends continue to hold.

As US tax rates drop, government's reach grows | csmonitor.com

I wonder if it's hypocrisy or is it the fact that gov't has grown so massive and reaches into so many areas that it's impossible to avoid the conflict of interest? Not defending Pribonic at all but rather just asking the question. I'll even conceed that I'm likely to benefit from gov't subsidation in some way via UPS itself. UPS is granted gov't permission to fly here or there or carry this or that over others which at the end of the day gives UPS more profits and thus I recieve more pay and benefits as a result. So am I now a hypocrite for pointing this out and calling it wrong? If so, then I gladly accept the title of hypocrite and I will continue to call it wrong as long as it exists.

But getting back to the original point, the observation was made about the scene that suggests the laying of track was done purely for boosting profits in building the railroad rather than building a most efficent time and fuel savings pathway. In other words, an open checkbook boosted by taxpayer pockets became the motive rather than building a proper, efficent railroad.

In our day of energy troubles, what might we find if we went back and looked real hard at road pathways as they exist now and compare to what was possible at the time? Might we find numerous situations like our railroad example where miles and miles of roadway were added just to fatten the pockets of the blessed contractors? Now in this day and age we could possibly be traveling 10/15/20 extra miles in a 100 so that the politically connected companies could profit? What does mean for our energy situation? And what about global warming and air quality? Even that extra train track, in the last 150 years years how much extra pollution got dumped into the air as a result of that extra track?

A messenger may indeed be the hypocrite suggested and I'll even conceed that point, but the appearance by someone to defend a gov't system by attacking the messenger and trying to avoid the observation itself would make me wonder just where they might stand on the scale of hyprocrisy!


Below the Line
I like Shilling's method (as explained in the linked CSM article) of counting private-sector jobs that are created by government spending the same way that government employees are counted. A lot of the moves to "privatize" government functions have resulted in little or no savings to taxpayers, but have filled the pockets of the privateers.

The hypocrisy I saw was particularly the part I quoted:
Here we are 138 years later with many people still believing in the economic virtues of subsidies....
...which appears to say that subsidies are without economic virtue. If you interpret this differently, I can see that you might miss the intent of the rest of what I wrote.

Pribonic has used the railroad anecdote to attempt to prove that subsidies never work. An alternate message could have been that, given a chance, businesses (and individuals) will fleece the taxpayers to the maximum extent the law allows.

Maybe I was offended because here it is, 138 years later, and I still think that our government promoting a transcontinental railway was a good idea...that was really done the wrong way. Oversight was lacking, but that was probably due to the cronyism that was involved. (I think the land grants were excessive, too, but Pribonic does not address that issue. He does mention other subsidies that were added later, after the project was already in progress, but does not point out that those were truly direct subsidies, and porky.)

Getting back to the facts of the essay: What Pribonic calls per-mile "subsidies" for the railroad were loans - not grants - of $16,000 or $48,000 per mile at 6% interest. The loans were repaid, as a mortgage against the railroad, over the course of 40 years:
CPRR Discussion Group - Central Pacific Railroad Photographic History Museum
(The interest-rate guarantee was still quite significant, since banks at the time had rates of 30% and higher for projects in the frontier.)

Pribonic said:
Because of the poor manner in which the rail lines were laid, work began almost immediately to reconstruct the entire project. Three years after the celebrated meeting at Promontory Summit the Union Pacific Railroad was bankrupt.
...implies that Union Pacific failed once government support was withdrawn, or failed due to the cost of doing the work over again. Bankruptcy can be a financial tactic. (I UP was bankrupt in 1872, but this year's shareholder's meeting is in Salt Lake City.

Pribonic seems to ignore the Credit Mobilier (sp?) scandal. I wanted to compare Credit Mobilier to Enron, but I find it has already been done for me:
American Experience | Transcontinental Railroad | Special Features

Much of what we get in return for our taxes is in the form of infrastructure. Yes, UPS and other businesses and individuals benefit from our tax-supported roads, airports, courts, law enforcement, regulatory agencies, schools, et cetera. - but those are things that government does for our collective benefit. These might also be called subsidies, but all of us derive some benefits from them.

Nowadays, when our government pays for roads to be built those roads belong to the public. Don't they?