Maglev Trains in Our Future

Is the US ready for high speed rail? If The NorthEast Maglev (TNEM) gets its way, a solid demonstration project between Baltimore and Washington might be built sometime in the future for an undisclosed amount of money. The project is hardly scoped out yet, but the promise of being able to rocket between the cities at over 300 mph (500 kph) has attracted attention – and $5B in potential backing from the Central Japan Railway, the Bank of Japan, and the Japanese government. It’s a good downpayment on the guesstimated $10-15B the line will take.

How serious is this proposal? The government of Japan would love to start exporting some of its best technology, and it’s hard to pass up that kind of dough. And if TNEM gets their way, it’ll go on from there on a 240 mile line from Washington to New York, making the trip in just one hour. How much will that cost? The guesstimate of $100B is such a round number that you know it’s vague. But it’s a tantalizing worth investigating for a lot of reasons – and the money would come from private investors, not any government.

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A Not So Bold Plan

President Obama came to St Paul to propose an aggressive new investment in transportation infrastructure, $300B over 4 years.  It was a good show that messed up traffic throughout the city, which was only fitting.  That increase of $75B per year comes on top of the current $48B per year, or a 150% increase.  It’s needed, and as we’ve noted before investments in infrastructure have a great payback for the economy.

But what’s new about this is that the money to pay for it is to come from an overhaul of the corporate tax system, which is also badly needed.  The details have yet to be announced, but the overall hike is $150B per year, with half going to infrastructure and the rest to deficit reduction.   So what’s not to like about this plan?

It’s a half-step at best, and in so many ways.

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A Capital Idea

Borrowing money isn’t bad.  When it’s used to purchase something big that will last for years, like a house or a car, it often makes sense to do it now and pay the finance charge.  Borrowing to buy equipment or a build to be rented is an investment – as is borrowing money to learn a good trade.

When we look at how the Federal government borrows to keep itself going we can and should be able to ask the same questions – was this an investment?  Did we get anything good for the money?  Unfortunately, the accounting practices used by the Feds lump capital and other investment into the same pot as operational expenses, making it impossible to tease everything out.  It’s a procedure the Founding Fathers would recognize, if you wanna get all Tea Party on the practice.  But it’s still a dangerously stupid way to run things – and totally counter to the way any business or state is run.

As we talk about the need for serious reform in Washingtoon, we should add this to the list.

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Inequality vs Sustainable Growth

Is wealth and income inequality holding the economy back?  A recent study by the Pew Foundation shows that from 2009-2011 the wealthiest 7% of the US saw their net worth climb 24% – to an average of nearly $3.2M – while the other 93% of the population saw their wealth plummet 7%.  More than being unfair, it may also be holding back economic growth overall.  The rich may be happy with their take, but it may stop coming.

A number of studies have shown the effect over a number of countries, and the effect is undeniable.  At what point does income and/or wealth inequality slow growth?  Like an excess of debt it’s hard to say, but the two taken together lead to a compelling argument that the search for sustainable, meaningful growth is a strongly bipartisan, left and right issue – and something we should get moving on as a priority.

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Infrastructure & Payback

As the water from Hurricane Sandy receded, tens of thousands of homes remained without power for weeks.  New York Governor Cuomo was livid – “The utility system we have was designed for a different time and for a different place,” Cuomo told a news conference. “It is a 1950s system.”  The ConEd grid is, of course, managed entirely by private money, but it is a highly regulated utility.  You can bet that the hammer will fall on them as they are forced to rebuild a completely new system in areas where the old one was more or less washed away.

Down the coast in Washington there is a different focus, one that highlights how a developed nation can have such a terrible problem with antiquated infrastructure.  There, the talk is about how to avoid a “Fiscal Cliff”, a political problem focusing and complicating a very real problem with excessive deficits built not around long-term investment but merely keeping the government running.

The divide between the two is bigger than the 3 hours 25 minutes it takes the Amtrack Acela to cover the distance.  It is the gap between the reality that infrastructure investment has an incredible immediate impact on the economy, pays for itself in the long term – but remains neglected as too expensive.

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