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Europe’s Flawed Addiction to Rail

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Europe’s Flawed Addiction to Rail

July 15, 2018

Everyone who has been to Europe knows that trains are an essential part of Europe’s transportation system. Europe is hailed as the holy grail of transportation for its widespread use of trains instead of cars, while the United States is criticized for its reliance on cars and trucks. However, Europeans have achieved this by spending much more on subsidies than Americans, leading to many unintended consequences.

Germany spends more than six times U.S. levels on its sponsored railway company, Deutsche Bahn. The German federal government alone will spend $13.3 billion (€11.4 billion) in rail subsidies in 2018, compared to the $2 billion the U.S. federal government will give Amtrak. While the U.S. spends approximately $6 per person per year, Germany spends more than $160 since its population is much smaller.  

Despite the subsidies, Deutsche Bahn has kept accumulating debt over the past decade, and it is now more than $20 billion (€17.6 billion).  Conversely, Amtrak has decreased its debt by more than half since 2008, to reach only $1.2 billion last year. Germany is not an outlier, as subsidized trains in France and Italy are in a worse financial position and spend even more per person.

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 usage, specifically on gasoline. Europe’s trains are financed by the highest fuel taxes in the world.

Source: United States Department of Energy and Bloomberg

High fuel prices in conjunction with subsidies for alternative methods of transportation such as trains result in considerably lower car ownership and usage. But despite the vast amount of taxes and subsidies, nearly 80 percent of Europeans choose to bear this cost and travel by car, showing the value and convenience cars provide.

Train subsidy proponents argue that such funding is needed to provide affordable transportation to low-income citizens. However, if taxes on cars were lower, Europe’s low-income citizens would need fewer train subsidies, because they would be able to own a low-cost car similar to nearly all-American households.

On the other hand, advocates argue that subsidies reduce deaths since cars are 17 times more dangerous than trains. Trains are safer than cars, but higher train usage does not replace car usage completely. Train usage also substitutes airplanes particularly in routes where the travel time is similar. But since airplanes are 6 times safer than trains, train subsidies can increase fatalities for individuals who stop flying to ride trains. Reducing fatalities is certainly a strong argument, but resources could prevent even more deaths if spent increasing road safety rather than subsidizing trains.

Additionally, train subsidies distort travel behavior and long-term business decisions in unpredictable ways. The lower relative price of train travel encourages travelers to choose trains over cars or airplanes even if it takes more time to get to their destination, making millions of people change their decisions and lose hours of their lives.

Subsidy supporters contend that trains improve the environment by reducing car and plane usage. However, innovation is making cars increasingly fuel efficient and inexpensive. A study that accounted for the lifetime pollution of different transportation methods, including their manufacturing, showed that trains can have a worse effect on the environment than cars.

On the other hand, airplanes are more environmentally friendly than trains. Even the European Union has acknowledged the superiority of airplanes and is puzzled at the nonsensical preference of national politicians for trains.

Even though trains are safer than cars, innovation has made cars have increasingly safer over time. Developments such as self-driving cars may make the transportation system safer, faster, and cleaner. Yet, if governments pick trains over cars in the transportation market it will hinder innovation in both industries since lower demand for cars will make new products unprofitable and reduce the incentive of trains to innovate to compete with cars.

If left to private enterprise and consumers, innovation will lower costs and improve trains. For instance, Texas Central Partners announced that it would invest $15 billion to build a high-speed train between Houston and Dallas starting in 2019 without any subsidy from either the state or the federal government. In contrast, the California state government has been trying to build a high-speed train for years. The latest cost estimate for California’s project is $77 billion, and it could rise to as much as $98 billion.

Commuters and travelers consider many factors when choosing their transportation method. While some government officials embrace the train dogma, evidence shows that it is much more complicated and train subsidies have negative consequences on government finances and people’s lives.

Toy trains might be fun to play with, but people’s wallets and choices are not a policymaker’s game. The American system is far from perfect, but it is less costly, faster, and allows citizens more choice than Europe’s. As Milton Friedman would have said it “Nobody spends somebody else’s money as wisely as he spends his own.”

Daniel Di Martino is a contributor to Economics 21. Follow him on Twitter @DanielDiMartino

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