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Railroad Expansion, Most Effective Way to Rescue US Economy

By Jonathan Wang, Ph.D.  04-03-2009                    Contact Author

I have been puzzled for many years. Well developed railroad systems are seen as key elements of economic infrastructures in majority of countries with either fast growing economies like China and India or economic super-powers such as Japan and Europe. Why the railroads seem to have been abandoned to a great extent in the United Stated within last several decades?

It is reasonable to believe a properly designed and constructed railroad network ought to be a great infrastructure that can benefit many sectors like tourism, retail and particularly manufacturing. We have kept asking why so many manufacturing businesses have shipped their jobs oversea, there is no doubt that lack of good railroad transportation systems has something to do with it. The reason for this argument is very simple: highway transportations bear much higher costs yet lower efficiencies than railways.  

We are now in the mist of an unprecedented economic downturn. All government rescue plans so far apparently did not take much effect. Consumer sentiment remains at its trough, the unemployment rate is heading to double digits. In article  Trillions Dollars Won't Save US Economy, Data Say”, I argued it is almost impossible to rescue the US economy merely by pumping money into the financial system. If that huge amount of money is diverted to investments in the real economy, a recovery can be rather quick and consequently we could prevent a depression from happening.  A well planed railroad expansion should be exactly the most effective "real economy" investment. Here is why.

Firstly, in the short term, a railroad expansion plan can create a large number of jobs and lift the consumer sentiment. China recently speeded up its railroad constructions to fight the global economic crisis, which has greatly contributed to the quick recovery. Obviously, a large scale railroad expansion will stimulate the growth of a wide range of key business sectors, including constructions, services, material supplies, steel manufacturing and information technology industry. Millions of jobs will be created as a result.

Secondly, in the middle term, a well constructed railroad system will stimulate the growth of tourism and travel industries. When the broad economy is in a bad shape, the travel industry suffers a great deal. Travelers in the United States have been heavily replying on high cost air transportations in the last decades. Needless to say, if we had a cost effective transportation alternative in place, the travel industry would be much more resistant to the economic crisis like the one we are in now.

Finally, in the long term, a good nationwide railroad network will provide an improved infrastructure for the expansion of manufacturing sectors. Granted, the high labor cost is one major cause for many manufacturers to move their plants oversea. However, an impact of high transportation costs can not be ignored. If is startling that the cost for shipping a seventeen-ton container from most parts in China to California is around $1300, while shipping an one-ton crate from Michigan to New York would cost as much as $2000. You many argue this is still due to labor costs. But shipping by rail, though inconveniently available only in limited destinations within the United States, are also much less expensive than shipping by the dominated transportation means - trucking. So I must argue railroad expansions will improve the competiveness of the US manufacturers.

Related Series Articles on Global Economy and Recession by Jonathan Wang

global economy, US economy, China economy  Railroad Expansion, Most Effective Way to Rescue US Economy

global economy, US economy, China economy  Consumer Sentiment Lags, Stock Markets Soar - Sign of Depression?

global economy, US economy, China economy  Trillions Dollars Won't Save US Economy, Historical Data Say Everything

global economy, US economy, China economy  Why China is more resistant to the global recession than any western countries?

global economy, US economy, China economy  Bail Out Banks...Again? Caution, Don't Jail in Economy

global economy, US economy, China economy  What has really caused collapse of the financial market in the United States?

 
 

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