This article from Sunday's Dayton Daily News caught my eye. It is very revealing, if you read it closely.
A high-speed rail link for Ohio?
Gov. Ted Strickland has requested $250 million in stimulus funds to develop the 3-C Corridor, a passenger train system from Cleveland to Cincinnati, according to Stu Nicholson, spokesman for the Ohio Rail Development Commission. Also requested was $7 million to study development of the Ohio Hub, a proposed system of crisscrossing high-speed train lines that would connect Ohio to other states.
So, let's see what we've learned: Ohio officials are seeking to spend $257 million on this. That's a lot of money--but what does it buy us? Something vaguely called "study" and "development."
When we read further, we get a better idea of the full cost: "Developing the Ohio Hub would probably involve installing new rails in existing right-of-ways, and the eight- to 10-year project would cost up to about $7 billion."
"About"? Ever notice how TV ads will say, "it cost you 'about a dollar a day'?" What do you immediately think? "It'll cost more than a dollar a day, because if it cost less they'd have said that." How much more than a dollar a day, you don't know till you read the fine print; same with that "about $7 Billion." And if you re-read that paragraph, the hedging about the time-frame and the cost leaves ample room for it to be a lot more than that. This from the same folks who built all those e-check stations at whatever huge cost, instead of licensing existing car-repair places to handle it.
OK, but let's call it $7 Billion on the dot and move on. What's the payoff?
The next paragraph is priceless; the reporter wrote it so artlessly, that either he didn't catch the joke, or he just played it straight. So just for fun, I'll hold back the key information for last, so you can get the full picture:
"An economic impact study by Wright State University economists, however, predicts the Hub would generate about ______ in economic benefit over 30 years. In addition to the jobs created by construction and operation of the trains, the study projects economic development around the train routes and stations, significant fuel cost savings and environmental benefits.
Oh, my think of all that economic benefit! Jobs! Trains! Development around the stations--which have to be built of course, more jobs! "Significant fuel cost savings"! And best of all: "environmental benefits!" Oh, rapture!
How much might all that add up to, you wonder?
"$17 Billion." (over 30 years).
Now, I realize not everyone is good with numbers; I'm not all that good. But I know a little about compounding interest, and my antennae popped up on that one. "Just how much return is that on the original $7 Billion," I wondered.
I googled "interest calculator" and arrived here. Here's how I calculated things, so that you can evaluate whether my method was valid:
I put in 70 cents initial outlay (representing 1/10 of $7 billion), adding the same for the first 10 years; then I took the total that gave me, and recalculated for another 20 years' growth, To arrive at $17 (i.e., $17 billion) required a 3.1% interest rate.
That means that this ballyhooed investment is equal to slightly more than a 3% return! Meanwhile, if you check the rates at the U.S. Treasury, you'll find 30-year notes are currently earning 3.62%.
In case you didn't get the joke: this is the rate of return on this so-called "investment"--based on the most sunny projection they could come up with! Just like the ads that say, "about a dollar a day"...if they could have said this would yield $30 or $50 billion in "economic benefit"--they would have! "Economic benefit" is an extremely loose term and from a strict business point of view, it's meaningless. Prove it to yourself this way: go open a restaurant (or any business) this week--empty your savings, or take out a loan, and get yourself all set up. Proceed to lose money every week, until you are broke. But be consoled--you will have generated an amount of "economic benefit" far larger than the amount you lost. Get the picture?
Notice something else: if they could have said this would make a profit, they would have! Go read the story--and you tell me if that single word ever appears. Hint: it doesn't.
If you still think this is a good idea, then I have an offer to make: send me money. As much as you want. As often as you want. I won't promise you any profit or return; but I guarantee to generate lots of "economic impact." Deal?