Trains and Gasoline   May 11th, 2005

by Noel T. Braymer, RailPAC President — When Amtrak was created in 1971 it was supposed to be a two year “experiment.” So uncertain was Amtrak’s future that one of the few capital expenditures at that time was for some new freight locomotives modified for passenger service. They could be sold easily to the railroads should the company be liquidated. The plan was that Amtrak would automatically go out of business if it wasn’t “profitable” in two years. Many people felt Amtrak was set up to fail, so responsibility for rail passenger service could be lifted from both the government and the railroads.

When the two year deadline for Amtrak arrived in 1973, it came during the first major gasoline crisis. In 1973 the Organization of Petroleum Exporting Countries (OPEC) froze exports of oil to the United States. This was done largely to raise the price of oil for oil producing countries, and to protest American support of Israel in the 1973 Egyptian-Israeli war. Before 1970 the United States didn’t need imported oil. In 1973 the United States still produced most of its oil. Today we import over half our oil, and this percentage will continue to rise. The disruption of supplies and increase of oil prices caused long lines for gasoline and panic across America. In 1973 the last thing anyone wanted to do was eliminate intercity rail passenger service.

Amtrak survived, but hardly thrived. In 1979 an attempt was made by the Carter Administration to drastically cut back Amtrak’s route system in the mistaken belief this would save money. At the same time the Shah of Iran was overthrown by a Revolution led by militant Islamic clerics. Again came long gasoline lines and higher gasoline prices; and less of Amtrak was cut back than originally proposed.

Since 1980 things have largely drifted along both for Amtrak and America’s “energy policy.” Politically, Amtrak was too hot a potato to “eliminate.” But, ridership and service at best stagnated except for some local state-supported services in places like California and Washington State. In the 1970′s there was also talk of American “Energy Independence” to replace imported oil. These projects largely died off. Through a combination of American diplomacy , military action and market forces the price of oil has been stable for the last 25 years. Oil producing countries discovered that higher oil prices created inflation, which in turn eroded most of their increased oil profits which of course are paid in U.S. dollars.

The current hike in the price of gasoline will moderate once demand is reduced. Unfortunately, as in the past this will be the result of a recession caused by high fuel prices. Oil supplies would be helped if the second largest oil producer, Iraq, was pumping oil at its full potential. But this is not a long term solution. The future promises declining oil reserves world-wide and greater demand for energy. Alternative energy solutions are at best years in the future before having a major affect. What can be done in the short run and long run is to conserve energy. This means more efficient lighting, insulation, less driving, more efficient cars, increased public transportation and of course more rail service.

There are powerful vested interests which makes change difficult. But there are also factors building like an earthquake, which will force many changes on the United States. The United States has a huge balance of payments deficit. In other words we owe the world a lot of money. We owe most of this money to Saudi Arabia for Oil imports and China for imports of almost everything else. China is now the second largest consumer of oil after the United States. Most of the oil producing counties which we have hostile relations are important oil suppliers to China. Any action against these counties would not be seen in China’s interest. If China wants to, it can call in the money we owe her. This would force major increases in the prime rate and greatly increase interest rates on everything, particularly those very low variable rates for new homes requiring long car commutes. We need as a country to go on a low oil diet.

This entry was posted on Wednesday, May 11th, 2005 at 2:20 PM and is filed under Commentary.