I admit I am not impartial. The fact that for 23 years I have lived three blocks from a rail line with up to 70 trains a day hauling things like chlorine gas, anhydrous ammonia, molten sulfur, sulfuric acid and propane limits my patience with the ongoing hissy fit that Rochester and the Mayo Clinic are throwing about greater traffic on the DME railroad.
They remind me of Leona Helmsley, who famously said, “Only the little people pay taxes.” Annoying trains are fine for the little people and little hospitals in unimportant places like St. Paul, Minneapolis, Willmar, LaCrosse, Fargo or Bismarck. But the general public should pony up a third of a billion dollars to spare Rochester and the Mayo Clinic the crushing injustice of passing trains.
However, as an econ prof, I find the recently announced Southern Rail Corridor proposal a great example to explain the ideas of economists Ronald Coase and Gordon Tullock. They examined how well-defined property rights are crucial for society using scarce resources productively and how entities that fail to get their way under the established rules use political clout to gain advantage.
Background always helps. The railroad was constructed from Winona through Rochester and into South Dakota by the 1870s, before the Mayo Clinic came to town.
Part of the Chicago and Northwestern system for a century, it became the Dakota, Minnesota and Eastern in the 1980s. By then, traffic levels were down from earlier years, but it was an operating railroad that largely handled grain or agricultural inputs.
In 1997, the DME announced plans to extend into the Wyoming coal fields, a change that might sharply increase its traffic. It needed approval from the Surface Transportation Board. Several cities on the existing line objected, since renewed traffic on a long-underused line would inconvenience their citizens. Rochester, spurred greatly by the Mayo Clinic, objected most strongly. Over a century, the clinic had constructed its primary facilities near the tracks.
The approval process, including an unsuccessful lawsuit by Rochester, dragged out until 2006. The DME was unable to raise construction money in private capital markets and failed in its own bid for government largesse. (Fortunately, in my opinion.) In 2008, DME was purchased by the Canadian Pacific Railway. The better-funded Canadian Pacific plans to eventually complete the coal-field extension.
Having failed before the Surface Transportation Board and in federal court, Rochester interests have organized a new initiative, the Southern Rail Corridor. It seeks funding — an estimated $325 million, largely from the federal and state government — to build a 48-mile freight bypass around the city. Advocates say it would also provide a potential link to proposed high-speed passenger rail service between Chicago and the Twin Cities. Minnesota Reps. Tim Walz and James Oberstar support it. As usual, Gov. Tim Pawlenty supports it as long as the bill goes to future taxpayers rather than current ones.
Spending a third of a billion dollars to fund this proposal would be a travesty, both in terms of social justice and the efficient use of resources to meet the needs of society. Citizens of both parties ought to be outraged. But the initiative may well succeed.
I know better than many that an active nearby rail line is a nuisance. There is noise, occasional slight vibration and potentially dangerous freight. My house would be worth more if not so near the tracks. But, like the Mayo Clinic, I moved in after the rails were there and knew the risks.
Yes, a derailment might cause a fatal spill. But the likelihood of a derailment for trains traveling at moderate speeds on well-maintained track presents much less danger to our life or health than other risks of modern life that we accept daily.
Yes, a railroad is an annoyance to a hospital. But the same trains that pass our house pass Regions Hospital. Similar Milwaukee Road trains rolled five blocks south of Abbott Northwestern for decades. Dozens traverse Bismarck at high speed one block from St. Alexius and cross Fargo just five blocks south of MeritCare. A rail line wraps around Gunderson in LaCrosse. Hundreds of hospitals in cities across the United States co-exist with railroads.
Coase argued it is essential that property rights be well defined for society to use resources most productively. If rights are well defined, disputes can be settled by the judicial system in a way that is optimal for society without other government action.
The right of a railroad to run trains on its tracks is a well-defined property right. A reduction in traffic levels, even for years, does not mean the railroad cannot later increase them. Giving affected cities a veto would be like letting my neighbor ban my barbeque because I had not fired up the grill for two years. The court rulings supporting the DME are fundamentally important to a productive economy.
But, as detailed by Tullock, professor of economics and law at George Mason University, those who don’t get their way under established rules of the game seek to use the political system to gain the upper hand. That is precisely what is happening now. But it is hard to think of a more egregious waste of societal resources than spending $325 million on an icebag for a bruised institutional ego.
© 2009 Edward Lotterman
Chanarambie Consulting, Inc.