A lot of energy has recently been spent on debating the merit of building a train station in the small 
town of Rockwood. Some claim the station will be economically wise, adding a much-needed commuter station to the small community; others claim that since AMTRAK is a government-owned corporation, it would be a waste of taxpayer money to invest in such a station. Both sides miss what this debate should be about entirely: how do we know if it is or is not a waste of money to build such a station?
It is quite possible that a station would be economically feasible for the area and create net wealth by increasing connection to the outside world, lowering long-range transportation costs, and creating opportunities for those who find travel to Johnstown, Pittsburgh, or Cumberland unfeasible. It is also quite possible that such a station would create further losses for the already-failing government enterprise. I do not know; nobody does.
Why can’t we know if this would be a good investment? There are no true price signals. The purpose of a private, free, and decentralized market is to convey information via price signals. An increase in the overall price of a resource, including a resource like transportation, indicates not only that said resource should be used with greater caution, but that there is a growing market for a substitute. It is possible that these price signals do not operate properly, though, as is the case with monopoly and oligopoly. AMTRAK essentially controls long-distance rail transportation, preventing the development of a price system to compare the relative values and scarcities of transportation from developing.
A central planning board, whether it be for a given resource or for the entire economy, would be required to ascertain this relative value, which differs with time and place and is dispersed across the entire market in small pieces, and then integrate it into some sort of system to compare one location’s value to another’s. The market does this without the use of any sort of integration through the development of prices. These prices tell entrepreneurs where there is a shortage and provides them with the information necessary to counter that shortage, either by using resources more carefully or by providing an alternative resource — in this case the alternative resource would be a new train line or another form of major, long-distance transport.
Nobel laureate and economist Friedrich Hayek wrote extensively on the importance of a decentralized market in his award-winning essay The Use of Knowledge in Society. Hayek, writing in rebuttal to the concept of a Central Planning Board proposed by one of his contemporaries, notes that the primary issue of economics is not how to allocate any given resources — as appears to be the issue at hand with the AMTRAK debate — but rather how to secure the best use of resources when knowledge on how to do so is dispersed or hidden; he dubbed this the Knowledge Problem. Hayek notes that the primary question of all economic problems ” is a problem of the utilization of knowledge which is not given to anyone in its totality.”
The issue at hand is similar today. We are missing the point when debating whether or not an AMTRAK station would be an economically advisable move; we should be debating how to best figure out that information. Moreover, this is a prime example how government interference in an industry can lead to the politicization of business. When business is in the pocket of big government, the question does not become an economic question, but a political question. The very existence of this debate in the public forum is a testament to that failure of government enterprise. If AMTRAK, and rail in general, operated in a free market system enjoying the full benefits of price signals, then the decision to build a station would be a private one, left up to entrepreneurs.
Thus, our meager debate on opening a train station in a small, backwoods town in Southwestern Pennsylvania is really a debate over the entire role of government in the economy. To truly understand whether or not a train station should be built in Rockwood, we must first free the dispersed knowledge of the market from centralization. To truly achieve this goal, we must look to free the rail industry, which has been primarily controlled by AMTRAK for the past forty years, from the chains of politicization. To truly solve this problem of resource allocation, we must look to privatize AMTRAK.
In an age of decreasing technological costs and increasing technological development, the barriers to entry for the transportation industry are becoming smaller and smaller. The recent launch of the privately-owned SpaceX capsule to the International Space Station and the success of start up airlines in the past two decades show this. The fear of monopolization under a privatized rail service has much less foundation than it did three decades ago; and it is arguable that a private monopoly would be preferable to the public monopoly, anyway. AMTRAK, with its moral hazard, government subsidies, and near-complete control of the market, does not need to obey price signals and, in fact, distorts them, sending unreliable information to entrepreneurs as to what a real market would be like.
Unleash the power of price signals, let the market work what Hayek called a “miracle” by coordinating so much information so quickly and so accurately. It is time to privatize AMTRAK.
