After racking up bills of over $77 billion, former Governor Jerry Brown’s fanciful dream of connecting the cities of San Francisco and Los Angeles with a high-speed bullet train that could travel at speeds up to 220 miles per hour has crashed to Earth, just 37 days after leaving office. California’s new governor, Gavin Newsom, surprised many when he announced that the project will be dramatically scaled back to serve only a route between the Central Valley cities of Merced and Bakersfield.
“Let’s be real. The current project, as planned, would cost too much and respectfully take too long. There’s been too little oversight and not enough transparency,” Newsom said in his first State of the State Address to lawmakers on Tuesday.
“Right now, there simply isn’t a path to get from Sacramento to San Diego, let alone from San Francisco to L.A. (Los Angeles). I wish there were,” he said.
That portion of Governor Newsom’s assessment of the project is pretty spot on.
Unfortunately, in choosing to continue completing the 119-mile route between Merced (estimated population 79,000) and Bakersfield (estimated population 347,000), Governor Newsom is demonstrating that he hasn’t yet learned the basic accounting lesson of sunk costs.
A sunk cost is a cost that an entity has incurred, and which it can no longer recover. Sunk costs should not be considered when making the decision to continue investing in an ongoing project, since these costs cannot be recovered. Instead, only relevant costs should be considered. However, many managers continue investing in projects because of the sheer size of the amounts already invested in prior periods. They do not want to “lose the investment” by curtailing a project that is proving to not be profitable, so they continue pouring more cash into it. Rationally, they should consider earlier investments to be sunk costs, and therefore exclude them from consideration when deciding whether to continue with further investments.
Alas, California politicians’ high-speed rail dream has never been rational, has it? By not taking the opportunity to terminate the poorly conceived project once and for all, and by not turning toward projects that might offer a positive return on investment to Californians with some dignity, Governor Newsom is instead setting the stage for greater disappointment.
“Abandoning high-speed rail entirely means we will have wasted billions and billions of dollars with nothing but broken promises, partially filled commitments and lawsuits to show for it,” Newsom said. “And by the way, I am not interested in sending $3.5 billion in federal funding that was allocated to this project back to Donald Trump.”
The concrete pillars and trackways of the high-speed rail system that Governor Newsom plans to complete are highly reminiscent of what the Stonehenge ruins in southern England must have looked like in their heyday. What a shame it will be for future generations of Californians, when they come to look upon the ruins of California’s own Stonehenge, to learn that the primary motivations for building the monument were foolishness and spite.
But at least there’s now a cap on the cost of this particular foolishness for Californians, and the beginning of its end has come into sight, which is something to celebrate. Ding-dong! California’s bullet train is almost dead!