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EYE ON THE PIE: This railroad deal is a good deal

August 11, 2008

Let's get burritogate out of the way and proceed to more substantive, if less spicy, matters. Yes, a guy who works for the Canadian National Railroad paid for a burrito and a beer that I consumed. He did not know then that I wrote this column and hence commanded a vast, influential audience. I did not know then that he had a project to represent.

But CN (as the rail line is called) has a most significant project going. It proposes buying the EJ&E (Elgin, Joliet and Eastern) Railroad that forms an outer loop through Chicago's Illinois and Indiana suburbs. This acquisition would allow CN to bypass Chicago's most congested rail linkages and numerous congested streets.

"So what do I care?" you say, living in Indianapolis. That's easy. What's good for Chicago is usually good for Indiana. Yes, all of Indiana.

The EJ&E acquisition would allow CN to move freight through Chicago faster, cutting costs to the railroad and to its customers. Reduced traffic from CN would make other Chicago rail lines more efficient and reduce the congestion at many rail crossings in the Chicago area.

Efficient rail carriers are one of the answers to our nation's energy and environmental problems. Rail lines, working with trucks, generally use less energy, cause fewer accidents, and reduce both pollution and congestion far better than shipments by truck alone. And Chicago is the hub of freight traffic in America, with onethird of all goods produced or marketed in the United States passing through.

The benefits to Chicago make that city a more attractive place to live and do business. The desirability of living and conducting business in northwestern Indiana is strongly related to the drawing power, the economic and cultural magnetism, of Chicago. Hence, the second-largest tax base in Indiana depends on the success of Chicago. The taxes supporting schools in Carmel and Columbus come, in part, from northwestern Indiana.

Naturally, moving more traffic on the EJ&E line would bring changes in communities along that route. While fewer freight cars would go through Chicago proper, more would be passing through Illinois and Indiana suburbs. That is disturbing to folks who live in Munster, Griffith and others along the line.

This is classic economics. A project with benefits to the nation, one with strong appeal to certain commuters and residents, may have undesirable consequences for others. The railroad and the communities will be able to reach some accommodation. But what settlement will compensate the citizen who feels his/her quality of life is being sacrificed for the benefit of unknown others?

The local governments and CN would negotiate safer rail crossings and other attempts to mitigate increased freight movement on the EJ&E tracks. They could even agree, if the law allows, for CN to finance reduced property taxes in the "burdened" communities the next few years. But then we get into more "equity" problems.

Should all citizens in Griffith get the same payout from such a scheme? Should those adjacent to the tracks get more than those a block away?

From my reading of the deal, the benefits would be great and the disadvantages few and limited. Sometimes we say that "in a perfect world" we could provide an offsetting benefit for those facing the adverse consequences of a socially beneficial decision. But we cannot live in a perfect world until we have perfect data. Until we can quantify the benefits and reallocate them from the winners to the losers, we are restricted to listening to that lonesome whistle blow, knowing it brings joy to many and wakefulness to a few.



Marcus taught economics for more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.
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