Tag Archives: economics

Palmdale Spur

Clem Tillier recently (and convincingly, in my view) argued that a Tejon alignment for the California High Speed Rail System would be significantly cheaper and faster than the proposed Tehachapi alignment. The main pushback from blog commenters (admittedly a non-representative population) appears to be that isolating the Antelope Valley from high-speed service is not worth billions of dollars in capital cost savings and 12 minutes of reduced running time. Furthermore, some are concerned that eliminating the connection to the future XpressWest line would doom that project.

Even if we accept these counterarguments at face value, it still appears that a Tejon alignment could save money while preserving Antelope Valley service and a connection to XpressWest. What both sides seem to have ignored is that laying track in the Antelope Valley is, for the most part, absurdly cheap because it is flat and relatively uninhabited.  Below I sketch out a spur that could connect Palmdale and Lancaster to the Tejon alignment at modest cost.

I don’t have a train performance calculator, but reasonable estimates of running times suggest it would take 18 minutes to reach the CAHSR mainline from Lancaster and 23 minutes to reach the CAHSR mainline from Palmdale. At that point it would be approximately 12 minutes to Sylmar or, eventually, 25 minutes to Union Station. Total nonstop running time to Union Station would be around 43 minutes from Lancaster and 48 minutes from Palmdale. This compares favorably to current Metrolink service, which takes 120 minutes from Lancaster (local) or 93 minutes from Palmdale (express). One-seat rides from the Antelope Valley to Bakersfield, Fresno, and the San Francisco Bay Area would also be feasible. A connection to XpressWest could be added north of Lancaster. The spur also allows for a future station at the planned Centennial development off of I-5 and SR-138, which could contain up to 70,000 people.1

What about cost? A detailed KML file listing major civil structures (viaducts, grade crossing, and cuts) is available for download here.2 The bottom line is that there would be approximately 52 miles of track at grade, 4 miles of viaduct, 1.5 miles of cuts or fills, 9 grade separations, and 1 canal crossing. Using the FRA cost measures found in the Merced-Fresno Final EIR, this works out to about $1.24 billion before any overhead, and $1.98 billion after accounting for overhead. This implies a cost of $34.7 million per mile, which is almost identical to the cost per mile of the initial Madera-Fresno segment.3

$2 billion is no small amount, and we can reasonably discuss whether the high-speed spur is worth it compared to double-tracking the Metrolink Antelope Valley line and purchasing tilting DMUs.  However, $2 billion is less than half as much as the $5.2 billion that Clem argues a Tejon alignment would save.  Thus the overall cost of a Tejon alignment with an Antelope Valley spur would still be significantly less than the proposed Tehachapi alignment.

Finally, it is worth noting that for Antelope Valley residents, even a spur still would not be as fast to Los Angeles as the proposed Tehachapi alignment. From Lancaster, the spur would take about 12 minutes longer to LA than the Tehachapi alignment. From Palmdale, the spur would take about 20 minutes longer to LA than the Tehachapi alignment. However, these figures must be weighed against the fact that a Tehachapi alignment would add 12 minutes to the ride of virtually every other high speed rail rider in the state.4 At that point, I think the choice that maximizes public welfare becomes clear.

Notes

1. Naturally the state would get the rights to this development as well when it used eminent domain to acquire Tejon Ranch Company, per Clem’s suggestion. The development would undoubtedly become much more valuable after the state completed a Tejon alignment.

2. Those who wish to view the detailed map without installing Google Earth and its associated crapware (i.e., Google Software Update) may view it here.

3. Whether we should expect the cost per mile to be higher or lower than the Madera-Fresno segment is unclear. On the one hand, unlike the spur costs quoted above, the initial Madera-Fresno contract does not include systems or electrification. On the other hand, the share of track in viaducts, trenches, cuts, or fills is almost twice as high on the Madera-Fresno segment as it is on the Antelope Valley spur. I should also note that I do not have an estimate of ROW acquisition costs, though these seem likely to be modest given the low price of land in the desert.

4. The main exception would be travelers between the Central Valley and the SF Bay Area, for whom the southern mountain crossing is irrelevant except insofar as it affects train frequency.

In Defense of Microsoft (or, You Cannot Have Your Cake and Eat It Too)

In the latest episode of his excellent podcast, Hypercritical, John Siracusa discusses what ails Microsoft. His central thesis is that Microsoft has invested too much effort catering to the highly profitable enterprise market at the expense of the consumer market. In particular, enterprise customers value backwards compatibility, but focusing on backwards compatibility retards innovation and prevents clean breaks from legacy products.

I completely agree with this thesis, but I disagree with John’s contention that the 1990s Microsoft could have ignored enterprise customers’ demands at minimal cost.  The argument is that Microsoft had no viable competitors in the enterprise space – IT managers simply were not going to replace all their Windows machines with Macs or Linux boxes except under extreme conditions.  Thus Microsoft had no need to focus on pleasing enterprise customers.  In a sense, enterprise customers are akin to political extremists in the median voter theorem; they’re a captive audience that can be taken for granted by their preferred vendor.

While all of this is true, it glosses over one critical point: Microsoft’s biggest competitor in the OS market is not Apple or Linux but previous versions of Windows.  Microsoft have said this historically and they continue to say it today (“our biggest competitor for new user acquisition is previous versions of Office and Windows…”). Microsoft doesn’t make money unless a business upgrades its software, and the entire Vista debacle demonstrated that businesses are perfectly willing to skip an entire OS version if it offers diminished backwards compatibility (one exception is businesses that are on subscription plans, but I believe these were less common in the 1990s). I suspect that if Microsoft prioritized consumers over enterprise, they would see significant reductions in Business Division (Office) and Windows revenues, as enterprise customers lengthened their upgrade cycles. Focusing on consumers over enterprise might still have been the correct strategy, but it would not have come at a low cost.

Big Welfare Mommas

Why am I not surprised to learn that the banks received $1.2 trillion in near-zero interest loans during the financial crisis?  Apparently the Fed netted $13 billion on these loans between Aug 2007 and Dec 2009, which amounts to a 1% return.  The “collateral” that the Fed accepted for these loans included junk bonds and stocks.

So let me get this straight.  The US taxpayers took an enormous risk and in exchange were compensated with an annual return of less than 1%.  There is no way to see this as anything but a massive subsidy to the banks.  Perhaps that subsidy was necessary, but given that it took all the risk, why was the government not compensated with billions of shares in these institutions so that it could share in the upside?

The Data

Here are the data underlying all the calculations in the previous post.  Please feel free to use them for your own calculations if you would like.

Of course, no data are perfect.  ComScore data come from repeated surveys of smartphone owners.  Chitika data come from tabulating hits to websites on Chitika’s ad network.  There are two ways that this figure could overstate Android’s decline in Verizon net additions.

  1. ComScore might be understating Android’s overall growth.  My ComScore estimates imply that the Android base grew 58% from Feb 2011 to Aug 2011 (from 22.9 million units to 36.1 million units).  It’s possible that this is an underestimate, but that seems unlikely.  In fact, ComScore’s estimates of US Android market share are higher than any others I’ve seen.
  2. Chitika might be overstating the reduction in Verizon’s Android share. Chitika’s numbers are not exactly right, because Verizon Android users may have slightly different browsing habits than Sprint or T-Mobile Android users. Our concern, however, pertains to changes in shares.  The question is whether large numbers of Verizon Android users have suddenly stopped visiting Chitika-affiliated websites since March, while Sprint and T-Mobile Android users have not. While technically possible, this seems unlikely.

In my view, the most likely explanation for the observed data is that Android has lost momentum on Verizon.  If so, I’m certain that Google knew this many months before any of us did.

All Xeroxes are copiers, but not all copiers are Xeroxes*

I hate Xerox machines because you never know when they’re going to jam. When our Xerox machine jams, I’m stuck opening random doors and pulling levers, desperately trying to unjam it so that I can produce enough copies of an exam before class starts. Even if successful, I often end up with toner on my hands. Many others share the same frustrations. If you asked me how satisfied I am with our Xerox, I would say, “Not very.” But there’s no better way to produce scores of exams in an economical manner, so I keep using it.

Does this imply a huge market opportunity for Xerox competitors? Not really. In fact, our “Xerox” isn’t even made by Xerox, but rather one of its competitors. Paper jams are an unfortunate but common event in any high volume copier. It’s simply the nature of moving thousands of sheets of paper per day at high speeds through confined spaces.

Google’s argument for releasing Google+, its Facebook competitor, is that “people are barely tolerant of the Facebook they have.” I wholeheartedly agree, and count myself as one of those people. But when many of us say that we find “Facebook” annoying, we are not referring to Facebook specifically. We’re referring to social networking sites in general, of which Facebook is the ubiquitous example.

I personally find Facebook distasteful for several reasons. I dislike handing over my information, knowing it will be repackaged and sold to marketers in one form or another. I find many status updates to be of little relevance or interest. But I sign on nevertheless because it’s the most practical way to share my photos with a large group of people and stay up to date with them.

Of course, these factors will be true of Google+ or any other free social networking site run by a for-profit company. If Google+ supplants Facebook – any unlikely but possible scenario – then I will migrate there along with everyone else. If that happens, I will be at least as dissatisfied with Google+ as I am with Facebook (and possibly more so, as Google will collect even more information about me than Facebook does since they also see all my searches). I would be shocked if a wildly successful Google+ did not get satisfaction ratings similar to the IRS, just as the wildly successful Facebook does. It’s all but unavoidable given how closely it duplicates Facebook’s functionality.

From a strategic perspective, however, the difference between Facebook and Google is that Facebook’s only product is social networking.  As long as Facebook retains overwhelming market share, it doesn’t matter whether users dislike them, because there is no practical alternative. Furthermore, the negative brand recognition does not spill over onto other Facebook products because, well, there are no other Facebook products. For Google, however, the negative brand recognition associated with a successful Google+ (i.e., one that kills off Facebook) would spill over onto its other products.

That leads me to one of two conclusions. One possibility is that Google executives truly believe that people will somehow find a scaled-up Google+ to be much more satisfying than the scaled-up Facebook. That seems like an implausible scenario, but it’s possible they’ve convinced themselves of it. These are, after all, the same people that wanted to pay $6 billion for Groupon. The second possibility is that they are perfectly aware of the risks to the brand, but the potential to monetize all that juicy personal information, especially when combined with their search data, is just too tasty to pass up. And they might well be right.

* Technically the first statement is untrue, as Xerox surely makes other products besides copiers.