Moving stuff efficiently

Morgan Downey:

Today when a consumer on the US east coast buys a Chinese manufactured product it is highly likely it was shipped across the Pacific to Long Beach, California and then trucked using diesel fuel via road or rail across the US.

Bloomberg has an interesting story on the effect the expansion of the Panama Canal could have on US railways. The canal expansion may be among the largest fuel savers for US consumers over the next 15 years.

(The implication is that volume will move away from cross-country rail shipping, which would not be good news for Warren Buffett's latest investment).

What is Buffett betting on?

Everyone's talking about Warren Buffett's big $26 billion acquisition of Burlington Northern Santa Fe railroad, which the Wizard himself characterized thus:

“It’s an all-in wager on the economic future of the United States,” he said in a written statement. “I love these bets.”

Dig a bit deeper, and there are a few other angles. Green Sheet sees it as a bet on government infrastructure spending, especially on carbon-friendly railroad. Environmental Capital notes the same, but also uncovers a fascinating tidbit:

About half of Burlington Northern Santa Fe’s cargo is coal, from the huge coal fields around Wyoming, notes Reuters. Coal accounts for one-quarter of BNSF’s revenue. And coal accounts for about half of the electricity generated in the U.S. today.

That makes Mr. Buffett’s deal basically a massive bet on coal, argues Brad Plumer at The Vine.

Economic growth is good for energy and thus for coal... unless cap-and-trade or some other carbon price comes into effect, in which case coal will take a big hit. I would be very curious what Buffett thinks the net impact of a bill like Waxman-Markey would be on his newest and biggest acquisition.

Why did Chicago surpass Buenos Aires

Harvard economics professor Edward Glaeser has a very interesting article, which begins by reflecting on Argentina's unusual and unfortunate economic trajectory in the last century:

A century ago, there were only seven countries in the world that were more prosperous than Argentina (Belgium, Switzerland, Britain and four former English colonies including the United States), according to Angus Maddison’s historic incomes database. In 1909, per capita income in Argentina was 50 percent higher than in Italy, 180 percent higher than Japan, and almost five times higher than in neighboring Brazil. Over the course of the 20th century, Argentina’s relative standing in world incomes fell sharply. By 2000, Argentina’s income was less than half that of Italy or Japan.

This is interesting in itself, but my favorite part is his striking comparison of Chicago with Buenos Aires (I had never thought of putting the two side-by-side, but the turn-of-the-century similarities are impressive).

In many ways, the two cities are strikingly similar. Chicago grew great in the 19th century as a conduit for the agricultural wealth of the American hinterland. In 1816, it cost as much to move goods 32 miles over land as to ship across the Atlantic. The enormous costs of shipping by land caused America’s population to perch on the Eastern Seaboard, dependent on an Atlantic lifeline. Over the 1800s, a great transportation network of canals and rails makes America’s rich farmland accessible. Cities like Chicago grew as the nodes of that network.

Chicago’s fortune is made by two canals, the Erie Canal and the Illinois and Michigan Canal, which turned Chicago into the linchpin on a great watery arc that runs from New York to New Orleans. Railroads complemented the waterways and enable the rich farmland of Iowa to ships its corn, in porcine form, to eastern markets via Chicago. Chicago’s most famous 19th century industry was its stockyards, which thrived because of refrigerated rail cars that shipped slaughtered beef back east. Clothing employed even more Chicagoans, who were making garments for thousands of rural customers, supplied by Marshall Field, Montgomery Ward and Sears, Roebuck.

The story of Buenos Aires is broadly similar. Like Chicago, the city was surrounded by a vast, fertile hinterland. Buenos Aires grows as a center for transporting agricultural products east. The frigorificos, refrigerated ships, greatly increased its ability to ship beef. Clothing was also Buenos Aires’s largest industry.

Glaeser's conclusion is perhaps the least interesting part - it turns out education is the probably the biggest driver of the divergence of the two cities. Not exactly the most unexpected thing in the world. Other unsurprising culprits include protectionism, heavy government intervention in and regulation of the economy, and technological innovation (apparently we owe Chicago the skyscraper, the electric washing machine, and the zipper).