I can almost see the upgrades as a TVA-like work project to get people back to work. I can't see subsides at all. We were broke. And the era of the Robber Barons was still in living memory. Any politician that gave taxpayer dollars to the railroads would quickly find himself out of office
Given how bleak things were, I'm not even sure that would pass- ultimately, it would be public sweat and treasure for what in the long term amounts to private benefit. I could see something like bridges where there is a road deck and a rail deck, or parallel tunnels being a possibility.
The Depression was not a great time for the railroads either- traffic was way down and there was even one year (1930 or 31 IIRC) where
none of the major roads ordered new locomotives.
What I can see happening TTL is that the relaxed Coolidge-era regulations and enhanced ability to set rates leading to a wave of consolidation and mergers. The bigger roads can under-price their smaller competition until the latter go bankrupt or go looking for a buyout, and then the bigger roads buy them for pennies on the dollar and rip up all but the most valuable assets.
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The problem with this TL structure,
@Andrew Boyd, is that it almost inevitably becomes a history of business TL, and that's not something you want to write.
Maybe you want something a bit more free-form, like a "Top Trains/ Railroads That Never Existed" thread?