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06/01/2008

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prefabrik ev

But that would not solve the basic problem, which as I have said arises from the fact that no individual airline bears the full costs of the delays it creates.

Boluk

prefabrik ev:

"The best solution might be a federal airplane congestion tax that would vary from route to route depending on delays, which vary considerable across regions and specific airports."

Thomason

The definition of infrastructure needs to be narrowed to capital assets, so as not to include public services. Infrastructure includes each provision by government to build and maintain a capital asset for use by the public. The term should not include "public health," but it would include a public hospital. It does not include public trust assets, such as public waters, but would includes dams and treatment facitilities.
The two primary reasons for deterioration of roads, especially the interstates, are (1) diversion of traffic away from railroads or airtransport, and onto heavy trucks, and (2) the shifting of maintenance from the federal budget to those of the states. Privatization will do nothing in those areas that governments cannot or should not do.
School buildings are infrastructure, but not the provisions of education which is a service.
When privatization of schools is discussed, the focus is too heavily on poorly-performing schools - but the priorities should be reversed. Here's an example. When religious orders set up schools and hospitals in the rural U.S., they were the only ones willling to 'plant' those seeds. Once those institutions became successful and self-sustaining, then the religious orders passed the institutions over to local control. Those that failed, were closed. Similarly, the most successful public schools could become self-sustaining, and could operate independently (except for needing public support for the teachers' retirement trusts). That would allow public funds to be reallocated to upgrade the poorly-performing schools, who'd either improve and become self-sustaining, or fail and face closure. Then, the public would desire to go to the 'public' schools that have become self-sustaining successes, and allow those schools to provide a curriculum best suited to their student body and local demographics.
With the airlines, the impact of price competition and discounting has kept the service at break-even levels for years. It will not get better, and flyers will accept delays, inconvenient flight times, nothing to eat, and poor connections, if that means lower fares. On the other point, it is definitely true that the government has failed to keep the air traffic control system up to date and adequate to handle current traffic. That too is not likely to change. Another culprit in declining air travel is the allocation of routes. New airlines, and even present carriers, wanting to serve new routes are all but barred by the federal government. If a new airline company wanted to operate from now-unused runways in the NE and the SE, then that route plan would be unlikely to be approved. The feds already have assigned those routes or nearby routes to present operators, sort of like the FCC assigns frequencies to a single broadcaster. That all but negates competition along certain routes. Just compare fares flying SWest into Baltimore versus many carriers fares into DC. That bit of regulation keeps fares within certain markets at non-market rates, even though the service is no better and may be worse.
Privatization is useful, but hardly a solution when the asset is poorly-performing.

Mark Shahinian

So let me get this straight: central government taxation is a solution to the problem of the balkanized airline system and the big corporations it affects. But creating a system of balkanized private toll roads that includes 1. local monopolies necessitating heavy government regulation 2. the conflicting willingness to pay of locals and through-travellers that can never be resolved because of dormant commerce cause problems, 3. arbitrage of gasoline costs for drivers versus toll fees (possibly driving up gasoline consumption), 4. the capture that tends to happen when public assets are sold off to private entities, and 5. the expensive-to-maintain, little-travelled roads of the West and Midwest unpurchased by private entities, and therefore further increasing government costs per mile of road. Makes no sense to me.

Jack

We dealt with the airline mess a few weeks back and it may be a totally broken system that is not much of an example for anything else. BTW I don't think that these days the FAA prevents airlines from flying to the smaller airports; they just don't have planes that are economic to run those routes.

Here's why I say it's broken: In order to provide the business class service that Posner-Becker lament is going by the wayside, the airlines must fly full. But! the flaw is that the supply-demand equalibrium to fly full is at a price point too low to pay the costs of operation. Raise price? fly more empty seats. Raise it higher? even fewer leisure travelers as will be the problem for them this summer. Park some planes? Too few planes can not cover the cost of their overhead and with spokes falling out of their hub fewer travelers can get to their destination on their choice of airline. (Dare we hope for more co-operation? Fly into the hub on Alaska and fly out on a non-partner? with a transfer voucher good on any airline that gets you there efficiently?)

Obviously the fuel crisis makes there situation worse. Raise price to cover fuel and charge for bags etc? Then the kids of those with flat median wages are not going to fly off to see grandma until the price is lowered.

Jack

Thomasson: this is an interesting dilemma:

"The two primary reasons for deterioration of roads, especially the interstates, are (1) diversion of traffic away from railroads or airtransport, and onto heavy trucks,"

I've thought for many years that we made a mistake by letting trucking take over from trains since trains are so much fuel efficient; trains consume just one percent of transportation fuel while trucks, which do carry far more freight, consume 20%.

Today, two factors are probably putting a lot of freight onto trains. One, of course is fuel costs, the other is containerization which makes a sort of spoke and hub system of truck/train/truck delivery much more efficient than when the cargo was inside a box car.

The dilemma, if I'm right in thinking we'll see lots more interstate cargo shipping on RR's, is that those long haul trucks won't be out there running long distances and paying hefty fuel taxes into the highway fund or paying hefty license fees in all those states they once passed through.

Neither will we: Many who are have to be high milers will be doing so in far more efficient rigs while many of the rest of us will be doing less highway driving and plugging into household current for our first 25 miles or so.

How the heck are they going to get highway funds out of the plug-in hybrid set? Surely they can't penalize the buyers on the purchase side, and higher gas taxes would create more plug-ins and even less revenue. Aah! It's either tolls, speedometer mileage or a hefty tax on tires; perhaps some of each.

DanC

Remember how quickly the roads and bridges were rebuilt in Southern Cal after an earthquake? What was different? For one thing the normal bidding system, with all the set asides and political feathering, was set aside.

Our current road construction contracts are often granted to politically connected firms who must bear the cost of the political favors that politicians mandate.

Privatization of the roads will not solve the problem, unless the politicians stop using road programs as a way to reward certain groups.

Roads are a classic example of where politicians can do great mischief. The additional cost to each driver is minimal compared to the substantial gains to people benefiting from the current inefficient system.

Arguing that cities grant phone and cable monopolies and could grant road monopolies does not offer me much comfort. Absent internet calling, cellphone, and satellite TV etc. I am unsure how much worse these other systems would be.

Also letting governments sell monopolies invites the government to share the monopoly profits with the monopolists and, perhaps worse, with groups that the politician may seek to reward. i.e. unions, contributors, crime figures, etc

With regard to airlines, we will see exit from the industry through bankruptcies and consolidations. This will lead to less intense competition, higher prices, and, perhaps more competition based on basic service.

Having the Federal government auction landing and takeoff slots (using the revenue to upgrade the air traffic control system) and charging an additional fee for airlines who cause delays when they are not on time, would fix most of the problems that Judge Posner discusses. ( I would grant exemptions for weather when more then 25% of all flights are delayed or something like that.)

This leaves the airlines free to compete and innovate as they see fit. I have no absolute idea how the airlines might adjust to a federal landing fee, but I am confident that the solution will be more responsive to flyers concerns then a system based on collusion.

If an airline falls to meet certain benchmarks, they could be barred from the auction. You could grant the routes for ten years, with the ability to resell the rights to an approved alternative carrier.

Jack

Dan You seem big on privatization, but favor government intervention to enforce being on schedule, or if they fail to "meet certain benchmarks"........... but otherwise "free to compete......... as they see fit"

Do you think the government can set "the right penalty" for being late, as compared to their desire to make their own connections work, protect the image of their brand, and to efficiently utilize equipment costing thousands per hour to operate?

If there is over-consolidation, why would there be "competition based on basic service?" I'd think an oligopoly would "compete" only to provide service that was better than taking a Greyhound or staying home.

DanC

Economic systems that encourage innovation and efficiency are the ideal. We could privatize the air traffic control network but we won't.

Judge Posner sees a market failure and argues that the airlines are transferring large costs to consumers. The airlines could cooperate to achieve a mutually advantageous solution but the risk is that they will collude to stifle competition. And even if the airlines were run by chaste nuns devoted to public service,they would be subject to lawsuits if they colluded to set schedules and fares.

So, a second best solution is to have the government allocate through open auction air space in and around airports. Those who can make the best use of the air space will, the vast majority of the time, be the winning bidders. (Local airports already allocate gate space.) And allowing resale of the rights will allow for quick reallocation.

Which airlines will bid, how they will bid, what business strategy they will follow is of little concern to me. That is why I leave them free to compete as they see fit. If they want to follow a Southwest airlines model or if they want to compete based on private jets with hot tubs, I don't care. I wish to allocate a scarce resource, air space, to those firms who place the highest value - because that will encourage innovation and efficiency in the system.

What is the right penalty? If airlines are still frequently late I set the penalty too low. Judge Posner discusses how the present competitive environment offers limited incentives to correct itself.

I don't know what you would call over-consolidation? The airlines will consolidate until they are able to receive at least a market rate of return on their investments. In an industry with very high fixed costs, exit of players may take a while but it will happen (absent government intervention.)

People who fly tend to place a high value on their time. With consolidation will come higher prices and potential profits for the airlines who can meet the desires of customers. If many flyers want a Greyhound experience the airlines will provide it. If many flyers want a higher level of service some airlines will provide it. BTW if the airlines became an oligopoly they would quit competing based on price and compete based on product differentiation. Oligopolies have little incentive to compete on price but they still compete.

JL

I agree with Richard that congestion pricing would, in fact, reduce congestion and that new technologies meaningfully reduce the transaction costs of tolls. But this plan does not address the ultimate cause of congestion -- people.

A quote from an nctimes article: (http://www.nctimes.com/articles/2008/05/19/lifeandtimes/z3911e14ab4f1274b8825744a005df393.txt)

"Congestion is often not caused by the road, but by the way drivers are driving," said Dr. Leon James, a psychology professor at the University of Hawaii and a pioneer in the small field of traffic psychology. When one driver in traffic makes a mistake, tailgates, or changes lanes unnecessarily, hundreds of cars may have to suddenly put on the brakes. "We call it a traffic wave," he said. "Everything suddenly slows to a crawl, but there's no obstruction."


The best way to solve congestion problems (and safety, energy, environmental, and possibly even cost problems) is to have an automated, driver-less system, such as an electric guideway.

I would like to hear your take on this Richard (or Gary).

DanC

"The best way to solve congestion problems (and safety, energy, environmental, and possibly even cost problems) is to have an automated, driver-less system, such as an electric guideway."

That is called public transportation.

Jack

JL........ our system of roads and highways are designed for humans to use, human error and all, and as most drivers today have been driving since their teens, despite the daily evidence to the contrary, I guess they're doing the best they can.

When a small mistake causes a "traffic wave" it's an indication that the system is nearing its maximum capacity. Like any system running near its max capacity it's going to give up reliability and smooth operation. As posted here, at 60 there will be a certain throughput, while at 30 the number halves, which is why the LA area has stoplights on the on-ramps; better to wait a few minutes getting on than to overload the system.

Among the well-heeled, "congestion pricing" and various means of creating a first class and a second class seems popular, but then where do those who are discouraged and rerouted by the tolls go? Obviously to the slower and even more congested routes making them even worse and the throughput for the overall system lower.

neilehat

!!NEWS FLASH!!

The American Society of Civil Engineers states that, " With each passing day, aging and overburdended infrastructure threatens the economy and quality of life in every state, city and town in the Nation. Conditions have grown so bad that it is currently estimated it will cost 1.6 trillion dollars over a five year period to bring the Nations infrastructure up to a "good" condition. Establishing a long term development and maintenance plan must become a national priority." And who has control of the purse strings? Congress and the President of course. As for the required funding, if Congress wants it to happen, it can find the money. It's found 200 million dollars a day to finance the "Bush-capades" in Iraq. Certainly it can find 1.6 trillion dollars over a five year time frame to rebuild something so important to the economy and the health and welfare of the Nation if it wants to. Anyone remember the levees in New Orleans or the I-35 bridge in Minnesota? These are only the ones that had news coverage. I won't even mention, small and minor failures we all see on a daily basis that never gets news coverage.

The question that needs to be asked is, "does Congress want to"? Good government requires basically two things, teamwork and clear thinking about national and local priorities. Both sorely lacking at the Federal, State and Local levels since the beginning of the Reagan Era. I attribute this to what I call the, "Loser Government Mentality" by candidates who have swamped the government. These administrations have sought to use spending (and withholding spending) as strong tools to speed up the collapse of major govermental departments and to discourage them from meeting their objectives. Their hope in doing so, has been to increase calls for privatization of ever more sectors of government responsibilites. Something akin to the "withering away of the government or state", but is from the "Free market Free Trade" perspective as opposed to the Marxian one.

Perhaps it time to return to the Nation's Whig/Progressive roots of modernization, economic protection/development, and the development of an active government that has the interests of the Nation firmly in hand and acts in a clear,concise, and decisive manner for those interests.

Jack

Neil, perhaps fixing up our infrastructure doesn't cost very much at all. Doing $1.6 Trillion over 5 years is likely too fast, but say we embarked on the journey at $100 billion/year.

Going into a recession with, one hopes, a lot of Nat Guard guys coming home, the federal spending would be new economic activity done by workers of many crafts and professions who'd likely be unemployed or under-employed. Since road and building work is still stuff we do here using our labor and our materials, we should be able to apply a multiplier effect of 4 as the primary wages and material sales travels through the economy.

Much of the work would employ many of those idled by housing and subdivision building being half what it was a couple years ago.

So......... $400 billion of increased economic activity, perhaps taxed at 15%??? so $60 billion headed back to our Treasury, while $100 billion of infrastructure maintenance goes over to the plus side of the public ledger and in some cases begins returning dividends such as not collapsing, causing injuries and having to be rebuilt from scratch while traffic is completely stopped for a year or more.

As we're broke the $40 billion in after tax revenue cost would have to be added to our D E B T, but generationally, we'd be passing on assets worth twice what we added to the debt. Better than what we have been doing.

In the "old days" it seems Dems would embrace such a project for "creating a lot of good paying jobs" and Republicans of yore would go for it in the spirit of "fixing the barn before building a swimming pool for the house".

RR

Public schools don't normally have excess capacity so they'd have no incentive to attract more students.

岡崎 風俗

頑張って下さい。

DanC

Please

The problem with our roads is that our current system fails to allocate or price road use effectively. The government has not and will not in the future allocate road funds based on economic principles. Rather these funds are allocated based on political motives.

The notion that just throwing more money at the problem will fix everything is wrong. The notion that society will benefit by some extreme multiple, or that road building is the best use for government funds (while ignoring how to manage use) is contrary to evidence.

Jack

Dan, I may have used to high a multiplier, but perhaps in a quick look, it's offset by my not factoring in the costly negatives of NOT tackling the delayed maintenance, that include it being more costly tomorrow, far more costly after the whole structure fails, along with the negative costs of a recession that is hardly likely to be avoided by passing out $600 checks. Remember, for the most part the $1.7 trillion is to bring what we have up to the level of "good" and that I propose making that investment at the rate of 10% or so per year as A. we probably can't afford to do it faster now, B. not wishing to create a "boom" mentality that would push up the price of contracts and put upward pressure on materials.

I too would like to step back and look at the whole mess and often lean toward land-use planning. But I lived in the LA area when Orange County was still mostly orange groves and not yet even a sleepy bedroom suburb of LA. It soon became the sprawling "white flight" capital of the region, a move that was greatly facilitated by federal dollars to build "freeways".

But, Orange County in just 50 years has become a megalopolis in its own right and the center of West Coast finance and high-tech high value-added, clean, industry. As a planner, I'd have "screwed up" and wanted it to remain half Orange Groves with a LOT less area devoted to the automobile.

Speaking of land devoted to the auto, I'm probably with you in bemoaning the once beautiful LA valley having over 50% of its land devoted to the auto. So whatever one wants to access on the grid means traveling half the time past land devoted to the mode of transportation; a number that strikes me as wasteful and foolish.

Oh........ lastly some 30 years ago, the perpetually adolescent voters of CA "jumped on" Jarvis' Prop 13 which held increases in property taxes to 1% as long as the property was not sold. Upon sale the property is immediately reassessed at the sale price. Over the 30 years this means there is a tremendous transaction cost in moving from a long held property......... so to some extent CA's traffic and network of federally subsidized highways are being built, repaired and expanded so that all who are living in the "wrong house" can pass each other on the "freeways" a couple times a day.

With $4 gas it would seem the kiddies there would have a great house swap day! More seriously the way to end that silly policy would be to phase it out, but immediately offer those of a certain age portability of their "earned" favorable rate, so the oldster could move to the country while the younger working family takes his home near the employment centers.

Jack

Some perhaps off-topic musings about car design:

A 20 pound bicycle can support a man and be powered to speeds of 20-25 by one-tenth of a horsepower.

Add and engine and perhaps the motorcycle will weigh as much as the man, or perhaps twice as much (leaving out hogs for now) and travel at about any legal speeds with 25hp

A Cessna 180 popular 4 place airplane designed in the 30's with a 180 hp engine weighs 1600 pounds and flies at 120mph.

The classic 57 Chev weighs 3200 pounds replete with heavy chrome bumpers and a 200 hp V-8

Today? Chev's Impala weighs over 3500 pounds and popular SUV are 4,000 to over 6,000 pounds.

Now I don't want to venture out on our murderous highways on a motorcycle or a fabric and tubing car, but somehow the thought of 200 pound payload zipping from stoplight to stoplight in a two ton rig strikes me as, well, ludicrous. In the half century since the 57 Chev rocked the automotive world, wouldn't it seem that we could build a lighter car that still offered protection, comfort and safety?

neilehat

Jack, Detroit did. It was called the Corvair, but some nutcase in Michigan got it killed off by calling it unsafe at any speed. And as they say, the rest is history.

BTW, how Keynesian! And on a U. of C. economics blog page to boot! Although, it has brought the churlish puppies out of the Lemont "marble" with their fangs bared.

;)

neilehat

Dan, As for allocation and pricing via privatization it was tried once before. Private contractors built their own plank roads, bridges and ferries and charged whatever they could extort out of the users. It got so bad that the Fed eventually had to step in to control the inteference with Interstate Commerce. As required by the Constitution.

As for setting a price for usage, this is called a Usage Fee. In order to recoup the costs for the current road maintenance and repairs, It would require that every licensed driver would have to pay a monthly usage fee of about 800 dollars each. Willing to pay it? - Didn't think so.

DanC

nellehat

The Constitution does not require the nationalization of services or products and I suggest you review the history of private roads. Then look at railroads, airplanes, and other transportation systems.

Where did the $800 number come from? But I would be willing to spend $2.50 per day to reduce congestion and improve the roads I travel. (Which would be about $800.00) In any case, who do you think currently pays - the road fairy? If a good is free, people will consume more of it. If you charge people for the good, people adjust their behavior. If you don't use a cash price to allocate a resource, then you pay a price in the form of congestion.

As to the rest of your rant, who do you blame when the politicians in New Orleans used levee money to build a park with a fountain. Throwing money at the politicians in New Orleans would have done little to improve the levees. And I thought the Minnesota problem was the result of a basic design error from when the thing was built some 40 years ago. Way before Reagan.

Jack
Cities are the result of the world they were born into. Look at Baltimore. Row houses close together near the harbor from a time when people walked to work. Then you can draw circles and see various changes in home construction and communities that reflect the time periods when they were constructed.

It made sense for LA to have urban sprawl since it lacked a center core and proximity to the shore was highly desired. You see the same sprawl in the triangle area of North Carolina today. Manhattan is highly dense with high rises because it makes sense economically. Housing prices in Toronto correlate with proximity to public transit. People respond to incentives.

Would it have made more sense to create economic centers in LA? For example, instead of building roads they could have used tax revenues to create tax free business centers fed by a public transportation network. Of course then LA would not have been LA. In any case, that wasn't what the people of the area wanted then or even now.

And I don't want a lot of government interference or central planning. Politicians lack any special skills at forecasting the future. The press is even worse most of the time. Look at what theses groups were predicting in the sixties about the world in 2000.

Still we can improve the roads in LA, Chicago, and New York through a toll system.

Jack

Neil.. yeah the Corvair story is an interesting one; trouble was they sold a rear heavy car that oversteered with swing axles no more dangerous than those of VW to folks used to nose heavy cars that understeered, so lots of little old ladies spun brodies unexpectedly. Funny thing is Chevy fixed everything and put a full Corvette style independent suspension in them before it died, and Detroit from salesman on up never supported small cars. They were taught a lesson in the mid-seventies they must have forgotten again.

Dan, while you may be willing to pay "$2.50" a day, the problem now is that low end wages are SO low and have not increased in buying power for 20 years that the $60/month IS a problem for many and we've no alternate means for lower income folk to get to work, school, child care, etc. It's just not working out all that well that ALL of the productivity gains have gone to those well above median wage with nothing "trickling down".

Yup, as you point out the "free good" of "freeways" made escaping LA in favor of cheaper housing in Orange County with the result of segregating LA itself and attractive option. Cheap fuel and being able to drive 72 mph with no delays did make long commutes fairly tolerable........ did it myself for a while; 100 round trip!

Hmmmmm "government intervention". I've lived most of my life in high growth areas and find the "private sector" is never going to set aside enough room for highway widening and much less leave a corridor for public transit at some point in the future. Seattle for example has a huge traffic problem and it will cost billions more than they can afford to either add surface streets or build transit lines. And having lived through the last "oil crisis" who but government could have prevented us from flying ourselves up a blind canyon? Trouble is with both lobbyists and the public not wanting to take the bitter pill both know the need to take, neither industry nor government showed much foresight.

The "truer" pricing you propose via tolls could well have been a policy of increasing fuel taxes while correspondingly lowering income taxes; over 30 years we'd have been positioned much better to weather, or perhaps even have avoided the fuel price run-up.

DanC

Jack
You want to maintain a system that increases pollution, causes huge congestion problems and lost productivity, etc because you think that rich and poor should be trapped together in the vast traffic jams? Your desire for equity is a bit out of whack with reality and in the end helps neither group.

We need to allocate a scarce resource without creating market distortions with unintended consequences. Treating resources with respect and pricing them to reflect their true costs leads to the most productive use of those resources. That benefits everyone in society.

BTW why are wages in New York higher then wages in Des Moines, even for low level jobs?

Land prices do reflect proximity to amenities that potential buyers favor. If people in a community favor proximity to public transportation land prices will reflect this. Builders build where people want to locate. Home buyers may not have a perfect vision of the future, but they are as aware of future trends as the politicians who would do any central planning.

I do favor zoning regulations but that goes beyond what I have the time to discuss.

neilehat

Dan, You're quite right. I do need to read up more on the history of roads in North America, and perhaps, I shouldn't have been sitting in the preliminary scope meetings for the "NAFTA Superhighway". As for that 800 hundred dollar charge, have you forgotten that you privatized the roads in the State. My private equity firm picked up all of the roads, State, County and Municipal. At fire sale prices I might add. That usage fee was set by our accountants to cover our administrative costs, maintenance and upkeep costs, general repair costs to bring the roads back to a "good" condition, emergency fund costs, and to provide a reasonable dividend to our share holders. If you can't afford it, please stay off of our property and roads. They are only for fee paying members.

Now, as for the New Orleans issue. You've mischaracterizd that park and fountain (as most do who try to portray the government as irresponsible) was properly used from a flood control standpoint. You see, urban greenspaces are vital components in flood control due to their ability to reduce urban runoff coeffcients; which if the coeffcients are high enough can overload storm runoff channels, resulting in greater flooding. So that money was well spent. As for that "design flaw" which it wasn't at the time of construction due to the state of art in the structural field at the time. It only became a "flaw" when the state of the art advanced to the point where it was recognized as such. But due to lack of funding in Washington (I've covered this issue earlier above) The monies were not made available to the state in order to effect repairs. And so the bridge (like London Bridge) fell down. That's why my private equity firm requires such a large fee, so that we can build up a large enough emergency fund to cover such inevitabilities.

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