Matthew Yglesias » “We Did It With the Airline Industry”

Nov 16th, 2008 at 10:42 am

“We Did It With the Airline Industry”

Senator Carl Levin was noting on Meet The Press that his proposed bailout for the auto industry “is not unprecedented,” observing that “we did it with the airline industry.” That seems very true to me, but also seems a lot like a cautionary tale. The airline industry is deeply dysfunction, and it’s dysfunction in part because its so dominated by these corrupt business-government “partnerships.”

Comments
61

Filed under: Cars, Economy,

61 Responses to ““We Did It With the Airline Industry””

James Gary Says:
November 16th, 2008 at 10:48 am
To pre-empt M_x_n_r: The airline industry’s very successful! Fares are cheap! Everyone can afford to fly! The market is efficient! What more do you want?
right Says:
November 16th, 2008 at 10:51 am
The airline bailout was a horrendous decision, made in a panic just a few weeks after 9/11. There was never a strong substantive case for it.
Petey Says:
November 16th, 2008 at 10:58 am
“but also seems a lot like a cautionary tale. The airline industry is deeply dysfunction, and it’s dysfunction in part because its so dominated by these corrupt business-government “partnerships”

Of course, government is involved in the airline industry because government wants more air service than the market will support.

Much like government has an interest in subsidizing canals and roads, and should be subsidizing mass transit, government also has an interest in maintaining robust air routes.

An airline industry totally free from government support over the past decades would inevitably end up flying to fewer places with lower frequency. And that is likely not in the public interest. A robust transportation network is very much in the government’s bailiwick.

—–

Tangentially, Matt ought to own up to the fact that his manufactured rationales for opposition to an auto industry bailout have far more to do with his carbon concerns than with the specifics of whether or not an auto industry bailout makes sense.

When you hide your real rationale, you end up making lousy arguments.
Dan Kervick Says:
November 16th, 2008 at 11:09 am
The airlines are in trouble because propelling tons of metal and people hundreds of miles through the air, safely and on target, is an inherently elaborate and expensive proposition. It’s amazing that such an industry even exists. But that industry established a high level of customer demand and complacent expectations of miracles during an era of cheap fuel and golden age prosperity, and this is a situation that simply cannot be sustained without some major technological innovation, no matter how many services are cut.

Of course the problems with the sustainability of air travel service were made even more acute by all the post 9/11 security bullshit which Matt was just forced to endure on his Swiss influence-purchasing junket to the land of banking secrecy.

Those bad old private-public partnerships? Maybe Matt could tell us which steps in the direction of further deregulation and further disentanglement of the airlines from the government Matt has in mind. It’s amazing how Matt has gone all free market and creative destruction on us now that the socialism is on the other foot. The big project, public investment winds are now blowing in the direction of the one technology Matt really fears and hates – cars.
Dan Kervick Says:
November 16th, 2008 at 11:14 am
Matt’s “carbon concerns”? Didn’t he just say a few days ago that he has never taken a really strong interest in environmental issues? His carbon concerns are just dressing for his transportation concerns, and his transportation concerns are just dressing his Support Matt’s Way of Life concerns.
kafka Says:
November 16th, 2008 at 11:18 am
Maybe what’s got Matt bothered is that the Democratic party, the party of (as he would have it) bicycle trails, mass transit, and high speed trains, is going to begin its reign by bailing out the auto industry. Sure, they’ll try to dress up this payback to Michigan voters with some “green” agenda. In practice this means D.C. lawyer/politicians trying to micromanage Detroit’s product line – another comedy in the making.
Petey Says:
November 16th, 2008 at 11:20 am
“Matt’s “carbon concerns”? Didn’t he just say a few days ago that he has never taken a really strong interest in environmental issues? His carbon concerns are just dressing for his transportation concerns, and his transportation concerns are just dressing his Support Matt’s Way of Life concerns.”

This may well be true, but my guess is that Matt’s Way of Life concerns are very much commingled with his carbon concerns.

He’d likely still be anti-suburbs in a Jane Jacobs kind of way if carbon concerns didn’t exist, but I think the carbon situation makes him more far more strident in his anti-auto hysteria.
howard Says:
November 16th, 2008 at 11:23 am
petey, perhaps you could explain – rather than assert – what it is that isn’t in the public interest about less airline service. markets do a poor job of allocating health care resources for lots of easily demonstrable reasons, so increased government involvement in health care does actually make sense, but what is the argument for an airplane ticket in every pot?

and, therefore, following along, what is the argument for maintaining a US auto industry (dan, i’ll ask you that too). why shouldn’t creative destruction be allowed to work its way? because 40 years ago, it was great to live in detroit?
Petey Says:
November 16th, 2008 at 11:24 am
“It’s amazing how Matt has gone all free market and creative destruction on us now that the socialism is on the other foot. The big project, public investment winds are now blowing in the direction of the one technology Matt really fears and hates – cars.”

This, of course, is the really annoying part of Matt’s lack of intellectual honesty here.
Petey Says:
November 16th, 2008 at 11:38 am
“petey, perhaps you could explain – rather than assert – what it is that isn’t in the public interest about less airline service”

As explained, or merely asserted, I think the government has an interest in maintaining a robust transportation network.

Such an interest dates back to the very beginning of the Republic.

One could certainly make the argument that the government has no interest in having a robust system of canals, roads, mass transit, long haul railways, and air routes, but I find that life is too short for debunking libertarians.

Knitting the nation together seems self-evidently central to government’s mission.

—–

If you want to debate the scope and methods of the government’s involvement in the airline market over the past seven decades, I’m sure we’d find areas of agreement. But I think air service is too important to the public interest to let the markets have complete autonomy in the matter.
AJ Says:
November 16th, 2008 at 11:44 am
Petey’s right, Matt’s just looking for justifications for his pre-existing position. I notice he doesn’t reference Krugman’s support for gov’t assistance in the current environment as the liquidation of GM would be the biggest anti-stimulus possible in the midst of what is already the largest recession in at least thirty years.

Of course, he could prove us wrong with a post about stopping support for the Socialist Zombie Corp Amtrac and DC Metro.
Petey Says:
November 16th, 2008 at 11:46 am
“and, therefore, following along, what is the argument for maintaining a US auto industry”

I’m actually kind of agnostic on whether or not an auto bailout makes sense. The devil would be in the details.

But the argument in favor is that once the current downturn is over, it will be useful for the US to have some domestic auto production, and stepping in during the downturn is the easiest and most efficient way of doing that.

Many successful industrial nations have employed some element of an industrial policy to nurture selected domestic industries, and I think there is a reasonably compelling case that the US auto industry is a good fit for nurturing through the current downturn.

More generally, there really are good reasons for keeping the US manufacturing sector going at some reduced level even during periods where it seems inefficiently duplicative of cheaper manufacturing sectors overseas.
Nigel Says:
November 16th, 2008 at 11:55 am
First, I’d like to thank my white brothers and sisters for their intelligent comments on this website. (What is race but extended family?)

Second,I’d like to note:

A country that does not have its own manufacturing base is a doomed country. If the globalist free-trade traitors on Wall Street want to sell us out, then they should be tried for treason or deported.

————
SIGNATURE:

The white patriot’s Coat of Arms: gens alba conservanda est (the white race must be saved)

—-

T.S. Eliot: “White Trash” is a white person who fornicates with a non-white.

—-

BARACK HUSSEIN OBAMA’S DECLARATION OF WAR AGAINST EUROPEAN AMERICANS.

Obama has supported:

(A) Reparations. Redistributing money from European Americans (Whites) to blacks, mestizos, and Asians.

(B) Criminalizing white parents who refuse to let their children practice miscegenation.

(C) Using “hate crime” laws to silence any criticism from European Americans.

(D) Using Third World immigration to overwhelm European American majorities.

(E) Maintaining anti-white affirmative action programs

(F) Creating a mandatory “America Serves” community-service program to indoctrinate and deracinate young European Americans
—-

From evolutionary philosophy email list: “Children of mixed, white-black, marriages identify 99% of the time as black and detest European Americans (whites). Why? They almost always look black (eye color, hair texture, nose shape, skin color, etc.). Obama wrote: “I found a solace in nursing a pervasive sense of grievance and animosity against my mother’s white race.”"
pseudonymous in nc Says:
November 16th, 2008 at 12:22 pm
“Nigel” is clearly a cut-and-paste spamming bigot rather than just a Sailer-esque trolling bigot.

Delete, ban, pretend it never showed up.
White Courtesy Phone Says:
November 16th, 2008 at 12:28 pm
Cleanup in aisle 13. Matt, cleanup in aisle 13 please. Thank you.
Petey Says:
November 16th, 2008 at 12:29 pm
Don’t feed ‘em, pseudonymous in nc.

Follow up on the topic Matt introduced, and ignore ‘em. CAP folks should put some minimal resources toward deleting stuff like that, but that’s outside our bailiwick.
Petey Says:
November 16th, 2008 at 12:31 pm
And may I say, I’m in love with the word “bailiwick”. Had it not been for prop 8, I would have gay married the word “bailiwick”.
novakant Says:
November 16th, 2008 at 12:45 pm
7 out of 17, wow – why don’t you set up your own bloody blog.
Petey Says:
November 16th, 2008 at 12:46 pm
“and, therefore, following along, what is the argument for maintaining a US auto industry”

AJ makes a crucial point I neglected:

he liquidation of GM would be the biggest anti-stimulus possible in the midst of what is already the largest recession in at least thirty years.

And also, with the Iverson trade to the Pistons, what’s good for Detroit is now good for all us.
Petey Says:
November 16th, 2008 at 12:50 pm
“7 out of 17, wow – why don’t you set up your own bloody blog.”

Then I’d have to worry about attracting traffic.

As long as I’m not seeking fame or fortune, being a parasite seems to make more sense than being a free-standing animal.

Plus, I think I’ve added value to this particular discussion.
tomemos Says:
November 16th, 2008 at 1:22 pm
“why shouldn’t creative destruction be allowed to work its way? because 40 years ago, it was great to live in detroit?”

How about because we don’t want millions of Americans to be out of work and entire states to be economically ruined?
howard Says:
November 16th, 2008 at 1:32 pm
petey, you’ve provided an answer as to why it makes sense for there to be an air traffic control system, why it makes sense to allow airports to be built, and similar matters: you haven’t provided an answer as to why we need flight routes where there is no demand.

as to the issue of the auto industry: i keep waiting for someone to demonstrate how GM in chapter 11 somehow has this massive negative impact on the economy: GM has been declining for decades, after all. people keep saying, as tomemos just did, that “millions of americans will be out of work” if GM goes into chapter 11, but on what basis are they saying it?

let me assure tomemos and anyone else, come january, when we tote up the retail sector post-xmas bankruptcies, then we might be talking about millions, but not if GM enters chapter 11. why should there be? chapter 11 is not a shutdown of operations….

it was an article of faith in the british labor party for years that nothing could be done in the face of declining steel and coal nationalized industries: the result was thatcherism….
raoul Says:
November 16th, 2008 at 1:34 pm
Two thoughts: there is no doubt in my mind that a bankrupt car company will cost the taxpayer more money than a bailout.
I detest to fly- but we can fly today cheaper and more places than ever before.
SqueakyRat Says:
November 16th, 2008 at 1:36 pm
After a hundred years of pampering, we’re now supposed to nurture the auto industry? Gimme a break.
bago Says:
November 16th, 2008 at 2:08 pm
Scuze me, but Virgin air is kicking some ass. Short lines, deluxe accommodations, smooth and very modern planes. Those pikers who want me to cram into a foldout tray and enjoy my pack of peanuts can suck it.
Michigander Says:
November 16th, 2008 at 2:31 pm
Jimmy Carter can tell you why you should want to help the good guys out after they delivered a massive electoral victory to your progressive candidate. I promise you that if a Democratic Congress + President whiff on this and allow the big 3 to die, Democrats will find very infertile ground in the uper midwest.

Why don’t we get all of our contributions to FEMA back so the idiots who live in risk-prone areas can experience “creative destruction” and “proper incentivization?” Oh, that’s right, progressives believe in some forms of cross-subsidization, especially when it facilitates humanitarian goals, such as preventing the economic destruction of a region of the country. I find it odd that its cooler for pampered little rich kids from New York/Boston/ et al. to trash unions and industrial manufacturers than it is to bash risk prone residents of New Orleans/Florida.
Mixner Says:
November 16th, 2008 at 3:44 pm
The airlines are in trouble because propelling tons of metal and people hundreds of miles through the air, safely and on target, is an inherently elaborate and expensive proposition.

No, the airlines are in trouble because it’s a hypercompetitive industry with small margins and costs that are very senstive to short-term changes in oil prices. If we still had the old regulated airline industry, the airlines would probably be in better shape, because the government would just jack up fares to protect them. All the pain would be pushed on to consumers, and the airlines would have no incentive to mitigate rising costs through innovation and new technology.

It’s amazing that such an industry even exists.

There’s nothing amazing about it. Jet aircraft offer huge advantages over alternative modes of transportation for trips longer than a couple of hundred miles, and have essentially no competition for overseas travel. Even if the real price of air travel were to double, as a result of a massive and permanent increase in fuel prices that could not be offset by new technology or efficiency improvements, it would still be cheaper than it was in the 60s and 70s, and the air travel market would still be enormous.
bdbd Says:
November 16th, 2008 at 4:31 pm
The post 9/11 Air Transportation Stabilization Board (made up of 3 voting members, 1 each from the Dept of Treasury, Dept of Transportation and the Fed) provided loan guarantees for private sector loans to airlines that could convincingly show that the economic impacts of 9/11 on their operations and revenues made it impossible for them to get private sector financing on their own. Few guarantees were granted (despite a lot of political pressure, United was not granted any loan guarantees, for example), most involved stock warrants being granted to the government, and I believe the Feds made money overall on the program. All of this is fundamentally different from what might prevail in the current auto industry, I think.

re Mixner, if regulation were still in place, fares would not have dropped in the first place, of course, so they wouldn’t need to be jacked up!
Realist Says:
November 16th, 2008 at 5:03 pm
The reason it makes sense for the government to build roads isn’t that the government has some general interest in subsidizing transportation (why would it?), it’s because roads are a natural monopoly and it is inefficient for natural monopolies to be in private hands. This is a general argument for government building of infrastructure.

There is no such argument for either the airline industry or the auto industry. In fact, the opposite is the case for airlines and cars, since they produce negative externalities in the form of pollution; the government should tax them both instead of subsidizing.
hhoran Says:
November 16th, 2008 at 5:30 pm
Matt’s post and subsequent comments totally miss the point, because Senator Levin’s original comment was complete, utter nonsense. US taxpayers have never bailed out bankrupt (or vitually bankrupt) airlines. The 9/11 subsidies were utterly insignificant compared to the dollars being discussed for the Michigan automakers, and most of that money was direct payback for out-of-pocket losses for the post-9/11 air system shutdown. Only a fraction of the other available money ever left the treasury (all in secured loans that got repaid within 18 months).

There are two auto industries (hopless/Legacy/Michigan vs foreign owned/non-Michigan/modern/less unionized). Just as there are two airline industries (Legacy United/Delta etc vs modern Southwest/Jetblue etc). Bailing out GM is the same as taxpayer giveaways to the current management at United. You’d entrench horrible managers and failed corporate cultures a while longer while totally screwing the customers, employees and shareholders of the more efficient airlines.

Any taxpayer subsidies to the auto industry need to help the non-Michigan producers dramatically grow–that’s the only way total US manufacturing employment/output gets improved.
Petey Says:
November 16th, 2008 at 6:31 pm
“as to the issue of the auto industry: i keep waiting for someone to demonstrate how GM in chapter 11 somehow has this massive negative impact on the economy: GM has been declining for decades, after all. people keep saying, as tomemos just did, that “millions of americans will be out of work” if GM goes into chapter 11, but on what basis are they saying it?”

The reason I’m agnostic about an auto bailout is that I’d be just fine with chapter 11 if it allowed GM to re-org with pain only to shareholders. But the worry is that a bankrupt GM would find consumers unwilling to buy its products, so a bailout that delivers pain to shareholders without the PR stigma of bankruptcy may be a better way around the problem.

But, obviously, shuttering the auto industry in the midst of an economic downturn is lousy public policy…

“it was an article of faith in the british labor party for years that nothing could be done in the face of declining steel and coal nationalized industries: the result was thatcherism….”

I am sensitive to this concern, and I also recognize the positive power of markets in creating wealth.

But it’s all about finding the appropriate measures for the times. Potential economic depressions are lousy times to be shutting down industries, unless you’ve got new jobs ready to come on line.

I’d be somewhat less responsive to auto industry bailouts were the economic times different.
Petey Says:
November 16th, 2008 at 6:49 pm
“No, the airlines are in trouble because it’s a hypercompetitive industry with small margins and costs that are very senstive to short-term changes in oil prices.”

I think this is entirely correct.

We’d be better off with either heavy oil taxes – ala Europe and Japan, which reduces energy cost volatility – or with a more heavily regulated airline industry.
tomemos Says:
November 16th, 2008 at 6:52 pm
Okay, so I’ve had a comment “awaiting moderation” all day, and I assume it’s because I tried to do what Howard asked and say where I was getting the predictions I was making; thus, I included a bunch of links. I understand that it’s important to see whether I’m actually advertising for cheap pharmaceuticals, but this moderation thing seems to actually disincentivize providing sources for your claims. Meanwhile, Nazi Nigel’s comment just sits there like rotting fish, undeleted. Oh well.

Anyway, what I said was the following, with James Surowiecki as a source:

“you haven’t provided an answer as to why we need flight routes where there is no demand.”

I’ll take this one: because many places have an importance disproportionate to their demand for air travel. For instance, not many people live in Cedar Rapids, Iowa, but there are two universities nearby that do world-class agricultural research. It’s in the nation’s interest to have those universities connected to the rest of the country.

As for the question of “on what basis” I claim that GM bankruptcy would be catastrophic, I refer you to a couple of blog posts by James Surowiecki, the New Yorker’s economics writer., and this column by Slate’s Daniel Gross. Gross in particular makes the vital (and obvious–it’s been made here a few times) point that a car company would probably not recover from Chapter 11, because no one wants to buy a long-term asset from a company in bankruptcy. Chapter 11 would not be a step on the painful path to recovery; it would be the penultimate step towards failure, with catastrophic results for workers.
Mixner Says:
November 16th, 2008 at 7:22 pm
We’d be better off with either heavy oil taxes – ala Europe and Japan, which reduces energy cost volatility – or with a more heavily regulated airline industry.

No we wouldn’t. That would mean higher fares, less choice less competition, less incentive for airlines to improve their product and efficiency.

In Europe, by the way, air travel has grown more over the past twenty years or so than any other mode of transportation. More than cars, and much more than rail. Europeans don’t yet fly as much as Americans do, but they’re catching up.
Realist Says:
November 16th, 2008 at 9:08 pm
Because transportation in general has large positive externalities. For example, if you provide a transportation link from a residential area to a shopping center, the consumers using that transportation link to buy goods will benefit, but so will the entities selling the goods (and the people who supply the goods to the entities selling the goods, and so on).

Roads do indeed provide positive externalities because once you build a road for one person, the marginal cost of letting many other people use the road is pretty cheap. So I agree with you that linking a residential area to a shopping center provides positive externalities.

Making cars cheaper by subsidizing the auto industry does not. It helps auto consumers and the auto industry at the expense of taxpayers. Who else benefits from increased use of cars? Retail because people will drive more often to stores? Maybe, but there are other alternatives, like public transportation. And there are lots of negative externalities which more than cancel out any positive–more traffic, greater wear on roads, less parking, more air pollution, global warming.
Realist Says:
November 16th, 2008 at 10:50 pm
I think it would be uncontroversial to suggest that there were circumstances in which there were net positive externalities to both roads and car ownership despite the negative externalities (which, of course, exist to some degree for all forms of transportation).

Bailing out the car industry does not focus directly on these circumstances. It seems obvious to me that in net, more cars are a net negative externality for the reasons I mentioned above. That’s not to say that cars are bad, just that they are consumed sufficiently (and in fact oversufficiently) at market price. Also, one alternative to more cars is more efficient use of fewer cars; e.g. more people per trip.
Mixner Says:
November 16th, 2008 at 11:11 pm
DTM,

Hence, it actually does make sense for the public to subsidize car travel to some extent. Of course the exact form and magnitude that subsidy should take is an entirely different matter.

As we have discussed many times before, public subsidies for car travel (per passenger-mile of transportation benefit) are very low in comparison to public subsidies for mass transit. The real question is why mass transit should receive such massive subsidies. No one has provided any serious answer to this question. And no, waving your hand and chanting “externalities!” is not a serious answer.
Mixner Says:
November 16th, 2008 at 11:28 pm
Realist,

Maybe, but there are other alternatives, like public transportation. And there are lots of negative externalities which more than cancel out any positive–more traffic, greater wear on roads, less parking, more air pollution, global warming.

Cars and public transportation both have some positive externalities and some negative externalities. We should only subsidize public transportation more than we subsidize cars (per unit of transportation benefit) if the balance of positive and negative externalities is greater for public transportation than for cars. And then only by an amount equal to the difference. Otherwise, if we subsidize public transportation more than its net externality benefit is worth, we are distorting the market and promoting overconsumption of public transportation and underconsumption of car travel.

Public transportation is so heavily subsidized that in most American metro areas you can buy an unlimited-use monthly transit pass for around $50-80. Even less if you’re elderly, disabled, or a student. The monthly costs of running a car are around ten times that amount. And yet despite that huge advantage in end-user costs, transit struggles to attract just a tiny share of the market. Even if you gave away transit passes for free, you probably wouldn’t attract many more riders.
Sean Peters Says:
November 16th, 2008 at 11:39 pm
tomemos @34:

For instance, not many people live in Cedar Rapids, Iowa, but there are two universities nearby that do world-class agricultural research. It’s in the nation’s interest to have those universities connected to the rest of the country.

Sorry, still don’t get it. Regardless of how many world-class universities may be in the vicinity of Cedar Rapids, people either are or are not flying there in numbers sufficient to support flight routes. If these universities aren’t generating enough air travel to support the routes, what good does it do for the government to subsidize them? You’d be spending an awful lot of money for not much benefit. And in any case, Des Moines is like 2 hours away, so it’s not like CR is going to be totally cut off from civilization without a dedicated air route.
Realist Says:
November 16th, 2008 at 11:54 pm
Mixner, the fact that cars are so popular is good evidence that car consumption has little need of subsidy. I’m not particularly in favor of increasing subsidies on public transportation–I think transportation for the most part is like most goods, with the benefit going mostly to its consumer, so the government should stay out of the transportation market, with the exception of building natural monopolies (roads and rail).
bdbd Says:
November 16th, 2008 at 11:57 pm
The airport in Cedar Rapids is, in FAA terminology, a small hub airport, serving between 0.05% and 0.25% of national enplanements annually. Using industry terminology, Cedar Rapids is very nicely located for spoke service from several different network hubs used by a variety of airlines (American from DFW or O’Hare, NW from MSP, Delta from Cincinnati, United from Denver or O’Hare, etc). Because of the university populations, it will be some relatively high income folks there (which is more relevant than the mere number of people). In other words, the specifics of an individual market matter a lot in these instances, and general characterizations should be taken with a grain of salt.

The lion’s share of the growth in European air travel in recent years has been due to the many new low cost carriers (RyanAir being the most successful and widespread) that serve primarily out of the way airports that connect intermodally (e.g., train or bus carriage) to major centers. Air travel in Europe has grown not just because people find it convenient for many circumstances, but because in many circumstances it has become quite inexpensive, especially for leisure travelers.
Realist Says:
November 16th, 2008 at 11:58 pm
DTM, I just don’t see how bailing out the car companies is a better mechanism to reduce negative externalities in cars than to just tax the negative externalities directly. There’s nothing that requires that the US has a strong auto industry–if other countries are better at producing green cars than us, we should be subsidizing those cars instead of our local failures.
Mixner Says:
November 17th, 2008 at 12:43 am
DTM,

As always, I will point out that when making public spending decisions with respect to transportation, the calculations of the expected externalities, and thus the calculations of the appropriate public subsidies, has to be done on a proposal by proposal basis.

As always, I will point out in response that you haven’t offered a serious argument to justify public subsidies for even one single solitary mass transit “proposal,” let alone for an actual, already-existing mass transit system, let alone mass transit in general.

And no, your Wisconsin paper is not a justification for transit subsidies (nor does it claim to be). It’s an estimate of the total benefits of transit in Wisconsin, not the net positive externality benefits of transit over cars in that state.
Mixner Says:
November 17th, 2008 at 12:53 am
Here, by the way, is a study that does attempt to evaluate whether transit subsidies are justified. In this case, for urban rail transit. The authors conclude that of the twenty five U.S. urban rail transit systems that were in operation between 1993 and 2004, only one, the San Francisco BART, produced external benefits that exceeded its subsidies:

We find that with the exception of BART in the San Francisco Bay area, every system actually reduces welfare and is unable to become socially desirable even with optimal pricing or physical restructuring of its network.

http://web.iitd.ac.in/~tripp/delhibrts/metro/Metro/on%20the%20social%20desirability-brookings.pdf
bdbd Says:
November 17th, 2008 at 9:54 am
re: The transaction in the case of a transportation link is between the owner of that link and the people using that link. My point was that the users are often not the only beneficiaries to this transaction, and hence there are positive externalities. Again, in my example the people selling goods at the shopping center weren’t actually using the relevant transportation link, but they benefited from its existence.

Unless it is assumed that the people who use the new road to go to the shopping mall to shop at the other people’s shops were not shopping somewhere else before the road came in, the new traffic is valuable to the merchants, but the change in shopping patterns represents a transfer from the merchants initially used to those at the shopping mall. It does not represent a positive externality that provides societal benefits. Conflating these characterizations is the primary sort of mumbo jumbo that goes into so called “economic impact” studies (and is a type of analysis that the OMB explicitly disallows as a way of identifying societal benefits from federal investments and regulatory changes) (OMB circulars A-4, A-94 and Presidential EO 12866)
Mixner Says:
November 17th, 2008 at 11:47 am
DTM,

As before, that you can’t identify the many discussions of externalities and subsidies in that Wisconsin study just shows you don’t understand the concepts of an externality or a subsidy.

You don’t understand your own sources, DTM. It’s not an estimate of only external benefits. It’s an estimate of total benefits. Public subsidies aren’t supposed to cover total benefits, just benefits external to the parties of the transaction. Try reading your source again.

By the way, here is a reply to the paper you cited: http://www.vtpi.org/warner.pdf

Ah yes, the VTPI. The one-and-and-his-dog amateur transit booster. Let me know when you have a serious response. An academic paper published in a peer-reviewed professional journal. The author of your VTPI “paper” doesn’t even understand the study he’s responding to. He criticizes it for omitting vehicle and parking costs, which is completely irrelevant. Vehicle and parking costs are internal costs, not external ones.
Mixner Says:
November 17th, 2008 at 11:48 am
DTM,

As before, that you can’t identify the many discussions of externalities and subsidies in that Wisconsin study just shows you don’t understand the concepts of an externality or a subsidy.

You don’t understand your own sources, DTM. It’s not an estimate of only external benefits. It’s an estimate of total benefits. Public subsidies aren’t supposed to cover total benefits, just benefits external to the parties of the transaction. Try reading your source again.

By the way, here is a reply to the paper you cited: http://www.vtpi.org/warner.pdf

Ah yes, the VTPI. The one-and-and-his-dog amateur transit booster. Let me know when you have a serious response. An academic paper published in a peer-reviewed professional journal. The author of your VTPI “paper” doesn’t even understand the study he’s responding to. He criticizes it for omitting vehicle and parking costs, which is completely irrelevant. Vehicle and parking costs are internal costs, not external ones.
bdbd Says:
November 17th, 2008 at 12:24 pm
DTM — I didn’t hypothesize anything. I pointed out that the passage I quoted (perhaps it was something you posted, I didn’t keep track of that) is, as written, garden variety economic impact mumbo jumbo that misreports transfers as benefits. I fully agree that if the case for subsidies were stated with greater subtlety or with greater accuracy, it might also be right. But that wasn’t the case with the passage I commented on.
Mixner Says:
November 17th, 2008 at 1:06 pm
DTM,

I didn’t say the Wisconsin study ONLY discussed externalities

I didn’t say you did. I pointed out that externalities are the only costs and benefits relevant to public subsidies. The Wisconsin study benefit number you cited is total benefits, not external benefits, which is why it’s irrelevant to the discussion of subsidies.

Still waiting for you to produce evidence that the net value of positive externalities exceeds the amount of public subsidies for even ONE transit system in the country other than the San Francisco BART addressed in the Brookings study.

By the way, if you have a substantive reply to the VTPI’s critiques of the paper you cited, let me know.

I already pointed out a fundamental error in its analysis. The author complains that the Brookings study omits the costs of parking and vehicles. But those are internal costs, not external or “social” costs, and are irrelevant to the issue of subsidies. This is the kind of basic error that would probably have been caught if the VTPI “paper” were a real study published in a peer-reviewed journal rather than the work of an amateur “published” on a personal website.
bdbd Says:
November 17th, 2008 at 1:09 pm
DTM, I think you find the externalities language more intoxicating than is good for you. But thanks for the amusement, and I deeply appreciate your vote of confidence and support at the end.
Mixner Says:
November 17th, 2008 at 1:48 pm
DTM,

Actually, that isn’t true. For example, the study did include what it called “affordable mobility benefits”, which are in fact internalized by the relevant riders.

Yes, it is true. How are internalized benefits relevant to public subsidies for transit? If we should subsidize internalized benefits, why aren’t we subsidizing the internalized benefits of cars to their owners?

You seem to have managed to thoroughly confuse yourself. Which benefits of a transportation system do you believe the government should be subsidizing, and why?
Mixner Says:
November 17th, 2008 at 2:50 pm
DTM,

First, transit subsidies can reduce the need for public spending on other forms of welfare and social services. Whether that is a good or bad idea depends on the relative efficiency of the alternatives, but there are decent reasons to believe at least some provision of such benefits through transit is a good idea.

You are still thoroughly confused. A reduction in the need for “public spending on other forms of welfare and social services” is an external benefit, not an internal one. It’s a benefit to taxpayers, not to the recipient of the transit service. So again I ask, how are internalized benefits relevant to public subsidies for transit? One of the internalized benefits of driving is that it saves the driver time over using an alternative form of transportation (walking, biking, transit). So if the government should subsidize internalized benefits, why shouldn’t it subsidize the benefit of time-savings from driving?

Second, a consumer surplus may not represent a sufficient independent justification for a subsidy, but it does offset the social cost of providing the subsidy.

Huh? How does the consumer surplus of transit “offset” the subsidy? If I’m willing and able to pay $2 for my bus ticket, why should taxpayers subsidize half of that so that I only pay $1? And if consumer surplus justifies transit subsidies, why doesn’t it justify subsidies for car purchases also?
Mixner Says:
November 17th, 2008 at 2:58 pm
DTM,

To construct a crude hypothetical, suppose with a public subsidy of $100 million, you could cause $80 million in net positive externalities, $20 million in additional consumer surplus, and obviate the need for $20 million in spending on welfare and social services. It would be silly to claim this spending wasn’t justified because the net external benefits were only $80 million and the public costs were $100 million.

You’re still utterly confused. The $20 million you’re saving in social welfare spending is an EXTERNAL benefit, not an internal one. It’s a social benefit, like reducing congestion or pollution. And as I said above, you haven’t explained why you think consumer surplus justifies subsidies at all. If it does, why shouldn’t we apply it to driving also? If the government should pay $1 of every $2 I’m willing and able to pay to ride the bus, why shouldn’t the government pay $1 of every $2 I’m willing and able to pay to to drive a car?
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