Who should pay for the trains?

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May 19, 2015 by AK

Adam Gopnik links the recent derailing disaster in Pennsylvania to the Americans’ unwillingness to authorize public investment in infrastructure.

It’s too early for any blame assignment, but the questIon of tax money spent on trains and such is evergreen. In this 2011 piece, Gopnik attacked the American aversion to public spending on infrastructure and education. David Boaz of Cato Institute penned a proper libertarian response.

Access to clean, reliable, fast means of transport – intracity, intercity, suburban – is a blessing. If some part of the world could change miraculously overnight from a trainless condition to a state of ubiquitous availability of train service, it would be a great improvement to the quality of life. Any such change, however, would be costly. It is possible that its costs will be too high for the change to happen. But how will the costs and benefits be evaluated relative to each other, and who will bear the costs and risks?

The author claims the US can only modernize its railroads when an enlightened majority – more likely, a plurality – orders the government to pay for the project from the public purse. He may have his wish eventually. It might well be that US elections are biased against urban voters; that rural voters are relatively dim; that negligibly few Americans resemble Jefferson’s gentleman farmer in any significant respect. True or not, sooner or later even the narrowest-minded voter might see the benefits to herself of a mass transit system and vote to have it built with public funds. Yes, it can be done this way.

But should it be done this way?

This approach is unfair to those who voted against or abstained, for their tax money would be used for something they do not want. Undoubtedly there would be efficiency issues, as is usual with government-supervised projects. Allocating enough resources can get one or two great things done – like in the Soviet Union – but resources are limited even in rich economies. For all its nuclear breakthroughs, the USSR was bad at providing indoor plumbing. Unfortunately, these fairness and efficiency objections have been advanced and countered thousands of times, and the argument is now moving in circles.

The fact remains, nevertheless, that all the existing railways in the US have been built by the private sector. It is worth noting that the principal lines of Russia’s (and Ukraine’s) rail network were built by companies with Russian and Western European shareholders in the 1860s through the 1890s. (When railway construction slowed down in the years before WWI, Russian industry leaders complained in 1913 that the government was reluctant to issue permits for new railroads even though private investors were queuing to finance them. Apparently the government became more interested in controlling new lines than laying enough track.)

If private capital no longer finds the rail sector attractive, perhaps it is worth asking why, and whether private investors’ reasons to stay away from the projects can be of value to society at large. Looking into those reasons, we should try and find out whether a market failure of some sort has occurred, and whether the government can put forward a remedy to this failure (possibly caused by its prior interference) short of substituting – crowding out – private capital with public funds.

In addition to all this, trains are not a public good in the sense of the term taught in economics classes. A “pure” public good is said to be non-rival and non-excludable. Having to purchase a ticket excludes some people from taking the train unless the operator is perfectly tolerant of freeriders. A non-rival good means that one’s consumption does not affect others’ ability to enjoy it. Trains would have more seats than the number of people wishing to ride at any time. So much spare capacity is unlikely.

However the existence of an affordable, safe and reliable train network could be a classical public good. Not the train service itself but its availability to the general paying public.


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