Bus Deregulation in Germany

by on August 9, 2011 at 7:01 am in Economics, Law | Permalink

In order to protect the railroads, inter-city bus service has been basically illegal in Germany since the 1930s.

NYTimes: “It’s an anachronism,” said Roderick Donker van Heel, general manager of Deutsche Touring, which offers bus service from Frankfurt and other cities to foreign destinations, but is usually not even allowed to drop off passengers within Germany.

The anti-bus law is also a reminder that, despite steady changes over the last decade, barriers to free enterprise remain in Europe. Germany and other countries still shield certain professions and industries from new competitors with thickets of regulation.

“Deutsche Bahn can do whatever it wants,” Mr. Donker van Heel said, referring to the state-owned railroad. “The airlines can do what they want.” But when a bus company wants to offer intercity service, “the answer is no. And we’re in the year 2010.”

A court-case and now a new law, however, mean that buses are to be allowed.

The U.S. also protected its railroads for some forty years by regulating airlines and trucking. There are some efficiency reasons why one might want to protect a network industry, although a straightforward subsidy is preferable to regulation of competitors, but the capture theory seems to fits the facts better, especially for railroads.

We still subsidize railroads in the U.S. and talk about subsidizing high-speed railroads even more, meanwhile bus travel is expanding and modernizing. Randal O’Toole covers some issues:

Intercity buses carry at least 50 percent more passenger miles than Amtrak in Amtrak’s showcase Northeast Corridor. They do so with almost no subsidies and at fares that are about a third of Amtrak’s regular train fares and little more than 10 percent of Amtrak’s high-speed Acela fares. Intercity buses are safe and environmentally friendly, suffering almost 80 percent fewer fatalities per billion passenger miles than Amtrak and using 60 percent less energy per passenger mile than Amtrak.

Today, in fact, I am blogging from a bus. I appreciate the on-board wireless and the fact that on entering the bus I was neither searched, groped nor scanned.

Hat tip: Greg Roscetti.

KMS August 9, 2011 at 7:07 am

The entire interstate highway system is not considered a subsidy to buses, or cars for that matter?

Tom August 9, 2011 at 7:39 am

Gas tax covers it.

Sean August 9, 2011 at 7:49 am

While, in theory, gas tax should cover it, it doesn’t. The tax is far too low to maintain our infrastructure. And, even were it high enough on average to keep the highway trust fund topped up and pay for needed maintenance, bus companies still would not be paying for as much of their infrastructure as railroads do for theirs. We all subsidize cheap bus transit by paying to drive our own cars.

Slocum August 9, 2011 at 8:44 am

And, even were it high enough on average to keep the highway trust fund topped up and pay for needed maintenance, bus companies still would not be paying for as much of their infrastructure as railroads do for theirs.

If you mean that buses are not taxed enough to cover the marginal wear & tear on roads they cause, we would need to see data. If you mean that buses use roads that are shared by other vehicle types and so don’t need to bear the full cost of highways, well, yes, exactly — that is a strong argument FOR the efficiency of buses, not against. And how much does Amtrak pay for its own infrastructure (given that it can’t even cover its operating costs without subsidies?

Rahul August 9, 2011 at 8:47 am

In any case, if I were a hardcore car user more buses would make me happier rather than sad. Even if those buses did leach a bit off my cross-subsidies.

Bernard Yomtov August 9, 2011 at 10:48 am

In general, I believe heavy vehicles like trucks and buses, cause wear and tear on highways disproportionate to their fuel use (=fuel tax paid).

And by the way, Tyler, you don’t get searched, groped, or scanned when boarding Amtrak either.

Yancey Ward August 9, 2011 at 12:23 pm

To Bernard Yomtov,

Trucks definitely pay additional transport related taxes besides fuel taxes at the state level, and probably at the federal level, too, though I am uncertain of the latter. I don’t know about intercity buses, but I would be very surprised if they didn’t also pay additional taxes beyond what a passenger auto would.

Gabe August 9, 2011 at 12:20 pm

US oil consumption =20 million barrels/day
= 314 billion gallons per year

If the average gasoline tax is $.20 (it is higher)…then that is still over 60 billion dollars per year. That would pay for a lot of road maintenence. That is still ignoring all the drilling royalties and other taxes they get from cars and energy consumption. Face it.. they are robbing us and not using the money as they say they are.

Andrew' August 9, 2011 at 1:21 pm

The big cost is the creation of the network, not the maintenance.

Oreg August 10, 2011 at 4:22 am

About 1/3 of the oil is not used for transport. The remaining 2/3 include fuel for trains, planes and ships.

Floccina August 9, 2011 at 4:01 pm

I see people write that the gas tax is to low to cover road costs and others who say it is more than enough covers road costs and that the money is diverted else where. Does anyone know of a good source to look for evidence on this?

Mike August 9, 2011 at 9:17 am

The interstates are a public good. The beneficiaries include business and pleasure drivers, truckers, taxis, buses, and anyone whose supply chain relies on this form of transit.

It’s unusual to refer to provision of a public good as a “subsidy.”

Rail, on the other hand is a private good. It is excludable and rivalrous.

Fixed infrastructure is a monument to the stupidity of mankind.

Sean August 9, 2011 at 9:43 am

Fixed infrastructure is a monument to the stupidity of mankind.

How do you figure?

Dan Weber August 9, 2011 at 11:00 am

The interstates are a public good

With modern technology we could easy make them excludable.

Mike August 9, 2011 at 11:30 am

Public goods have two identifiable qualities: nonrivalry and nonexcludability. Since few pure public goods exist, we have to accept lesser degrees of publicness. Of the two qualities, nonrivalry is the one that more defines a public good. Excludability is a lesser quality, and the definition is that the good is either nonexcludable or it is inefficient to exclude.

As others point out, technology can provide more efficient ways to exclude nonpayers, but the nonrivalry of roads keeps it in the public realm.

Regardless, my argument stands: roads are far closer to public goods than rails, therefore the provision conditions and efficiency conditions re better understood by a bright line division of one as a public good and the other as a private good.

blah August 9, 2011 at 12:28 pm

“Since few pure public goods exist, we have to accept lesser degrees of publicness.”

What on earth are you smoking dude?

Adam August 9, 2011 at 11:37 am

“It’s unusual to refer to provision of a public good as a “subsidy.””

It is? Why?

“Rail, on the other hand is a private good. It is excludable and rivalrous.”

I’m not sure I see a distinction with interstates here. They are certainly excludable and rivalrous. Have you never tried to drive during rush hour?

Mike August 9, 2011 at 11:45 am

It’s unusual because it’s not true.

You wouldn’t call an underprovision of a public good a “tax,” would you?

Overprovision is overprovision. It’s NOT a subsidy. A subsidy increases either the demand or supply of the good, increasing it’s equilibrium quantity. Overprovision is a disequilibrium state. In this case it’s properly called “government failure.”

joan August 9, 2011 at 11:55 am

Most of the interstates in the north east corridor are toll roads so buses probably pay their share, but Amtrak also makes a profit on the service between Washington and Boston. because they can still fill their trains even at 3 times the bus fare. Many people will still pay for the reliability and comfort of trains, the cheap fare buses will drop you off or pick you up on a street corner an hour late in the middle of a rain storm and for most you must buy your ticket advance online, they charge extra to talk to you on the phone.

mjw149 August 9, 2011 at 12:46 pm

The entire post is facile and fox news-ish. Of course there are externalities to cars and buses that trains don’t have. Not that he would mention any of that, because in Tyler’s world, government=evil, private enterprise=good. This is why our country is failing in its doddering old age.

Andrew' August 9, 2011 at 1:20 pm

“The interstates are a public good.”

Okay.

“The beneficiaries include business and pleasure drivers, truckers, taxis, buses, and anyone whose supply chain relies on this form of transit.”

These people are subsidized, yes?

Mike August 9, 2011 at 10:24 pm

No. They are provided a public good that everyone consumes in equal quantities regardless of the value any individual places on it.

But I grasp your meaning. You’re saying that through the process of selection (or non-selection), government can pick winners and losers in quasi-competitive markets. In that we are in agreement, but that isn’t a subsidy.

Andrew' August 9, 2011 at 1:24 pm

Wait a second. You think that the governments had externalities in mind with the policies described by Alex?

Andrew' August 9, 2011 at 1:25 pm

And now that buses are to be allowed under the new policy those externalities have been eliminated?

You may have a point somewhere, but you haven’t made it yet.

anon August 9, 2011 at 2:12 pm

Three consecutive comments in a five minute period which could easily have been combined into one.

Andrew’ you really do have the attention span of a turkey. Or do you attempt to be intentionally annoying?

mjw149 August 9, 2011 at 2:54 pm

My point has been made. His post is facile, as is every argument that Fox news makes. My post WAS a complete thought, and I’m not going to argue for trains or buses in Germany because I don’t live there and I don’t care. I do care about dangerously one-sided speed-reading economists preaching simplistic nonsense to under-educated idiots that vote in MY country.

So, no, the United States, which is inseparable from the government that ITS people voted for, is NOT evil. Private enterprise, motivated by greed and unconcern for others is not good. They are neither good nor evil, merely tools we should use appropriately. There are markets in everything, and every market needs oversight, because capitalism is inherently a winner-takes-all, might-makes-right, survival-of-the-fittest system.

Andrew' August 9, 2011 at 2:07 pm

Could we call it a “de facto subsidy”?

Mike August 9, 2011 at 8:56 pm

You can call a lemon a grapefruit if you choose to, but you’ll confuse a lot of people.

No, you can’t really call it a “de facto” subsidy because it’s not actually one. If so, then we would be calling ANYTHING that increaes demand for a good a subsidy.

Subsidies increase demand (if given to consumers), but not everything that increases demand is a subsidy. An increase in the price of Nutella or a decrease in the price of jelly are not subsidies for peanut butter just because they increase demand for peanut butter.

Subsidies when given to suppliers increase supply. Not everything that increases supply is a subsidy. New techniques which increase crop yields for peanuts are not a subsidy for peanut butter, even though they increase the supply of peanut butter.

You’re mixing up sufficient and necessary conditions.

If a country doesn’t build roads, is that a de facto tax on cars? Is the money not spent on roads considered tax revenue? This is similar to the mistake of referring to a cut in benefits as a tax. This kind of thinking crosses the line between supply and demand, and confuses movement along curves and shifting of curves. It is plausible, but fallacious.

Roads and cars are complements. A decrease in the price of one leads to an increase in demand for the other. The market demand for cars is determined by the horizontal summation of each individual’s demand for cars. The market demand for roads is determined by the VERTICAL summation of individual demand for roads. We consume different quantities (or qualities) of “car” but we all consume the same quantity and quality of “road”. It doesn’t even matter if you USE the road or not, you get the same AMOUNT of “road” I get. We don’t necessarily value those roads equally.

If in the interest of national defense, a public good, an aircraft manufacturer engages in bribery, rent seeking, advertising, or other methods to gain the monopoly contract, or uses superior information to get government to pay above-equilibrium price or buy more than equilibrium quantity, that is not a subsidy. The purchase of the good is just a purchase, and the inefficiency is characterized by various forms of market and government failure.

All subsidies confer benefits but not all benefits are subsidies.

RZ0 August 9, 2011 at 7:19 am

Keep in mind, though, that much of the intercity bus travel in the Northeast consists of daily commuters into New York City. And most intercity train travel in the northeast is handled not by Amtrak but by the MTA, the LIRR and New Jersey Transit.

Dan August 9, 2011 at 8:55 am

This. Amtrak appears to carry ~900,000 passengers a month in the NEC, while New Jersey Transit alone carries that many each day.

The point about buses is broadly true without using misleading statistics.

http://www.ntdprogram.gov/ntdprogram/pubs/profiles/2007/agency_profiles/2080.pdf

November2012stimulus August 9, 2011 at 1:24 pm

Based on a quick perusal of the Cato article, it appears that most if not all of the intercity bus lines are private. NJ Transit generally runs from the suburbs into NYC and the southern suburbs to Philly.

Rich Berger August 9, 2011 at 2:48 pm

And BTW, I was a bus driver in the mid-1970′s for one of the last remaining for-profit commuter bus companies in NJ, Suburban Transit. As other companies were absorbed into the NJ Transit entity, service went down and prices became disconnected from the cost. According to the NJ Transit website, fares now cover only 43% of the cost of the service.

You will not get innovation from state run entities.

Melissa August 9, 2011 at 9:16 am

And if you have a choice about which one to take, any sane person will avoid Amtrak. I took Amtrak to New Haven because I thought I could get a transfer to the shuttle to Hartford and get there quicker than on a bus, but I was delayed 2 hours. MTA to New Haven is never delayed- they own their own track!

dearieme August 9, 2011 at 7:20 am

45 years ago I scooted all over your mighty continent, courtesy of the estimable Greyhound. I presume that it can still be done?

Rahul August 9, 2011 at 7:57 am

It still can, but your choice of company might be a bit unique. Lots of people of limited means, single moms, and recent immigrants. A clueless backpacker or two. Maybe a druggie, a pimp and some loonies.

Tracy W August 9, 2011 at 8:05 am

People of limited means and single moms are a bit unique?

Rahul August 9, 2011 at 8:25 am

Didn’t intend to offend.

But they sure are unique when over-represented . If I took a greyhound trip and everyone on board was a Wall Street trader, or a evangelist preacher I would call that unique too.

MD August 9, 2011 at 7:35 pm

But they sure are unique when over-represented .

I get what you’re saying, but that is probably the least logically consistent sentence in history.

dearieme August 9, 2011 at 9:03 am

Back then I sat for a long stretch next to a Vietnamese army officer whom nobody else seemed keen to sit beside. Ditto a black pastor. I enjoyed the conversations. Days of innocence, eh?

Slocum August 9, 2011 at 8:50 am

That’s not the population who ride the Megabus:

http://us.megabus.com/routemap.aspx

Or, around here, the ‘Michigan Flyer’ airport limo bus:

http://www.michiganflyer.com/

Andrew' August 9, 2011 at 1:26 pm

They don’t call commercial air travel flying Greyhounds for nothing.

Aneesh August 9, 2011 at 1:39 pm

Can anybody explain the stark contrast in clientele of Greyhound customers vs Megabus customers in the Northeast?

The ticket fares are almost identical, if not cheaper on Megabus often. Yet the customers on Megabus are consistently 20-30 year olds, white/Asian and well off, while Greyhounds are mostly black, and similar to how Rahul described.

Does the ability to buy tickets online really exclude the bottom 25% of the population that well?
Self-segregation?

Rahul August 9, 2011 at 2:09 pm

Some of this is the bus-operator’s motivation. In Wisconsin we have a regional bus company called VanGalder. Pricing is similar to the Greyhound routes but passengers are a class apart. Greyhound drivers have a lackadaisical attitude towards problem customers; obnoxious behavior goes unmolested and that does encourage a certain type of customer. Van Galder drivers on the other hand don’t tolerate such behavior and this has a salutary effect on passenger quality. So it doesn’t always have to devolve to pricing to maintain quality.

Aneesh August 9, 2011 at 2:35 pm

No, that cannot be it. I’ve been ride the bus to Albany/Boston/Philly atleast once a month . . Passenger behavior is uniform throughout. On megabus it is hipsters listening to their ipods and on greyhound, its hip hop kids listening to their ipods. Drivers on both buses are lacksidaisical (would bus drivers really be that engaged anyway?) and I sense no difference in quality.

Floccina August 9, 2011 at 4:12 pm

I once went on bus from Florence OR to Newport RI (after I had biked the other way). It was not fun but I got home.

Tom August 9, 2011 at 7:30 am

Buses get no subsidies? Who pays for the roads they need to drive their buses on?

Rahul August 9, 2011 at 8:08 am

It’s a quantitative difference I suppose. Per person subsidized what are the amounts based on rail users versus highway users?

Mike August 9, 2011 at 9:20 am

Providing public goods is not usually referred to as a subsidy.

We don’t “subsidize” our national defense – we pay for it.

Andrew' August 9, 2011 at 9:28 am

“We don’t “subsidize” our national defense”

At the levels of the recent past, we kind of do. For that matter we might be subsidizing teachers and cops. It’s not an either or. National defense, education, and law enforcement are concepts. The institutions are either getting them just right, or not, and now I certainly believe it’s not.

Mike August 9, 2011 at 11:41 am

Failure to provide the precise optimum level of a public good doesn’t make it not a public good.

If you’re calling an inefficiently high level of public good a “subsidy”, are you going to call an inefficiently low level a “tax?”

Ridiculous.

What you’re describing is called “government failure” to provide the optimal level of the public good. That is not the same as a subsidy.

And remember that the optimum level of a public good is determined by the vertical summation of EVERYONE’S demand for the good. Your frequently expressed view that government is too large on everything leads me to believe your personal assessment of the optimality of public goods is a biased estimator of the actual optimum. I happen to agree with your preference for less government, but those beliefs are independent of the optimal level of national defense, roads, bridges, traffic controls, justice, etc.

Moreover, be careful not to conflate inefficient pricing with inefficient provision. We might have precisely the right quantity but pay too much for it. If we know we’re paying too much, the likelihood is that quantity is BELOW equilibrium, not above it.

Andrew' August 9, 2011 at 12:10 pm

No, I’m saying that “subsidy” does not mean “not public good” or vice versa. A public good is an economic definition. A subsidy is whether an institution or individuals or a behavior are financially supported.

Andrew' August 9, 2011 at 12:15 pm

You seem to be arguing a digital definition of public good and Bill and I (ha!) are saying it is more analog. The goods are going to travel by road or rail, and thus the provision of a public good can subsidize one of the choices relative to the other because there are ALWAYS relative winners and losers because almost nothing is a true public good. Bill would probably not agree with me that nearly all of the things we call public good using shorthand aren’t really public goods.

Andrew' August 9, 2011 at 12:25 pm

Also, work with me here, lets say there was only one stretch of open land. This could only be used for a road or a railroad. The one that is picked is going to subsidize the participants in that over the other. That is an extreme case, but to some extent the world of public goods are rivalrous if only because we don’t have enough money to provide them all.

Benny Lava August 9, 2011 at 7:37 am

Little known fact: the passenger railroads tried to consolidate in the 70s. They werent allowed to because it would create a monopoly so they all exited the business and now we have a passenger railroad monopoly.

ecurb August 9, 2011 at 7:48 am

“neither searched, groped nor scanned.”
Yet… They’ve done it at least once before, and you can bet they’re planning more.

monkey think, monkey write August 9, 2011 at 11:08 am

Just wait until someone blows up a bomb on a bus.

Gabe August 9, 2011 at 12:26 pm

and that “someone” could be Al-CIA-Da.

Dan August 9, 2011 at 7:59 am

Wouldn’t the valid comparison be *relative* subsidy? Most roads are likewise a network good, paid (almost) completely for by taxes. It can also be seen as a progressive tax from non-travellers/car drivers, to travellers/car drivers. As a non-driver living in a city, I don’t enjoy the thought of subsidizing suburbia and sprawl.

The positive externalities from roads seem mostly to be be around shipping of goods, much of which still does happen on rail, and would with less roads. Is it harder to expand rail than roads for capacity? Is the rail/road trade off about anything other than the price of gas?

Going from the UK to America with some British friends, I was struck by how road-centric America is, especially for travel between urban centers. (I’m american, BTW). The low, flat taxes on gas are a comparitive subsidy to other countries, which definitely encourages driving. With infrastructure suffering, poor roads encourage more SUV like vehicles.

That was my impression during my 1.5 hour/19km drive from JFK to Mahattan. Stark contrast to my 1 hour/23km tube journey from London to JFK.

Is this just population density? Will Americans require more public transit as population density grows? Or as gas gets more expensive?

Dan August 9, 2011 at 8:01 am

Sorry – from London to LHR airport.

Rahul August 9, 2011 at 8:22 am

If you thought JFK-to-Manhattan was road-centric just try the heartland sometimes. If you are in Colorado, Wisconsin, Montana and many other states I bet you could get hundreds of mile swathes without any trace of public transport.

But I do think population density is critical. It would be impossible to serve US with a Europe style public network.

Finally, I doubt that Americans use more SUV’s because of bad roads. The reasons lie elsewhere.

bartman August 9, 2011 at 11:11 am

I’ve taken the JFK – Grand Central bus a few times, and it’s 24 km and I’ve never had it take more than an hour. You can also take the subway from JFK to Manhattan, which takes less than an hour. This doesn’t sem like a “harsh contrast” to London:LHR, indeed, they seem rather similar.

Dan August 9, 2011 at 11:35 am

bartman – the bus point is interesting – how did the bus beat a car!?

The contrast with the subway is the point. I wasn’t comparing London to New York – just rail network to road network.

bartman August 9, 2011 at 1:00 pm

Depends on the route, I guess. The buses usually take the Van Wyck to the LIE and enter Manhattan via the Midtown tunnel. That’s a 17.7 mile trip (28.5 km), and my experience is that traffic moves faster than 20 mph on average on NYC “freeways”, even during rush hour. Yes, sometimes it gets very congested, but I’m talking about average occurrences, not outliers. This route does not encounter the slowest points in NY – the Cross-Bronx, the BQE, the Brooklyn-Battery Tunnel or the GW Bridge.

On city streets the average is often in the 10 mph range, so if your ride was trying to avoid freeway gridlock by taking the surface streets it might take 90 minutes.

I often drive all the way across NYC – from the Outerbridge Crossing to Flushing – almost 60 km – and 90 minutes would be close to a worst-case for that trip. On a good day, I can do it in 45 minutes.

Adam August 9, 2011 at 11:45 am

But taking the tube to Heathrow is the slow way. It’s much faster to take the Heathrow Express train to Paddington and grab the tube to your destination from there. The trip from the airport is about 15 minutes. Granted, if traffics okay, driving is a lot faster than the tube too (although it costs a fortune in a cab).

Major August 9, 2011 at 11:32 pm

Is this just population density? Will Americans require more public transit as population density grows? Or as gas gets more expensive?

The population is still suburbanizing and sprawling. Suburban densities are increasing, but not nearly enough to make public transit a viable alternative for more than a tiny fraction of car trips. Barring a truly enormous and sustained increase, gas prices are unlikely to have more than a minor effect on demand for car travel. A large share of the market for public transit is recent immigrants, and immigration is slowing.

Steve Lindsey August 9, 2011 at 7:59 am

And the bus service got no subsidy at all; they built the highway you’re driving on did they?

Wu August 9, 2011 at 8:25 am

When O’Toole says buses operate with “almost no subsidies” I’m afraid that he is not taking seriously the large free road subsidy. Amtrak has to maintain their tracks. What if the US had bought a giant rail right of way in 1955 along the northeast corridor, and maintained it for Amtrak for free all of these years?

liberalarts August 9, 2011 at 8:26 am

I was searched by government guys with machine guns while riding an intercity bus in our ally country, Guatemala, during the 1980s. They stopped the bus in the country side and went through it passenger by passenger. Luckily they were not looking for foreigners, so they spent little time on my and my (now) wife.

Rahul August 9, 2011 at 8:34 am

The CBP (Customs and Border Protection) and ICE (Immigration and Customs Enforcement) guys do person-to-person checks regularly in the US too. Just try travel on Amtrak or Greyhound in the south or north east.

For a change, these ones use revolvers instead of machine guns. A classy touch?

Loren F. File August 9, 2011 at 8:37 am

Are air traffic control costs, regulation, airports and associated infrastructure paid for by the Airlines or passengers somehow?

lff

Rahul August 9, 2011 at 2:15 pm

There is an airport tax / surcharge on each ticket. Not sure how much it pays the common costs.

tenthring August 9, 2011 at 8:44 am

I travel the northeast corridor a lot. Sometimes train and sometimes bus. The train is definitely superior in terms of service, comfort, reliability, and speed. The prices are probably twice what I’d like them to be, but it does keep the poor away which is good because their presence is a big negative externality to my riding experience on the bus.

M1EK August 9, 2011 at 9:06 am

Several glaring factual errors in this piece – #1, railroads are NOT subsidized in the US – they even pay property taxes, and #2, gas taxes don’t remotely cover the cost of roadways here (a huge amount of the cost is paid for by users of roads that are not funded by gas taxes, as well as other general fund transfers).

Adam August 9, 2011 at 11:48 am

“#1, railroads are NOT subsidized in the US”

Yeah, well, that’s wrong, as even Amtrak will tell you. What do you call the annual appropriations it gets from the federal government?

Perhaps rail isn’t subsidized enough, but that doesn’t make it unsubsidized.

M1EK August 9, 2011 at 9:08 am

sorry, reading that it’s not as clear as I would have liked – drivers pay gas tax every time they drive, but the vast majority of lane-miles in this country are funded by other means – and even parts of the interstate highway system are funded by general fund transfers. In most states, whenever you drive on a road without a numbered route shield on it, you’re subsidizing somebody else’s (usually a suburbanite) commute; and those who don’t drive subsidize those who do through their property and sales and income taxes.

Mike August 9, 2011 at 9:32 am

The inability to distinguish between public and private goods here is astonishing.

Rail is rivalrous in consumption and completely excludable. Roads are congestible, but especially with the ability to re-route they are NOT rivalrous. They are potentially excludable, but it’s rather inefficient to do so. Interstate highways are closer to a public good than a private good. Rail is certainly a private good, and it is also a natural monopoly.

When government assists in the purchase of a private good, it’s a subsidy. When government builds, maintains, and operates a public good, that is called “provision.”

The gas tax comments on both sides of this argument are red herrings. The fact that gas taxes do not entirely pay for interstate highways doesn’t change them from a public to a private good. The fact that some users are directly taxed to provide a public good doesn’t change the fact that interstates are a public good. Until we put a toll booth at every entrance to an interstate, it is not excludable, and until congestion becomes prohibitive it will not be rivalrous.

Are you people economists or do you just play economists on TV?

Andrew' August 9, 2011 at 10:33 am

Are you arguing semantics?

Roads subsidize cars.

Mike August 9, 2011 at 11:54 am

No, I’m arguing “economics.”

What you view as pedantic I view as actually understanding the science we’re using in this discussion.

Subsidies increase supply or demand, increasing equilibrium quantity.

Free markets underprovide public goods; public goods are one form of market failure. If government steps in to provide public goods and chooses the wrong quantity or pays the wrong price, that is “government failure.”

This is not to say that rent seeking or budget maximization doesn’t play a role in overprovision. But it’s an abuse of terms to call it a subsidy. Subsidies change the equilibrium. Overprovision of public goods is a disequilibrium state.

Roads do not “subsidize” cars. We had roads three millenia before we had cars. Cars were developed as an adaptation to improved roads. Just because a public good and a private good are complements doesn’t mean the public good “subsidizes” the private good. You’re conflating separate and distinct economic concepts.

Bill August 9, 2011 at 10:59 am

Congestion with network public goods often cannot be relieved without staggering costs, and therefore even subsidization of private goods which relieve congestion on public good infrastructure might be a way to avoid cost. I think the idea of public and private is not so clear when you are talking about network congestion and alternatives to the network. Think about that before we divide the world into public/nonpublic goods. Nonpublic goods can relieve congestion on public goods, and both are in the same market, at least as to the boundary edge.

Adam August 9, 2011 at 11:54 am

“Rail is rivalrous in consumption and completely excludable.”

What are you talking about? Rail is just as excludable as a road. You can test this by buying yourself a hand cart of the right gauge and taking it down to the local tracks.

“Roads are congestible, but especially with the ability to re-route they are NOT rivalrous.”

Again, what are you talking about? Have you ever driven during rush hour? How is congestion not rivalrous?

“The fact that gas taxes do not entirely pay for interstate highways doesn’t change them from a public to a private good. The fact that some users are directly taxed to provide a public good doesn’t change the fact that interstates are a public good”

You’re missing something important here. We are talking about the bus industry. That industry is subsidized because part of its operating costs are being paid for by someone else (big parts).

Meanwhile, you are arguing that roads are not “subsidized.” Fine, whatever. But the bus industry is.

“Are you people economists or do you just play economists on TV?”

Why would you think the commenters here are economists?

Mike August 9, 2011 at 12:05 pm

It’s becoming apparent that some commenters have little education in economics.

There is no such thing as a pure public good. Goods exist on a continuum between public and private. I stand by my description of roads as more “public” and rail as more “private” because those terms are useful for understanding the different economic conditions between the two. If you are not comfortable with bright-line distinctions, then there’s no point in discussing anything because no concept can be perfectly corralled into terms like “monopoly” or “oligopoly” or “market power” or “public good” or “competitive”.

Buses and roads are COMPLEMENTS. Roads do NOT subsidize buses any more than peanut butter subsidizes jelly or left shoes subsidize right shoes.

Roads facilitated travel by foot, horse, and wagon three thousand years before anyone invented the bus.

So roads subsidized the Roman Army?

JeffF August 9, 2011 at 1:08 pm

Interesting.

From the point of view of a potential rider aren’t bus/road systems and train/rail systems both public goods, to approximately the same degree that road/car systems are?

In all three cases capacity is way over usage during much of the time, but much closer during the times when most trips are made (commute times). I think that makes them non-rivalrous most of the time, but rivalrous for most trips.

All three are also fairly excludable. It is fairly hard to evade the gas tax, vehicle, and driver registration for road use. We could easily, even without any new technology from the past 50 years make it so that a bus company approximately paid for the cost of their road, parking lot, and dropoff point use. We choose to have the road system funded about 50% from such fees and taxes, perhaps we don’t charge enough of heavier vehicles for wear and tear, and we don’t try to have it pay for pollution, noise, and similar damages to a significant degree.

If the government paid for all left shoes out of taxes, and people only had to pay for the right shoes themselves would people buy more shoes?

BTW: I find that roads are often quite severely damaged at bus stops. My father used to be a traffic engineer and he has told me that cars cause trivial wear and tear on roads. Trucks and buses cause nearly all the damage due to regular use (other things like snow removal and bad weather also damage roads). Basically all but the worst roads are built to survive heavy vehicle traffic for 20+ years and therefore are nearly immune to light vehicle traffic.

Adam August 9, 2011 at 1:22 pm

“Roads do NOT subsidize buses any more than peanut butter subsidizes jelly or left shoes subsidize right shoes.”

You are flailing now. And it really doesn’t help to proclaim everyone else to be ignorant.

Having someone else pay for roads is a subsidy to the bus industry in exactly the same way that having someone else pay for railroad tracks is a subsidy to the train industry. Absent someone else paying for that stuff, they would have to build their own roads or tracks to operate. It’s as simple as that.

This nonsense about one being a public good and one being a private good is, well, nonsense. It’s irrelevant to the discussion to anyone who didn’t just take his second course in economics and isn’t busy trying out all the new concepts he learned.

Andrew' August 9, 2011 at 1:47 pm

I’m not saying it is pedantic, I’m asking if it is semantic.

If I own an auto manufacturer, and the government chooses to provide roads rather than, say, right-of-way for railroads, am I not being helped? Do you just not want to call it being subsidized? If customers pay for train tickets or auto operating costs, and if the government provides for tracks or roads, that isn’t an indirect subsidy?

Yes, trains are more private and roads are more public, but they can also get pretty close. Many trains use the same track, though they can’t occupy the same space. But consider a one-lane road. They get rivalrous pretty quick. But I’m not arguing the semantics or the shades of gray. I’m just saying that since there are no pure public goods, and there are different interests, that choosing one public good over another is going to change different interest groups operating costs differently. We also don’t have a pure government that cleanly provides public goods. They tend to, ummm, “subsidize” the manufacturers of things they consider public goods.

I would say that yes, roads did facilitate the Roman Army and facilitate the Roman Empire. If they had produced a kind of canal system for example then the users of that particular public good would have been different. They might have had more of a maritime empire, in the hypothetical, I have no idea whether this is historically accurate. I’m not sure whether most professional economists would call this a subsidy.

Mike August 9, 2011 at 9:14 pm

Adam, it’s you who are flailing if you can’t distinguish between basic concepts of:

Tax/subsidy,
Complement/substitute,
Public good/private good,
Shift of a curve/movement along curve,
externality/no externality,
equilibrium/disequilibrium,
supply/demand,
benefit/cost,
revenue/expenditure,
perfect competition/market power,
rivalrous/nonrivalrous,
excludable/nonexcludable,
individual supply/joint supply,

If you don’t understand fundamental dichotomies of economics, there’s really no point trying to teach you here.

Bill August 9, 2011 at 9:49 am

If I want it, it is a public good.

If you want it, it is a private good you should pay for.

I’ll try to remember that highways and roads are not excludable public goods when I wait in traffic an extra 20 minutes to get to work.

I used to mock Milton Friedman for arguing for toll roads, but todays technology makes (RFID) makes it easy to charge or meter road usage.

Rahul August 9, 2011 at 10:01 am

I believe the EU already charges trucks for highway use using GPS?

Andrew' August 9, 2011 at 10:30 am

Bill, have you ever waited 20 minutes at a toll both? Not I.

Bill August 9, 2011 at 10:54 am

Andrew, Have you ever seen RFID auto tags scanned by an overhead reader as you drive 60 miles through a scanner zone?

Andrew' August 9, 2011 at 11:00 am

No. But it is interesting that free roads cause the traffic that causes the repeated 20 minute time wasters but toll booths are seen as ridiculous while RFID is seen as somehow entirely different.

Rahul August 9, 2011 at 11:32 am

Of course toll booths are different than RFID’s.

RFID’s do not have the bottleneck inefficiency.

Andrew' August 9, 2011 at 1:59 pm

“Of course toll booths are different than RFID’s.

RFID’s do not have the bottleneck inefficiency.”

This is primarily a change in cost, the cost being the wait time at toll booths. I have never spent 20+ minutes waiting for a toll booth, but have spent 6 hours in traffic jam multple times.

Andrew' August 9, 2011 at 11:01 am

By the way, what do I need to seem them for?

Andrew' August 9, 2011 at 11:25 am

It’s also mildly interesting that as soon as a payment technology threatens civil liberties it gets more interest. That’s not a criticism, just an observation.

Adam August 9, 2011 at 11:56 am

You haven’t? You’ve not driven I95 in Delaware without and EasyPass? You’ve never driven on Italian toll roads?

Mike August 9, 2011 at 12:10 pm

Of the two features of public goods, nonrivalry is the larger determinant.

Technology can expand excludability, but it can also enhance it. How about I figure out how to jam your RFID or spoof someone else’s RFID?

There is no such thing as a pure public good, so you need to use sme imagination here. we’re trying to distinguish disparate treatment between road and rail, and I provided what I think is the best explanation.

don’t argue with me that roads are not perfectly nonexcludable and not perfectly nonrivalrous. Recognize that roads are nonexcludable and nonrivalrous to a far greater extent than rail.

Andrew' August 9, 2011 at 1:48 pm

Wait a second. Now I’m really confused. You are saying that the traditional government support for trains over buses has to do with the relative public goodness of those alternatives, but they are not concerned with subsidizing the various interests?

Mike August 9, 2011 at 9:56 pm

No, I’m not disputing obvious rent seeking behavior nor am I disputing other forms of government failure in the process of governance. The status quo is probably result of entrenched interests, just like the Big Three used to dominate auto production. Barriers to entry are a form of market failure (or government failure) but they are not equivalent to subsidies. I’m just cautioning you against too liberal and improper use of established terms. If you want to say “benefits” instead of subsidy, then go for it.

I’m merely saying that as a public good, voluntary provision will produce an inadequate quantity of roads. Government is one solution to the inefficient allocation of resources to public goods. It is proper within the realm of positive and normative economics for government to provide roads. It is also permitted by law in our federal and state constitutions.

Rail is a natural monopoly, a different kind of market failure. Government might get involved to reduce monopoly rents, or it can join in the game by auctioning a monopoly franchise. That’s what many cities do with cable TV. Government extracts some (but not all) of the monopoly rents, and keeps them for its own nefarious purposes.

Which brings me to a good analogy. Think of roads as satellite or over-the-air TV and rail as cable TV. But I doubt that will clear up the “subsidy” confusion

Roads can be natural monopolies too, but to a far lesser degree of market power than rail. That’s why some (but not all) roads are toll roads. Same with bridges.

Oreg August 9, 2011 at 9:59 am

There are some fundamental differences between the railways in Europe and in the US that do not feature in this post. In Germany and most surrounding countries
* train fares are a lot cheaper than in the US,
* trains are a lot safer — in particular safer than roads,
* they consume less energy per passenger than buses,
* wireless internet is available on trains as well, and
* there are no annoying security checks at train stations. Moreover,
* many long-distance trains there are much faster than driving. (HSR here operates at 125 to 185 mph.)

nhk August 11, 2011 at 2:53 am

All your points are correct except the first one. In my experience in Europe, train journeys for me have almost always been more expensive than in the US (with the exceptions of Spain and Italy). That being said, the fact that I can travel farther in less time makes it worth it. However, I can tell you from my recollection that:

-a 5 1/2 hour ride from Berlin to Cologne cost me 75€, or about US$105/110 (I booked directly on DB’s website about 3 weeks in advance, so I didn’t pay any finder’s fees or anything like that; I also paid in Euros and paid no foreign transaction charges- gotta love Capital One). An equivalent journey on Amtrak would only cost me about $54 if I booked in advance, $72 if I booked last minute (both fares without any discounts).

-a 4 1/2 hour ride from London to Edinburgh cost me £50, or about US$80/85 (again, booked directly on the operator’s website). I did book this one rather late (only a week in advance), but had I booked a similar journey on Amtrak within a similar timeframe, I again only would have paid about $72.

-A 2 hour train ride from Brussels to London cost me $110 (booked directly on Eurostar website). Booked well in advance, maybe paid a little extra for the convenience of being charged in US dollars instead of Pounds sterling. An equivalent journey on Amtrak would be closer to $40 or $50.

I’ve gotten lucky with some operators, like the UK’s First Great Western (incidentally, they operate a fair number of bus routes both in and outside of Greater London). I’ve also used operators, like Thalys, that gave me a big discount for being a student (well, student-aged). Again, I’d pay more to ride on Amtrak IF it were more like DB or Eurostar or whoever operates trains in Spain (damn, they go fast). As of right now, however, I can save 50-75% by taking the bus from New York to DC, and it only takes me about another hour. And, given the sad fact that our roads are taken better care of than our rail infrastructure, I’d believe that it consumes less energy per passenger mile and is safer (only in US, that is).

Also, security checks? I’ve never gone through a security check on Amtrak. Ever. When I catch the Northeast Regional from near my home in CT, I just hop right on. Sometimes I get all the way to Washington DC without someone asking for my ticket. Even leaving from Union Station, I’ve never had to go through a security check.

Oreg August 11, 2011 at 5:13 am

Comparing European high-speed trains with Amtrak is really comparing apples and oranges–in particular if the journey involves a 31-miles-long tunnel under the English Channel. Amtrak is about as slow as regional and local trains in Europe. In Germany, for instance, you can use these all day in the entire country for 42 Euros ($60)–even last minute.

You’re right about the absence of security checks. I don’t know why Alex brought that up in his post.

nhk August 11, 2011 at 2:47 pm

Fair point. Agreed, if we *actually* had HSR in the US, it probably would be more in line with the prices I paid in Europe (probably more expensive, to your original point). And, furthermore, I feel like Americans might use it anyway (I know I would). I suppose I agree only with the idea of deregulation of buses in Germany as a form of competition for people who simply want an alternative. When I was there a few months ago, I was already seeing adverts for it on the U-Bahn in Berlin, thinking that would maybe be a good alternative to DB (even their regional service). And, indeed, it certainly would be cheaper. I had friends who took the same journey from Brussels to London on bus, and, while it was much longer, they preferred spending less money. However, after I actually rode the ICE from, effectively, one side of Germany to the other, I decided that I didn’t mind paying extra to keep my journey to a reasonable timeframe.

I suppose what I take from this is that different people have different utilities (big surprise there!). The introduction of more choices is better for everyone: we’ll see how deregulation of buses works in Germany, but I suspect that it will be successful, as I suspect some people might like the idea of traveling between different cities in Germany for less than 45€, even if it means longer journeys (they’re certainly not opposed to taking such journeys outside Germany). Likewise, a little more public investment (matched with private investment) in HSR in the US might not be such a bad thing…

k August 9, 2011 at 10:01 am

” I was neither searched, groped nor scanned”

neither were/are the people of Bombay who use the train network

Rail is faster, safer, more reliable and cleaner for long distances than any other kind of transport fixed investment or not. And, by the way, it isn’t rival or excludable, as the development of trackage rights and haulage rights and reciprocal switching shows. Property rights can be delineated at finer levels to overcome what looks from an aggregate point of view to be a pure private good.

Mike above says people cannot distinguish between public and private goods; I suggest that this distinction itself is misleading.

Mike August 9, 2011 at 12:16 pm

A good is nonexcludable if it is either impossible or inefficient to exclude those who don’t pay. Usage rights are not a counterexample to excludability, it is evidence for it. Rail is excludable. Roads are relatively harder and more costly to exclude.

Rail is most certainly rivalrous. If you’ve ever had a train break down in front of yours, you’d understand. Roads can have traffic jams, but again these are more easily avoided and cleared. It is the RELATIVE distinction between road and rail that determines the efficiency conditions, not conforming to absolute conditions.

Roads are more public than rail.

Andrew' August 9, 2011 at 2:01 pm

“Roads are more public than rail.”

I agree! And ironically, before you even mentioned it I was thinking that we’ve been doing it since the Romans. It’s a proven technology.

Mike August 9, 2011 at 9:38 pm

There’s been constant flip-flopping between fixed and flexible infrastructures in transportation, communication, energy, etc.

Fixed is more secure, but flexible is more resilient to change. In my view, flexible wins out in the end every time. There’s no benefit of a fixed infrastructure that can’t be destroyed over time. That’s not to say a fixed network isn’t a good place to start nor am I saying that fixed networks aren’t temporarily superior at times or a bridge toward a better flexible network.

Dimitris August 9, 2011 at 10:22 am

Alex,

France has the same policy. Buses are not allowed to compete on a route served by SNCF. It is a very regressive policy. Bus tickets would cost a fraction of the price of a train ticket, thus allowing the poor to travel more.

Bernard Yomtov August 9, 2011 at 10:55 am

I believe that large vehicles like trucks and buses cause much more wear and tear on the highways, per gallon of fuel, than cars. Hence they pay less than a proportionate share of highway taxes. Public good, schmublic good. Highways cost money.

And by the way, you don’t get searched, groped, or scanned on Amtrak either.

Sid the sidious August 9, 2011 at 10:58 am

The culture that is Germany. A sign of the times indeed when Europe’s biggest economy is re-thinking its Union-worshiping ways.

I remember taking a trip to Germany and beholding the smooth concrete roads, instead of the mosaic-like asphalt I was so used to.

When you begin to talk long-distance, it resembles a zero-sum game: People take either train or bus, but not a combination. I can’t say with confidence that that’s the case in Europe though.

Adam August 9, 2011 at 11:34 am

You wouldn’t have been searched, groped or scanned on Amtrak either, and there is wifi on Acela (although it was woefully bad last time I tried it).

But buses aren’t subsidized? Huh? They pay for the roads they drive on?

Ed August 9, 2011 at 11:44 am

“The U.S. also protected its railroads for some forty years by regulating airlines and trucking.”

It actually was the other way around.

Ed August 9, 2011 at 11:47 am

Sort of off topic, but its now easier and cheaper to get between Manhattan and JFK using public transport (and the bus that leaves from Grand Central is excellent) than between central London and Heathrow. In fact the subway-Air Train combination is probably preferable than trying to drive because you avoid the traffic. I’m not sure when Dan last visited New York.

Adam August 9, 2011 at 11:59 am

Cheaper, yes. Easier, no way.

Brian Ho August 9, 2011 at 11:49 am

The demand to use intercity is buses are far greater than the demand to use Amtrak’s transportation. It clearly shows that intercity buses can carry 50 percent more passenger miles than Amtrak while it is safe and green for the environment at the same time. Intercity buses would be more in demand because of its low fares.
I think Germany should allow buses to go through cities because it would create a better eco-friendly environment for Germany, rather than having people drive around everywhere. In my opinion, it would create a better mean of transportation to get to work. People would save more money because of bus fares, rather than gas for their cars. The more money people would save, the more consumer goods people would buy.

Tim McGovern August 9, 2011 at 12:03 pm

For those doing back-of-envelope calculations, the wear on a road is roughly proportional to square of the weight of the vehicle (the “roughly” is percentage points, not orders of magnitude).

A question: why is it that Deutsche Bahn, despite its monopoly protection, offers a cheap, fast, comfortable, clean service, whereas Amtrak’s is expensive, slow, and shabby? Could it be that there are … gasp…other factors than monopoly at play? Okay, that was snarky. What other factors are at play?

I’d also add that rail lines, inter- and intra-city, stimulate local economies more than highways do: if you build a location-serving business by a train station you can be reasonably certain that train traffic won’t decide to go elsewhere. Automobile traffic has no such limitations.

Andrew' August 9, 2011 at 1:54 pm

“if you build a location-serving business by a train station you can be reasonably certain that train traffic won’t decide to go elsewhere.”

You are saying that the structure will be different between road or rail. Can we say that BECAUSE the benefits are not distributed neutrally and universally, those who are benefitted and the structural effects are being “subsidized”?

Rahul August 9, 2011 at 2:00 pm

More than one commentators claimed that trains in Germany being cheaper than the US. I’m not sure if this is true.

Just randomly the cheapest Amtrak ticket for tomorrow from New York City to Pittsburgh costs $86. Road-distance is 370 miles. Cheapest Deutsche Bahn ticket from Frankfurt (am Main) to Berlin is 99 Euros. Distance is 270 miles. ( Admittedly, DB is faster (7 hrs) versus Amtrak (9 hrs). )

Yet, claiming that German trains are cheaper than the American ones seems a fantasy. European trains might be fast, abundant and efficient but they are definitely not cheap.

Oreg August 9, 2011 at 7:11 pm

Understanding the pricing structures of trains often takes some practice. The cheapest trip from Frankfurt to Berlin (350 miles) actually takes only 5h and costs only 89 Euros. (The fastest train takes only 3.5h.) There are significant discounts for booking early (e.g., 29 Euros to Berlin). And then there are the BahnCards, charging a yearly membership fee to get discounts: 57 Euros for 25%, 230 Euros for 50%, and 3800 Euros for free travel on all trains. The break-even mileages for the BahnCards are very low. To Berlin that is 67 Euros, 45 Euros and 0 Euros. Isn’t that cheap?

Rahul August 9, 2011 at 11:47 pm

Still does not seem cheaper than the US, sorry. The cheapest advance Amtrak fare from NYC to Pittsburgh is $68.

Barring the all-you-can travel pass this is still cheaper than the fares you quoted. For the exact same distance.

Oreg August 10, 2011 at 4:06 am

45 Euros ($64) and 29 Euros ($41) are not cheaper than $68? I’m afraid I don’t quite follow.

BTW, there is yet another offer that is about as slow as Amtrak (8.5h) for 42 Euros ($64). It’s a day pass for all regional and commuter trains in the country.

Rahul August 10, 2011 at 8:33 am

@Oreg:

You are right. I misread. Sorry!

Oreg August 10, 2011 at 9:17 am

Thanks Rahul.

Joe Jones August 9, 2011 at 9:33 pm

Here in Japan, which arguably has the world’s most developed rail network, almost any intercity trip is a toss-up between rail, airlines and/or buses, depending on length, and there is pretty intense competition, particularly at stage lengths of about 400 miles where the time and cost difference between the three modes is minimal.

The 350-mile journey from Tokyo to Osaka is the best example. It takes 2.5 hours and costs about 14,000 yen ($180) on the bullet train, or 9 hours and 8,500 yen ($110) by local trains with a few transfers en route. There are three airlines to choose from, and their fares are about the same as those of the train (a bit cheaper with advance purchase, significantly more expensive on a one-way walk-up basis). It’s a one-hour flight, but when you add the time required for transfers to and from the airports on either end, the time savings is not particularly substantial. By expressway it’s an 8-hour drive, and there are tons of overnight and daytime bus services plying the route for as little as 5,000 yen ($65). At least one operator has high-end buses that cost as much as the train and feature seats equivalent to high-end airline business class seats. Even business travelers will often take the night bus and sleep the trip off to save time.

All of these operators are private (including the rail operator, which IPOed back in the 90s) but are getting extensive subsidies since the rail lines, airports and expressways were all built with government funds.

Dr.Nick August 10, 2011 at 7:05 am

I’m surprised no one seems to have mentioned Amtrak not only gets subsidized through its budget being provided by the Federal Govt, but they also don’t own their own rail- it’s owned by the freight companies. Granted, this is a large annoyance for Amtrak’s schedule, but their contribution to upkeep is likely minimal compared to the freight companies.

I’d also be very surprised if any of the European rail operators are turning a profit without extensive government subsidies.

http://money.cnn.com/2009/06/10/news/economy/high_speed_rail/index.htm
“High-speed rail backers, including the White House, look overseas for success stories. But Amtrak released a study in April to demonstrate that Europe’s system is heavily subsidized. Germany’s high-speed rail network, the most expensive in Europe, required average annual subsidies of $11.6 billion during the 10-year span that ended in 2006, according to the Amtrak study.

Japan’s system is often cited as the most financially successful high-speed rail in the world, according to Ron Utt, but “that’s because in the 1980s they wrote down all the debt to zero,” he noted. “We’re talking about several hundred billion dollars in debt.”"

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