A new paper on the Vox Web site by the European economists Rafael Lalive, Simon Luechinger and Armin Schmutzler on the effects of increased rail service makes clever use of natural experiments created by changes in German ownership and regulation. The results aren't that surprising — more frequent rail service sharply reduces pollution and other costs associated with driving — but it's good to have this kind of solid work to back our intuitions.
And can I say that this is a subject that really deserves a lot more attention? Mea culpa: I haven't written much for a while on these issues, focusing mainly on the economic crisis, which is on the front burner for the moment. But we know, as surely as we know anything in economics, that there are huge market failures here — that every time an individual chooses to drive during rush hour, he or she is imposing huge costs on other drivers, on people who breathe, and more.
Ideally, the answer is to get the incentives right and to charge large fees for driving in congested areas. Short of that, there are huge second-best payoffs to mass transit; if we did the accounting properly, taking all the benefits into account, Amtrak's Northeast Corridor service (which makes money even without taking this into account) would be seen as a huge social boon, and projects like a proposed rail tunnel under the
Hudson River between New York and New Jersey would be total no-brainers.
And the thing is that these are externalities that everyone can see. You can deny global warming (and may you be punished in the afterlife for doing so — this kind of denial for petty personal or political reasons is an almost inconceivable sin), but can anyone deny that more drivers means more traffic congestion?
Well, maybe I'm understating the power of denial. But still, this is a totally obvious case for government intervention that's staring us all in the face every time we hit the road.
Running the Government Like a Business or a Family
I've spent a lot of time trying to knock down the bad analogy between governments and individuals, and the line that the government should act like an individual family or business, and cut back on spending when times are tough.
The key point is interdependence: your spending is my income, my spending is your income, and if we all try to slash spending at the same time, the result is a depression. Somebody needs to step up and spend when others won't — and the government can and should be that somebody.
That said, the funny thing is that real individuals and businesses don't behave the way the balanced-budget scolds claim. Businesses often borrow and spend when borrowing is cheap or they see high payoffs to investing; so do families. So the reporter Josh Israel at the commentary website Think Progress, in a recent post titled "14 GOP Congressmen Who Think Government Shouldn't Borrow Have Big Debts Of Their Own," is doing good by pointing out how many of those deficit-fearing Congresscritters turn out to have quite large personal debts.