Coyote Blog

One of the urban legends of the civics world is that is some project really requires investment for the long-term, the government needs to do it since private companies are too short-term profit focused. 

Over a series of posts, I have been showing just how terrible state run companies are at making long-term investments compared to private companies.   I showed the Mexican state oil company eschewing investment in favor of bloated patronage-based payrolls and social spending, and the nationalized Venezuelan companies doing the same thing.  What you see in both cases is that the state run oil companies are particularly bad at making investments to maintain production, investments that can be huge in the oil business.  Leftists have convinced themselves that oil companies make a fortune with little or no work, that oil extraction is kind of like clipping coupons.  But the maintenance of any infrastructure is hugely expensive, and takes a discipline and focus that the state does not have.  Belatedly, some of them are learning that producing oil takes real work and constant re-investment.  It bizarrely reminds me of Carl talking to Vernon in the Breakfast Club:
"You took a teaching position, 'cause you thought it'd be fun, right?
Thought you could have summer vacations off...and then you found out it
was actually work...and that really bummed you out"

But I don't want to imply that this is just a poor-country, banana republic problem.  Defenders of big government in the US will say that government can do all these things just fine, if only you have the right people in charge.  But under-investment in public assets, particularly in refurbishment, is a constant problem in the US as well.  Every Senator likes to get his name on building a new facility, but you don't get your name on a maintenance contract, so lots of things get built by the government but few get maintained.  Disney would never let its parks get as run down as the government
allows its public parks to get.  Wal-Mart (like most retailers) virtually rebuilds its stores every
twenty years, and would never let its infrastructure get as run
down as, say, the average US post office.

So I take as my example the Washington Metro system, one of the highest-profile public infrastructure projects in the country:

The Metro Rail system was built with federal dollars, with the
understanding that local governments would pay for its operation. But
no one was prepared to pay for rail reconstruction, which is
needed every 30 years or so and which costs a substantial fraction of
the original construction cost. Now, some of the system is approaching
30 years of age and is breaking down with increasing frequency.

The article, by Randal O'Toole of Cato, goes on to show another example of this same mindset:

Meanwhile, everyone is trying to ignore the gorilla in the corner,
which is that VTA's board wants to spend $4.7 billion to connect the
San Francisco BART system to San Jose. The agency only has enough money
to build to the edge of San Jose, but even if it had all the money for
construction, its general manager admits "we clearly do not have the money to operate the system." Nevertheless, the board recently voted to spend $185 million "” more than half of VTA's annual operating budget "” on preliminary engineering.

Meanwhile, VTA is still short on operating funds, so it is contemplating "eliminating or consolidating" service on more than a quarter of its remaining bus lines.