Aha! My Theory About How Needless Traffic Jams Start Has Been Proven Right

When driving down the notorious A11, particularly before it was duelled, I would often be bemused at the occurrence of traffic jams when there were no road accidents and no maintenance work to hold up traffic. I would tell my wife what I was thought was going on - it's what I call the 'flow' factor being interrupted. The flow is how I describe the optimal driving process, whereby when there are no obstacles, if all drivers filter in, speed up and slow in ways that do not impede the natural movement of other cars they are not interrupting the 'flow'. An optimal driving state would occur when no one is made to slow down, speed up or stop against the flow.

As drivers we obviously need to slow down and stop for all sorts of reasons (traffic lights, junctions, roundabouts, queues in rush hour, etc) but a lot of the unnecessary delays are caused by the natural flow of driving being interrupted by people who brake more than they need to. Clearly, with short distances in diversely planned cities, small interruptions are minimal and don't really register on the radar (unless you are a particularly irascible and impatient driver), but on long A roads (like the A11) and motorways careless interruptions to the flow can result in long traffic jams, caused simply because someone was too heavy on the brake pedal.

I was pleased to see this week that there's actually a video which proves my 'flow' theory - it explains how one driver hitting his or her brakes too hard can slow everything down and cause a huge tail back as it sets off a ripple where cars behind it also need to brake until at the end of the chain reaction, traffic has come to a stand still. Naturally, even when cars start moving at the front, by then the tail end of cars is sufficiently halted to see numerous cars joining the back of the tail, and so it goes on, taking ages to clear.

Here is the video- it's the second half that is most compelling. So, from now on, drivers, please do go easy on the brake pedal - for all our sakes.

 

 

 

 

 

 

These Paroxysms Of Lust Over The Public Sector Are Truly Baffling

It constantly amazes me that there are still so many people in the UK who live under the long-refuted misapprehension that public services are better than the more competitive, efficiency-inducing private sector. Currently making the headlines at the minute is the news that if he got the chance Jeremy Corbyn will commit to bringing all rail franchises back into public ownership. I saw two articles out yesterday that give well-argued reasons why railway nationalisation is a bad idea – one from the Adam Smith Institute’s Eamonn Butler (see here), and one from the IEA’s Philip Booth (see here). I’ve also written a couple myself a while back, which you can see if you access my ‘Transport’ link on the side.

Despite many compelling arguments, one area that neither Mr Butler nor Mr Booth considered is the area of opportunity cost, which is what we consider when we factor in what isn’t done as well as what is. I'll explain. There's a well known comment by economist Milton Friedman who wanted to rebut the idea that if soldiers enlisted in the army for money rather than duty they would be mercenaries, because to join the forces for money casts an aspersion over their commitment and patriotism. Friedman refuted the idea that a paid volunteer in the army would be worse than a conscripted member by pointing out that compulsory conscription isn't impassioned patriotism either, as forced servitude also does not contain the volitional incentives for serving one's country with impassioned patriotism. Friedman said the following:

“In the course of his [General Westmoreland’s] testimony, he made the statement that he did not want to command an army of mercenaries. I [Milton Friedman] stopped him and said, ‘General, would you rather command an army of slaves?’ He drew himself up and said, ‘I don’t like to hear our patriotic draftees referred to as slaves.’ I replied, ‘I don’t like to hear our patriotic volunteers referred to as mercenaries.’ But I went on to say, ‘If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general; we are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher.’ That was the last that we heard from the general about mercenaries.”

This kind of wisdom is the kind needed to show why proponents of government-run services overestimate the benefits and underestimate the costs. To show where they've gone wrong we need to see why the question of whether voluntarily paid soldiers or conscripted soldiers cost the nation more. Friedman showed that conscripted soldiers cost more by showing that costs are not the same as expenditure.

The expenditure of an army soldier is what he is paid in salary, whereas the cost of an army soldier is how much his being in the army robs society of the skills and abilities he could otherwise put in. Those who've chosen the armed forces are those who are getting paid for their chosen vocation; those who are conscripted are those who are now not free to do what they'd otherwise be doing.

When Elvis Presley was conscripted in the army, the cost of that conscription was whatever he didn't record or film whilst in there. If he'd been denied the reported $200,000 he was paid for shooting the film GI Blues then his conscription cost would have been $200,000, and the expenditure would have been whatever his military salary was (Muhammad Ali on the other hand refused to be conscripted on grounds of religious beliefs, which cost him personally his boxing title).

Alas, the politicians like Corbyn who are calling for re-nationalisation of the railways would do well to become mindful of the difference between costs and expenditure regarding government-run services. Not only do we see greater inefficiency and waste in government-run services due to the credit-guarantee that comes in the form of taxpayers, we see that government expenditure can't be considered without also considering cost too. The expenditure for nationalised railways is evident - although the extra costs, like pension contributions, sick pay, holiday pay, human resources costs, and so forth are usually overlooked, as are labour costs by being treated as beneficial jobs rather than expenditure (which is what they actually are). It's the costs that really bring about the inefficiency.

The cost of having 'conscripted' private sector employees in the railway is the cost of what they would be doing if they weren't being paid by the taxpayers. It's true some might be working in the rail industry, but they would be being paid by private company expenditure not taxpayers expenditure. So to put the analogy to effect in a more general sense, the cost of being nationalised is the cost borne by what those workers would otherwise be doing were they not funded by the taxpayer.

The other reality check pro-nationalisers need is over the issue of why the railways system is as it is. Train tickets are not priced as they are because there are private operators - they are priced as they are because the subsidies that used to keep the prices lower have been reduced. Whether the subsidy is increased or not, it is not an argument for re-nationalisation, which means running at a loss for the taxpayer, and more inefficiency too.

It's true that rail fares have crept up, and it's true that trains are delayed, they break down, tracks get damaged, and carriages get overcrowded, but to think that these problems are caused by not having the government in charge of the railways is really quite ludicrous. Consider prices – everyone’s favourite complaint. The complaint the rail fares are hugely overpriced, and that a government-run service would bring this back in check is overinflated, because the current profit margin for train operating companies is only between 3% and 5%. Ignore the fact that if the government makes no margin it becomes a very precariously run (and costly) enterprise – at 5% profit margins, a reduction of up to 4% on your train ticket is hardly going to amount to the kind of huge saving many imagine.

As for the issue of over-crowding (another favourite from people who think the trains run inefficiently), they may have missed the fact that the railway network is, actually, nationalised, it is only the train services operations that are tendered out privately. Given the limit on how many trains can viably enter a station at any one time, it is foolish to blame the private franchises for over-crowding. If anything, the sensible pricing that offers cheaper off-peak fares for people who are less price-sensitive or able to travel more leisurely under fewer time constrictions is exactly the kind of competition customers ought to value.

Consider that the government runs a comprehensive school monopoly and there is a shortage of teachers, but that shortage hasn't hiked up teachers' pay. Doctors, surgeons, lawyers and accountants all work in a prolonged qualification-based arena in which it is hard for competing forces to challenge, and that is not due to privatisation, it is due to scarcity. Also, scarcity power (which is what makes prices high) is not absent in government monopolies any more than private monopolies.

The paradox of competitive private industry is that it often starts as a nationalised company (as all the providers in the UK did - electricity, gas, telephones, water, etc), because otherwise there are few providers able to build the initial infrastructure to get their business off the ground. Generally, without governments' anti-monopoly policies one firm would rule because it costs so much to start a business that competition ends up costing too much to compete. For example, suppose no one was providing any large-scale water supplies around the UK. Thinking of economies of scale - to produce tap water, an aspiring water company had to invest in a huge network of water pipes stretching throughout the country. The fixed cost of this investment is very high. However, once in place any company that can distribute water to tens of millions of households brings the average cost down. Yet it often would not be worth another water company building another network of water pipes to compete with the existing company, because if they only got a small share of the market, the average cost would be very high and they would go out of business This is an example of a natural monopoly – but these largely occur when the goods or services provided are not fungible (see below).

That's why it's not always bad when the government first owns the means of production and then gets to the stage where it can sell off the rights of provision to competing companies, whilst stipulating a rule that they must compete for shares in the existing infrastructure.

What conditions this process is whether or not the good or service is a fungible one – by which we mean whether or not that good or service is easily replaceable in competition. The trouble with rail is that it is not a fungible good in the same way that food, clothes or cars are. If you need to take the train to London to Norwich you can't suddenly decide to purchase a vacuum cleaner instead and still get to Norwich, whereas if you're hungry and on arrival you find that sausage rolls at the station are too expensive you can buy some fruit from the nearby supermarket. Similarly, if the price of BMWs or leather jackets become undesirable, there are plenty of other alternatives you can seek, like Fords, Vauxhalls, wool or denim.

With trains things are not quite the same. The only competition for your train fare is other transport alternatives – driving, getting the bus, or occasionally cycling. But the competition in the railway services is not fungible: if you’re at Norwich station looking to get the 7:20am to London, you will not have a choice of trains like you will a choice of snacks and drinks in the nearby shops. A private monopoly or cartel that provides a service (like trains to 25 million people) is very hard to break, as competition for such a service is hard to generate. It's very costly to start up a rival firm to provide 25 million rail customers, and any small firm can be swallowed by being bought out by offering shareholders bigger shares in the larger company, as SKY TV did. Moreover, the fact that profit margins are under 5% shows that rail travellers are not getting ripped off - it is just simply the case that railway services are very expensive to run, they require lots of investment, and are large scale operations - and as such, they need to be run with the kind of efficiency that only the private sector is going to deliver.

The Guardian Goes Off The Rails Again

The Guardian really does have some disingenuous half-wits writing for it. Here we have Patrick Collinson ranting about rail price hikes and complaining that:

“In reality, fare increases aren't really paying for infrastructure but are instead covering the gradual withdrawal of government subsidies, which have fallen by 9% in real terms since 2010-11.”

Well whoopedoo, what about that – the taxpayers are paying less in subsidies, with the fares actually being paid for by…..wait for it……the people who actually use the trains. Surely not!! Contrary to Patrick Collinson’s wishes, most of us humans have evolved to understand that privatisation is not the bogey that the old socialists used to make it out to be, but the most efficient, right and proper state of affairs for the majority of industry. Why should the council maintenance man pay to subsidise the broker’s commuting? When you multiply those types of example nationwide you see how preposterous it is. Next we have this absurd swipe at profits:

“Passengers are also paying for the vast profits made by the rolling stock companies formed at privatisation. Just one, Angel Trains, made £372m in 2013 by its measure of underlying profitability.”

That’s the kind of squalid statement that sets out to paint a railway company as being greedy, unsympathetic fiends – when, in fact, a bit of digging shows the crassness attached to the claim. Sure, £372m is a big profit, but what does that actually amount to per customer? I can’t find any precise figures for Angel Trains rail users per year, but I did find out one or two things which will help. Angel Trains has 4,500 vehicles, which even at an outrageously meagre estimate of 10,000 passengers per vehicle per year works out at 45 million passengers. Divide the £372m profit by 45 million passengers and it works out at just over £8 per year “underlying profit” made on each person. Half the amount of passengers and it’s still only a profit of £16 per year per person – hardly the sort of profit that can be said to be ‘vast’ and worthy of public opprobrium.

But on top of that, I noticed that Angel Trains have invested over £3.4 billion in new rolling stock and refurbishment programmes since 1994, as well as donating over £135,000 to numerous charities since 2008.

I know being on the economic left entails the default position that success in business should be sneered at with socialist agitprop, but they really ought to be a little bit more responsible when it comes to the companies they are smearing with their conspiracy theorist anti-privatisation propaganda.


EDIT TO ADD: As is usually the case, the measure of success is in the evidence. Here's evidence that the number of rail passengers has doubled in the times of privatisation, following years of decline under the State: http://en.wikipedia.org/wiki/Rail_transport_in_Great_Britain#mediaviewer/File:GBR_rail_passenegers_by_year.gif
 

Don't Nationalise The Rail Industry!

 

If you're a Brit reading this, it's a pretty safe bet to say you'd hate to see the NHS privatised, wouldn't you? I know what you mean - it's a wonderful thing, isn't it - national insurance contributions making health service free at the point of delivery. Although personally I wouldn't want to see it privatised in one foul swoop just yet, there aren’t many things I want to see remain in the hands of the government.

You see, in net terms even the health service would be more efficient if it were privatised (take Singapore's health service as the nearest case in point) with people able to keep their money instead of paying it in NI contributions. The NHS costs are so high primarily because it is so inefficiently used - and the reason it is so inefficiently used is because it’s free at the point of delivery, so there's no financial incentive to minimise one's health and well-being.

To give you an illustration, imagine the government nationalised all food and asked us all to only eat what we needed - we'd be a nation of severe overeaters (we are already, and that's when we pay for our food). That said, despite the health service ideal, where incentives are locked in place, we just don't have the collective wherewithal to optimise this model, which is why I favour a State-funded NHS.

In just about every other instance in the UK, in just about every decade, privatisation has proved far more efficient for the economy and for the taxpayer than services run by the government, or services too heavily subsidised – and that’s an almost ineluctable law in economics. The reasons are standard textbook stuff.  Privatised companies have a much greater incentive than government-run companies to spend efficiently and reduce profligacy.

Not only are governments wasteful (people generally spend other people's money more carelessly than their own) - they do business in accordance with party politics and political pressures from the electorate, as well as subsiding or bailing out failing industries. Furthermore, investment in the rail industry is more proficient when governments aid private companies rather than running it themselves, as economic management that extends long-term is not always good for point-scoring in general elections.

Shareholders are good agents for profit-inducement, which means you usually get better managers in the private sector. Where there is inefficiency, the best recourse is a takeover or switching to competing forces, not State bailouts which are so often inefficient, party-based and largely ideology-driven.

But most of all, increase in competition is proven to be the greatest catalyst for efficiency and improved services. Competition is hard in the rail industry (even these regional franchises don't entirely guard against monopoly power) - but the government needs to do more to engender competition, not take steps backwards to the old days of nationalisation.

Lastly, profits make for a tiny proportion of the rail industry's investors - for example, staff costs alone are about 25% compared with 3-5% profits. The politicians in favour of nationalisation fail at basic rationality when they allude to a public sector profit in one region as evidence for greater efficiency than the private sector in other regions (that’s as injudicious as saying that all restaurants should be nationalised because city hall’s restaurant makes more profit for local government than privately owned restaurants in the nearby high street).

And they fail at basic arithmetic when they count railway labour costs (always the headline-grabbing ‘jobs’) as part of the benefits rather than part of the costs. Those 25% staff costs are borne by the taxpayer in public sectors and by the company in private sectors - but it doesn’t end there – not only are they costs that are only borne by nationalisation – with government expenditure we have to include pension contributions, sick pay, holiday pay, human resources costs, and so forth that aren't factored into the balance sheet, they are costs that carry on through all employees’ working life and henceforth thereafter – and it is either disingenuous or plain incompetent to omit them from the enquiry.

No, while nationalisation has the occasional success story - this usually occurs when the State has come in to take over from a failing private sector firm (and please note: a bad private firm does not logically necessitate a slightly better public sector agent, it necessitates a much better private firm) – history has continually shown that it is not to be preferred to the much more efficient market of competition, enterprise and diversity.

 

EDIT TO ADD: As is usually the case, the measure of success is in the evidence. Here's evidence that the number of rail passengers has doubled in the times of privatisation, following years of decline under the State: http://en.wikipedia.org/wiki/Rail_transport_in_Great_Britain#mediaviewer/File:GBR_rail_passenegers_by_year.gif