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November 09, 2005

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Lior Strahilevitz, blogging at the University of Chicago Law School Faculty Blog (has anyone come up with a cute shorthand [Read More]

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Randy Picker

Interesting post. I am most interested about the point of whether Seattle should have pursued this without, as you put it, "substantial federal assistance." I hear the idea about unproven technologies, but is the claim that Seattle can't capture enought of the upside if the technology proves successful? That there will be strong positive spillovers to the rest of the country (the world?) if the technology succeeds and therefore the country needs to share with Seattle some chunk of the downside risk via federal funding?

Lior

Randy - Yes, that's what I had in mind. Hard to see what Seattle gains by being the first mover here, even in a counterfactual world where the monorail succeeds and gets copied by other cities. Not even the politicians would get credit for the innovation, since the monorail was embraced through direct democracy. (I seem to remember that a poet and a cab driver were the ones who put the original monorail proposal on the ballot, but they seem to have made themselves scarce.)

Jacob T. Levy

I'm afraid I don't see how the funding point works. Lior's reply to Randy sounds like a prediction: we should expect that municipalities won't engage in this kind of thing without some large amount of federal funding. But surely that's neither here nor there in evaluating Seattle retrospectively; Seattle did so, even though it had no way to profit from any copycat adoption. If the monorail were a good idea, then we'd look at this fact and see something similar to the socially beneficial overoptimism that besets entrepreneurs, who often innovate more than their ability to capture future benefits should predict. We'd shrug, and thank the taxpayers of Seattle for the gift.

But in fact it was a bad idea (or so I gather; I know no more about the case than is contained in the post and the linked articles). So shouldn't we be pleased that it wasn't kept on wasteful life support with federal money? Bad ideas are more likely to be stopped sooner if the voters who ought to benefit are also the ones bearing the costs, right? Why isn't the lesson to draw here that low levels of federal support for municipal mass transit have the desirable outcome of preventing wasteful and badly-designed projects from coming to fruition?

Lior

Jacob - that's certainly a lesson that one might draw. Between your post and Will Baude's most recent comment, we're stumbling into a difficult empirical debate that's central in the patents literature - namely, how much encouragement do you need to provide for innovation in order to optimize said innovation, given the costs associated with encouragement? If we replace "federal subsidies for the most appealing municipal transit proposals" with "property rights" we've got ourselves the patents debate in a nutshell (with me channeling Rob Merges).

I'll admit to not having more than an educated hunch on the question of whether there has been enough innovation in public transit. It's kind of surprising to me that we haven't seen the roll-out of faster and quieter trains for mass transit, and federal subsidies might be one way of achieving those aims. Such improvements could produce tremendous benefits for owners of land located near stations. Automation and easy maintenance might be other areas where we might expect to see improvement. But your mileage may vary, and it's debatable whether the prospect of these improvements would be worth the associated costs.

geoff

As with the patent debate, the question is one of alternate mechanisms to provide incentive. Here, I think it's pretty clear what the alternate mechanism is, and it provides a nice simple explanation for Seattle's puzzling investment: Rent seeking.

It's not required in order to have innovation that all benefits are internalized; only that enough are. Here, whatever spillover the innovation might have produced, it also stood to confer substantial (perceived) benefit over cost on lots of the people who voted for it. The level may not be optimal (which I recognize is the issue), but I'd guess that rational voters might tend to over-spend on these sorts of things, rather than under-spend.

But more tellingly, the cost-benefit calculus for the technocrats on the receiving end of the $200 million investment is an easy one. They'd have willingly pulled massively more money from the citizens of Seattle (perhaps even exceeding the nationally-optimal amount) if they could have.

The real danger here, as Jacob suggests, would seem to be over-spending on innovation, not under-spending.

In other words, I think the externalities you point to here are, as Dave Haddock would say, (http://ideas.repec.org/p/icr/wpicer/31-2003.html) irrelevant ones.

Craig Tindall

As someone intimately involved in the development of a federally-funded light rail system, I’m willing to share a bit of practical experience. First, I’d agree with Professor Strahilevitz assessment that direct democracy is no way to plan, much less build, a mass transit system such as a monorail, light rail, or commuter rail line. Voters absolutely must be involved in the initially policy decision to move forward with such an endeavor. The costs are far too great not to seek a public mandate on this type of issue. However, retrofitting mass transit system into any urban area is exceedingly complex; involving highly technical aspects of, to name a few, urban planning, transit planning, economic development, public finances, and legal considerations, most of which are far beyond what can be effectively conveyed to the vast majority of voters. Consequently, once the policy decision has been made, the professionals must do their jobs implementing the voter approved policy by making the hard technical decisions that allow the project to be completed on-time and on-budget. This is not to suggestion that a project as large as the development of a mass transit system be left without the appropriate level of public oversight. But, given the complexity of the type of issues involved and the false consensus to which direct democracy can too easily fall prey when addressing such questions, oversight is best handled through the representative form of governmental oversight.

As far as federal funding, how is the use of federal money for a local mass transit system justified? Professor Strahilevitz is absolutely correct that a city, or even a collation of cities, would have a very difficult time financing a useful light rail system (I’m speaking a bit more broadly than the specific topic of a monorail as I’m not aware of any U.S. city other than Seattle that has actually attempted to tackle such a project). After an urban mass transit system is operating, regional funds might be sufficient to augment the system, but funding a new start on local money would be difficult at best. The Phoenix area light rail system, which received federal funding this year, is 20 miles long and $1.2 billion. Half of that cost is funded by federal money.

And so, what is the benefit to country as a whole? There are quite valid standard arguments. Particularly in the west, more urbanization allows for more efficient use of resources—gasoline, electricity, etc., and urban transit systems are one method of encouraging urbanization. Because of the national market for these resources, their more efficient use has a positive national effect. Mass transit also decreases automobile usage, which contributes significantly to air and water pollution, both of which our Congress have determined to be federal issues. And so on . . . these arguments are not difficult to find. Another, admittedly more cynical argument might be merely that if the money was not used to pay for the positive benefits of urban mass transit, it would be used for something else, such as more building more roadways. Consequently, I would submit that using money for mass transit that would otherwise be spent on more roadways has an overall positive effect.

First it should be noted that federal funding for urban transit systems such as light rail is not easily secured. The competition for these funds among large cities is strong and an arduous FTA process to secure the funds requires a high level of assurance that the system will be successful. Of course, “success” in the context of public works is often a nebulous concept. The FTA relies heavily on the transit part of the equation—how many people will be moved how far and to serve what need—and rightfully so; transit is after all that agency’s charter. What is often left our out of the some arguments for and against urban transit systems, or what is buried too deeply in the deferential analysis to be generally meaningful, is the economic impact that an urban transit system can offer. For example, in September of this year, Bernard L. Weinstein and Terry L. Clower, economists at the University of North Texas reported that the Dallas Area Rapid Transit System (a light rail system with a growing commuter rail connection) had a $3.3 billion positive economic impact on the Dallas economy. The relative permanency of a light rail system encourages investments in the surrounding properties, what is referred to as “transit oriented development.” A bus line, which can change at any time, does not offer this benefit. Roads, of course, are relatively permanent, but roadways, particularly the large arterials streets or highways that equate to light rails transit capabilities, offer little of the perceived life-style amenities of light rail. Retrofitting roadways in urban areas, particularly highways, tends to create boundaries and divide cities. Highways do generate significant economic development, but it is generally a very different kind; certainly not the type of the development brings permanent residents into an urban area. And, roadways have proven sorely deficient as the only viable answer to transit problems.

Take Phoenix as an example. As major cities go, was very late in developing highways. Until the late ‘80’s, travelers could drive uninterrupted from Los Angeles to Florida on Interstate 10, except through Phoenix, where they were routed onto surface streets for 20-25 miles (and decidedly not through the scenic part of town) before getting back onto the interstate. Now the interstate has been completed, loop freeways generally ring the city, and state highways intersect it. All of these new highways are well used. In fact, they’re full of the slow grind that accompanies rush hour traffic. Within months of the new State Route 51 being completed through north Phoenix, the beautifully and expensively landscaped median was ripped out in the downtown area to provide more traffic lanes and car pool lanes, which happened to have been paid for by federal dollars. Frankly, if we could concrete our way our of traffic problems, Los Angeles would be a paradise--but it most certainly is not. So, light rail and similar types of transit solutions should be looked upon, at the very least, as viable alternatives and implemented as such. They won’t eliminate the need for new roads, but can offer benefits that are equal, if not in some aspects superior, to new and bigger roadways.

Bottom line, we all should applaud the citizens of Seattle for the willingness to try developing a new solution. Very few communities would have the fortitude to do so. The fault for failure of the Seattle monorail might be that it was the wrong solution. It does appear, as Professor Strahilevitz suggests, that fault lays in the method sought to answer the questions that such a development inevitably raises. Direct democracy cannot effectively build a public works project; it can only direct that they be done. In that light, the fault for the demise of Seattle’s monorail may well lay with the politicians who improperly deferred their responsibilities to the voters.

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