It’s been said there is nothing new under the sun. I don’t know if that’s exactly true, but still, much of what’s discussed today can be seen in past discussions as well. Recently, a memory fired off in my brain reminding me of an EconTalk podcast from 2008 that touched on two themes I’ve posted about over the last month. The guest of that episode was Mike Munger (because of course it was Mike Munger), and the subject was the bus system in Santiago, Chile.

In the episode, Munger and Russ Roberts discuss how Santiago used to have a bus system that was purely privately run and operated. And, as Munger points out early on, the bussing system operated profitably, making an industry wide profit of about $60 million per year. As Munger described it:

There were no public subsidies of any kind. Thousands of people, every day, went from where they were to where they wanted to go, and nobody had to pay except the person who was taking the trip.

Then, a new leftist government outlawed private bussing and implemented a government-run bussing system. And as a result of this reform, total travelers using busses for transit decreased, average transit times tripled from forty minutes to two hours, and the new system operated at a loss of $600 million per year. You read that right – it was annually losing ten times as much money as the previous system was making while taking three times as long to transport fewer people. 

The whole episode is worth listening to, but there are some themes that come up in the discussion that are also reflected in some of my recent posts. For example, while unpacking some of Alexander Field’s work in this post, I talked about how one of the reasons wartime planners often made such inefficient and wasteful choices was because they lacked any kind of feedback mechanism for the decisions they made. Munger identifies the same problem with the publicly run transit system as well. 

At one point, Russ brings up the idea of comparing the routes the old system used to provide with the new system’s routes. Munger explains that the new system “eliminated almost all the routes” used previously, in order to replace the organically grown system with a rationally planned system. Thus, Munger says, 

They didn’t use that information. There was a lot of information in the previous system. So your first thought, Russ, because you’ve read Hayek and you know about markets, was to say “Let’s look at a map of the old system.” That was not their first thought. They said, “What should the map look like?” And they drew it from a planning perspective, rather than from a perspective of serving the demand of commuters. 

And using the planning perspective cut them off from two of the great things markets can provide:

Markets provide two things. One is information about demand and cost and the other is the incentive to do things in a particular way rather than in some other way. So, we take those two things out. Now, we don’t have any information about where people want to go, or when. And it’s hard for planners to say, “Let’s have a route here.” Well, why? Why there and not somewhere else? “Let’s have a route at this time.” How would you know? Without competition to winnow out which of these is better, there’s no way you could know.

Additional themes touched on in this podcast came up in my recent discussions about Nathaniel Robinson’s rather odd takes on the education system. For example, Robinson assured his readers that as a good leftist, he sees profit as a “dirty word.” And Munger points out this mindset was present among the new government implementing the reforms. While the idea of a bus system operating profitably might seem like a good thing to some, to the leftist government, Munger says, “the very fact that anyone was making profits on this meant that the system was inherently flawed.” 

Robinson’s arguments also reflect a similar flaw in judgment motivating these reforms. To see that, let’s briefly reconsider a worry Robinson expresses about private schools subsidized by vouchers. He says, “if we have a school district comprised in total of three for-profit elementary schools, and all of them simply pocket most of the voucher money while failing to educate the children, then no matter what ‘choices’ among schools parents make, they won’t be able to improve the quality of the schools. One might expect new operators to enter the market, but if the only way to make any real money on the children is to neglect them, then new operators won’t be any better than the old ones.”

One wonders why Robinson doesn’t generalize this concern to public schools. After all, what if instead of having a choice of three elementary schools, you’re simply assigned one based on your zip code? And if the administrators of that school district “simply pocket most of the [tax] money while failing to educate the children,” there won’t even be an option for most parents to take their kids to a better school, nor will there be any opportunity for a new operator to “enter the market” and try to provide a better option. This possibility seems even worse than what Robinson describes. So why doesn’t he consider it? 

It’s because Robinson, like the reformers of the Santiago bus system, seems to think if you just take something away from the market, and take away profits, there will be what Munger calls “a sort of human transubstantiation. They’ll be different, and they’ll just work for public service.” 

Robinson doesn’t seriously consider the alternative scenario I described above because in his mind, people would only behave in such a way as private citizens seeking to make a profit. But if teachers and administrators are public employees operating in an unprofitable enterprise, then they will just do what he sees as the right thing, because as when acting as agents of the state they will “see children as an ends.” Pocketing money for personal gain at the expense of others is something government employees would never do – the only people who would do such a thing are people who are making profits! And since government agencies are unburdened by the need to be profitable to operate, Robinson sees no reason to consider the possibility I described – he can rule it out a priori.   

Munger points out the flaw in this thinking with an example of how bus drivers’ behavior changed when buses no longer operated in the market. In the previous system, bus drivers who wanted to make as much money as possible did so by transporting as many people as they could from where they were to where they wanted to go. The more people I help, the more money I make. The new system changed the incentive – drivers weren’t paid according to how many passengers they transported. They were paid according to how closely they stuck to their schedule. As a result, a bus driver with a nearly empty bus could be coming up on a bus stop with fifty people waiting, but if he was three minutes behind schedule, he’d simply drive past the stop without picking anyone up. Leaving those people behind at the bus stop wouldn’t cost him anything, since he wasn’t paid by the traveler anyway. Picking them up would actually cost him money because the time letting people on the bus would push him even further behind schedule. So why would he stop? 

Munger brings this all together by pointing out what happens to people’s thinking when they fail to understand the role markets play in generating information and incentivizing responses to that information, and who fail to understand that human nature isn’t changed by government diktat. In the absence of these insights, when people see a public system that seems to be failing in every conceivable way, the only solutions they can think of is to spend even more money on it, or to pass some kind of reform. Is the local public school doing a poor job? Don’t respond by giving people the ability to seek alternative options – just solve the problem by using reforms to improve the quality of all the public schools! And you end up in a situation where public programs become ever more costly each year, with new bundles of reforms and regulations being thrown at them every so often, without the fundamental problems ever really being fixed, or outcomes ever getting any better. 

Which, unfortunately, sounds like a pretty accurate description of how the political process actually works.