There’s also good reason to believe that the private sector can and will be more efficient than the public sector when it comes to things like building highways. As Virginia Postrel noted back in 2004:
“Consider the choice between the immediate cost of building thicker roads in the first place and the long-term cost of repairing thinner roads as they wear down. An economic calculation would have suggested much thicker Interstate highways, even ignoring the cost of disrupting traffic with repairs.
But the Interstates were built relatively thin, in part because of political pressures to get the system spread everywhere as quickly as possible. Now they’re wearing out, and money must go for repairs. That investment, while necessary, is inefficient and yields a relatively low return.”A private-sector consortium with a 75-year or 99-year concession to build and operate a new toll road is less likely to make the same building-thin-roads mistake than a fiscally-pressured state government keen to minimize short-term costs in an environment of falling tax revenues.
No. Anyone who thinks this simply hasn’t been paying attention to how things actually work in the era of “privatize gains/socialize losses.” Salmon should know better, he covers finance and the markets. Bear Stearns was allowed to make absurd bets on crappy paper, and when they couldn’t hide the ball anymore, the Fed went on the hook for $29 billion. It wouldn’t be any different where roads are concerned. The developers would have cost-benefit analysts figuring out to the millimeter how to optimize road thickness, but for profit maximization, not for longevity. They would arrange tax breaks from state and local governments, and almost certainly negotiate advertising deals to wring out the last bit of cash. Then, when the not-quite-thick-enough roads start getting threadbare, it’s time to run back to the government for a bailout.
Why can’t people learn from reality?