Bay Area public transit, by definition, doesn't care about profit/loss. What's the alternative?

 
 

“Expect a rough 2025 for BART,” said Citizens for Fiscal Responsibility prez Pat Waite this Wednesday—citing declining ridership and depleted Covid funds, but ever-ballooning costs. Below, the Mises Institute wonders if public transit could instead be governed by the “sovereignty” of free consumers' decisions (not, like BART, propped up by gov't funds regardless of performance).

As Ludwig von Mises put it: “In the capitalist system of society’s economic organization, the entrepreneurs determine the course of production. In the performance of this function, they are unconditionally and totally subject to the sovereignty of the buying public, the consumers.” …

In the modern economy, monetary calculation allows participants to know whether they are producing value and what the value of their “capital” might be because it allows them to calculate profits and losses. Thus, in the private sector, decisions affecting the limited (scarce) resources of the economy, like those used for public transit, are made by applying this profit and loss test to business plans. This ensures that consumers are in fact getting the things that they most urgently need, which is what Mises calls the primary economic problem.

It also ensures that capital is in the best hands—those who know how to provide these most urgently needed goods at the most profit. Thus, successful entrepreneurs increasingly become the stewards of that capital so that it is allocated to its highest-valued ends.

Importantly, capital must be valued by the consumer: “Profit and loss are generated by success or failure in adjusting the course of production activities to the most urgent demand of the consumers.”

Public departments, bypassing the profit and loss test, may not effectively meet consumer needs. This can lead to resource misallocation and wasted capital. …

Essentially, because the government ignores profit and loss, “they are, within the limits drawn by the amount of capital at their disposal, in a position to defy the wishes of the public.”

A price system in the private sector allows calculation of a service’s value compared to other societal goods. But by bypassing this system, public services eliminate a critical tool that helps to prioritize scarce resources and understand consumer needs in society.

Moreover, the private company is accountable to its consumers and shareholders.

Government-provided services, as monopolies, often lead to stagnation and lower productivity due to lack of competition. State-run monopolies also risk a distortion of benefits due to incentivizing rent-seeking behavior and other possible abuses due to the disconnect in accountability to consumers and investors. And a public sector monopoly, since it ignores profits and losses and cannot therefore calculate whether the resources it has coopted are being used toward their highest-valued ends, is always going to see a need for more expenditures, especially as it gives services away for free or at a discount. …

The notion that public transit is offering something that the market system cannot do or has failed to do is always dubious, as there are many empirical examples where market systems have offered better solutions in real time even in this industry.

In a free market, consumers have a wide array of choices, each tailored to their unique needs. Contrast this with a state-controlled system where standard options are the norm and the lack of choices can be frustrating and ineffective for consumers.

So, while public transit sounds like a good idea, it tramples over the consumers’ more urgent needs, reduces consumer choices, and introduces the pitfalls of monopolies—delivering less for more, cronyism, and waste. It is the entrepreneur’s function in a market system to “make decisions” (to “act”) regarding the employment of the scarce capital available toward its most profitable use. The development of prices and free exchange allows for a calculation of costs and profits for this express purpose. The more intense the consumer demand, the more profitable the production of the good will be.

Read the whole thing here.

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