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July 25, 2007

Expanding the Railways

A reasonable suggestion about expanding the railways you might think:

If the Government won’t pay, it should open up the market to investors.

In fact entirely reasonable. Think about what's happened to water, electricty, telecoms, since private investors were indeed allowed in.

It's said, by some supporters of State ownership and direction, that only the Govt can take account of the social benefits of a course of action or an investment. Thus, only tax financed such gives us the socially optimal amount of said investment. It's even possible that this statement could be true.

But, in one of those horrible moments when facts undermine a beautiful theory,  if it were, then investment should have shrunk in those fields, industries and companies which were privatised. Which, of course, it didn't, it rose strongly. There are strong political constraints on how much can be raised in taxation (or bonds, which are delayed tax) and thus it appears that State financing leads to, well, if not lower than socially optimal levels of investment, certainly lower levels than private investors will pump in.

The only real problem with doing this for the railways seems to be that we've already tried it and while investment did indeed go up not all that many were happy with the result.

July 25, 2007 in Your Tax Money at Work | Permalink


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