How on earth did Alan Moran get a PhD in “public transport economics”?

My good friend Matt sent me an opinion piece that appeared in The Age a couple of days back; written by none other than Alan Moran – Director of the “Deregulation Unit” at the right wing Institute of Public Affairs. Moran apparently has a PhD in public transport economics, yet seems to think that public transport is useless and that cars are incredible. If Moran wants to harbour those opinions that’s fine, it’s his choice (although I strongly disagree with him). My problem is that the reasoning he uses to arrive at that conclusion is particularly poor and that the so called evidence he uses is selective and misleading.

So let’s have a look through some of the assertions he makes in the article – I have potential issues with the validity of some of the figures he’s used but I’ll stick to the big issues rather than getting involved in rivet counting.

Road users are paying out huge sums of money while public transport is heavily subsidised

Moran claims that ‘public transport is heavily subsidised and car use heavily penalised… users pay only 30% of rail and bus costs and 55% of tram costs. By contrast, car users pay more than twice what is spent on roads and other infrastructure in direct government charges and fuel taxes.’

Whilst it is true that there is not full cost recovery on public transport (although I don’t know where this 30% for trains and buses comes from – all the evidence I’ve seen shows that Melbourne trains have significantly higher cost recovery than buses) and that government charges and fuel taxes outweigh road capital and maintenance works (although not by more than twice – see here); these are by absolutely no means the only costs and benefits in the transport industry. Indeed, transport produces significant externalities. Cars produce large quantities of greenhouse gasses as well as localised air pollution and road accidents increase the financial strain on the health system as well as having a tragic human cost – the list of negative externalities is long and rather depressing. Public transport is generally free of these negative externalities and if well managed can produce big positive externalities, such as improving the ‘liveability’ of a city (admittedly pretty much impossible to quantify). The PTUA has a site on these issues, and although I’m not sure about the size of some of the numbers, it nonetheless provides a good overview of the main issues.

Yet Mr. Moran seems to ignore these issues. The fact that he doesn’t really believe in climate change probably makes it difficult for him to accept the carbon emissions externality, but I suppose that pretty much sums up the inability to consider the evidence rather than ideology. Beyond that, there are other issues which make cars look cheaper than they are, such as the fact that the massive capital and operating costs of the cars themselves are borne by the private sector and are not included in the figures, whereas public transport vehicles are basically paid for the government. Furthermore, in Victoria, the books are stacked against public transport looking good economically – public transport pays the Capital Asset Charge whereas roads do not.

These are basic economic issues, and I’d expect someone with a PhD in public transport economics to mention them.

Privatisation of public transport has reaped big benefits

Moran seems to think that recent increases in patronage on Melbourne’s trains and trams have occurred ‘doubtless due to the improved efficiency of a privatised system’. Basically, he’s a neo-classicist and thinks the market does a better job than the government. I believe that public transport is a natural monopoly and that private monopolists are generally less efficient than public ones. But let’s step past the ideological differences for a moment and actually look at the evidence. Since privatisation in 1999, patronage has increased about 50%, yet service levels have only increased by about 15%. This tells us two things: firstly that patronage is rising independent of service increases (unless demand is incredibly elastic), and secondly that we should be seeing higher levels of cost recovery because patronage growth is outstripping service growth – leading to downward pressure on public transport costs to government. Yet the opposite has occurred, the cost of running Melbourne’s public transport has skyrocketed, largely because the operators have behaved as rent-seekers. So much for the efficiency of privatisation…

But there’s an even more obvious gaffe here – Moran talks up public transport privatisation, yet heavily criticises Melbourne’s bus system, which with the exceptions of National Bus and Melbourne Bus Link (both ex met bus) has always been run by the private sector with often minimal regulation. If private ownership of public transport is such a good idea, then why is Melbourne’s longest experience with it working out so badly?

Public Transport is useless for most trips and high service frequency is impossible

Moran claims that ‘Mass transit such as trams and trains can only be economic if they serve highly concentrated corridors to the central business district’, that this kind of travel only represents a small number of trips and that ‘buses offer the only plausible means of tapping into the growing cross-town market’, but it would be impossible to run a high service frequency. Whilst trains currently operate around taking commuter traffic in and out of the CBD, the tram system is concentrated around shorter (albeit radial) traps outside the CBD. Basically, it’s nonsense to suggest that trains and trams could only serve CBD commuter traffic and that buses could never efficient. Granted, Melbourne’s buses are a joke now, but getting them in order by running high frequency services down arterial roads would actually be cheaper in the long run because the higher patronage would improve the level of cost recovery.

Moreover, this idea that high frequency services are impossibly expensive is a joke. I’ve discussed it before – here and here – so I’m not going into it in detail. But anyone who knows anything about public transport economics would know that the industry tends to have high fixed costs and low variable costs and strong supplier induced demand. Ultimately, it is most efficient to run public transport services as close as possible to the maximum capacity of the infrastructure pretty much all the time.

Focusing on roads is good for drivers

Matt mentioned this issue to me and it’s really important – encouraging more drivers is actually bad for people who actually enjoy driving (like Moran). As the number of vehicles on a road increases as it approaches capacity, it becomes less efficient; but as the number of vehicles on public transport increases as it approaches capacity, it becomes more efficient. Put another way, you’re going to use public transport more if a train comes more often, but driving will be less convenient as more cars use the roads. Given that roads and public transport are substitutes, Moran ought to be advocating better public transport if he likes driving so much.

State intervention through public transport is bad, the choice offered by roads is better

Moran loves this idea of the market working it all out because it fits in with his right wing ideology, but the concept is so mindless that it’s almost not worth mentioning. Firstly, I’d say that there’s a market failure in urban planning and urban transport because of the externality and natural monopoly issues. Secondly, roads are planned by government and paid for mostly by the taxpayer just as public transport is. Neither really allows for a market based solution – largely because it wouldn’t work.

At least the IPA is so wacky that no-one can really take them seriously. Rant over (for now).