Can Gordo Be far Behind?

Business Week writes about how private companies such as Goldman Sachs, Morgan Stanley and Carlysle Group are buying up private infrastructure such as key roads, airports and bridges (Golden Gate for $3.4 billion and Brooklyn Bridge for $3.5 billion, for example. Cities supposedly think this is a great idea because they get money they can spend on other things.

I don't understand why this is even considered.

You don't put basic infrastructure like this in private hands, because it allows monopoly pricing. They will squeeze the most money out of it they can, and that will be the majority of the surplus value produced by the roads. Since they will set the cost to maximize profits, it will be above what a proportion of the population and a proportion of businesses can afford (check a supply/demand curve to see what I mean - you get a lot more use at price = 0, and you get a lot more money if you price a lot of people out of the market).

What this will mean is that a lot of businesses will go under (or never be created), a lot of people won't travel even short distances (which will strangle businesses that need those travellers, price certain people out of certain jobs) and will in general reduce economic activity.

However much money any government gets in the short term, it will lose more from reduced taxes due to reduced economic activity and reduced economic growth in the long term. (ie. it isn't just people who use the roads/airports/bridges who lose)

And odds are, you'll eventually have to either regulate these things to keep prices reasonable (at which point the companies will start shorting on maintainance) or you'll have to buy them back at a huge markup.

All of the foregoing comes from Crooks and Liars, which I have emailed to me each morning. I've added it to my Links list(on the right), and I use it here frequently.

I've posted this item today because it makes me wonder how long it will take for Mr. Campbell to try again to sell off various roads and other British Columbia infrastructures.