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Saturday, October 15, 2011

A simple question about economics

As many of you know, Chicago sold its parking meters.

In December of 2008, Chicago needed money -- badly. So it sold many of its city-owned parking meters -- or rather, the city sold the use of the things for 75 years. The selling price was a bit under $1.2 billion, which was much less than the amount of money the meters could generate over that period of time at then-going rates. The purchaser was a mysterious concern called Chicago Parking Meters Limited, which seems to be headquartered in Abu Dhabi.

Now, the first thing you have to understand is this: When the meters were privatized, the price of parking in Chicago went up. Way up.
But by handing over municipal parking meters to a private company, the city has given its citizens a colossal case of sticker shock. The cost of most meters will quadruple by 2013.
My question is a simple one. If (as our nation's economic theologians constantly assure us) private firms are invariably more efficient than gummint-run concerns, why did the price of parking in Chicago shoot up?

Another question: During the debate over Obama's health care program, we were constantly told that a public option would not be fair to private insurers. Why not? If the government is (as we are incessantly reminded) always less efficient, then wouldn't it always lose to a private firm in head-to-head competition? Wasn't the public option an excellent opportunity for the libertarians to prove their case?

Let's get back to the parking meter business. Nobody really know who owns Chicago Parking Meters, although we do know that the deal was put together by Morgan Stanley. It appears that one of the largest shareholders in Chicago Parking Meters may, in fact, be the government of Abu Dhabi.

However, a tad over 50 percent of the company is owned by a Luxembourg-based entity called Redoma SARL. I've been trying to find out who and what they are. So far...zilch.

Aside from the price hike, the folks in Chicago are also angry about no longer being able to use their streets for parades and fairs. (The parking meter owners demand recompense if traffic is shut down temporarily.) That's why we now hear talk of buying back the meters.

Unfortunately, the rise in parking prices means that the meters are now worth about ten billion dollars, and Chi-town can't afford that.

Gosh. I don't understand. If private enterprise is always more efficient, then why didn't the rates go down?

Perhaps the answer has something to do with a simple fact that used to be taught in elementary school (back when this country was a whole lot saner): Capitalism only works when healthy competition exists. If there is a natural monopoly, capitalists will screw you every time.

This truism was widely understood in the 1960s, because "company towns" were still a matter of living memory. Now they aren't remembered at all.

Okay, so the competition thing explains the parking meter problem. There's not much place for competition when it comes to this particular commodity. In such a situation, the only way to keep prices down is through a messy mechanism called democracy: If the city owns the meters and if you don't like the price of parking, vote for the guy who promises lower prices.

Selling your parking meters to a private firm is therefore a really, really stupid idea. Neither the market nor the vote will discipline the price-gougers.

But what about health care?

There are lots of private insurance firms. Why were private insurers so afraid of the public option? If, as we are so often told, the government can't do anything right, why would the private firms fear such an inept competitor?
Nationalize (cityize?) those fucking meters! Let Abu Dooby eat the weiner fora change.
Honestly anyone who either believes or promotes libertarian nonsense marks themselves as a fool. In biblical times they would chastise and make fun of such people. Today, we make them President and let them ruin the lives of everyone. I believe because of our electoral foolishness since at least 1968 we are reaping what we sow and getting everything we deserve.
Sounds like someone should dig into the details of the arrangement further. It appears as if the ground is being set for a second wave of public monopoly sell-offs.

A federal government operating in the public interest would provide cities with financing alternatives. I wonder what the Obama transition team knew about the deal? Would be interesting to know Morgan Stanley's cut.
My answers:
1) Government is less efficient than private because anything the government charges is "tax", e.g. Social Security is considered tax, but if it were to be collected by a private company, it would be considered savings. Let's look at the post office. No other business would promise to deliver a letter to some rural area for $.44/1.0oz letter. It would be a money losing proposition. The government is losing tons of money on that service. But if it was really privatized, each letter would cost what FedEx charges. Bottom line is not true that the government is not efficient, but voters force the government to keep rates low for all services.
2) If Obama had put in place a public option along with the private option, most people would have chosen the public option and the private insurance companies would have been forced out of business. Private insurance companies pressured Obama and congress not to include the public option.

Finally, the only competition to the meter parking fees would be parking lots, but it's unlikely that such lots would give a good return on the capital invested (that's why parking lots charge higher parking fees). The street meters won't have any competition, but there's a point in which people won't pay the high cost of parking. It was a bad decision for the city to have sold the meters. High parking costs will hurt the businesses in the area and if the meter fees are too high, businesses will close. It will be a financial loss to the city if that happens.
Privatizing public assets and services is a lousy deal for taxpayers, who will pay up the nose to these 'investment' groups. Chicago is a case in point.

Right now, we have oodles of municipalities, towns and cities on the verge of bankruptcy because of falling tax revenues [think I heard Harrisburg declared bankruptcy this morning].

All these hard-pressed areas are looking to delay the slide into the brink and the political fallout that will ensue [or they've had political/financial deals under wraps. Scott Walker, for instance]. So the sales are made and there's a short-term bump, the quick fix. But as Bachmann would be glad to tell us, the Devil is in the details--decade long contracts and the minimum revenue clauses.

Daley [as I recall] defended the parking meter sale to the end because the city was in such bad financial straits. Well, he's out of office and the people of Chicago get to pay the piper.

Funny how things work out like that!

There are a lot of financial vampires just waiting to buy in on the firesale of America, and then sticking it good to the rest of us. They want the national parks, the roads, the power plants--you name it. Even the water supply.

They own it and get to charge whatever obscene amount they want. And if we don't pay, there's always those niggling clauses, the cops or hey, we can reopen the poor houses, get the local population to work it off.

As for libertarians and neoliberals?

Welcome to liberty and unfettered capitalism, where only the strongest and well-heeled survive.

Healthcare? It was sold out, just like everything else.

This subject always puts me into a grim, grim mood. Can you tell? :0)

Peggy Sue
The belief that business is more efficient than government illustrates my view--that conservatism and libertarians are creations of a Merchant class gone mad.

The merchant class and the governing class are natural antagonists. If business types wax philosophical about politics, you can bet that government will turn out to be the bad guy and the shopkeeper wil be the swashbuckling hero. It's naive egotism.
Chicago should be a lesson for the rest of us. At least it is too big to be ignored unlike when a borough owned water company is sold off to the mayor's cronies and the rates go up.

I can't find the cites for this but something similar has happed with a Midwestern state owned power generation facility, when it was sold the rates tripled. I think the buyer was PP&L up here in Pennsylvania. The only good thing was it happened in a Red State so it was mostly republican voters that suffered.

The Chicago story should be archived before the corporate owned print and broadcast media disappears it.
The part of the Chicago parking meters story that tickles me is this: The city-owned meters were sold to a private concern. Libertarians would say that this is a good thing. Private is always better than government, in their view. But the private concern is itself owned (in part) the government of Abu Dhabi!
Joe, there you go using that logic bullsh8t again. I hope you're not using that to reach any libertarians...because...well, how many libertarians are that didn't convert because they had to because they were poor, sucky health, etc.? They seem to be tough nuts. To crack.
I think Chicago needs a Cool Hand Luke type of demonstration. Pipecutters anyone?
Define your terms. What do you mean by efficient?

You already know the answer. 1st year economics students know the answer. We know when markets fail to provide socially beneficial outcomes.

Lack of competition
Imperfect information

Instead, one should focus on how the right wing has managed to get an absurd propoganda position to be taken as self-evident?

I dont really understand. I think its because the US has been so powerful for so long that it didnt have to obey rationality. So given that reason is no longer an important criteria, corruption never has to be explained.

I think its becoming clear what this whole economic crisis is just a plan to privatize everything. States cant go bankrupt, what they will have to do is sell off assets, then we really screwed.
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