Do you agree the US government should be the catalyst for innovations in intermodal transportation and that industry, in a free market economy, has been limited in their ability to deliver these innovations? What examples would you give to support your opinion?

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As a general rule, private industry seems to be more economically efficient than government. It's not entirely clear why this is so (there are some theoretical reasons to support it, but they aren't as strong as a lot of people think), but it is quite clear that it is so...

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As a general rule, private industry seems to be more economically efficient than government. It's not entirely clear why this is so (there are some theoretical reasons to support it, but they aren't as strong as a lot of people think), but it is quite clear that it is so — we have seen vividly in countries such as Russia and China how nationalizing industries has suppressed or even reversed economic growth, while privatizing industries has expanded growth.

There are certain tasks for which private industry is not well-suited. National defense is the obvious one, and hardly anyone disputes that defense is a service that should be provided primarily or even entirely by the government. In general, there is a case to be made for government involvement if any of the following conditions hold:

  1. Public goods: Goods that, once they are made, can be used freely by all; private industry has little incentive to make such goods despite their high value, because if everyone can use them they can't make money selling them.
  2. Externalities: Many economic activities impose costs or provide benefits to others who were not party to the transaction. The market mechanism is not equipped to handle these external costs or benefits, and so it will tend to overproduce the costs and underproduce the benefits.
  3. High setup cost: Private industry is most efficient when producing goods for which the cost of entering the industry is low, and the cost of producing more goods is constant or rising in the level already produced. This way, most of the cost is immediately paid for by the selling of new goods, and it is easy for a large number of competing firms to enter the industry and push prices to the competitive, efficient level. When this is not the case, it can be too expensive to enter the industry, and thus too few firms will enter, either creating a monopoly or oligopoly, or in extreme cases preventing the good from being produced at all.
  4. High risk: When activities carry small rewards for low risks, they are attractive to private industry, because making a profit is simple and reliable. When activities carry large rewards with high risks, they may still be worth doing, but are only feasible to those able to bear such risks. Research and development are a good example of high-risk activities; results might not come for decades, if at all, but when they do, they could be world-changing. Sometimes very large corporations can handle such a risk, but the institution best-equipped to do so is the national government.

This pattern explains a lot of the historical examples where government intervention was useful versus when it wasn't. Government intervention into food and clothing was disastrous in communist countries because food and clothing are private goods with small externalities produced at low setup cost and with relatively low risk. Government intervention into nuclear power, on the other hand, was extremely effective, as nuclear power research is a public good with enormous externalities, a high setup cost, and huge risks.

We can even see this in more narrow examples: While military technology is a combination of both private and public research, the private research tends to be more practical and incremental (improving the accuracy of machine guns, for example), while the public research is often much more radical and high-risk (laser weapons and rail guns). While medicine is a combination of private and public spending, private companies mainly develop cheaper and incrementally more effective drugs, while public research supports genetics research and the development of vaccines.

With that in mind, let us turn to the question of intermodal transportation.

  1. Is transportation a public good? Somewhat; public roads and railways as well as buses and trains can be used freely or cheaply by a large number of people. With intermodal transportation specifically, the public roads and railways are our main concerns; freight is generally not moved by car or subway.
  2. Is transportation high in externalities? Yes, because the carbon emissions from burning fossil fuels are not appropriately taxed or regulated, so effectively diesel fuel is cheaper than it should be, and the real costs of burning diesel are imposed upon the world at large instead of just the buyer of the fuel.
  3. Does transportation have a high setup cost? Definitely. Roads and rails are very expensive to lay, but adding a few more vehicles to them is not expensive at all. In rail freight it's particularly extreme; locomotives and their operators cost a great deal, but adding another car to an existing train costs almost nothing, hence why freight trains are often mind-bogglingly long. Cargo ships are also very large for a similar reason; it's usually cheaper to make a bigger ship than it is to make more ships.
  4. Is transportation high risk? Yes and no. It is not terribly high risk to simply build or expand existing modes of transportation, but this will probably not be enough to solve the long-term problems facing intermodal transportation. New technologies will be needed, which means research and development, and that carries a lot of risk.

Thus, two out of the four reasons for government involvement definitely apply, and two apply partially; therefore I would conclude government involvement is probably beneficial. The private sector will certainly have a large role to play, but public funding is necessary to build infrastructure and support research into new transportation technologies.

Since that's already what is happening... I guess we're doing it right!

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