January 27, 2004
The hockey-stick model of state intervention
I am not sure if this is an idea you’ll find in an economics textbook (in part because I never read economics textbooks) but I first heard it from Brian and it is very useful in explaining some of the more peculiar effects of state intervention.
What the hockey-stick model says is that often when the state intervenes whether by nationalisation, subsidy, taxation or regulation it will, every now and then, for a short time, improve matters. Then things start to deteriorate and eventually they end up even worse than they were in the first place. And the hockey stick? Imagine an (ice) hockey stick standing on a level surface. The blade represents the short up swing of state intervention and the handle the long subsequent down swing. I suppose to get the model just right you have to imagine the handle burying itself into the ground.
It is a model I rather like because it explains all sorts of things that seem contrary to libertarian thought: like why when the Tube was nationalised things got better. This in turn helps to explain why many people remain attached to state solutions: they’ve seen it “work”, at least in the short-term, themselves. When the state starts to fail they comfort themselves that the state can succeed. “All that we need to make the NHS/the Tube/council houses to work is the right people/regulations/more money etc”
So, why is there this upward blip from time to time? Because sometimes the state gets it right. And because, when it wants to it can put enormous resources into play. The classic example is the London Passenger Transport Board (what the Tube plus buses and trams were called after nationalisation). Here the state took a number of highly efficient, well-run but poor private sector organisations and gave them heaps of cash. It was almost inevitable that the results would be good.
Trackbacks
How hockey sticks explain the relative attractions of statism and of free markets
Catching up with Croziervision, the other day, as you do, I came across this posting, which contained a kind reference to something I had said, which on further investigation proved to be an essay by me, attached as a comment to something Patrick himse...
Samizdata.net on October 1, 2004
Comments
Wow. Fame at last.
The shape of the graph you have clearly, but the reason for its shape could use a bit more clarification. It is essentially a matter of knowledge. Markets enable knowledge to be found. Price signals enable lots of people to discover what punters want, and it is this knowledge that the politicians begin their reign by making big use of. As a result, lots of punters get what they knew they wanted, but just had to pay less for it. This applies both to producers and consumers.
Although, whether this is a straightforward improvement for all concerned (such as the millions of taxpayers who together pay for this massive improvement for a few thousand) is open to doubt, but it definitely is improvement for the few thousand.
But then, the knowledge flow supplied by price signals gradually dries up, and eventually the government operation stops doing anything that anyone wants except the people in the government operation and in due course not even they. That's an exaggeration, but only somewhat. By the end of a truly awful nationalised industry, nobody has any clue about what constitutes an improvement. The only result is that money, more and more of it, gets spent.
The other application of the hockey stick curve is that when a market truly opens up, you have an equal and opposite tendency. A new market is chaotic, and (and this is the point) ignorant. People don't, e.g., know how to spot cowboy operators, or bad products made in all sincerity but badly. Ignorance and foolishness abounds, and down goes the graph of achievement. But then, if this really is a true market, things bottom out and start to improve and in the longer run the result is a market that is orders of magnitude better than the government could ever have managed.
This helps to explain the (to many libertarians) baffling popularity of statism and baffling unpopularity of markets. In the short run, for those in the immediate vicinity of the decision, state action really can be better and markets really can be very bad. And people with problems (regular people who get active in politics always have problems) don't have time to endure short run chaos so that they can later benefit from longer term excellence. So even if people fully understand the long term benefits of markets, they may still oppose them because of the short term cost.
However, often people find themselves living in the long term decline phase of government activity and then, even though markets will not immediately improve things, they will still favour them because their only choice is more chaos now and even more chaos later (government) and more chaos now and the prospect of improvement later (market). The graph of goodness is going down NOW so fast that even the initial further downward movement of a new market is worth living with, because long term benefit is all there is in the way of good future news.
That wasn't a comment, so much as a submission to the Libertarian Alliance Economic Notes series. Nevertheless I am grateful to Patrick for having stirred me into lashing down a first approximation to it that others can finally read. Maybe I should copy and paste it into Samizdata or something.
What a great post! I especially liked your comment:
And people with problems (regular people who get active in politics always have problems) don't have time to endure short run chaos so that they can later benefit from longer term excellence
Hans-Hermann Hoppe claims that democracy will always work to increase a society's time-preference. Is this a perfect example of that? People with short term outlooks inevitably get into trouble - they then use the political system to impose their short term outlook upon everybody else.
Permalink
IN BRIEF
November 23, 2004
'Captain commuter' wins Sydney a free day on the trains
...
link
Darling's saver ticket for slow-train Britain
- he's going to do everything but close them
...
link
November 21, 2004
Tollroads Jamaican style
- worth it if only for the pic of the toll plaza
...
link
November 20, 2004
Postive externalities come to DC
- sort of
...
link
Railways safer than ever
- says Christian Wolmar
...
link
Is graffiti art?
- LFTTR think the question misses the point. FWIW I think many artists clearly have a lot of talent and it's a shame they don't have an appropriate, nay, legal outlet.
...
link
Book review
- Subterranean Railway by Christian Wolmar
...
link
One airline, 4 crashes, 8 dead: the real price of sugar snap peas in November
...
link
November 17, 2004
British Transport Films Collection DVD Volume One
- Surely a must for any transport afficionado. It will be released just in time for Christmas.
- Disc 1 - On The Rails
- Blue Pullman (1960)
- Elizabethan Express (1954)
- Train Time (1952)
- Rail 150 (1975)
- Diesel Train Driver (1959)
- On Track for the 80's (1980)
- Cybernetica (1972)
- Disc 2 - Off The Rails
- Under the River (1959)
- Snowdrift at Bleath Gill (1955)
- This Year - London (1951)
- This is York (1953)
- The Great Highway (1966)
- A Day of One's Own (1955)
- John Betjeman Goes By Train (1962)
...
link
November 15, 2004
Crossrail website
...
link
November 11, 2004
Brake fault forces Virgin to cut speed on flagship tilting trains
- you know, just for once it sounds as if the HSE could be right
...
link
November 08, 2004
TV Alert
"When trains crash", 1930 Channel 5 tonight. Talk about timing
...
link
November 07, 2004
Ufton Nervet crash
- 6 now confirmed dead
...
link
November 06, 2004
One person dead as train derails
...
link
November 04, 2004
FirstGroup wants to add the tracks to its trains
- that's brave
...
link
November 02, 2004
Car charge to rise to £6
...
link
October 30, 2004
Psst wanna buy a railway station?
...
link
October 26, 2004
'Kart Vader'
- He tears around Quebec City at 100mph. In a go kart. At night. Wearing black. And he films it.
Spotted by Jay Jardine.
...
link
October 24, 2004
The downside of auto-mobile bans
- drivers text instead
...
link
Councils ban shrines to road crash victims
- a story that neatly combines both transport and the issue of the day: mawkish sentimentality
...
link
October 20, 2004
The air hostess, the long hair and the sun roof
- one of the more imaginative ways of staying awake at the wheel.
...
link
Wheelchair-using MP travelled in 'cattle truck'
- so, that's just the same as the rest of us then
...
link
23 escape from burning train
...
link
Wikipedia accuracy under fire
- so, it's back on with the
Glossary?
...
link
October 19, 2004
Rail chief quits after four months
- walking away from £130,000. Golly
...
link
October 14, 2004
New comment on old posting
- Tim Hall explains the story of the Highland Railway, its new locos and its soon-to-be-ex-Chief Mechanical engineer
...
link
Out now: DVD version of leaves on the line
...
link
October 13, 2004
New link
- Transport Watch UK. Lots of facts, lot of comparisons. Doesn't look good for rail
...
link
October 11, 2004
Take the car and save the planet
- walking kills, apparently
...
link
Hybrids better than the real thing
- golly
...
link
Don't invest in mega-projects
- says Peter Gordon
...
link
October 05, 2004
Prescott backs plan to reopen branch rail lines
- well, he says he does
...
link
October 04, 2004
New Glossary Entry
- the Advanced Passenger Train
...
link
October 03, 2004
People are building their own speed cameras
- One fellow is even
selling fully functioning ones
...
link
Pendolinos and Voyagers may prove to be one of privatisation's disasters
- says Christian Wolmar
...
link
Omedetō gozaimasu!
- Tech Central Station on the 40th anniversary of the Shinkansen
...
link
October 02, 2004
Compulsory purchase to go
- in US? Johnathan Pearce has some musings
...
link
October 01, 2004
Indian railway runs out of wheels
- because it refuses to import
...
link
All for sprawl
- Tyler Cowen links to a couple of articles including one from the NY Times magazine which is attracting a lot of attention
...
link
Underground maps as art
- according to Brian
...
link
September 30, 2004
Recent comment
- Uncle Roger on the difficulty in working out accurate subsidy figures
...
link
Europe by train
- Tim Hall on Stephen Karlson's adventures
...
link
Carpool lanes = communist gulags
- Tim Hall is beginning to get it, possibly
...
link
September 29, 2004
P&O axes 1,200 jobs as ferry travel sails into past
...
link
September 27, 2004
Hurtling towards a £7.6bn bill at full tilt
- Alistair Osborne on the WCRM fiasco. Actually, I thought £7.6bn was on the low side
...
link
September 26, 2004
A double-decked shame
- RJ3 laments the passing of the Routemaster. It's
those EU bastards, I tell you
...
link
Tilting trains are rubbish
- according to Ross Clark. Now he tells us
...
link
Delays plummet by 28%
- says Network Rail
...
link
September 25, 2004
New glossary item
- the Health and Safety Executive - in which I demonstrate my almost complete ignorance of this institution
...
link
Scant improvement in train times
- according to latest figures
...
link
September 22, 2004
EU plan will hit safe women drivers
- and it's all in the name of sex equality
...
link
Unions gang up to demand railway renationalisation
- they mean it isn't already?
...
link
September 21, 2004
Top car makers support road-jam charging
- Ford, GM, Honda, Daimler
...
link
Journey times cut as 125mph tilting train sets record
- after £8bn and the odd bankruptcy tilting trains that actually tilt are finally here
...
link
September 18, 2004
ABD calls for environmental audit of public transport
- all those particulates
...
link
Camera Partnerships must come clean on real causes of accidents
- says ABD
...
link
September 16, 2004
The Green Quadratic
- ASI paper on planning from 1988. Now available on-line
...
link
September 14, 2004
Up with conductors
- they're really good, you know
...
link
Speeding Britons fined in car race to Spain
- "Among the cars were Ferraris, Porsches and Rolls-Royces."
...
link
MPs to lose free airport parking
- oh, how my heart bleeds
...
link
The case against driving licences
- Paul Clark in Lew Rockwell
...
link
September 10, 2004
Drivers trade privacy for insurance discounts
...
link
September 08, 2004
Free mints infuriate delayed commuters
- some even threw them away, ingrates
...
link
Privatize the roads! Liberate the streets! All we have to lose are our parking tickets!
- Anthony Gregory in Lew Rockwell
...
link
M6 Toll hits 10m journey mark
- er, about a month ago
...
link
September 07, 2004
California high-speed rail plan
- all sorts of claims being made but Peter Gordon doesn't like the
precedents
...
link
September 06, 2004
Swedish farmer fined 1,211 kronor for illegally parking a snowmobile in Warwick
- Krister Nylander lives 205 north of Stockholm and has never been to Warwick. "They can wait till Hell freezes over and I can get to Britain on my snowmobile to pay the fine.”
...
link
September 05, 2004
"Obsession is not too strong a word to describe how railway enthusiasts feel about railways"
- Matthew Parris goes to Peru and meets some trainspotters
...
link
September 03, 2004
Hidden costs do not justify the level of tax on petrol in Britain
- says Graham Seargeant
...
link
Shovelling cash
- utilities to pay for digging up roads
...
link
Alistair Morton, builder of the Channel Tunnel, is dead
...
link
Government 'willed' Railtrack to fail
- says Corbett
...
link
Cyclists saddled with seafront speed trap
- in Bournemouth
...
link
Historic Amsterdam tram photos
Aaaah. Where's amg going to pitch up next?
...
link
Why so little US electrification?
- Tim Hall ponders the answer
...
link
September 02, 2004
London Underground Map
- as it really is.
...
link
Electric v steam
- in 1923. But who won
...
link
Freight or passenger in the US?
- they're in conflict. Stephen Karlson considers the options
...
link
September 01, 2004
Fares and charge up in London
- says Livingstone
...
link
'Fair fines' planned for speeding drivers
...
link
Railtrack is cleared over Hatfield crash
...
link
August 31, 2004
Thousands 'ready to quit Aslef'
- where would we be without brotherly love
...
link
August 30, 2004
Rural watchdog attacks road sign blight
- See it's not just me who can't abide the
avalanche of street furniture.
...
link
What the traffic will bear
- Bob Poole discusses the merits of tolling
...
link
Prague trams
- photos. Aaah
...
link
August 24, 2004
What if you can't drive?
- Catallarchy's Sean Lynch considers the options
...
link
97% of accidents within speed limit
- according to the ABD
...
link
August 22, 2004
Prosecute motorway lane hogs
- says RAC
...
link
August 20, 2004
Radio tags for congestion charge?
...
link
World's longest road opens
- in Russia
...
link
Sprawl is cheap
- says Iain Murray
...
link
August 19, 2004
Strike threat to BA and Eurostar
...
link
Toll roads are safer
- at least according to my reading of this Marginal Revolution post
...
link
Peking metro to hit 1000km mark
- I'm not sure even London's is that long
...
link
August 15, 2004
Squander Two calmly talks about speed cameras
...
link
Parking anarchy in St Albans
- Police withdraw traffic wardens, Herts council won't have any until October, it's bedlam!
...
link
The future of transport
- as seen from the past
...
link
Trains less efficient than cars
- yes, I know, it's old news
...
link
Ferry solution, please
- Eamonn Butler wonders how you could introduce competition to a subsidised ferry service in the Western Isles
...
link
August 14, 2004
Drink less, speed less, save on insurance
- Marginal Revolution has the story
...
link
Wow. Fame at last.
The shape of the graph you have clearly, but the reason for its shape could use a bit more clarification. It is essentially a matter of knowledge. Markets enable knowledge to be found. Price signals enable lots of people to discover what punters want, and it is this knowledge that the politicians begin their reign by making big use of. As a result, lots of punters get what they knew they wanted, but just had to pay less for it. This applies both to producers and consumers.
Although, whether this is a straightforward improvement for all concerned (such as the millions of taxpayers who together pay for this massive improvement for a few thousand) is open to doubt, but it definitely is improvement for the few thousand.
But then, the knowledge flow supplied by price signals gradually dries up, and eventually the government operation stops doing anything that anyone wants except the people in the government operation and in due course not even they. That's an exaggeration, but only somewhat. By the end of a truly awful nationalised industry, nobody has any clue about what constitutes an improvement. The only result is that money, more and more of it, gets spent.
The other application of the hockey stick curve is that when a market truly opens up, you have an equal and opposite tendency. A new market is chaotic, and (and this is the point) ignorant. People don't, e.g., know how to spot cowboy operators, or bad products made in all sincerity but badly. Ignorance and foolishness abounds, and down goes the graph of achievement. But then, if this really is a true market, things bottom out and start to improve and in the longer run the result is a market that is orders of magnitude better than the government could ever have managed.
This helps to explain the (to many libertarians) baffling popularity of statism and baffling unpopularity of markets. In the short run, for those in the immediate vicinity of the decision, state action really can be better and markets really can be very bad. And people with problems (regular people who get active in politics always have problems) don't have time to endure short run chaos so that they can later benefit from longer term excellence. So even if people fully understand the long term benefits of markets, they may still oppose them because of the short term cost.
However, often people find themselves living in the long term decline phase of government activity and then, even though markets will not immediately improve things, they will still favour them because their only choice is more chaos now and even more chaos later (government) and more chaos now and the prospect of improvement later (market). The graph of goodness is going down NOW so fast that even the initial further downward movement of a new market is worth living with, because long term benefit is all there is in the way of good future news.
That wasn't a comment, so much as a submission to the Libertarian Alliance Economic Notes series. Nevertheless I am grateful to Patrick for having stirred me into lashing down a first approximation to it that others can finally read. Maybe I should copy and paste it into Samizdata or something.
Posted by Brian Micklethwait on January 28, 2004