Surplus Extraction

Ever since reading Brooks-Liscow on the growth in American road construction costs since the 1960s, I’ve been interested in the surplus extraction theory of costs. The authors call their main theory citizen voice, in which local groups can use litigation to extract the social surplus generated by infrastructure construction. I’d like to go more deeply into what this theory is and what it implies.

What is surplus?

Normally, a competitive market has no surplus. The owner of a restaurant, the developer of a building in an unconstrained area like suburban Texas, the seller of cloth masks on Etsy, the freelance web developer – none of them is making a killing. People enter the market until profits are driven down to levels low enough to essentially be the owner-manager’s wage. Companies can only make a large profit if they operate at enormous scale, which takes a long time to develop – the profit margins on a single Walmart or Carrefour or Lidl are small, but the profit margins on 10,000 stores add up to a couple billion dollars a year.

Infrastructure is not a competitive market, for a number of different reasons:

  • The construction of transportation infrastructure has strong positive externalities, through enabling agglomeration. In a country with cars, the construction of public transportation also helps mitigate the negative externalities of cars.
  • Infrastructure is not meaningfully competitive. The largest city in the world, Tokyo, has around two competing rail operators per suburban region. In Tokyo, it’s a natural duopoly; in just about every smaller city, it’s a natural monopoly.
  • The barriers to entry are so steep that some kind of price regulation is obligatory. The result is extensive consumer surplus for riders who are not poor.
  • Government involvement means that regulations that make it easier or harder to build infrastructure have large impact, which can create or destroy social surplus.

The upshot is that at non-New York costs, infrastructure construction in New York generates enormous social surplus. I could break this down by component, but for brevity I won’t, and just cite what looks like the upper limit of what the publics in the United States and Europe are willing to pay for urban and regional rail: around $50,000 per projected weekday trip. Lines teetering on the edge of cancellation, like M18 in Paris, Second Avenue Subway Phase 2 in New York, and Crossrail 2 in London, all cluster around this figure.

If we take $50,000/rider as the lowest possible benefit-cost ratio that gets a project built, around 1.2-1.3 in countries that conduct such analyses, then Second Avenue Subway Phase 2, currently projected around $60,000/rider, is 1. But at the median global cost, which exists in France and Germany, it would cost $700 million, or $7,000/rider, for a benefit-cost ratio of 8.5. At costs that exist in Southern Europe, Scandinavia, Switzerland, and Korea, make it $400 million, or $4,000/rider, for a benefit-cost ratio of 15. That’s a big net profit for New York City Transit (or, it would be if its operating costs were not abnormally high too), and a huge net social surplus for New York. Every group that wants a piece of that surplus then has an incentive to make noise and raise costs.

How can surplus be extracted?

People who wish to seize public resources have a variety of methods with which to do so. Some are net transfers of surplus from society to one special interest, but most are net destruction of value in the sense that the loss of social surplus exceeds the gain to the special interest, usually by a large margin.

The technique for surplus extraction is usually the threat of a lawsuit, but in some cases it can be direct political lobbying. The actual lawsuit is almost never important – in the US and Germany, at least, the state usually wins these suits, and the impact of litigation is to delay and to deny political capital.

However, surplus can also vanish into the ether through poor planning. Consultants who are not under pressure to save money may well propose oversize infrastructure just because that’s what they are used to, or to avoid sharing right-of-way across railroads; this has led to unusual cost premiums in the United States for everything that touches mainline rail, whereas the subway and light rail premiums are, outside New York, bad but less onerous.

The demands made by special interests that extract surplus vary. They include any of the following:

  • Gratuitous tunneling instead of above-ground construction. This is usually a demand made of high-speed rail, but there are some gratuitous tunnels in suburban rail as well, for example Crossrail 2. The surplus here is that NIMBYs do not like to see trains from their houses; the emotional value of their views is naturally a fraction of that of the cost of tunneling.
  • Compromise alignments that either increase costs or reduce benefits. This is usually about avoiding specific places; Brooks-Liscow give an example of a Detroit highway swerving around a Jewish community center. But sometimes it can be the opposite – in fact, early US freeway builders expected that communities would lobby for highways near them, not far from them. Los Angeles County’s advocacy for a high-speed rail detour through Palmdale is one such example.
  • Extortion of community benefits to activists, for example demands for larger stations to act as neighborhood centers. A large degree of the cost explosion of the Green Line Extension in Boston came from the policy of accommodating local demands, leading to oversize stations. But such overbuilding can also occur absent extortion – the surplus can vanish into poor practices, representing incompetence rather than malice, as in the oversize viaducts of California High-Speed Rail.
  • Contracts to favored companies. This led to cost explosion in Italy in the 1970s and 80s, especially in Rome but also Milan; unlike the other items on this list, this is generally illegal, and costs in Italy came down after crackdowns on corruption in the 1990s. However, legal versions exist – sometimes the government is just used to doing business with a company with a poor track record, for example the “the devil we know” attitude in California toward Tutor Perini. The surplus in the latter case vanishes not quite into someone’s pockets but more into the state’s unwillingness to oversee contractors more tightly.
  • Labor demands. If the demands are purely about wages then the surplus is distributed without being destroyed. However, these demands are in all cases I know of also about other things. For example, the sandhogs in New York opposed the use of more efficient tunnel boring instead of more dangerous but more labor-intensive dynamite. Protectionism also leads to inferior equipment in addition to higher costs.

Who can extract surplus?

Surplus extraction works through informal mechanisms. The purpose of the nuisance lawsuit is not to win, but to extract a settlement. The threat is delay and loss of political favor for the project rather than outright cancellation. The NIMBY lawsuit in Silicon Valley against California High-Speed Rail was right on the technical merit – the Pacheco Pass route, which would pass through the richest suburbs was technically inferior to the Altamont Pass route, which wouldn’t – still lost; Pacheco was favored due to another kind of surplus extraction, namely Rod Diridon’s desire for shorter Los Angeles-San Jose trip times.

Because surplus extraction works through politics and not clear rules, it benefits those with the most political power. In this way, the rise in NIMBYism in the 1960s and 70s, for example the freeway revolts, contrasts with the contemporary free speech movement, which used formal lawsuits with the intent of winning to expand the boundaries of free speech in America.

The free speech movement celebrated protections for communist Berkeley professors and for pornographers; people with normative professions and normative political views were already protected. In contrast, NIMBYism was most powerful in already rich areas, like Jane Jacobs’ Greenwich Village, or Boston’s South End. Baltimore’s racially integrated freeway revolt was exceptional. New York built freeways through working-class neighborhoods easily, and only encountered political obstacles in the Village, which was by the 1950s gentrified (Jacobs was a journalist with some college education, married to an architect, and her father was a doctor), a new development that hadn’t happened in urban history before and thus the city elites had missed it. Moreover, Jacobs’ remedy of creating and empowering community boards has ensured that only powerful people and powerful communities could change city decisions.

Even more recent attempts to create equity have failed. Slowing down the state and empowering community is always bad for equity, because the community is where inegalitarian traditions live. Black leaders now can derail transit plans just as white leaders can; non-leaders have no voice in neighborhood politics, and it’s those non-leaders who work outside the neighborhood who rely on public transit.

Surplus extraction remains the domain of people with political and cultural cachet. One can fight redevelopment in San Francisco on behalf of a mural to Cesar Chavez; fighting it on behalf of pornographers is harder. Similarly, the unions that have been the best at extracting surplus are traditional ones, doing jobs that existed 100 years ago, at productivity levels that remain stuck in that era, mainly the trades.

Conclusion: saying no

Surplus extraction theory does not say it is impossible to reduce costs. Italy’s sharp fall in costs in the 1990s and Turkey’s gentle fall in the 2010s both suggest that cost reduction is possible. What it does say is that the role of the state is to safeguard surplus and keep it socialized, against demands from many special interests, which should be disempowered through legal changes making lawsuits harder and reducing the ability of consultants and unions to drive up costs.

In that sense, the role of the planner is to say no – and moreover, to say no to charismatic groups representing much-romanticized people. No, dear mother with children, we will not build you a noise wall just because you think 140 km/h electric trains will reduce your quality of life. No, dear tradesman much-profiled as a non-college white voter, we will not hire you for $110/hour when there exist people who will do your job better than you can at $35/hour. No, dear third-generation business owner, we will not listen to what you think about traffic as we replace parking spots with bus lanes. No, dear anti-gentrification activist, we will not pay you as an equity consultant, we will just build the subway in the city. No, dear white flight homeowner, we will not build you a tunnel just to avoid taking a few houses through eminent domain. No, dear deindustrialized city leader, we will not require companies to set up factories in your city at high cost when we can get cheaper imports. It’s never going to be no, dear criminal, or no, dear Nazi, because criminals and Nazis are not used to making such requests and having people listen.

It’s optimistic in a sense, because much cost control comes just from knowing that it’s possible and having the nerve to say no to people who are used to hearing yes. The engineering factors that lead to low costs are important, but first of all, it’s necessary to believe that they are feasible, over local objections.

77 comments

  1. Martin

    Yes, Pacheco Pass is shorter for SJ to LA trips, but it would require a brand new RoW across East Bay.

    The amount of NIMBY opposition for a new, straight, double-track RoW will greatly exceed the opposition found between San Jose and Central Valley.

    From technical point of view, that path is not significantly worse.

    • Alon Levy

      From a technical point of view, Pacheco and Altamont are similar in quality if you’re trying to connect Los Angeles with the Bay Area. But once you introduce Sacramento into the mix, Altamont becomes far better.

      • Nathanael

        From a technical point of view, the originally proposed route which goes to Sacramento, then goes at high speed back to San Francisco through a new Transbay Tunnel (and continued down Caltrain to San Jose from there) was the best. Said so right in the first report.

        The advantage of having one single high-speed trunk with no branches outweighed the “fishhook” aspects operationally and allowed for very efficient operations which minimized operating expense and maximized ridership. It was considered by the study to be just as fast from SF to LA as the other options, believe it or not; Transbay Tube and tunnel under the mountains in the East Bay, and it turns out you can go faster than Altamont or Pacheco…

        Then it was rejected for handwaving reasons related to sticker shock.

        I’d love to hear Alon’s explanation of what the actual surplus extraction was which caused the Second Transbay Tunnel plan for CAHSR to be rejected. BART opposition has been suggested.

        • Alon Levy

          I think it’s just a matter of real uncertainty over the costs of a second tube. The contrast with the Altamont-Dumbarton proposal is that first of all they thought they could cross the Bay on a bridge, but by the time this turned out to be a problem, there was already a water tunnel built along a closely parallel alignment. The crossing was much shallower than between SF and Oakland, and the geology was already mapped and known to be pretty easy by underwater tunnel standards.

          The fishhook idea is pretty terrible. Branching isn’t a problem on intercity rail, and you really want to get LA-SF to be fast. Branching is especially not a problem when it’s just a two-way split – turning a (say) 10-minute frequency service into a 20-minute frequency one is not a problem at intercity distances, but once you accrete more branches and trains come every hour the effect on ridership becomes noticeable. There was this weird contradictory thing in what the HSR Authority was saying: on the one hand, it promised a train every 5 minutes on the trunk, at which point even the greater level of branching in the Altamont option is not a big deal, but on the other hand it asserted that the presence of branching would actually reduce ridership. These two claims are defensible in isolation but not together.

  2. Matthew Hutton

    When they built the Tokiado Shinkansen in 1964 they built a whole bunch of stations along the route such as Shin-Fuji or Mikawa-Anjō which have 2-4 million passengers a year. This isn’t really worthy of a high speed rail station but having it appeases the local residents and they get a train every 30 minutes out of it. Plus you get to do some price differentiation with cheaper slower tickets available on the infrastructure.

    Putting in a few extra stations and running an hourly/half hourly Kodoma style train is a lot more sensible than building massive tunnels and bridges that they are building for High Speed 2 in the UK for example,

    • Alon Levy

      I don’t think it’s surplus extraction, though… it’s just different Japanese and Anglo-French ideas of how to run intercity rail service.

      This isn’t to say there’s no NIMBYism in Japan – quite to the contrary – but it is elsewhere, for example the construction of the Saikyo Line next to the Tohoku Shinkansen.

    • michaelrjames

      HS2 has its share of craziness but it is being built because the WCML is saturated, and also subject to considerable interruption on weekends etc for remedial works (it’s the UK so always underfunded and years overdue). When HS2 opens (!) it will take the load off the WCML, and will offer the fastest route between major cities. The WCML will be rehabilitated to regain reliability and in fact will serve more intermediate destinations than it does today, still at 125mph/200kmph InterCity speeds. So, in the end they will get both types of service, very similar to the Japanese service. There was no space to squeeze in a HSR on the existing ROW, thus the need for the tunnels & viaducts. That’s still no justification for the crazy price, but aside from price it is a fair plan.

      Incidentally, some of the outrageous cost of HS2 is due to surplus extraction by the landowners on the route. As for most things in the UK this is almost exclusively by the landed gentry. It’s probably coming to the rescue of many asset-rich, cash-poor dukes, baronets and country squires that owned most of the land for centuries.

        • michaelrjames

          Doubtless land resumption costs are not the highest cost of the project, although HS2 costs are quite opaque so that remains a hanging chad in any argument over HS2.
          If you think the approx. 1000 families of the aristocracy have retained ownership of approx. 30% of land in England for over a millennium don’t have ways and means of extracting higher compensation, then you’re naive. Some 50% of land is owned by 1% of people while the rest of the 99% own 5% which is overwhelmingly in settlements so is largely irrelevant to HS2.
          The arguments about loss of value of adjacent land, or “destruction” of centuries-old woodland (in fact 0.01%), are pure smoke (not by you). Land adjacent to HS1 continues to increase in value, outpacing other comparable land. The govt should include a condition of a land value capture tax.

          • Herbert

            The government is largely composed of those same land owning elites

          • michaelrjames

            @Herbert: “The government is largely composed of those same land owning elites”

            Of course. And the self-perpetuating class system means that those who aren’t, strive to become one of those land-owning elites. They will scramble over the decaying corpses of their brethren to climb up that ladder.

            Re the land issue, this extract (below) shows that it is not as simple as looking up the market price:

            https://www.theguardian.com/business/2019/jan/19/hs2-all-stations-regeneration-work-begins-earnest-london-euston
            All stations to regeneration? Work on HS2 begins in earnest
            At Euston, the controversial rail route’s southern terminus, the diggers are at work. Can the project deliver what it promises?
            Gwyn Topham, 19 Jan 2019
            …..
            Confidence in HS2 more broadly has been at a low ebb. News last week that fewer, and slower, trains than planned could eventually run on the new network to keep costs in check have underscored concerns about escalating budgets. Recently, a former HS2 director told the BBC’s Panorama programme that the company had massively understated the price of property and compensation along the route; while the resignation in December of Sir Terry Morgan as chair of HS2 Ltd came after the woes of Crossrail – also chaired by Morgan until late last year – dented faith in vows to deliver infrastructure projects on time and on budget.

        • Richard Gadsden

          Indeed, but compulsory purchase (the UK version of eminent domain) involves overpaying significantly. For instance, if the line splits a farm, the farmer can often require the railway to buy the entire farm, then split it into three parts, and sell off the two they don’t need at auction – an auction at which the farmer is often the only bidder, who will promptly buy back his own farm at a fraction of what HS2 paid for it.

      • rational plan

        It can be argued that there are too many tunnels, I think the London tunnels came out as a wash cost wise, instead of using the old railway right of way. The line would have tight up against tens of thousands of suburban homes and the political cost would have been too high. The tunnels under the Chilterns is in AONB (Area of outstanding natural beauty), plus close by a couple of extremely wealthy commuter towns. It’s that what made the tunnels longer than they needed to be, The whole route goes through wealthy rural commuter countryside, it has not stopped them, with even the occasional property demolition of some historic homes etc. While these landowners did campaign against the line, it was more the people who thought they’d live in earshot of a noisy railway with a new straight line scarring the countryside they love (and underpinning their land values).

        These rural areas are also bearing the cost of this new infrastructure but they don’t get any new stations. They are not even close to and WCML stations that will benefit from much greater capacity.

        The real reason for the cost blow on Hs2 is threefold. The Department of Transport had an insane wish to transfer risk to the Private sector. It wanted the contractor to be liable for any defects or even slight settlement over 60 year time frame. Well the only rational response from contractor is to gold plate this thing to ensure they can never be held liable. The structures and embankments on stage one are vastly over engineered.

        Also the desire to squeeze as much capacity out of this line means an increase in cost. Not unreasonably the designers thought. This is Britain we are not getting another high speed line into London for decades, this has to count. So to relieve all three main North South mainlines this line needs to accommodate 18 trains an hour. So that means some very high speed junctions, lots of structures and slab track along the entire length. (This many trains an hour does not leave a lot of time for maintenance).
        Also to appease the nimbies the entire route has so many cuttings to hide it from view, that you’ll barely see any actual countryside between London and Birmingham.

        Saner heads took control when the entire line looked in the balance, it was the risk transfer process that was abolished for the later phases. It’s too late to do much about stage one, but the later phases will be built to less exacting standards. Sajid Javid (Treasury) was said to be instrumental in over turning this. The Rail Press has been banging on about this for years, but no seemed to listen as DFT or Network Rail. Network Rail has it’s own cultural issues when it comes to overengineering.

        This problem is widespread in the UK, the entire civil service is obsessed with risk transfer, it pushed up costs in rail, roads and general building programmes as well. In the end Government can handle risk much better than the private sector (as they have access to taxpayers and the printing presses). The private sector can go bust much more easily then the government. There may be some signs that this finally changing but that is definitely a work in progress.

        • michaelrjames

          The Department of Transport had an insane wish to transfer risk to the Private sector. It wanted the contractor to be liable for any defects or even slight settlement over 60 year time frame. Well the only rational response from contractor is to gold plate this thing to ensure they can never be held liable.

          Agreed that it is insane but I believe it was Treasury.
          The true insanity is that anyone could expect, if it came to it, that 5, 10 or beyond 20 years into the future, any private company would bear any cost. Just like with Network Rail, when a crunch comes, it is always going to be the public who bears the cost. Those contingency costs are/were about 30% of total cost and pay, nor guarantee, precisely zip into the future. But Treasury is the most powerful ministry and seems stuck in their Thatcherite ways, despite the massive public cost of the BR privatisation/ renationalisation.

          • yorksranter

            I had an interesting conversation recently about HS2 costs with an engineer working on it. Apparently the structures they’re putting up as noise protection are required to last 120 years on the assumption that a high speed train passes every 2.5 minutes for that whole period and the structures get no maintenance. This is…expensive.

            I said that the purpose of this was political – they’re literally monuments to the (self-) importance of the complaining landowners. Something less massive wouldn’t cut it.

          • Tonami Playman

            From my knowledge of civil engineering and concrete structures, as long as a structure has steel reinforcement within it, maintenance WILL be needed no matter how beefy the concrete coverage. Except the noise abatement walls use a poly material for reinforcement, concrete will always crack, moisture will seep in and steel will rust. From this image of a Shinkansen viaduct in Kyoto, you can see the protective jackets over the columns. Yet it’s been only about 50 years since they were built.

          • michaelrjames

            At least that Kyoto viaduct reached 50 years. When I first lived in England, it was the era of “concrete cancer” in the relatively recently constructed motorway piers that necessitated a major replacement effort at untold cost and temporary road closures. Like leaves or wrong kind of snow on the rail lines, it was apparently the wrong concrete formula used.

            I just googled it and it’s still going on, 40 years later (makes sense I suppose):
            https://www.newcivilengineer.com/latest/motorway-forced-into-emergency-closure-after-too-much-concrete-removed-during-bridge-repairs-17-07-2020/

    • Frederick

      Mikawa-Anjo and Shin-Fuji (which were actually built in 1988 instead of 1964) are “stations by petition”, and municipalities were required to pay for all of the construction cost.

  3. Herbert

    In the First paragraph after the “conclusion” headline you got a “dos” where it probably should say “does”

  4. Matthew Hutton

    One of the big problems with high speed 2 is that no one who lives between the M25 and Leamington Spa really benefits from the project. If a station was built at Calvert on the junction between HS2 and the under construction east west rail and a decent 2 lane road was built from A43 at Brackley to the A421 to Calvert with buses linking those places and Buckingham to the line then pretty much everywhere in that missing gap would benefit from the line.

    The other thing is that while it’s possible to get the project to add pointless extra tunnels or whatever it isn’t possible to get stuff of actual community value.

    If they gave the local communities on the route £100k a kilometre and the county £500k a kilometre to spend on community projects then the places that are being disrupted would get some new community facilities or whatever community improvements they would like. And rather than a ROI of close to zero for those things you’d at least get an ROI of hopefully 0.5 or something.

    And when I’ve done community involvement the sorts of projects they want to do but can’t afford cost maybe £50-250k, so that sort of money would be ample.

    And sure HS2 would cost £21 million a kilometre and not £20 million in France, but so what?

      • Matthew Hutton

        One of the problems with local democracy (parishes in the UK) is that they can be overly consensual and that probably means the chair often has too much power. However you’d never get to be chair in the first place if you were the biggest complainer ever as everyone else would be fed up with you.

        And it would be much harder for the Tory MPs in Buckinghamshire to object to HS2 if their communities were in favour (even if they got money for community projects to agree to be in favour).

        Plus having a station that benefits most communities on the route means at least their correspondence box isn’t going to be quite so one-sided. If I lived close to HS2 between the M25 and Leamington Spa why would I write to my MP to support the project when I wouldn’t benefit?

        • Alon Levy

          If the whip managed to get the Tories for the withdrawal agreement, they can get them to vote for HS2. It’s not as if any of these constituencies is marginal, it’s all deep blue.

          • Matthew Hutton

            But they haven’t. The project costs tens of billions more than it would if it went flat over the chiltern hills due to the sorts of magical extras you mention in your post.

          • rational plan

            They were all whipped to vote for it. HS2 is not popular for a variety of reasons. Mainly it’s very high cost. In parts of the South it’s Nimby reasons. In other places Anti’s are saying it all to London’s benefit. Among the public it’s not popular, mainly because of the cost and no one has any idea of the realities of capacity issues on the rail network. Obviously no one actually reads any of copious reports and investigations easily available online. It’s the usual ‘think of the schools and hospitals you could build. ‘ Just lengthen the trains’. ‘Build bigger stations’ ‘Reopen old closed rail lines’ ‘Spend the money on local transport instead’ ‘Use the Great Central Line instead’ We don’t need more trains, everyone will telecommute’ ‘No need for business travel anymore, everyone will use video conferencing’ ‘It’s just so business men can get to Birmingham 15 minutes faster.’
            On and on a tirade of opinion with no research at all. Then you get the hobbiest engineers with the alternatives.

            Once it’s built , it will be like every big infrastructure project people will forget about the fuss and use it instead. Once open I suspect it will be popular and the politics will change and suddenly people will demand their own lines.

          • michaelrjames

            Once it’s built , it will be like every big infrastructure project people will forget about the fuss and use it instead. Once open I suspect it will be popular and the politics will change and suddenly people will demand their own lines.

            Exactly. Another thing that adds to the pain of such projects in the UK is the absurd timelines. This adds to their cost but also increases the psychodrama within the public and politicians. Phase 1 is about 50% of the distance Paris-Lyon which took 4 years to build, but will take about three times as long, and as we know in the UK it will never finish on time. Do they do this to spread out the financing cost (per year)? Another Treasury stipulation? Or so the endpoint snafus will be NIMTOO? Or perhaps by insiders who know it creates more opportunity for surplus extraction?
            This is without the biggest delay of all: decades of dithering when everyone knew they needed to do something before, but especially after, the 80s and the demonstration of utility and popularity of Paris-Lyon and Eurostar.

          • Alon Levy

            Bear in mind that Paris-Lyon had very low costs, lower than subsequent French lines. That history is a strong piece of evidence for the surplus extraction theory: at the time the line was built, it was not clear that it would be a success, and money was short, so SNCF worked on cost minimization, for example choosing the vertical profile to balance cuts with fills. Then the line made killer profits and there evolved consensus in favor of building more lines as it became obvious there was surplus, and costs rose as the priority shifted from getting it built on a budget to building signature urban renewal in Lille. Then Paris-Bordeaux introduced the PPP method and costs rose even further.

          • michaelrjames

            To be sure. But that choice was of great relevance in making HSR palatable to both public and political interests (and treasury). The first aerotrain routes were proposed within Paris and brought minimum benefit with maximum pain. It was that experience that focussed minds on a standard engineering solution and on an easily-built route between the two main population centres (including the then controversial move of leaving Dijon off the direct route). Getting that first success was critical. Have the Brits given any thought to these things? Dunno, but today (ie. retrospective wisdom) would say they might have started with the northern segments (phases 2a, 2b) first. As one example of the implications, just last week they cancelled CrossRail 2 as part of a deal to rescue TfL from Covid-budgetary problems but seemingly more as a backlash against such big spending on another London megaproject to the north’s impoverishment.
            OTOH, they already have the example of HS1 which meets both public and political approval (except perhaps for those northerners grumbling that it only serves London).

            That Paris-Lyon line cost €3.5 billion inflation adjusted to 2007. So all those valid factors still don’t amount to the 30x (or closer to 60x, distance adjusted) for HS2.

          • adirondacker12800

            big spending on another London megaproject to the north’s impoverishment.
            People in London pay taxes too. The yokels out in the hinterland whine about how much money is being spent in the big city. It’s where the money comes from.

          • Alon Levy

            Yes, but Labour spent generations demonizing London in a populist appeal to the North, and now post-Brexit the Tories are beginning to do the same, hence endless amounts of political capital spent on the North without results.

          • Matthew Hutton

            The north hasn’t really had any infrastructure spending however. The fastest train between Liverpool and Manchester is little quicker than that 100 years ago for example.

          • adirondacker12800

            I’m sure there has been some maintenance and new equipment in the past 100 years.

  5. Matt

    Your core point is correct–and important. The idea that devolving power as much as possible to the local level (the “people”) increases equity is flat-out wrong. Politics exists down to the smallest level of organization, and excessive devolution empowers those with money and social cachet, multiplies veto points, and multiplies opportunities for the private extraction of social surplus. The challenge is to preserve the government’s capacity for useful action while also maintaining democratic legitimacy. The current U.S. system for building infrastructure does neither.

  6. fjod

    Is Crossrail 2 subject to gratuitous tunnels? I don’t see any significant part of its proposed route which could be put on the surface. The real surplus extraction comes from trying to be all things to all people (i.e. unnecessarily costly routing), which is a different question.

    • Alon Levy

      Yes, the route in South London is a weird tunnel instead of six-tracking the SWML above ground, replacing the sloping berm with a retaining wall. If for some reason a tunnel is unavoidable, which it isn’t, put the express trains in the tunnel so you don’t have to build underground stations, and keep the local trains on the legacy line.

      • fjod

        The Crossrail 2 route doesn’t go down the SWML because it’s been designed to try to relieve the Northern line. This routing is surplus extraction but it’s not excess tunnelling. Where it joins the SWML after Wimbledon it is proposed to be on the surface.

        Routing it entirely on the surface like in your London crayon map presents at least three problems, each serious: platform capacity at Clapham Junction and Wimbledon (there is none), space south of Clapham Junction (i.e. there is no space for the necessary 6 tracks without demolishing houses), and where to put the tunnel portal at the northern end (not 200m from the river as you suggest, as the gradient down would be too steep). The added complexity of threading this line through operational lines in Battersea is also costly, of course.

        You could get by with having a <4km surface section through Earlsfield using retaining walls as you say but, given it has to go in a tunnel at either end, this is no panacea. Crucially it is also on a different route to the one proposed.

    • Alon Levy

      There’s consumer surplus, yes… but it cannot be extracted as profit – price discrimination is only available in an oligopoly. So it sticks to consumers and there is no way for anyone, the company or otherwise, to seize it.

      • PlasmaSheep

        No, there’s also producer surplus, which is revenue for the sellers (not necessarily profit).

        • PlasmaSheep

          Not to mention that price discrimination exists in many other situations as well (airlines, universities, anywhere that offers a student discount, etc).

          • PlasmaSheep

            And so are museums that offers student discounts? And stores that offer coupons? Price discrimination is in no way limited to oligopolies and I’m surprised you are unaware of these classic examples that would be mentioned in any introductory econ course.

          • Alon Levy

            My understanding is that chain stores are trending toward more uniform pricing? E.g. Walmart’s model involves limited discounting. Aldi doesn’t seem to have coupons as far as I can tell and neither does Lidl (though Penny does have coupons), and does have discounting but less than my recollection of (high-price) New York supermarkets. With airlines, too, the increase in competition with low-cost carriers has simplified fares, so now there are one-way fares domestically within both the US and the EU, without the Saturday night stay rule.

          • PlasmaSheep

            Even walmart provides coupons, to say nothing of other retail stores. Even if it didn’t, I don’t see how that proves that price discrimination happens only in oligopolies.

            Again, examples to the contrary can be found in any introductory economics book (or even wikipedia).

        • Jason

          I think what Alon meant is that in a competitive market, If there is a lot of producer surplus, more suppliers will enter the market in the long run, until the price is driven down to at cost. This is represented by the supply curve becoming flat and moving down in the long run, leading to little producer surplus.

          • PlasmaSheep

            Supply curves are not always flat. In fact, in competitive markets they are often not flat. Consider oil, labor, frozen concentrated orange juice, etc etc.

  7. Frederick

    “What it does say is that the role of the state is to safeguard surplus and keep it socialized, against demands from many special interests, which should be disempowered through legal changes making lawsuits harder and reducing the ability of consultants and unions to drive up costs.”
    In many people’s opinion, the freedom to start lawsuits are much more important than public infrastructure.

    “It’s optimistic in a sense, because much cost control comes just from knowing that it’s possible and having the nerve to say no to people who are used to hearing yes.”
    Not as easy as you’d think. In old America or Italy, some people ate lead for saying no, for blocking people from extracting billions of surplus. Nowadays it is harder to shoot at “obstructions”, but there are still many legal or half-legal ways to remove obstructions to surplus extraction.

    • Alon Levy

      In the opinions of Karens, being able to feed off the public trough is freedom. In the opinions of everyone else, it isn’t. Nuisance lawsuits are not popular with the broad public.

      And who’s talking about shooting anyone? Italy isn’t shooting people who say no, it just ignores them. It’s the US with its endless lawsuits that also has extremely high levels of police brutality, because these are two completely unrelated issues.

      • Henry Miller

        Nobody knows who is serious about shooting people. That type of corruption only works when the victim has enough to believe that you seriously would. Once someone believes they will be shot if they don’t give you what you want they can find ways to make it seem reasonable, or at least not like they were the one pushing the unreasonable thing. If people find out about the arrangement, then it is over when they decide not to stand for it. (in today’s world even if you get by with it in your own country, when you travel other countries will arrest you and put you in prison)
        the solution to this is a good whistle blower program. When the someone feels obligated to do something or get shot you make sure they have a way to report it to someone independent who will investigate and take action. This needs anonymous reporting where possible and also good witness protection. Not easy but critical if you are to prevent this style of corruption.
        to politicians the vote is often a different style. When the unions all stand together against the common person to force high wages for the sand hogs or whatever union few politicians will vote against it.

        • Alon Levy

          In the US it’s illegal to go on sympathy strikes, so it doesn’t matter what the other unions think, if the sandhogs go then it’s a matter between the state and the sandhogs.

          • Henry Miller

            Strikes are not the most powerful way the union has to get its way. Union labor is often required even when there are non union contractors for the same job. When you have to use the sandhogs eventually you will pay their price not the $35/hr price that is possible. Any attempt to change this law will have all the unions, even those making 20/hr voting out those who tried.

            I have several union friends, they all stick together against non union labor, and even against the US if that is what it takes to make the unions better. I understand union labor in Europe is generally better in this way.

          • michaelrjames

            I have several union friends, they all stick together against non union labor, and even against the US if that is what it takes to make the unions better. I understand union labor in Europe is generally better in this way.

            You cannot possibly blame workers for defending themselves against white-collar, managerial and political elites. The notionally excessive action flows directly from US dog-eat-dog society. Does anyone need reminding that the US is at the bottom (just above Singapore and HK right at the bottom) of rich-world inequality indices? Once it could be said that this was a trade-off for a ‘land of opportunity’ but today the US has lower social mobility than rich northern European nations. Alon says, in France w.r.t. the striking transport workers, that Macron’s changes to those workers’ overly generous conditions and retirement benefits (eg. retiring at age 52) “were popular with the broad public”, but that is a relatively newish (last two decades) change as life has become tougher for everyone and employment in general become more precarious. Up until the new millennium there was still a solidarity with those workers during their ritual strikes as it was perceived thru the notion of republican struggle. In the US, these pressures have led directly to Trump and what amounts to a blind lashing out at “the man” because Right and so-called Left ignored their plight on continuously declining living standards and increasing precariousness of their lives.

          • Alon Levy

            Those unions are mostly defending themselves against racial integration and the entry of women into the workforce, using discriminatory apprenticeship laws and severe racial and sexual harassment. Nor is this some artifact of neoliberalism – the trades have been like this since the 1960s, beating up anti-war protesters, fighting racial integration, and white-fleeing the cities to the suburbs or to dedicated neighborhoods like Electchester.

            And French solidarity with white violence is a problem and is why France is dying of corona right now. No willingness to suppress corona denialist riots = mass death. Instead, the state is consumed with policing Muslim speech; Muslims who burn Macron’s effigy in protest are arrested, Gilets Jaunes who chanted “Macron en prison” were celebrated as representatives of the common man. Not the first time France as a nation collaborates with fascists.

          • michaelrjames

            Hah, that made me laugh!
            Alas, we (ok, I) don’t understand the factors which have led to loss of control almost everywhere in the rich west (on this criterion, ANZ are now firmly Eurasian), including in Germany. The main reason Germany’s absolute numbers remain lower is that they are coming from a much lower starting point. Though their lower mortality appears to be correlated with their somewhat unique system of aged-care so there are at least two diffs with others in the EU (historically it rather exceeds France in love of fascists!). Could it be as simple as the bisou in France?

          • Henry Miller

            I’m not blaming the unions, I’m stating a fact of human nature. I defend my interests about everything else by default too – sometimes even against the common good that would make my life better than the interested I’m defending makes it. I try to recognize where that conflict exists, even if I decide to continue to defend my interests. Unions in my experience won’t even recognize that they might be wrong, or that they might sometimes be voting for a worse future for themselves.

            As someone in the upper end of society, there is a lot of room up here. I’m constantly amazed at my friends who encourage their kids to go into labor jobs when the kids are plenty smart to take a high pay job if they just go to college. (though not all colleges degrees are worth it!)

      • Matthew Hutton

        I think the bigger problem is government employees being totally paranoid of lawsuits and objections beyond all reason.

        I really don’t think with functioning government at all layers that Karen’s are a huge problem and one that can’t be fairly easily worked around. I can see if there are 20 houses in a HOA things might not go smoothly but certainly once you get up to a level of government with hundreds of houses it should be possible to work around 1-2 people being overly fussy.

        Don’t forget a lot of the HOA horror stories on the internet will also involve the person being “punished” being objectively worse than they are describing on their internet post – a decent proportion will be noisy and/or don’t cut their lawn once a month and/or regularly have lots of old cars or other rubbish in their drive for extended periods.

        • Matthew Hutton

          The other way these organisations can become unstuck in my experience is by making poor hiring or perhaps tendering decisions. But that could probably be avoided by having someone from HR on the interview panel if needed from the authority above – and the same for significant tendering.

  8. Eric2

    Any suggestions on how to avoid this surplus extraction? Or is it inevitable?

    Maybe the government can say repeatedly and publicly “The average worldwide cost for a metro is $150M/km, in unusual circumstances it is reasonable to go up to $300M/km, anything higher is extortion and graft and we will not pay for it?” in such a way that it is hard to climb down from such a commitment?

    • michaelrjames

      There is no alternative to having a competent in-house team able to supervise such a big transport project. One that answers to parliament and the public who fund it. Two of the points from the Oakervee Review of HS2 last year:

      https://www.railjournal.com/passenger/high-speed/parliamentary-committee-issues-scathing-report-on-management-of-hs2/
      Parliamentary committee issues scathing report on management of HS2
      David Briginshaw, 18 May 2020.

      • the PAC says, despite raising concerns in the past, it is unconvinced that the DfT and HS2 Ltd have the skill and capability needed to implement the project, particularly in risk management and assurance, and project management and control, and HS2 Ltd lacks the commercial skills to manage the main construction contracts
      • the DfT is failing to make sufficient and meaningful changes to its management of infrastructure projects despite the problems already experienced with the Crossrail project, the Thamelink scheme, Great Western electrification and now HS2.

      Of course that would constitute what the Cons consider “big government”, and it might constrain the idiocy of various political operators, not to mention the private contractors and the armies of consultants on the gravy train. Eight years into the project and only some land resumptions, demolitions and pre-work site works there is little to show for the £8bn already spent, of which £600m was gobbled up instantly by consultants.

    • Alon Levy

      I don’t think it’s inevitable. The success of mani pulite in reducing Italian construction costs suggests that at least one mechanism of extraction, namely criminal corruption, can be successfully removed. There’s also some evidence that removing the worst-offending unions is possible too: among Macron’s various economic reforms, the attempts to reduce the privileges of the cheminots were popular with the broad public, which blamed the cheminots for the strikes and not the state.

  9. Reedman Bassoon

    If I am understanding this correctly:
    1) the New York subways were originally built at a reasonable cost because of competitive private providers.
    2) public utilities, a natural monopoly, can be private companies operating at reasonable infrastructure costs and reasonable rates with appropriate citizen/government oversight
    3) while expensive, road construction doesn’t seem to have the “out of control” cost problems of passenger rail because the private construction companies for roads are modestly competitive, while passenger rail is a “once in a lifetime” construction project (where monopoly and monopsony completely dominate).

    • Alon Levy

      Not really.

      1. The subways were built at reasonable cost in the 1900s-10s because it was newish (albeit mature) technology without much surplus extraction yet. This wasn’t really competitive, the city gave construction contracts along city-chosen routes, and there was limited IRT-BMT competition. There was actually more competition when the city built the IND, which cost far more, and was built in part to extract surplus from IRT and BMT profits.

      2. Sure. But they can also be publicly run.

      3. No, road construction has the same cost problems as rail construction in the same countries, e.g. the US. Poor contracting practices, low labor productivity, defensive design, and technological conservatism raise costs regardless of whether the tunnel to be bored will host cars or trains.

      • adirondacker12800

        The inflation of the 20s ate all of the profits. Which is why they eventually went bankrupt and the city took them over.

    • tompw

      I would argue that “normal” road construction (i.e. without tunnels, ranging from widening an existing urban or rural road to building a new road near a city) does seem to have a competitive cost environment. The techniques are commoditized, and the relevant machinery is off-the-shelf rather than bespoke.

      • Reedman Bassoon

        Yes, I was referring to surface roads. P.S. For new green-field subdivision construction, the developer builds the roads/sewers using their choice of contractors, and then once the city/county deems things to be OK, the developer turns them over to the city/county for ownership, operation, maintenance. [a long, long time ago, I had a college summer job as an field engineering inspector for the local government, checking that the concrete in the new roads had the appropriate materials, was thick enough and strong enough, etc.].

  10. AJ

    Would it be correct to say it is the perceived surplus that limits the surplus to be extracted, rather than the actual value? $50,000 per projected weekday trip is the value determined by the ‘experts,’ but that might not align with the perceived value of a project held by the public (or more importantly, held by those who have the power to actually control cost). A hypothesis would then be: as the political consensus on the value of the type of infrastructure grows, the surplus extraction grows. I wonder if there is a way to measure this political consensus and how it correlates with cost, independent of the technical judgement of the value of a project as expressed in the ridership projection.

    As an anecdote in Seattle, the share of at-grade operations has steadily decreased as the light rail network continues to be build out, correlating with the growth in political consensus on the value of light rail. We have now reached the point where it looks like suburban light rail will be 100% grade separated, while at-grade operations would be far more cost effective (particularly at the end of lines, as highlighted in your tram-train post). Neighborhoods and municipalities now view Link as critical to their economic success and therefore want as high quality of a light rail as possible, rather than a line that is simply good enough for the regional as a whole.

    • Wesley

      I don’t think thats the right way to look at it. It’s more of there is a certain benefit from building a certain project, but the costs continually increase as the project becomes more successful thus decreasing the surplus.
      Regarding Seattle’s federal way extensions it’s more of the trade off between density on the avenue versus speed on the freeway, the cost is around the same.

      Though regarding West Seattle extensions it is the exactly the trade off you are talking about. Originally the light rail proposal back in 2014/2016 had the light rail going at grade all the way to White Center/ Burien at grade, but now with the elevated alignment it only goes to West Seattle because it costs a lot more.

  11. AJ

    Interesting point about network effects, that could make it harder to measure if the greater value extracted from an expanding system is real or perceived surplus.

    Yeah, I wasn’t quibbling with the freeway alignments but rather the elevated terminal stations in West Seattle, Ballard, Tacoma, and in the future perhaps Issaquah and Everett.

  12. tompw

    Good planning and design (in transport and elsewhere) is far more about saying “no” then “yes”. Saying “no” requires political capital; saying yes ends up requiring financial capital. Naturally, there are always trade-offs between the two.

    You see this trade-off most acutely when new taxes are put to referendums: the package of improvements invariably includes some “yes” things that generate political capital to pass the tax. (Example: every time road widenings get bundled with rapid transit lines.)

    The time I felt I had the most power to say “no” was when the “yes” would have limited new development – and it was clear that would be primarily a political cost, not a financial one.
    Moral: create a political climate where higher financial costs create higher political costs (that aren’t just about the price tag).

  13. RVA_Exile

    What kind of surplus extraction is the DC2RVA project in Virginia?

    The good people of Ashland, VA, which is neither particularly large (<8k) nor particularly rich (20% poverty rate, $52k median household income, lower than state/region average), managed to block any attempt to build a rail bypass of the town.
    The "high speed rail" project to connect the Northeast & Southeast corridors (100+ million people, depending on how you count), will continue to have a 35-mph, street-running section down the middle of a town, and more generally 90 mph elsewhere on the corridor.

    https://dc2rvarail.com/about/ashland-cac/

    It seems like the US is more in need of a viable strategy to overcome the BANANA/business-(highways)-as-usual mindset, before an esoteric discussion of equitable division of social surplus.
    A lot of people seem perfectly content to simply not build anything (new), and still kind of waiting for the other shoe to drop for other megaprojects like Texas/California HSR, which barely seem to be doing any better.

  14. Pingback: Public incompetence is a moral issue – The Yorkshire Ranter

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