Yesterday, Republican Presidential candidate and former Minnesota Governor Tim Pawlenty outlined his plan for economic recovery. Though I do not believe the government can fix the economy I found some of what he said intriguing, particularly when he discussed the possibility of turning Amtrak and the USPS over to private hands.

Amtrak

The initial motivation for government get involved with the railroads was, ironically, to prevent monopoly. Back in the days when the rails were the only efficient way (horse and wagon being the next best option) to ship/travel cross country rail, demand was nearly limitless, which allowed rail companies to charge whatever they wanted. Fast forward to today. We now have cars and planes to travel/ship things cross country. In economics 101 we call this substitute goods. Once a substitute good is introduced into the market, demand falls, competition rises, and prices fall. If rails today charged an outrageous price for a train ticket from NYC to Baltimore, people would (and do) drive or fly.

In fact, demand for rails fell so hard that in 1971 the Federal Government created Amtrak in order to "save the railroads." Well, to a libertarian what I'm about to say seems like common sense, but government officials usually struggle with common sense. If something can't survive in the private market it isn't a useful service, right? Normally, yes -- but not when corporate rail and rail union interests/votes are at stake!

In fairness to Amtrak, the service has seen record ridership in the past few years due to high gas prices, but the point remains the same:  With all the competition that exists in today's market there is no reason for the federal government to control the rail system. If the market eliminates Amtrak, so be it. If the Amtrak thrives in the market, so be it. But, there is no reason for the federal government to control the railroads in 2011.

US Postal Service

The power to establish a postal service comes from Article I Section 8 of the Constitution. It has been in existence since before the creation of the United States and in all fairness has done a pretty decent (though often expensive) job. When you put something in the mail more often than not it gets to where you need it to go. But once again, fast foward to today. We have e-mail, UPS, FedEx, DHL, etc. Why do we need a post office too?

Post office supporters will tell you that the USPS is the only thing that keeps the others prices in check since, unlike the others, the USPS isn't seeking to maximize profit. But this argument overlooks game theory and Nash equilibrium. To avoid getting into a long economic discussion I'll keep it brief:  According to game theory and Nash equilibrium, when oligopoly exists collusion is impossible because one person will always try and get the upper hand. So, say UPS, FedEx and DHL came to an agreement that they would all charge $1 per letter. One of the three would realize that if they break this agreement (which isn't protected by law since it's illegal to begin with), they can steal the market. Realizing this, let's say UPS drops its price to $0.99. They get all the customers. In order to compete, FedEx drops its price to $0.98. They get all the customers. I think you get the point.

So, like Amtrak, there is no need for the USPS in this day and age.

It appears that given today's technology and basic economic theory, there is no reason for Amtrak or the USPS to be government-run. Those on the left are always talking about how government needs to "change with the times." Well, this would be a good time to change. Continuing to fund archaic and needless programs is bad policy, especially when running massive deficit. In all, Congress would be wise to discontinue or privatize both Amtrak and the USPS.