Public departments, bypassing the profit and loss test, may not effectively meet consumer needs.
What incentive structure, Mises asks, is in place in the public sector that aims at the primary economic problem? "No good should remain unproduced on account of the fact that the factors required for its production were used-wasted-for the production of another good for which the demand of the public is less intense."
As a result, the demand for public transit is subsidized and encouraged, but the provider has no way of knowing whether the resources it is diverting from other areas of potential production would not serve consumers better in that area than in this one.
The "Tragedy of the commons" is a problem in all public "Goods."
As Mises put it, "The result of is to loosen the grip the consumers hold over the course of production." Thus, if you run a public sector enterprise you are overriding the value consumers place on the thing.
While public transit sounds like a good idea, it tramples over the consumers' more urgent needs, reduces consumer choices, and introduces the pitfalls of monopolies-delivering less for more, cronyism, and waste.
If these arguments are so clear, why do we have public goods and the public sector providing them? Chances are good that capital is being wasted on goods that the bureaucrats value higher than the consumer in the scheme of things.
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