The primary issue in the transit strike is what constitutes an acceptable level of compensation for Metro Transit employees.
Controversy generated by the strike, however, exposes a second fundamental issue.
What costs and benefits are there to society from public transit? What proportion of the costs should be borne by taxpayers and what by riders? Who would suffer if public transit disappeared?
Economic theory and history teach that government should provide goods or services that meet important needs of society and will not be produced by free markets. Typically, such public goods involve large external benefits or “spillovers” to society as a whole.
Free markets with no government involvement do not produce as much police and fire protection, tornado warnings, streets, childhood vaccinations and elementary education as society needs. Taxing people and using the revenue to provide such goods makes society as a whole better off.
Two centuries ago, U.S. residents largely did not feel that education was a public good. Few public schools were available in most states. Only later did people come to realize that publicly financed education did not just help specific students, but also generated benefits of higher productivity that spilled over to society.
One century ago, we did not think that mass transit was a public good. Streetcars were established by for-profit businesses. That continued as buses supplanted streetcars.
Twin Cities Transit Line remained a private business until 30 years ago and, as former Gov. Arne Carlson recently pointed out, it had already agreed to lifelong health care as a contractual employee benefit well before it was taken over by government.
What changed? Why has public transit changed from a private service to a public one?
Some people apparently view transit primarily as an income-transfer program — a way to help poor people get around — just as 1980s-era handouts of surplus cheese helped poor people eat. If this is the only consideration, buying used cars for poor people might be cheaper than a large bus system.
Yes, there are some riders who cannot drive at all for physical or mental reasons, but they, in principle, could be given “taxi stamps” to defray costs of purchasing individual transportation just as we give food stamps to help feed poor families.
Transit does, however, benefit other members of society besides those who ride. While there is not a one-to-one reduction in automobiles on the road for every rider on a bus, transit does reduce road congestion, central city parking problems and air pollution. The value of such broader social benefits varies from city to city and from one transit route to another. Making exact estimates of the social benefit is difficult, but the benefits are not negligible.
Transit skeptics note that congestion has not increased notably during the strike and argue that the external social benefit of reducing congestion and pollution is small. History shows, however, that short-term interruptions underestimate long-term effects. During a strike, many riders use car pools or share a vehicle with a spouse, knowing the change is likely to be short term. But if transit disappeared completely, many would drive an additional vehicle in the long run.
Other economists point out a contingency benefit to many people who ride the bus only episodically. One may drive to work most days, but find it very handy to be able to hop on the bus when a car is in the shop or bad weather threatens. Some households are able to manage with one car — as long as transit serves as an occasional fallback — rather than the two they might buy if the transit alternative did not exist. The benefit to such households is substantially greater than the marginal cost of the bus seat they occupy.
Nor should one assume that no one but the poor or disabled rider benefits from subsidized transit.
The economist’s assumption that people’s satisfaction in life is not affected by how well others do is a convenient one for abstract theorizing, but seldom is true in real life. I have a greater level of satisfaction in life if I know that those who are poor or unable to drive can still get around at some minimal level.
I am perfectly willing to pay taxes for that to happen and so would many others. Offsetting this, there are some people whose satisfaction in life is diminished by knowing that government arbitrarily took their money and used it to subsidize joy riding by others.
When those who are poor or unable to drive make up a small fraction of the population, giving them used cars or taxi vouchers might well be the cheapest way of meeting this need. But the proportion does not have to get too large for the social cost of this alternative to surpass that of a bus system, particularly because a bus system includes the spillover benefits of reduced congestion and pollution and the contingent value of an emergency backup.
The denser the population, the easier it is to achieve economies of scale in public transportation. Cities such as Boston, New York, and even Chicago — which reached considerable size before cars became common — are inherently better adapted to mass transit than those like the Twin Cities, where growth came later and urbanization patterns reflected cheap land and subsidized automobile travel.
That final point is important. We pay fuel taxes, but study after study shows that the total external social cost of operating automobiles — in the form of pollution, congestion and defense expenditures to “secure the nation’s oil supply” — exceeds fuel taxes paid by 25 to 50 cents per gallon.
If we taxed gasoline to reflect its true social costs, many more individuals would choose to ride the bus, and the average cost per rider would drop.
© 2004 Edward Lotterman
Chanarambie Consulting, Inc.