Market Urbanism

Liberalizing cities | From the bottom up

“Market Urbanism” refers to the synthesis of classical liberal economics and ethics (market), with an appreciation of the urban way of life and its benefits to society (urbanism). We advocate for the emergence of bottom up solutions to urban issues, as opposed to ones imposed from the top down.

The “Systemic Failure” of US transportation policy

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Today I stumbled upon a blog that’s gotta be the best one I’ve found in a while. It’s about US transportation policy by a blogger who seems to be based somewhere in the Bay Area, and it’s called, fittingly, Systemic Failure.

The post that first got my attention was this one about London’s bike sharing system likely being profitable in the future, which made me realize that this would be a great first government transportation program to privatize, especially considering that the government is keeping the price extremely low (it’s free for trips under 30 minutes) and the system is struggling to keep up with demand. I assume the reason that private companies didn’t try this earlier was that city governments have no framework for renting out small parcels of public space for use as bike racks – this despite having a vast infrastructure in place for renting similar parcels to drivers on a short-term basis (i.e., on-street parking!).

But beyond that, (s?)he does a great job covering a range of transit issues, from the misguided attempts at federalization of transit safety by Obama after the WMATA Red Line crash in 2009 (1, 2, 3, 4) to the inanity of helmet laws (1, 2). The “Drunk Engineer” also offers blistering critiques of American protectionism in transit procurement, including one in which he describes the horrible inefficiency of Buy America provisions, which wreaked havoc on a Houston streetcar project and caused a Bay Area transit authority to have two completed Japanese pilot cars disassembled and shipped to the US where they would then be reassembled to conform with the law (another example here).

Another interesting post that I found was this one about Senator Barbara Boxer’s insistence that Metrolink trains have two conductors onboard for safety reasons, despite the lack of empirical evidence that this actually improves safety. This all sounds eerily similar to arguments made by labor unions a century ago, which ultimately succeeded in both furthering the unions’ short-term interests and guaranteeing transit’s long-term decline. In keeping with what I presume to be the author’s residence, there are quite a few posts about other examples of transportation incompetence in the Bay Area (1, 2, 3), including a few posts on everyone’s favorite boondoggle, the Oakland Airport Connector (1, 2, 3, 4). The Drunk Engineer hasn’t been updating the blog more than a few times a month, but there’s a few pages of archives if anyone’s interested in digging through them. Again, the blog: http://systemicfailure.wordpress.com.

Reading about all of these failures in mass transit planning reminded me of why I don’t put much stock in the fact that transit is subsidized at a higher rate than private cars on the road (something that new commenter Jim654 has repeatedly reminded us of): the government is, simply put, worse at provisioning it. Whereas two-thirds of the automobile system is already in private hands (the vehicles and the labor to operate them) with only one-third (road/highway construction) being entrusted to the government, the state gets to fuck up three all three aspects of mass transit – the tracks, the vehicles, and the labor.  American drivers are free to buy Japanese cars, but American mass transit users are forced to ride in American-built vehicles. While I’m sure there’s plenty of fat in highway and road construction that could be trimmed if road construction and maintenance were privatized, this probably pales in comparison to the amount of waste that could be eliminated if transit procurement and operation were liberalized. I’m not going to pretend that transit subsidies are entirely due to waste – I’m sure much of the subsidies are required due to the simple fact that the density necessary to support a profitable mass transit network is simply illegal in America. But it would also be naïve to claim that transit’s subsidies are due entirely to either unsuitable land use or the inherent inferiority to the road/car system. Much of it is just rank government incompetence.

Comments

  1. But it would probably be similarly naive to believe that flat out privatization of the systems is the way to go. Privatizing operations could put two of the three parts you describe in private hands – the vehicles, and the labor – putting it at the same ‘level’ of privatization as the roads.

  3. Drunk Engineer seems to be skeptical of major privatization schemes, as do the other Northern California critics of American transportation planning. I’m not completely sure, but they all profess liberal politics, and single out reliance on private consultants as a major reason for the failure of American transit, comparing the US negatively with the in-house planning done in Spain.

  4. With respect to the distortion of the transportation and urban development markets, It doesn’t matter whether the reason transit is subsidized so highly is government incompetence or some other reason. The fact that the government pays 70% of the cost of a transit ride while the transit user pays only 30% is an enormous distortion of the market that encourages massive overconsumption of transit. That in turn massively distorts the urban land-use market in favor of transit-oriented land uses and against car-oriented ones.

  5. How can it not matter? If pears and apples were both $1/pound under private provision, but then the government came in, took over apple farming, unionized it, hobbled it with all sorts of safety restrictions, and the price shot up to $3/pound for apples, but they then subsidized it so that it was back down to $1/pound, would you still say that the subsidization of apples distorts the market when compared to the original free market?

    I’m not saying that’s necessarily the full story here – I don’t know what the true free market price of transit would be without all the unionization/protectionism/unnecessary safety regs. But to say that it “doesn’t matter” seems a little odd, if your objective is to compare the status quo with a theoretical free market equilibrium.

  6. I’m not talking about a hypothesized alternative private transit system. I’m talking about the effect of the actual government subsidy of our actual public transit system. Whatever the reason(s) for the cost of that system, subsidizing it at a rate of 70 cents on the dollar encourages massive overconsumption.

    But regarding your hypothetical, I don’t think it is remotely plausible that the private sector could provide our current transit system at 30% of the current cost. In fact, with the possible exception of a few high-demand services that operate during peak hours only, I doubt there is a single public transit route in the entire country that could be provided at a profit at all.

  7. Sure it’s plausible – just look at the construction and operating efficiencies of other developed countries. Lacking FRA regulations, the German-speaking world runs regional rail service on branch lines with capital construction costs on the order of $1-2 million per km, and the operating costs of a bus; unlike SMART, it does not have special rules that blow the costs of anything to the point of unprofitability. Those lines are unprofitable because they’re rural branch lines, but in the US costs are so high such lines don’t get any passenger service at all. In major markets like, say, the entire New York metro area, the factor-of-3 cuts in costs that could come from better regulations would put passenger trains in the black.

  8. First, a bit of heresy which is also true: If there is a conflict between the “laws” of economics and the laws of physics, then the laws of physics prevail.

    There has never been a “true free market price” for transit in this country. Private transit companies were regulated as utilities. The “invisible hand” was shackled. Off the top of my head, I can’t think of an example of a “developed” country where transit fares were not regulated under private ownership.

    “The competition” – autos – is subsidized because drivers do not pay the full cost of auto travel, which includes externalities. These “hidden subsidies” are pervasive and ingrained to the point where even the service providers are clueless.

    Sit down, for example, with your local police chief, and ask him (or her) how, say, a 20 percent reduction (or increase) in annual vehicle-miles of travel would affect staffing requirements and costs. The person will probably not have a clue. I could give similar examples regarding emergency medical services (road-crash victims) and special-education services (ditto).

    A “free-market equilibrium” would be very difficult to achieve if consumers insisted on paying “marginal cost” for each unit. For example: a ten-ounce latte is $4, and a 15-ounce latte is $5. No one would seriously expect to pay $1 for five ounces of “late,” much less $0.20 for one ounce. Significant production costs would be incurred even if all but a few drops of the “finished product” were thrown away before serving.

    Auto drivers do not pay the full cost of driving. Moreover, they do not consider all costs that they do pay when evaluating transportation alternatives. It is widely known and well documented that consumers consider only the cost of gas and parking, while ignoring all the other costs of auto ownership and operation.

    In the San Francisco Bay Area, you will hear people complain about BART fares. Richmond to Fremont, for example, is $4.85. Many people, asked why they drive, say that “the gas is cheaper” (I know; I’ve asked). Maybe so, but $4.85 / 40 miles = $.12 cents per mile.

    I note that the IRS “standard mileage rate” for 2010 is $0.50 per “business mile.” This is based on “an annual study of the fixed and variable costs of operating an automobile.”

    More interesting is the rate for “medical and moving” purposes, which is based on the “based on the variable costs as determined by the same study.” The rate: $0.165.

    BART could not charge $0.50 per mile without losing lots of passengers. It would suffer significant losses if it tried to charge $0.165 per mile; that would be a 37.5 percent increase. BART can, and does, charge premium fares for transbay travel, and for travel to and from San Francisco Airport.

    The ill-advised decision to set fares on the Peninsula at “transbay” levels is a major reason why the “intermediate” stations do not carry as much traffic as forecast. $2.00 for travel between adjacent stations? Please.

    For reasons that are essentially psychological, there cannot be a “free market equilibrium” with respect to urban travel markets, where the principal competitors are autos and transit. Yes, there are analogous cases: consumers may not perceive the “full cost” of “substitutes,” whether imperfect or perfect.

    “Jim654” may be joking, or not, about “enormous distortions of the market” and “massive overconsumption of transit.”

    Funny thing: “The gummint” (as the late Molly Ivins would say) pays 100 percent of the cost of all transit rides throughout a county not far from here, and has done so for ca. 25 years. Can’t get more “enormously distorted” than that. However, each time I go up there, I see virtually no evidence of “massive overconsumption of transit” – nor of massive distortions of “the urban land-use market in favor of transit-oriented land uses and against car-oriented ones.”

    ———-

    30 percent of current costs = as in “current costs” * 0.3?

    As was said in my high school, “Put it out … unless you’ve got one for me!”

    U.S. transit systems get little respect for operating efficiency, but look at labor productivity:
    “annual passenger-km per employee work hour.” Now compare that against systems overseas, if you can find data. Preliminary indications from the data I could find was that large U.S. systems do very well against “peer systems” overseas.

    I have yet to come across any hard evidence that privatization, per se, leads to significant increases in productivity as measured in this fashion. Lots of ideology, yes, but no “hard” evidence.

    ———-

    So sorry, “Jim654,” you lose.

    There is at least one “public transit route” in this country that does recover the “full cost of operation” – and could perhaps operate as a self-supporting private business: the Seattle Monorail.

    Pardon the sarcasm and contempt – I admit to this, and freely – but the above tends to separate the airhead ideologues from those who are willing to deal with (ugh) real people in the (ugh squared) real world.

    It isn’t “that” difficult to earn a profit running transit, and this can be (and is) done by systems that are not notably cost-efficient (e.g. the Seattle Monorail). The trick is to collect a high enough “average” fare per mile from consumers. Here is where consumer psychology comes in – and the airhead ideologues stampede for the door.

    In some markets – “some markets” – consumers are willing to pay fares that “appear” low in nominal terms but are actually quite steep in per-mile terms. The “current” monorail fare is $2.00 one way, which works out to $2.22 per mile. Monthly passes are sold, but I don’t think I’ve ever seen one used. The monorail is not a “joy ride” although I do concede that much of the traffic is “recreational.” There is, however, significant “park and ride” traffic from Seattle Center to downtown.

    The monorail is owned by the City of Seattle but operated by a concessionaire. Fares are set so that revenues equal operating costs.

    I believe that the “round-trip fare” (which is promoted with more emphasis than the one-way fare) could be hiked to $5.00 without “significant” loss of traffic. In other words, the one-way fare would be $2.50, and annual revenues would increase significantly. Enough to make this a true “for-profit” business? I won’t say “certainly,” but I do believe that this is a possibility.

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