Is transit an “inferior good”?

Norm Leahy insists that mass transit is really a mass transfer of wealth from the vast majority, drivers, to a small minority, riders. The damning truth, which he pulls from a peice by Sam Staley is that

Only about one third of transit’s revenues come from customer fares. The remainder comes from taxes and federal grants (often funded by road users)

A pretty powerful statistic, but one that I think is fundamentally misleading. Whether automobiles, buses, light rail, subways, bicycles or pogo sticks are the best choice for any given route should ultimately be a question for people to decide for themselves, through a free market. But what we have now is anything but. Roads are paid for by taxes, just like transit. So it means nothing to say that 2/3 of transit budgets come from taxes–the same applies to roads.

The first (correct) response to this observation is that a large chunk of road spending today is from the gasoline tax, which is very much like a user fee for roads. Of course, depending on the state, a significant amount still comes from general fund revenues, sales taxes, and property taxes that have nothing to do with driving. And historical road spending is far worse in this regard. But the main point is probably correct: a larger chunk of road money comes from gas taxes than transit money comes from fares. Problem solved, the argument goes—people are paying most of the cost of their driving through gas taxes, and the fact that transit tends to be more luxuriously subsidized by unrelated money proves that its prospects in a free market would be dim. So we should oppose increased transit spending across the board.

Not quite. The error lies in the absolute distinction between “roads” and “transit” as two different goods. Roads and transit are two means of providing the same thing: transportation. Distinctions between one set of transportation routes—which might happen to be rails, roads, or a mixture of the two—and any other set of routes are arbitrary.

Norm’s argument goes like this: travel on one set of routes (railroads) accounts for only a fraction of the total passenger-miles. Yet some of the cost of maintenance and construction of these routes is paid by people who never use them. This is an unjust transfer of wealth, and it probably leads to inefficiency, too.

However, there are thousands of miles of pavement in the Commonwealth, of which I only drive a small fraction on a regular basis. There are many sets of road routes that, taken as a whole, cost more to maintain and build than the people who drive them are paying in taxes. Is this also an unjust, inefficient transfer of wealth, too? Well, actually, it is. Realizing this does not give rail as a whole a free pass. But it does teach two important lessons: (1) the question of whether road or rail is the most cost-effective investment must be determined on a route-by-route basis, not in a summary fashion, and (2) even taking into account the fact that much road money comes from the gas tax, the current system still really bad at figuring out what makes sense and what does not. Bureaucrats are left to guess about what to build with the aggregate money that comes from taxes, gas and otherwise.

Imagine we purchased food the same way. The Virginia Department of Lunch was responsible for feeding people, and it funded itself by charging a calorie tax. What would happen? For one, it would be quite unfair. A calorie from fois gras is not the same as a calorie from fritos. Second, it would not take into account the tastes and preferences of the citizens. Suppose I really enjoy fois gras and would be willing to pay more to eat it. When bureaucrats run the show, there is no way to express my preference through a market–I am reduced to begging. Worse still, even if a well-meaning VDOL employee sincerely wanted to satisfy my preference, how would he go about figuring out if the investment in goose farms was a wiser choice than, say, investment in deep-frying equipment? He couldn’t.

Getting back to the immediate case of roads, VDOT is in the same position as VDOL. Like fois gras and fritos, a lane-mile of road in NoVA at rush-hour is a much more coveted possession than a lane-mile in Bristol at midnight. But it costs citizens the same in gas taxes to drive it. The soviet-style approach to pricing these goods does not take into account their scarcity. How are we to know what people’s preferences would be if they had to weigh the market price of driving on the beltway compared to the market price of taking the subway? Under the current system, we simply can’t. Consider, too, the fact that transportation decisions impact the pattern of growth in the long term (10-30 years) and that this pattern of growth is also something about which people have varying preferences. New developments around the Metro stops in Nova are totally different products from developments around the new 288 interchanges. Many people like the urban one-car or no-car lifestyle. Where are they going to live when command-and-control transportation policy restricts the supply of the kinds of areas that they enjoy?

All this does not at all prove that we should increase or continue tax funding of rail infastructure in all cases. But it does explain why we should not expect rail to pay for itself from the farebox until we fundamentally change the way we pay for roads.

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