The Economist’s Argument For Public Transportation

I think I’m so passionately in favor of a well funded transit system partially because I don’t understand economics. I mean I really don’t understand economics. I’ve taken two classes in my life, AP Econ (senior year of high school, not a pretty time for me) and Economics 101 at the University of Michigan. Both times did not result in a satisfactory experience.

I just don’t get it which is perhaps a good thing because I don’t see transportation the way economic-types see it. Econs look at the raw cost and benefit of transportation, the data, the value of subsidies, and who we’re transporting and why. They don’t always look at the more compassionate side —that riders are people too and in certain situations other transportation alternatives may be more efficient, or that good transportation might make more cold hard numerical sense in urban environments but in doing that they forget why public transportation is there in the first place: to serve the public. So I’m really happy when smarter people than me see the numbers and nevertheless support public transportation. Here’s one such person, Matt Rognlie:

Certain kinds of public transportation, like subways, have very high fixed costs but marginal costs that are close to zero. In such circumstances, the efficient economic prescription is to charge near-zero fares. This unfortunately means a loss of market discipline, and it’s complicated a little by the fact that using taxes to fund transportation has its own negative effects, but from the perspective of sheer economic efficiency, using tax dollars to set fares closer to marginal cost is overwhelmingly positive.

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In fact, it’s easy to explain how a transit system might be unable to support itself through fares even if it’s a large benefit overall. Consider the New York City subway, which I’ve used every day for the last two months. The alternatives for commuting to work are slim: taxis are far too expensive, cycling is slow and miserable in bad weather, and the costs of owning and parking a car in Manhattan are prohibitive. All in all, I’d be willing to pay at least $10 for each leg of my daily commute, and there are many more like me. But if MTA jacked up its fares to $10, the vast base of other customers who are willing to pay $3 or $4 would dry up, even though they cost almost nothing to transport. It’s completely conceivable that there is no single price where MTA could raise enough money to fund its operations, even though there would be an enormous surplus if it could charge each individual customer the true value of the service.

The really important thing to take away from Matt’s post if you’re like me and couldn’t understand econ out of a paper bag is that to properly work, the value of public transportation is both higher than what people pay but also close to zero.