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Public transit and its discontents

Posted on September 9, 2009. Filed under: Uncategorized |

A friend of mine who I’ll refer to as Schwabface recently accused me, to summarize, of being morally bankrupt for complaining about traffic on San Francisco’s Bay Bridge. She may have forgotten that I am a serious public transit advocate – in fact, I am wearing a T-shirt with a picture of a bus on it as I write this. So why do I drive alone to work?

The short explanation is that while driving to work takes me about 25 minutes, and no more than 40 when traffic is unusually bad, taking public transit takes closer to an hour and a quarter. Driving to work is also roughly 1/3 less expensive than transit – see the cost comparison below.

Clearly driving makes more economic sense at the margin. Including the cost of car ownership in the calculation does not make sense because I would own a car regardless; I need it for ski trips and such. However, if I could relinquish my car altogether, transit would be cheaper overall. On the other hand, transit would be more expensive than listed above if I took the fastest route, a Muni bus, BART train and AC transit bus, which would cost north of $16 round trip.

Transit in general has two main goals. The first is to provide lifeline-style transportation to those who cannot afford car ownership. As a policy goal, that’s hard to argue with, because it ensures that poorer workers can get to their jobs, improving the economy for everyone.

The second goal is to convince those who would otherwise drive to take transit instead. This has several benefits; it reduces direct energy use, since even an efficient automobile uses more gas than 1/60 of a bus; it reduces congestion, thereby reducing energy use by those who are still driving; and it reduces the need for parking, providing more efficient land use overall – which increases the number of people who can walk to their destinations and slightly reduces the cost of housing, office space, etc.

It’s generally accepted that people who can otherwise afford to drive will require high-quality transit to convince them to switch. San Francisco’s BART is an example of an attempt at such a system, with fast, comfortable trains and a reserved right-of-way, all things that increase the cost of running the system but improve the experience for riders in the form of shorter, more pleasant trips.

The first goal is basically charity in the name of overall economic good, although the benefits certainly go to the transit riders first. The second goal encourages people to do something that mainly benefits others. In other words, if I stop driving and take transit instead, my commute probably takes longer and is less convenient, while everyone enjoys the benefits of less pollution and congestion. (Economists call this an externality, which is a key concept in environmental economics: you bear the costs of your action while society – not you – reaps the benefits).

And so back to my initial problem: why does public transit cost 50% more than driving to work alone? It’s a combination of an attempt to provide higher quality transit than what perhaps is really necessary, and a failure of the government to properly subsidize transit as an incentive to ride. Some blame the unions for increasing transit costs, and while BART operators do make quite a decent salary, often blasted as being more than what teachers make, teachers are unionized too. Clearly their job is more desirable than driving a train all day. Unions blame shoddy management for Bay Area transit woes, and they may have a point – at a minimum, I should be getting free or cheap transfers on my route to work, and if I did then it would come in cheaper than driving, but the preponderance of transit agencies in the Bay Area makes this impossible.

To be clear, transit is public because neither of the stated goals are self-supporting; lifeline transit users can’t afford to pay what transit costs, and drivers aren’t willing to pay the costs of the quality transit they demand. This means that public transit must be a government-funded, money-losing proposition. It wasn’t always this way, of course – the subways in New York and the streetcar and cable car lines in San Francisco were all built by private companies – but that was at a time where the economics of car ownership were totally different, and what’s more, those systems were free to build transit only where it was profitable, instead of all over the city (or the country in the case of poor Amtrak).

The deepest problem is the way transportation policy is executed by the government, which spends billions on highways and very little on mass transit. It’s harder to compare highway vs. transit spending in terms of passengers, but it’s very easy to compare how our government manages the transportation of freight. A single railroad track can carry the same volume of cargo as a four-lane expressway, yet our government builds expressways and lets us – and trucks – drive on them free of charge while railroad companies are forced to build and maintain their own right-of-ways. The fact that they still make money (and quite a bit of it) shows just how much better the economics of rail really are.

Yes, our fuel taxes pay for highways, but taxes are best used to properly incent desired behavior. That’s why in Europe, you can take high-speed rail across a country for €50, while gas costs more than twice what it does in the U.S. Fuel taxes should go to support infrastructure and operations for mass transit. Unfortunately, we can’t change to that kind of system overnight. We’re 50 years behind Europe on passenger rail infrastructure, and we subsidize aviation and highways over rail. A sudden tax increase would be devastating to the many people who have no transportation options besides the private automobile, usually through little fault of their own.

My prescription is to immediately start reversing some of the damage done in the 50’s and 60’s when rail mass transit was converted to diesel buses through a conspiracy between Standard Oil Co. and General Motors (and, to be sure, a hearty dose of poor urban planning). A great local example is the 38-Geary bus in San Francisco, well known as the worst, most overcrowded and poor performing line. What’s less well known is that it replaces what used to be 3 streetcar lines. Transit is so badly underfunded that if we’re lucky we’ll get some sort of pathetic Bus Rapid Transit line along Geary when what it needs is heavy-rail subway. The road to a prosperous future is paved with high-speed, subsidized passenger rail.

Hello, welcome, and health care

Posted on August 27, 2009. Filed under: Uncategorized |

Welcome to the inaugural post of the Angry Economist. I apologize for the haphazard appearance of the site – I will fine-tune the theme when I have time but I wanted to get things rolling.

This week’s topic to receive absurd and constant media attention has been President Obama’s health care reform proposal, or “Obamacare”. Quite frankly, I know almost nothing about what’s in this plan, because the discussion has been dominated by apparently insane people – for example, Sarah Palin’s assertion that the plan will create “death panels” that will decide her mentally disabled son should be euthanized, or something like that.

Trying to argue with the insane brings you to their level so instead I thought I’d inaugurate the blog with some economics-based thoughts on health care.

First off, let’s cover the basic problems with today’s system. It’s well known that millions of Americans have no access to health care other than whatever they can afford out of pocket, which tends to be very little. These people may be unable to get or keep a job due to their health problems, worsening their situation. Either the government (i.e. all taxpayers) helps them or they are left to shoulder crushing debt from hospital bills, or both.

Republicans often pursue free market “improvements” to systems, thinking they are doing the economically sound thing, but they fail to understand that economics is less about free markets and more about discovering when those markets fail to properly allocate resources. Health care is one of the better examples of this problem.

Our current private insurance system, as I understand it, was enabled by the Nixon administration as a way to introduce free market competition to the health care industry. There are a few problems with that basic concept.

First of all, health care is not ideally suited to an insurance business model. Insurance is a way of spreading risk – which makes sense when applied to health care – but people need shared risk AND preventative “maintenance” AND guaranteed coverage and other things that do not work in the insurance model. Your car insurance does not pay for your gas or even for blown tires. Homeowners’ insurance companies justifiably avoid insuring pyromaniacs because they are higher risk. On the other hand, health care needs to be provided at a routine level to reduce the risk of more catastrophic health problems later – as a simple example, lowering someone’s cholesterol to reduce the risk of heart attack. And because most people agree health care should be available to all, canceling policies for higher-risk people makes little sense.

Secondly, we as consumers have little to no choice in the health care available to us. The majority of the insured receive their insurance from their employer, who normally offers only one option for a health plan. The employer probably chooses the plan to offer based mainly on its cost. That’s why a company notorious for denying claims even when it shouldn’t, like United Healthcare, can succeed in a market with more member-friendly choices like Kaiser Permanente.

Third, no matter the health care system in place, society has limited health care resources and that scarcity explains why health care costs (a lot of) money. This leads to some decisions that are very ugly. In perfectly competitive markets – say, the market for oil – people’s need or desire for oil is reflected in their willingness to pay for oil, and the oil goes to the highest bidder. Most people would agree this is a fair way of allocating oil.

Does that sound anything like the way health care is – or should be – allocated? Of course not. At some level, someone has to decide how the dollars available for providing care are distributed. Today, those decisions are made by insurance company paper pushers, who balance corporate profit against customer satisfaction and legal obligations set forth in the health plan – a plan made up of rules so complex the insurers can’t apply them accurately, forget consumers trying to understand them. Customer satisfaction doesn’t play much of a part because, as I said earlier, the customers don’t choose their insurer anyway.

In systems where government bureaucrats make such decisions, they balance the health care of one citizen against the health care of another, trying to decide which person is more deserving of society’s resources. That’s not a great trade off either, but it’s better than balancing health with corporate profit. And it’s clear governments don’t simply drop coverage of the most expensive patients.

Some things can be done to reform the current system without obliterating private insurers, though their profits will almost certainly suffer. First is to find some way to give consumers a choice of insurers, and forbid insurers from dropping risky (i.e. sick) customers or denying coverage to new customers – you’re stuck with them, sorry. Second is to provide a government appeal process for insurer decisions, so that insurers can’t declare something as basic as a liver transplant “experimental” and deny it against doctor recommendations. Such a process must not involve private arbitrators that are selected and/or paid by the insurer – such obvious conflicts of interest are common in other environments like credit cards as well. And third is to provide a free, public health care plan to anyone who cannot afford private insurance. This competition will force private insurers to offer lower-cost plans.

However, as long as such a major piece of our health care system is profit-motivated rather than patient-motivated, health care problems will persist. It’s simply a question of incentives.