Monthly Archives: May 2010

Airline and Highway Users Pay for Themselves

The Usual Airline & Highway Subsidy Canard

Comment on Amtrak’s Wifi Failures (http://www.economist.com/comment/554887#comment-)

Glenn Fleischman (comment 1) has it wrong. Airlines in the US are subsidized only to a minimal degree. Their costs are paid by fares, ticket taxes and landing fees (including airport construction costs), all of which are paid by users. There is a small subsidy from the Department of Transportation that assists in air traffic control and that could be easily erased by a modest increase in fees (or more efficient use of existing revenues, which some have argued can be notoriously wastefully spent at the local airport level.

As for highways, not only do drivers and truckers pay virtually the entire cost of intercity highway transportation with their fuel taxes (legally dedicated and levied on fuel only), but they spin off $10 billion or so in transit subsidies.

It would be quite appropriate for Amtrak to be financed like the commercial airline and highway systems. But, of course, if we were to place special taxes on Amtrak for the purpose of its operations, even fewer would ride. Enough with the subsidy canard.

Wendell Cox
Principal, Demographia, St. Louis
Former Member, Amtrak Reform Council

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Cream Skimming Requires there to be Cream

Comment by a correspondent on the Washington (DC) Metro & Bus transit system

Let’s not forget the proliferation of local bus systems in Montgomery, Fairfax and elsewhere that also, in many cases, skim the cream off the Metro bus system.

Our response to an email list…

You cannot skim the cream off a losing transit (or other) operation, because there is no cream to skim. Virtually all services lose money (and that’s before considering the capital costs, which are always a 100% loss).

The systems in Montgomery, Prince George’s, Prince William and Fairfax have unit costs (per mile or hour) well below that of Metrobus and if Metrobus were to serve them, much of the service would probably have been cancelled long ago. Metrobus’s excessive costs have been the principal cost of this proliferation, which by the way has also occured in places like Los Angeles, Minneapolis-St. Paul and San Francisco. In each case, the result has been increases in transit ridership that could not otherwise have happened.

In the case of Los Angeles, when we moved major portions of service from the main transit operator to the Foothill Transit Zone and the city of Los Angeles, savings per hour were on the order of 50% (according to Price Waterhouse). These systems, both with more than 200 buses have flourished and a good part of the service was slated for cutback or even cancellation when the transfers were made (late 1980s). I had the pleasure of being chairman of the Service Coordination Committee of the Los Angeles County Transportation Commission (LACTC), and it was our work that led to all of this (in LA).

As I learned within 30 days of being appointed to LACTC, transit’s biggest problem is not a lack of revenues… it is a lack of cost control. In recent decades, transit costs per rider have risen at a rate well above that of any component of the CPI. The result is that the overwhelming portion of new subsidy money has been used to raise the cost of current services, with little committed to more service or lower fares.

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Consolidating New Jersey Towns Likely to Increase Taxes

Comment in Response to "Consolidation is Key to Save NJ"

http://njtoday.net/2010/05/20/consolidation-is-key-to-save-nj/

Consolidating local governments makes sense only in ivory towers, not in the real world.

In the last few years, Pennsylvania and New York started initiatives to consolidate their governmental structure. They took to heart the usual mantra that there are hundreds, even thousands of governments in the state and that they must be consolidated to save money. In both states, the efforts were clothed in promises that local government consolidation would improve competitiveness relative to other states.
However, the proponents never bothered to look at the data.

We did and the results were stunning. In both states, an equivalent “market basket” of spending was compared. In Pennsylvania, the largest local jurisdictions spent (including a per capita allocation of county expenditures, so that Philadelphia could be included. Social service spending was excluded) 150 percent more per capita than jurisdictions with between 5,000 and 10,000 population. The largest jurisdictions — those over 250,000 people — spent 200 percent more than jurisdictions with under 2,500 residents.

Moreover, it is not a matter of urban versus rural. Our work for the Pennsylvania Association of Township Supervisors showed that in both the Philadelphia and Pittsburgh areas, there are literally hundreds of suburban jurisdictions that spent at less than one-half the per capita rate of the central cities.

The story was little different in New York. Our report for the Association of Towns of the State of New York indicated that the largest jurisdictions (those over 100,000) spent nearly double per capita as jurisdictions with between 5,000 and 10,000 population (this would have been even greater if it had been possible to include New York City). The big governments spent even more (more than 150 percent) compared to jurisdictions with between 1,000 and 2,500 population. The differences were even greater within metropolitan areas, where smaller jurisdictions were even more efficient relative to the largest jurisdictions.

The reality is that there are few, if any economies of scale in local governments, except for the special interests that can influence them more readily, for less cost, as the town hall is moved farther away from citizens.

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The Real State of Metropolitan America

The week opened with an important report on metropolitan demographics by the Brookings Institution, only to be followed by the Census Bureau’s annual report on migration, which contained a different message than the Brookings report. We offer yet a third analysis, since both the Brookings and the Census Bureau reports classify up to one-sixth of suburban population as not being in the suburbs.

More at…

http://www.newgeography.com/content/001571-the-real-state-metropolitan-america

Related report:
Metropolitan Areas, Core Cities & Principal Cities
http://demographia.com/db-metroprinc.pdf

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A Geographically Concentrated Housing Bubble (Becker-Posner Blog)

http://uchicagolaw.typepad.com/beckerposner/2010/05/social-interactions-and-bubbles-becker.html (comment)

There seems no doubt that the dimension of social interaction in the house price bubble was significant. This is the psychology of speculation.

The article, however, misses these radical differences in cost escalation that occurred between the metropolitan areas. These differences are a far more satisfactory explanation than any other.

There are reasons why house prices increased so rapidly relative to incomes in virtually all markets of California and Florida, for example, while they moved very little in relation to incomes in Dallas-Fort Worth, Atlanta and elsewhere. No amount of social interaction could produce a bubble in the latter markets, where despite huge increases in demand for home ownership was readily diffused by expansion of the housing stock by at least a commensurate rate. The problem in virtually all of the bubble markets was very simple. Demand far overshot supply. The culprit was over-regulation in the bubble markets.

Paul Krugman noted well before the bust, that the housing bubble was limited to only part of the US market. The difference in this “two-speed” market was restrictions on land use. Dallas Federal Reserve Bank research showed that where there was liberal land use regulation, the supply of housing was permitted to increase sufficiently to provide a vent that prevented local bubbles from occurring. Where there were significant restrictions on land use (regulatory structures variously called “compact city,” “urban containment,” “smart growth,” “growth management” and others), prices increased inordinately. The research on the impacts of such

regulation is summarized at http://demographia.com/db-dhi-econ.pdf.

The metropolitan area markets of California, Florida, Phoenix, Las Vegas and Washington, DC, with their strong restrictions on land use, accounted for more than 70% of the pre-Lehman Brothers house value collapse. Average house value losses were more than 10 times those in traditionally regulated markets such as Atlanta, Dallas-Fort Worth, Houston, Indianapolis, Kansas City and Cincinnati (see: http://demographia.com/db-ushsg2009q1.pdf).

If the losses in the more regulated metropolitan areas had been on the order of those in the less regulated areas, either the bubble and its burst (and the subsequent international financial crisis) might have been avoided, or, at a minimum would have been far less severe. Without the more restrictive regulations, losses of this far lower magnitude would have been expected.

In combination, the necessary and sufficient conditions for the bubble that led to the international financial crisis were more liberal loan standards and the more restrictive regulatory regimes in some major metropolitan areas of the United States. The more restrictive regulatory structures produced mortgage losses that were far too intense for the financial industry to absorb.

It is worrisome that the lesson has not been learned. Legislation proposed in Congress (such as the Kerry-Lieberman cap and trade bills and the draft transportation reauthorization bill) would attempt to force virtually universal adoption of the very kinds of restrictive land use policies that were so destructive to households, housing affordability, the economy and our ability to address the financial challenges ahead (see:http://www.newgeography.com/content/001174-congress-and-administration-take-aim-local-democracy).

Wendell Cox
Demographia, St. Louis
Visiting Professor, Conservatoire National des Arts et Metiers, Paris
Co-author, Demographia International Housing Affordability Survey
http://demographia.com/dhi.pdf

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WHY CAN’T SAO PAULO BE CURITIBA?

Book Review: The Brazilians

Joseph A. Page Perseus Books, Reading MA, 1995

Page provides an overview of Braziilian history and culture, but is far too free with his often economically naïve and leftish comments that add nothing whatever to the story. He seems to operate from the notion that profits equal ill, while labor is equated with virtue. One wonders how the Soviet Union, where profits were outlawed and labor (skilled and educated) was plentiful managed to force its way into the ranks of the third world over 70 years of Marxist experimentation and misery. Page’s views might have been a little less out of touch had they been published 10 years before Gorbachev, when there were still some serious economists who were still ignorant of what von Mises had shown six decades before — that in the final analysis socialism could not work because of how it distorted human incentives.

Page goes so far as to suggest that the United States may follow Brazil into economic ruin because of the market based policies that are increasing the size of the "economic pie," which necessarily increases the gap between rich and poor. Since the logical leap necessary to make such a conclusion requires the equivalent of rocket power, one can only wonder whether it instead represents an expression of the author’s hope (perhaps unconscious).

Like so many of his apparent ilk, it would be better for low income households to be even poorer so long as, in exchange, the affluent are less affluent. This "hope my neighbor’s barn burns down" philosophy may warm the hearts of comfortable elites who would never have to feel the pain of such policies, but would make the real poverty daily experienced by others even more desperate.

A good example of Page’s gratuitous comments is on page 491. After having praised the comparative economic success of Curitiba, capital of Parana, he goes on to attribute part of it to not having "allowed itself to be overwhelmed by … extensive, oppressive poverty." This is akin to crediting good health to not having allowed one’s self to be overwhelmed by disease. Perhaps Page is not completely aware of the special conditions that have made Curitiba and its less impressive than Chamber of Commerce hyped success possible. Or perhaps, he believes that Curitiba policies would have made Sao Paulo an urban planning paradise that would have successfully repelled the inconvenient impoverished millions who have moved there from the Northeast (where hopelessness sprawls even more than in Sao Paulo).

All in all, what could have been a literary triumph deteriorates into an extensive ideological pamphlet. I am in the market for a good history of Argentina under Peron. Page’s book on that subject is not in the running.

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Taken for a Ride? Light Rail Planning in Charlotte

http://charlotte.creativeloafing.com/gyrobase/Content?oid=oid:2443By request, updated link

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