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On transit subsidies, first and second best
A reader writes:
Hi David, you postulate that transit that can't be profitable or break even will shut down, which is certainly plausible and could even be welcome, but unless roads (serving human or automated drivers) and other transportation infrastrucutre are also subject to the same market discipline - if annual revenue doesn't cover annualized full life cycle costs, including externalities, they are shutdown and the land is put to other uses - I would suggest we have a double standard about which is being disguised as a concern over subsidy.
Futhermore, this sidesteps questions of how non market forces such as zoning force the landscape into something for which transit is unsuitable and only vehicles will do. Again, pointing to concerns about transit's viability in suburbs or low density areas as a market concern ignores the very large non-market forces which mandate the low density in which transit does poorly.
I'm not trying to argue for transit subidies, I'd be happy to see a "pay what you use" model for all transport, even walking, provided we subject land used for transportation to the same market forces as we do the land for coffee shops and laundromats and provided people can make real market choices about how to use the land they own. We are very far from such a free market and automated cars aren't going to suddenly level the playing field.
In the absence of serious reform of these non-market forces, subsidizing transit should be seen as a way of managing the harm inflicted by those non-market forces. Getting rid of non-market forces is often justified, but I'm always puzzled why proposals to jettison non-market forces always start with transit rather than free parking, free roads, free traffic control, free collision response, etc etc.
Yeah, life is unfair. Transit started out private and serves a far small share of the population in the US and so has a different political hurdle to overcome. I think I have written enough about road pricing that readers understand the position I hold, and not every sentence can say "but, but but."
In the first best world, everything is priced properly. In our second best world, nothing is. The question is, should we accept the second best or do something to move to the first best? How distortionary is moving from second best to first best in steps (since it will never be done all at once)?