Who subsidizes who?

By Megan McArdle

Peter Jackson accuses me of ignorance for my position on mass transit subsidies, arguing that the subsidy to mass transit is higher than the subsidy to roads per passenger mile. But the numbers he provides are not quite relevant to my point.

For one thing, they cover only federal subsidy. Yes, I know you've heard so much about the highway bills, but the states spend money on highways too--quite a lot of money.

For another, unless the analysts controlled for it, which I can't tell, the subsidies will have been massively skewed by the great inflation of the 1960's and 1970's, because mass transit investments cluster late in the transportation bill cycles.

Thirdly, subsidy-per-passenger-mile-travelled is not necessarily the right metric to use. The whole point that environmentalists and urban planners make about roads is that they encourage people to move farther out, which means they spend more time on the road, which inflates this metric compared to people who live in closer, denser housing. That would be fine if they were only imposing costs on themselves, but of course, the decision to live farther away also imposes costs on others, in congestion and in pollution. If the proportions of state and federal transportation funds that were spent on highways and mass transit had been reversed, the relationship of subsidy to passenger mile might also be reversed.

If they are driving in the city, they also impose significant externalities on me, making it more difficult and dangerous to navigate the roads on my bike, without paying any compensating taxes for the use of the streets. The problem is especially acute in Washington because, unlike New York, most of the "businesses" people work for are nonprofits that don't pay taxes, and people rarely come into the city to shop or go to dinner. Guess whose income taxes pay for what isn't covered by the sales tax on your garage fees and lunch? That's why the streets in DC are so ghastly; they benefit mostly the people who don't pay for them.

But even if federal subsidy per passenger mile were the right metric, it wouldn't be appropriate to Washington DC. The federal subsidy for mass transit goes to a large number of systems that cover a very small percentage of their costs through fares. The WMATA, on the other hand, gets over half its revenue from fares, and drags most of its passengers from far-flung locations, and gets most of its operating budget from state and local governments (again, my taxes) so whatever that figure is nationally, for DC it is much, much smaller. I mean, I agree that Buffalo's subway system is a ridiculous boondoggle, but that doesn't really have much to do with the WMATA.

Finally, the most worrying "subsidy" is obviously the fact that cars dump a huge amount of carbon into the air; carbon which best estimates think is a) warming the planet and b) may possibly have other nasty effects such as changing the Ph of the oceans. Almost half of all of the United States' gigantic carbon emissions come from transportation uses, and most of those transportation uses are not long-haul trucking, which uses relatively carbon-efficient diesel. This negative externality indicates that car usage is radically mispriced.

This article available online at:

http://www.theatlantic.com/business/archive/2007/09/who-subsidizes-who/2029/