Thursday, December 29, 2005

A conversation about the necessity of government

I previously posted an e-mail dialogue with Tom, who does seem like a nice guy with good, unselfish intentions. He supports the notion of subsidized public transportation, and as a libertarian, I do not. I might accept a government-run transportation system if and only if it could stand completely on its own. However, the New York Metro Transit Authority and Amtrak don't collect enough revenues from selling fares and advertising space, so they need government subsidies. The U.S. Post Office almost always needs subsidies.

Here's Tom's reply from two nights ago:
In an urban area like southern Westchester, existence of usable transit is a necessity, just like fire, police, water, sewer, and garbage service. We saw NYC collapse last week during the transit strike. Parts of Westchester (like downtown White Plains) couldn't fully function if all its transit (bus and rail) shut down. Private transit operators aren't the answer; there were totally private transit systems in the US as recently as the 1970's; each was failing and therefore converted to subsidized operations.

Many people cannot drive--because of age (too young or old), medical condition, or economic circumstances. Saying those people should only work, shop, and go to school within walking distance of home is unrealistic (how many domestics can afford to live in Scarsdale?) and detrimental to the economy. It's hard to imagine a more effective way to ensure that some of the poor never attain middle class status than by virtually restricting them to ghettos 24/7; surely you agree this is unacceptable! Also, transit takes cars off the road reducing congestion for the rest of the people that drive. Increased vehicle occupancy (like transit) is cheapest method of addressing the problem of overcrowded roads and parking lots.

All transportation is subsidized. Do you oppose government spending for roads and airports? Yes, there are gasoline taxes which partially pay for construction and expansion of trunk highways, but minor maintenance (like line painting, street lighting, and snow removal) comes from general revenues. Also, the entire network of local roads (and there are far more miles of local roads than there are trunk highways) comes from general revenues (aka subsidy).

Airlines received massive subsidies after 9/11. They have also had a continuing federal subsidy for air service to small cities. United Airlines is forcing everybody to subsidize its pension systems.

And don't forget the huge subsidy gasoline is getting now by our military presence in Iraq and before that in Kuwait. (Even Rush Limbaugh said the first Gulf War was all about the "free flow of oil".) How many dollars of each fill-up go to corrupt middle-east sheikdoms? While buses & trains use petroleum too, they are far more fuel-efficient than automobiles. (Transit subsidies mainly go toward labor costs.)

Among government services, transit is unique because it gets cheaper (for taxpayers) and better (for riders) with increased use. Because the marginal cost of carrying an additional passenger is almost zero, nearly 100% of the added fare revenue passes through to the bottom line. Increased fare-paying ridership on existing buses reduces subsidy and benefits taxpayers. If ridership grows so much that additional buses must be added, riders benefit from more frequent service. Adding service to eliminate overcrowding shouldn't cost taxpayers anything because an overcrowded bus is a profitable bus. 119 passengers/hour (the largest Bee-Line buses cary up 119 passengers) at $1.75 each (the lowest adult Bee-Line cash fare) far exceeds operating costs for a single bus. The best way to reduce transit subsidies is to increase ridership on existing vehicles.

There are many things in life that I subsidize without ever directly using. I pay for schools even though I have no children. I pay for a fire department even though I (knock on wood!) have never needed them. I pay for Westchester County's golf courses even though I've never golfed. Why should something as vital as transportation be any different? And if highway subsidies are OK, why not transit subsidies (especially when transit can reduce the need for wider, more expensive roads)?

Besides, people living near the Bee-Line subsidize it disproportionately by increased property taxes. Look at real estate ads in the paper. Notice all the ads that say "on bus line" or "walk to train". (I've never seen one boast of NOT being on a bus line.) Living near transit is something for which (some) people are willing to pay a hefty premium. That premium translates into higher property values along bus lines which translates into higher property taxes along those lines. So while all Westchester taxpayers subsidize the Bee-Line somewhat, people living near bus lines support it more through higher property values.

You also might be interested in how many people rode the free Bee-Line buses in May: 3.45 million (free trips) in May 2005 vs 2.41 million (paid trips) in May 2004. As far as I know this increase was accomplished without increasing the operating cost; no additional bus runs were operated. Also, most Bee-Line subsidy comes from NYS, less than half comes from Westchester itself. In 2004 the subsidy figures were Westchester County $13 million, NYS $30 million.
And my reply:
I wouldn't say the city collapsed last week. It lost a not insignificant quantity of economic production, but I don't think it was as bad as some economists predicted. Quite a few people, those who couldn't take vacation or sick days, still found ways to get to work. The Post talked about people driving to work, who would hire three people for $5 each just to ride two blocks beyond 96th Street. It was worth it to get to work. Others walked as I did, or bicycled, or rollerbladed.

Faced with long-term prospects of not getting to far-away jobs, people would find work that they could get to. What you're saying assumes that people can only work the jobs they have today. A shift in the ability to travel would also shift people's comparative advantages. Someone relying on public transportation to get from Yonkers to White Plains might cease working at the Galleria and instead work at a local grocery store. Sure, you would no longer have White Plains as we know it, but that isn't the only option. Instead of one big locus, there will be various smaller loci spread throughout a geographic area. What did people do before long-distance commutes? My father grew up during the Great Depression, and he alloted time to walk to school and work. Sometimes a housekeeper stayed in a small room. Grocery stores operated close to or right in residential neighborhoods, because they had to. And what you might consider unrealistic was very much reality even during the glory days of the 1950s.

Free market economies are remarkably resilient and will adjust themselves. If people cannot travel long distances, for example if I could no longer commute to the city, then I would find another job closer to home. Before people were able to drive, or ride horses, they walked. The economies' physical extent, naturally, was based on the possibilities of travel. Things would simply become more concentrated, but not necessarily smaller. Also, remember that if I pay $x in taxes to subsidize bus routes, that's $x simply disappearing from my wallet. If people take jobs that don't require subsidized busing, then I'll have $x more to spend on the goods and services they provide. It's far more efficient than pouring it into subsidies, which feed the waste in government-run services.

If roads become heavily congested, then the full cost (time) of getting to work will be greatly increase, and people will seek jobs closer to home. Few things encourage you to look for another line of work than being stuck in traffic for a couple of hours, or trying to find a parking spot, which has an incredibly high opportunity cost. People could spend that time working a little more or just enjoying themselves. Economies have lots of unseen self-correcting mechanisms like this. A while back I wrote a bit on congestion, and how people will leave an area that gets overcrowded. Businesses, left to themselves, will find their own balances between higher resource costs (like housing and having things delivered) and lower commute costs. And then there are lots of government policies that exacerbate congestion.

Government creating problems it says only it can fix

I disagree that a lack of transportation reduces people to ghettos. Ghettos are simply symptoms of the people themselves. In fact, in modern times, it's government that creates them. With the best of intentions, it establishes housing projects for the poor and fails to control the criminal element, which concentrates people who have poor comparative advantages with those who don't care and those who are criminals. The way for the poor to improve their economic condition isn't to subsidize their commutes, but for people to improve their skill sets so they can produce goods and services of higher value. Decades of social programs have shown it's futile for government to throw more money into education, because people must care first. They have no reason to care about improving themselves when they can just get by, subsidized by others.

It's interesting you should mention the attempts at private transportation. They failed because had they charged high enough fares to break even, people wouldn't have paid the fares. They worked with subsidies, i.e. coercing people to pay for others' consumption of goods and services. And even if the subsidies are paid for by state taxes and not the county, it's still morally wrong. When it gets to the federal level, we have Robert Byrd taking tax monies from all over the U.S. to fund his pet projects that benefit only West Virginians. There's no incentive for West Virginians to decide what they really need and what they can afford, because they can coerce the money from others.

For the same reason, I opposed the transportation bond act, which as you may know a big majority of Westchester voters loved. They loved it out of pure selfishness, because as Bastiat said, they're living at the expense of everyone else. Their income level and overall wealth didn't matter. I, on the other hand, would rather have all subsidies eliminated, and I'll simply pay whatever fare the MTA requires to stay operational. I take Metro-North into the city all week long, and I ride the subway. There is no reason for someone in the city, Albany or Buffalo to pay for any portion of my transportation, or for any of us to subsidize a project we don't use.

As I said, the problem with subsidies is that they encourage wasteful operations. Amtrak has needed federal money from day one and always will, so long as the umbilical cord is uncut. There's no incentive for it to streamline operations. While I support gasoline taxes (they're a form of user fees), they've grown so much over the last few decades that government has no incentive to spend the money efficiently. How often have you seen the tiniest bit of I-287 construction take months, or a few workers standing around while only one is doing work? And along the lines of what I said before, the idea of using general tax monies is wrong because not everyone uses every road. It's also a bad precedent because government can simply increase taxes to pay for whatever new road it thinks is necessary, instead of carefully weighing costs and benefits.

I fully oppose government subsidies for airports and airlines. They should be left to stand -- or fail -- on their own. I've written about the airlines' woes, most of which can't compete because the fare wars exposed their inefficient operations. American Airlines is still trying to use the power of government to keep Southwest from servicing more passengers with its ultra-cheap but adequate flights. And it's flatly immoral, bordering on evil, for United workers to expect a taxpayer bailout. The pension problems stem from the basic fact that the workers aren't saving enough for their own retirement. It's true that the companies are contractually obligated to provide certain retirement benefits, but the workers need some common sense. I might sign a contract with my bank, who will be obligated to pay me 25% annual interest on a plain savings account, but I shouldn't be surprised when the bank can't perform.

Protecting pensions: not government's responsibility!

Gasoline is actually far from subsidized by our presence in Iraq. While I have supported ousting Saddam (and have since 1990), we're spending hundreds of billions of dollars and have yet to see our military intervention reduce the cost of oil. If we'd really wanted to reduce the price of oil, we'd have simply forged a deal with Saddam and turned a blind eye to his evil.

We send a lot of of dollars overseas for oil, but they do return to us in one way or another. OPEC nations buy a lot of American-produced goods and services, they buy luxury housing all over the U.S. (which generates jobs for us with money we'd just sent them), and the rest they put into Treasury bills. It's quite a benefit for both sides. It expands everyone's economies. When foreigners invest in our Treasury securities, it doubles a small portion of our income for minor interest, and foreigners get to save their earnings in high-quality, virtually risk-free bonds.

You point out that the marginal cost of an increased rider is minimal, but only to an extent before a new bus is required, and not all buses are full. It also doesn't preclude the private sector doing the same thing, and with greater efficiency insofar as calculating routes, how often to run, and the size of buses needed at various times. On the other hand, it's easy for a subsidized transportation company to provide great service when the taxpayers foot half the bill. You're also contradicting yourself: you say that an overcrowded bus is very profitable, but that adding a new bus shouldn't cost anything. Adding a new bus adds another fixed cost and therefore reduces profitability. Riders will benefit, certainly, but at taxpayers' expense. You can't have it both ways.

Don't you think it's morally wrong that you pay for schools when you don't have children? I do. I think it's even worse when parents want to send their children to private schools yet must still pay the same taxes. I oppose every kind of government subsidy to every kind of business, whether it's to golf courses, sugar farmers or transportation. It's morally wrong for government to decide for you how to spend your money, and completely selfish for people to demand that money for their businesses.

Fire and police departments aren't subsidized in the same way that transportation is, however, because they're truly public services. Ben Franklin once ran a fully private fire brigade. If they came to your house and didn't see the medallion indicating you'd paid the fee, they would march back and let your house burn down. It's a little different today with structures being so close.

Personally I favor an elimination of every tax, especially on businesses (because their taxes are simply passed on to us), and replacing them with a flat income tax. That would eliminate any disproportionately greater property taxes from proximity to public transportation. Ideally I'd like a head tax, which forces a very limited government, but most people don't understand that or don't want that. People have become accustomed to paternalist government that makes things cheaper for us, but at everyone else's expense. What most don't realize is how that lower price is offset by the higher taxes we pay.
And his reply last night:
Perry, you didn't say whether you support using general tax revenue (well above and beyond gasoline taxes) for the local road network (every road in the USA other than a toll road or an Interstate, US, or State highway). Are these local roads "true public services" (as you described fire and police departments) and therefore OK to subsidize? Or do you favor turning every county lane into a toll road with EZ-pass transponders everywhere? Should pedestrians be charged tolls too?

As to the head tax you favor, roughly how much would it be? $20 or $2000/head? (The Pentagon budget alone is over $1,000 per capita!) How could the poor be expected to come up with that much money? (And if they can't, what would you do, throw them in debtors' prison?) Isn't that like the property tax on steroids? At least you can move to someplace cheaper to lessen the property tax, but there would be no way (short of death) to avoid an unaffordable head tax.

As to NYC and the subway strike... I went to Manhattan Thursday night to look at Sak's and Lord & Taylor's Christmas windows (I guessed correctly that I would be able to walk right up and look without any waiting). Traffic on the east side was not moving at all--total gridlock even after 6pm. Outside Lord & Taylor, I saw people waiting for buses to Brooklyn (Command Buses were running) and saw jammed buses pass them without stopping. One person walked up to me near tears asking if I had any idea how he could get back home to Brooklyn (other than spending $8 to take the LIRR to Atlantic Ave--not where he needed to go). When I pointed out the bus stop, he said people there had been waiting 3 hours. Lord & Taylor was unable to stay open past 8pm three days before Christmas. People missed life-and-death medical appointments for chemo, radiation, and dialysis. If NYC didn't actually collapse, it came pretty close.

The world you envision with no subsidies (except for those few things somebody deems "true public services") seems pretty unappealing to me. No public libraries, no transportation either within cities or across the country (people who can't drive would just be totally screwed!), no universal education or widespread literacy. Presumably no public hospitals, the poor left to die on the unpaved streets, orphans forced to beg for food (and money to pay their head tax), no sewer subsidies, epidemics (no public health subsidies), no standards regarding food quality, etc. Am I missing something?
My reply tonight:
I completely oppose using general revenues (which should be extremely limited) for roads. The problem with general revenues, whether or not for specific outlays, is that a government quickly realizes it can always raise taxes to get more revenue. Instead of trimming its fat, it bleeds the people a little more. We've seen it with Andy Spano, who may not have campaigned on a lie, but his claim to have "lowered or frozen property taxes for three of the last seven years" is only 43% of the story.

Roads don't have to be toll roads, and the reason we don't tax pedestrians is because their impact is infinitesimal. Gasoline taxes as an indirect type of user fee aren't as specific in targetting like tolls, but overall gas taxes can be more efficient than tolls because time is valuable. There's another self-adjusting mechanism there: if heavy road damage necessitates higher gas taxes for the repairs, then lower-mpg vehicles will be driven less frequently. Those tend to be heavier vehicles that have the hardest impact on road surfaces (other than natural damage like potholes).

Since you see how much money a head tax would cost per capita, you should see my point that it forces a strictly limited government. It's morally wrong for a person to pay just $20 into the system and get $100 that is effectively taken from someone else. It's fair, though, for everyone to pay $20 for the equal benefit of things like police, fire and courts. People of better means can also demonstrate compassion by paying the burden of someone who is in tough times. It's not a stretch considering Americans, for as much as we're taxed, donate $250 billion a year to private charity. It's the same principle by which schools do fundraisers: you've already paid your taxes, but you'll give additional money regardless of how much others put in.

Gone will be all the wasteful social spending (up to $1 trillion a year now) and all the bureaucracies that aren't worth pennies on the dollar. Then people can start to take care of themselves, rather than depending on government taking from Peter to give to Paul. Today only the top half of wage earners pay any income taxes, making it easy for the rest to vote for politicians that promise new spending for every social ill...but the spending never gets us anywhere. For all the trillions we've spent combating poverty, it's been futile because government simultaneously creates successive generations of dependents. Government-built communities for the poor earned such bad reputations that "the projects" quickly gained a bad connotation.

One doesn't have to be a Jude Wanniski disciple, let alone a supply-sider, to see how low tax rates boost economic production. Kennedy and Reagan proved it. And wealth, even if concentrated at the top at its creation, does "trickle down," or more properly put, it does spread through the rest of the economy. If "the rich" have more money, it means they have more to spend or save, which will create more jobs. We might not have a big government that tries to pay for our health care, but it will be a society where people can find work, and where those that work can earn enough to take care of the less fortunate who can't. That's why I support people, of any economic status, keeping what they earn. When they spend it, it supports someone else's job. When they save it, that's money that goes into business loans, auto loans and mortgages, which not only creates jobs but increases wealth. The problem with government spending in general is that there's so much pork, and so much rent-seeking by special interests, that it can't possibly be as efficient as private sector spending. Like the transit union showed, we pay certain government employees far more than what they are really worth.

I'm glad you brought up public libraries. If you've ever tried to get help at the one in White Plains, you'll know exactly why I hate them. Never before have I encountered such incompetent people who ignored me when I had a legitimate complaint, lied to me, then ignored me again. Yet my money is forcibly taken from me to help fund these people's paychecks. In the private sector, I simply stop going to that business.

Regarding the city, it still survived. It did after 9/11 when people had no choice but to walk home to the outer boroughs. As far as gridlock, well, people were warned, and it's not like the FDR, Major Deegan or other major thoroughfares haven't been virtually shut down because of big accidents. Sure, it was tough for a lot of people to get around, and my heart went out to them, but didn't God give us legs? The Post had an article on a one-legged man who, using crutches, walked three miles in the cold. He did what he had to do.

It's true that a lot of businesses made hardly any money, and that will ripple through the economy, but they're a fraction of total businesses. Most people did what they could to get to work, which shouldn't surprise anyone. It's for no light reason that New Yorkers are called the toughest and most resilient people. Some in my office are working longer hours to make up the lost time, if they couldn't use days off, so I don't think the people who lost a full three days of income will be as many as we feared. Those who spent more on transportation will likely to cut back on other expenses, but it's important to note that shifts in spending are not losses. If I spend $10 on a cab ride and then spend $5 on lunch instead of $15, the economy is still the same.

I doubt it will be anywhere near the $400 million per day that some economists claimed. Besides, when people couldn't shop in the city, they shopped closer to home. From the news, friends and co-workers, I heard about malls in the outer boroughs being packed with people, at the expense of the city. If people didn't spend, then they saved their money, which is then borrowed. Either way, it's still zero-sum with no economic loss.

People may have missed scheduled medical appointments, but I haven't heard any news reports of a single person dying because public transportation wasn't operating. If the medical needs were really of an urgent nature, 911 and emergency vehicles were operating. That's partially why Bloomberg ordered a couple of avenues shut down to passenger vehicles. Radiation treatment isn't as time-critical, and a delay of a few days generally doesn't jeopardize a person's life. Dialysis might, but as I said, ambulances were still running.

You talk about my world having no transportation and no educated people, and no sanitation system, leaving the poor left to die on the streets, but why do you think government the only power capable of alleviating those problems? What did we do before government? My father walked to school and work because that was his only option; and the local economy developed and localized around people having to work. One of my friends works full-time yet home-schools his three children, and I know they will get a far superior education than in the terrible public schools. And when the poor died of hunger, do you count the 20 million that Stalin starved, or the possibly 70 million that Mao starved? Those were governments that claimed to have the way, that said they'd take care of everyone equally.

Throughout human history, it's never been government that lifted the poor. It's technology, which was spurred by capitalism, which you can't have without free markets. Now, when the poor died on the streets, it wasn't because government didn't redistribute wealth, but because our agricultural technology couldn't produce enough for everyone. Today our agricultural output is so great that the U.S. is the world's largest food exporter, AND our poor can eat so many calories that they're starting to have an obesity problem. Technology is also what made our food quality standards possible. Such standards are certainly nice, but putting Sinclair Lewis aside, unless the technology to achieve them existed beforehand, government could have mandated the answers like a Marine drill sergeant telling a recruit to defecate little green apples. You can do it till you're red in the face, and he still won't be able to do it.

Things like food standards, clean water and sanitation systems developed for the same reason. They're manifestations of a society that grew wealthier so it could afford such things, not because government sat around and dreamt up a good idea. When a society as a whole advances and gains wealth and technology, people will naturally want higher standards of living, and they'll spend larger portions of their higher incomes to get them. Faced with the demand for these goods and services, companies have an incentive to provide things like better food, or a septic system for your house, because people naturally want it. Then competition comes into play: if you can provide the same product at a higher quality and at the same (or slightly higher) price, you'll get more business. Cafe Hayek recently had a very poignant entry on Frank Perdue, who didn't need the government telling him what to do.

It Takes a Tough Man to Make a Tender Chicken

I'll finish with something that Bastiat said over 150 years ago, which is still extremely profound yet simple. There is really very little government can do that we can't on our own. It's just that for the last several decades, government schools have taught us that we can't do these on our own.

Do those worshippers of government believe that free persons will cease to act? Does it follow that if we receive no energy from the law, we shall receive no energy at all? Does it follow that if the law is restricted to the function of protecting the free use of our faculties, we will be unable to use our faculties? Suppose that the law does not force us to follow certain forms of religion, or systems of association, or methods of education, or regulations of labor, or regulations of trade, or plans for charity; does it then follow that we shall eagerly plunge into atheism, hermitary, ignorance, misery, and greed? If we are free, does it follow that we shall no longer recognize the power and goodness of God? Does it follow that we shall then cease to associate with each other, to help each other, to love and succor our unfortunate brothers, to study the secrets of nature, and to strive to improve ourselves to the best of our abilities?
Tom raised some good points, I will say. It comes down to these questions. Which do you have more faith in, government or people? Is the purpose of government to prevent us from harming each other and otherwise leave us alone, or to protect us from the risks and ravages of life?

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Anonymous Quincy said...

Maybe I'm missing something, but I really don't see why a private mass transit system, or systems, wouldn't work.

Thursday, December 29, 2005 8:10:00 PM  

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