Krugman and the Economics of Mass Transit

Krugman discusses mass transit here, arguing that taxes should be raised to pay for mass transit:

http://krugman.blogs.nytimes.com/2010/10/07/transit-economics/

As usual, he is wrong on every virtually every important point:

"why should only public transit have to self-finance, when private vehicles generally drive on free roads built and maintained out of taxes?"

The average American is in no sense subsidizied when driving. Drivers pay for roads with income and gas taxes and tolls. And, unlike public transit, literally everybody in the United States benefits from roads. There is not a single person whose lifestyle isn't hugely dependent on roads. Even a person with no car is clothed and fed, among other things, by goods sent via road. So, there is really no subsidy. There are three sources of funds for roads:

1) Tolls. Obviously, no subsidy, because the driver is paying for his use of the road.

2) Gas taxes. No subsidy, because the driver is indirectly paying for road construction/maintenance.

3) General taxes. No subsidy, because income taxes are overwhelmingly paid for by the wealthy and to the lesser extent the middle-class, the vast majority of whom drive. So, there is no subsidy, because people driving have paid income taxes to pay for the roads.

Drivers, in short, pay for their roads. In contrast, mass transit is used by a tiny percentage of the American public, who are massively subsidized by drivers.

Krugman next argues that driving in congested areas, "especially in rush hour, imposes huge congestion externalities on other people."

Untrue. An externality occurs when somebody suffers a harm (or benefit technically) stemming from a transaction or activity that they aren't part of. But, when somebody gets on a road at rush hour, they are aware that its crowded, and voluntarily assume the use of the roads (to which they have no property right, or greater claim than somebody else), so its not an externality.

A consideration of property rights is crucial. In the classic externality situation, a polluter is interfering with other peoples' use of their property by belching smoke into their home. In contrast, a public road is owned by nobody, and everybody has equal access to it, so there can't be an externality. Put another way, I have every right to say you can't pollute my land, because I own the land and you can't impose costs on it without my permission. But, I have no right to a highway, and can't plausibly argue that I can tell somebody else that they need my permission, or need to make payment, to use it -- all citizens have equal access to the road. The externality analysis simply makes no sense in a situation where there is no private property.

And, even if it is an externality, everybody imposes the same cost on everybody else, so there is no net winner or loser. Its not like the classic externality, where I own a factory that belches smoke into your yard, and there is strictly a one-way flow, in which I benefit and you are harmed -- you should get compensated for that. But, if you and I are both driving in Dowtown Chicago at rush hour, I am imposing an externality (by assumption) on you by driving a car, but you are imposing the exact same externality on me by driving a car. We're both creating traffic for each other, leading to no net harm. At a minimum, any payment I owe you would be owed to me by you. So, there is no basis for a tax or wealth transfer.

Interestingly, Krugman's argument, if taken seriously, would work both ways. The Chicago Transit Authority's vehicles are in the morning jammed and unpleasant. Under Krugman's logic, since I don't ride the CTA, I am making the CTA more pleasant and quicker for riders of the CTA, and am entitled to a subsidy from CTA riders. There is no way to logically argue as Krugman does that mass transit should be subsidized by drivers without arguing that mass transit riders need to subsidize drivers.

Lastly, you'll note the logical incoherence of Krugman's position. In his scenario Driver A is imposing costs on Driver B. To remedy this situation, you would need to make Drive A pay Driver B. But, Krugman, in an inexplicable logical leap, argues that because Driver A is imposing costs on Driver B, Driver A needs to make payments to Mass Transit Rider C, who has not been harmed at all by Driver A. So, the mass transit riders aren't, as in the classical externality analysis, being made whole, but instead are getting a huge windfall. Again, one is left wondering whether Krugman is dishonest, or just doesn't think things through.