Wednesday, February 3, 2010

Transit riders shouldn't have to sacrifice

All around the country it's a time of budget cuts. Some, like the New York State Legislature and Governor, are unwilling to prioritize any spending category, and cut everything across the board. Others, like the President, initiate spending caps but reallocate the spending. We need more leaders who are willing to do this.

If your personal income drops by half, do you just spend half as much at the supermarket and half as much at fancy restaurants? No, because feeding yourself is a higher priority than feeling pampered, and groceries are a more efficient way of feeding yourself. If instead you cut the grocery budget by a quarter and the restaurant budget by three-quarters, you can be just as well-nourished.

It's the same with transit. Government funding for transit doesn't just stimulate the economy by moving people around. It furthers social justice through access for all. It helps make our world safer, healthier and more sustainable by getting people out of their cars. These should be the priorities of government, whether the economy is good or bad, and no matter how much the government has to spend.

But where will the money come from? Let me tell you, it really pisses me off to see people holding rallies against the transit cuts in their district, without acknowledging that the MTA simply has a lot less money to spend than they've had in previous years. You may say you want transit to keep running, but if you can't find the money for it, what does that say about your priorities?

I want to make it clear that I'm willing to sacrifice. I'm not a liberal who clamors for spending but won't support tax increases to pay for it. Tax me! Tax my income, tax my apartment, tax me when I buy computers and fancy clothes. But don't cut my transit service. More importantly, don't cut the service of my neighbor, who might drive if transit is no longer convenient.

Sadly, there's a lot of stupid anti-tax rhetoric out there, and many politicians have sworn not to raise taxes. Even though it might be the best thing to do, it probably won't happen, which leaves us with a shrinking pot of money.

The government should spend more on transit, but it's not willing to raise more in taxes. The money should come from other things, like roads. Spending priorities should reflect overall priorities, and paying billions for free highways and bridges for cars should be a low priority.

It's as simple as that: free bridges for drivers=low priority. Low-cost transit=high priority. Time to get our priorities in order.


saosebastiao said...

Want some extra funding for transit? Pay transit workers market wages instead of their "give us everything you've got or we will shut down the city" wages. Department of labor estimates that unionized government transportation workers cost on average 26% more than private market workers.

Actual savings if the averages are correct for NYC transit?


Thats kind of a big deal.

BruceMcF said...

I'm assuming you are arguing that the 26% that private market workers are spent by by unionized worker on fancy overseas vacations?

Since otherwise, its not as if the majority of the difference between a working poor wage under a union-breaking policy and a lower middle class wage leaves the economy: its spent again locally.

saosebastiao said...

I guess because it is a government entity, you can take into account multiplier effects like that, whereas private entities do not internalize that benefit.

But if local governments saw the situation as you do, and the benefits of higher wages was real, then there wouldn't be the cuts, would there? Technically speaking, if the multiplier of unionized wages was over 1.0, then it would be a net benefit to continue to fund transit and their ridiculous compensation in the face of a severe recession.

My guess is that a few things are at work here:
1) It is naive to assume that money spent locally, in NYC, goes to locals. The prevalence of trade, whether international or even interstate, will diminish the localized multiplier greatly. In fact, for a city like New York whose history is built on trade, it would be naive to think that the money would stay in NYC beyond the obvious but minimal sub-10% margins of retail goods and service providers in the area.

2) The most efficient way to provide a multiplier effect to a damaged economy is to put purchasing power into the hands of those with the highest marginal propensities to consume. My guess would be that this means keeping money in the hands of the unemployed is much more important than giving it to the employed, let alone the overpaid employed.

3) Transit workers provide essential consumption for local economies. However transit, being a public service on which large numbers of people depend for employment, is probably more important to provide. My guess, though heuristic determined, is that in a city like NYC, the number of jobs lost by transit cuts is way higher than the number of jobs sustained through the multiplier effect of union wages.

saosebastiao said...

BTW, if you think unionized transit workers are lower-middle class, then you are mistaken. Their compensation is regularly significantly above the median wages in the areas they work.

placemakinginstitute said...

Investing in transit may very well also stimulate the economy directly rather than by just expediting peoples' movements about. In analyzing outcomes of the 2009 stimulus package, Smart Growth America found that “In the 10 months since the American Recovery and Reinvestment Act (ARRA) was signed, investing in public transportation produced twice as many jobs per dollar as investing in roads.” To wit, a billion dollars dumped into maintaining our highway system, which enshrines the oil-guzzling car as our chief mode of getting around, generated 8,781 job-months. That same billion dollars used to build out mass transit created 16,419 job-months.

BruceMcF said...

A regional development strategy that is based on union busting to support low wages to allow "cost" reductions is directly a regional development strategy aimed at dropping incomes in the region.

And then the income stagnation resulting from the low wage strategy means that the region can not "afford" as much as before, so another round of wage cutting is required.

I am glad to have it specified that the objection is to people working on transport corridors being solidly middle class rather than working poor - but of course the strategy of cutting people's incomes in response to declines in tax receipts as a result of declining regional incomes is a positive feedback loop ... there is no "just a little bit lower income" stopping point in that strategy.

Alon Levy said...

But if local governments saw the situation as you do, and the benefits of higher wages was real, then there wouldn't be the cuts, would there?

The local government setup in the US encourages beggar-thy-neighbor policy anyway. Localities pay subsidies to a corporation to place a plant there and not in another locality. They also cut wages and promote nationwide deflation in recessions, and hike wages and promote inflation in boom times.

In both cases, many localities recognize the problem with this and petition the feds for help. Southern Senators admit that they like federal labor regulations, at least behind the scenes; such regulations limit their race to the bottom with other states. And localities are now asking the feds for help with transit operations; that way federal money will be spent on preventing nationwide deflation, whereas under a current setup a local area can shirk its duties, engage in deflationary policy, and get other regions to pick up the pieces.

Cap'n Transit said...

Saosebastiao, I've written about labor issues before.

Essentially, it's up to government to set a good example as to how to pay and treat its workers.

I'm not a fan of the latest TWU contract with "cost of living" increases even though the cost of living hasn't gone up, but government workers should be paid a living wage, not market wage.

Alon Levy said...

One could argue that workers in general should be paid a living wage and not a market wage. But what's a living wage should be determined by the government in general, through union/business negotiations and regulation.

saosebastiao said...


It is nothing more than an ideology based opinion that government should "set an example" with wages. If you believe that, that is fine...but there are plenty of demonstrable reasons as to why a government "example" is bad, ineffective, and even counterproductive.

In the private market, wages need to be tied to productivity. Any corporate policy that ties wages to any factor other than productivity is silently plotting its own demise. If you pay someone more than they bring to the company in productive terms, then you are bringing yourself towards bankruptcy. If you pay less, you run extreme risks of brain drain from workers leaving your company. When an "example" is set, which is based on arbitrary or even values based systems, you are decoupling productivity from pay, which puts you at risk of these problems.

Above-market pay also has a long range negative perverse incentive. While Efficiency Wages have observable and measureable outcomes for increasing productivity, they also have a largely ignored effect on the development of human capital: When you are paid more than you are worth, you tend to settle for that and stay with it your whole life. In this criteria, low wages function as an incentive to develop talents further for higher pay.

Furthermore, an "example" wage is ineffective. The market largely doesn't care what kind of example the government sets. The government operates so differently from how the private market operates that you will rarely find a private employer who takes one glance at what government workers are making when deciding what to pay.

But worst of all, due to the nature of government, an "example" wage is counterproductive. Example wages raise the cost of providing government services. A government entity that pays market wages will always require less in taxes than a government entity that pays example wages. Taxes have a long and extensive history in academic research, and have long shown to have negative effects on total employment levels as long as basic government functions are met. But more importantly, the incidence of taxation is what makes the example wages counterproductive.

Approximately 70% of the corporate income tax burden falls on workers as opposed to shareholders or management. When taxes are high to pay for lavish government "example" wages, workers in the private market suffer, because the source of government wages is taxation.

saosebastiao said...


Sure, one could argue that living wages should be paid to everybody. But you should remember, in order to argue that people should be paid living wages, one must implicitly argue that incentives (including the price incentive) do not matter in the allocation of human capital which would be a terrible mistake.

In fact, one could also empirically argue that all socialism experiments which have resulted in failures have this lack of incentive in common...and all socialist experiments which have not ended in failure have been able to include price incentives in their systems. Thats a pretty strong, and very real-world correlation which is not to be ignored.

Alon Levy said...

You're defining yourself to be right. The way you've set your argument up, every country with strong living wage laws and high unionization rates that has low unemployment and high growth, for example the Netherlands and all Scandinavian countries, you can dismiss as having some "price incentives in their systems."

Things always look good when you argue in tautologies. It works well for creationists, and it works well for libertarians.

saosebastiao said...

Sweden, Norway, and Finland do not have minimum wage laws nor living wage laws, but rather rely on trade associations to set minimum standards for their own industries. The dutch minimum is less than $100 greater than ours after factoring in purchasing power parity.

Nice try though.

Alon Levy said...

Sweden, Denmark, and Norway have union-set living wage agreements, yes. But to put things in perspective for you about how high those wages are: the Swedish guaranteed minimum income is $14,000 a year, about the same as the US minimum wage. You get more money not working in Sweden than working in the US.

saosebastiao said...

Thanks for illuminating me on the welfare state in Sweden...but it does nothing to confirm your assertion that successful mixed economies have strong living wage laws where productivity and pay are not related.

Alon Levy said...

Um, Sweden has living wages - they're just negotiated by unions instead of legislated. Think of it as what would happen if 70% of US workers were in a union.

saosebastiao said...

Please read through this. At what point does a salary stop being a living wage and start being a huge giveaway? At what point do we tell transit workers that they don't get any more money, because it is going to transit riders?

Alon Levy said...

Your link shows that station agents get paid $45,000 a year, and two got a lot of overtime bringing pay to $85,000.

But what I really want to know is why the top managers make more than $300,000 a year. The President of the United States makes $400,000. What is it about mismanaging BART that makes one eligible for almost the same salary as Barack Obama?

saosebastiao said...

What I wanna know is why 716 employees are being paid over $100k. Is this AIG?

Alon Levy said...

No, it's a much smaller government-subsidized money waster.