Friday, August 6, 2010

Good for all and good for some

In my last post I said that large projects could be divided into things that benefit everyone and things that benefit only some people. Things that benefit everyone should ideally be paid for and controlled by everyone, but things that only benefit some should be paid for by those who benefit.

There are at least two exceptions to that ideal. Social programs are paid for by all but only provide direct benefits to some, based on the idea that helping the neediest benefits everyone. Pigovian taxes are funded by some but benefit all, based on the principle that some activities impose an indirect cost on everyone, and aiming to either compensate for that cost or discourage the activity. These subtleties are lost on many.

What makes things difficult with transportation (and a number of other fields, like medicine) is that in some ways it benefits everyone, and in some ways it only benefits some. For example, having good transportation links improves the economy, which benefits everyone indirectly. But funding for roads and parking primarily benefits car drivers, and funding for transit primarily benefits transit riders. Going further, since transportation is a common-pool resource, it can be overused by some, leaving less for others.

Many modes of transportation also have significant externalities, inviting the imposition of Pigovian taxes and fees on a group to compensate everyone. For example, congestion pricing aims to discourage congestion and fund its mitigation by taxing those who drive. It is also the subject of many social programs, where a transportation facility (such as a bus service in a car-oriented city) is subsidized by everyone for the benefit of a few.

Of course, transportation funding can also be misappropriated in a variety of ways, from the unions getting cost-of-living wage increases when the cost of living is not increasing, to the legislature using "dedicated" taxes to fund things other than transit. This is the source of much of the mistrust that surrounds Pigovian taxes and social programs. How do we know that our tax money will actually be spent on transit?

It is important to remember that consensus principles still apply to Pigovian taxes and social programs. If you're going to spend everyone's money on transit for the poor, you need to get them to empathize with the poor, and realize that they could be poor someday, and see the value of low-cost transportation. If you're going to tax people for driving you need to show everyone why that's necessary. Sadly, that's a tough challenge in this poisoned media atmosphere, and it's made even more difficult with various entities running off with chunks of transportation funding.

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