Expanding transit and taxis

I wrote recently that by making taxi service more convenient and flexible, electronic taxi hailing services like Uber and Lyft have the potential to replace private car trips and even some car ownership. But some argue (or worry) that they can go further and replace public transit. I've already pointed out that even in this unlikely event, it would not necessarily be a bad thing.

The main value of transit is that it gets people out of cars, and the main challenge of transit in the 2010s (in large, walkable US cities at least) is that it doesn't have enough capacity to accommodate all the people who want to get out of their cars. The main goal for transit advocates right now should be to grow that capacity.

Since the days of Red Mike Hylan, transit advocates have focused on funding capacity expansion through government contracts, and big business has been a dirty word. But it's not at all clear that Hylan was right: the fact that the new 7 line extension was the first real rapid transit expansion in New York City since 1989 shows that we can't just forbid private investment in transit and expect the public sector to step in.

Some subway and commuter rail expansions are massively over-engineered and take forever (the Second Avenue Subway, East Side Access). Others are loaded down with park-and-rides (the Northern Branch), and eventually deep-sixed by ambitious politicians (the Rockland-Westchester corridor). Politicians have shut down many promising subway (Astoria extension), commuter rail (LIRR Third Track) and bus (Main Street bus lanes) proposals at the behest of NIMBYs or even cycling advocates (the Rockaway Beach Line).

The most shameful smothering of transit expansion was where ostensibly left-wing, pro-transit Manhattanites and their ostensibly left-wing, transit-loving representatives tightened constraints on the capacity for bus movement and storage, and blocked attempts to expand them, without a peep out of supposed bus advocates.

If we can’t count on government to expand transit fast enough to meet demand, or to even allow private buses to meet that demand, we have to see if someone else is willing to meet it. And that’s where Uber and Lyft, and less well known services like Via, come in.

These electronic taxi hailing services have essentially used venture capital to finance a massive expansion and upgrade of New York's taxi fleet. Hundreds of late-model Priuses and Suburbans have begun cruising the streets of New York, replacing Lincoln Town Cars and Ford Tauruses.

This is happening not because The People demanded an expansion and upgrade of the taxi fleet. (The bourgeois poseurs who claim to speak on behalf of The People would never demand such a thing, because it sounds too bourgeois.) It is not happening because the Sensible Bureaucrats conducted a study and decided to spend the money. (The Sensible Bureaucrats made some headway, but their colleagues were too busy cowering in pathetic fear of the power of the taxi medallion owners.) It is happening because Uber and others are making a profit on the financing of these vehicles, and the venture capitalists pouring money into Uber and Lyft are expecting to eventually make a profit themselves.

Of course, that's just taxis, and as I wrote earlier, by itself it won't get us to our goals. But is it a sign of a potential way forward for transit expansion?

Questions about financing

If you go to CVS you can buy a bag of Canada Mints for a dollar, and pay with your credit card. You're borrowing money but you don't really think about how you're going to pay it back, because your income stream is so much bigger than that single dollar. But if you go to Best Buy and put a thousand dollar computer on the credit card, you should be thinking about how you're going to pay it off. Will your income be able to cover the credit card payments? If you take out a student loan to go to medical school, the loan itself helps you pay for the skills that can earn you enough money to pay it off. But will your income be enough to cover the loan payments?

If you're borrowing a large amount relative to your income, you'll also want to think about alternate arrangements in case you can't pay that off. If you can't make your student loan payments, there's usually a hardship clause that entitles you to request forbearance. If you can't pay the credit card bill, you might be able to ask your mom to help.

Thinking about regular and alternate repayment methods is the smart thing to do, because you know that if you don't repay your debts on time, you could be hit with penalties. If you use a car as collateral it could be reposessed, and a house could be foreclosed on. You could lower your credit rating, so that if you're able to borrow at all in the future, you may only be offered high interest rates. If you ask Mom to pay your credit card bills, you may wind up having tea with her and Aunt Gladys every week. But the main thing is that you might wind up spending so much of your money on debt service that you can't afford to buy anything new, or even to go to the doctor.

Now we need to be very careful about comparing government debt, especially sovereign government debt, with private debt. Households can't print money to make it easier to pay off their debts. But in this case, government debt is similar: if we ask "How are we going to pay for it?" and the answer is, "We'll borrow the money," we need to ask the two follow-up questions: "Will our income cover the payments on the debt?" and "What do we do if our income doesn't cover the loan payments?"

These are the smart questions to ask, because if New York State doesn't repay its debts on time, we'll face a credit downgrade, and we'll have to pay higher interest rates on bonds in the future. If we get a bailout from the federal government, they'll probably insist on some kind of financial oversight committee. But the main thing is that we might wind up spending so much of our money on debt service that we won't be able to build anything new, or even maintain our existing infrastructure.

In the discussions of paying to rebuild the Tappan Zee Bridge, I've heard a lot about where we're going to borrow the money. There's been very little about how the money will be paid back, and what we will do if we can't make the payments. Those are the smart questions to ask. Why isn't anyone asking them?

The Path to Prosperity

Are we ready for a recovery?

Chuck Marohn has a very thoughtful reply to my post about short and long term problems. I don't buy the Weimar analogy, but I've been thinking a lot about the issues, and I'm coming to agree with Chuck's main point that a recession may just be the best place for us to be at this time.

First of all, I want to say that unemployment sucks. I've been unemployed a few times, and it can be depressing. If you're unemployed for too long, you can get frustrated and angry. And that assumes that the safety net is working; otherwise you could wind up homeless or worse. High unemployment also brings down real wages, because there's always someone who'll work for cheaper.

Underemployment also sucks. I have friends and relatives who are temping, or working part-time, or at jobs that don't pay a living wage. I know a lot of people who don't have good health coverage and have to put off important procedures, and don't have a 401(k) and may never retire. There are too many people struggling.

And yet... In a fascinating interview, Mark Blyth makes a strong case against reducing unemployment as a short-term priority, mainly because he doesn't think it's feasible. He argues that with all the debt in the private sector, any stimulus would immediately be spent paying off debt. Eliminating the debt, then, should be done first. Blyth is not opposed to the kinds of mass debt forgivenness that David Graeber describes, but he doesn't think that's feasible. He suggests that the best solution is to simply wait until all the bad debts have been cleared. This would likely lead to a Japan-style "lost decade," but Blyth argues that "That decade of ‘helpless stagnation’ is actually okay."

This private debt burden is another constraint on our economic prosperity, operating in a remarkably similar way to the constraints on the flow of oil that I described earlier. But suppose we could overcome them both?

There's another reason we may not be ready for a recovery. Remember back in the housing boom, when "homebuilders" and other developers were merrily sprinkling car-dependent subdivisions, big-box stores and office parks across greenfield forests and farmland because "that's what people want"? Remember when your friends and cousins were buying SUVs and moving to Charlotte and Scottsdale "because it's cheaper"? Remember when governments were building roads, schools and sewers in the suburbs and exurbs at a fantastic rate because "that's where the growth is?" Remember when they were financing it based on phantom "future growth" - the Ponzi scheme described by Chuck?

Well, many people still want the suburban lifestyle, and from a developer's point of view it's still relatively easy to build. Zoning codes around the country still prohibit multifamily, mixed-use development and require large lots and too much parking. For large swaths of the country, big roads, sprawly development, crappy sidewalks, slow buses, cheap car loans, subsidized automakers, and low gas taxes still make driving the most convenient choice when establishing transportation habits.

When the government does try stimulus, what does it build? Roads and bridges. When Americans feel that things are looking up, what do they buy? SUVs and McMansions. If we have a recovery, that's what we're going to get. Roads and bridges, SUVs and McMansions, tar sands and electric cars. Parking required at the apartment building, parking at the train station, parking at the office park.

So Krugman is right that liquidity traps exist and we're in one. But maybe Chuck is right, and so is Blyth and maybe even Kunstler. Maybe we need to just stay in the recession until we've gotten our incentives in order. When the zoning codes are fixed so that we can build sane, mixed use multifamily housing downtown without huge parking garages or lots, when the government only builds roads that it expects to be able to maintain for hundreds of years, when the government is ready to stop subsidizing driving in all its myriad ways, then we should write off the loans, stimulate the economy and start putting people back to work.

If we do, in the meantime we're going to need a hell of a big safety net.

The short term and the long term

Once again Matt Yglesias puts his finger on an important issue: "The inability to even keep long-term and short-term issues straight in a conversation is mind-boggling." This is the problem I have with a lot of my fellow transit advocates who keep harping on the debt, like Chuck Marohn and Jim Kunstler. I don't want to insult them the way Yglesias is insulting the Republicans, because I think it's a bit more excusable for Marohn and Kunstler, but it's still frustrating.

Yes, it's true that we're facing the peak oil crisis and the climate change crisis, and Marohn is quite right that we have an additional crisis of overbuilt infrastructure that we don't have the financial ability to maintain. We may not even have the "real" ability to maintain it, in terms of resources like manpower, asphalt and energy, while still feeding ourselves and producing goods for export.

The fact is that those are all three long term problems. There are similar-looking short-term problems, but the solution to a short-term problem is not always the same as the first step of solving a similar long-term problem. For example, if it's cold in my apartment one day, I may want to turn on a space heater. If it's cold in my apartment all winter, I may want to replace my weatherstripping. The first step to replacing weatherstripping is to see if the hardware store is open, but that won't make my apartment any warmer in the short term. I may want to turn on the space heater and see if the hardware store is open. It may be a bit wasteful to run the space heater with leaky windows, but for a day it's not that big a deal.

This is what I think Marohn and Kunstler are missing when it comes to Paul Krugman, Matt Yglesias and their calls for Keynesian stimulus. Marohn and Kunstler criticize Krugman for not realizing the severity of the situation. Krugman may or may not realize the severity of the situation, but he knows that the economy has the short-term capacity to put most people back to work and bring tax revenues back up, if the government were willing to tolerate some inflation.

There are medium-term problems, and I'll discuss them in a future post. But they're not what many people think they are.

The problem with not borrowing

We've heard a lot about the evils of borrowing in the recent election cycle, but I don't think enough attention has been paid to the evils of not borrowing. In other words, to the problems of not having money when you need it.

Obviously, if your income goes down and you don't borrow, you can't spend as much as you used to. This is not necessarily a bad thing if you don't need to spend as much money. For us, though, it is. Accomplishing our goals will require a massive shift from personal cars to transit, and we will need to spend lots of money to develop the necessary capacity.

If your income is down and you don't borrow, you miss out on investments that could increase your income down the line. Worse, deferring maintenance can mean bigger expenses down the line, as with the Manhattan Bridge. The worst is when you spend money for infrastructure that doesn't get used for 73 years.

It may be better to borrow if it will increase your income later, if it will avoid much bigger expenses, or if it will allow you to put previous investments to use. You just need to be fairly certain that the costs won't exceed the benefits. Of course, you can never be completely sure: nothing about the future is a hundred percent certain. It's important to be careful and not take big risks. But it's also important to take small risks to avoid major expenses.

A time for not borrowing

Now I want to get back to the discussion of borrowing that I started a month ago. Borrowing is often a good idea if you can be reasonably confident that you'll be in a better position at payoff time than you are at borrowing time. If you borrow $5,000 when your annual income is $10,000, and pay it off when your annual income is $50,000, you've done pretty well. Last time I forgot to mention one way that you might be in a better position at payoff time: inflation. It can boost your income without any action on your part!

There are some times when borrowing doesn't make sense. One of those times is simply when you don't need the money. Borrowing always increases your risk (except in times of high inflation). If you don't owe anything and lose your job (always a risk), you just have to figure out how to make enough to survive. If you owe money and lose your job, then you have to figure out how to survive and make your loan payments.

Beyond that, though, if borrowing is a good idea when you can reasonably expect to have a greater income at payoff time than you do at borrowing time, then it's a lousy idea if you have reason to think your income might be lower, or even if your expected increase in income is not enough to pay the interest.

Sadly, many transit agencies borrow without any expectation that their revenue will be higher when it's time to pay the money back. The MTA here in New York has borrowed a ton of money, without any reason to expect higher revenues in the future. The improvements that were paid for with that money did not bring in new customers who could pay a lot more. They did not bring in a new constituency that would demand support for transit in the State Government. They just kept people taking the trains and buses, i.e. maintaining the MTA's farebox revenue, but a large share of the MTA's budget came from state contributions and other taxes like the mortgage recording tax, which were subject to many factors unrelated to the MTA capital program.

One bad reason for borrowing is to "spread out payments." It's total bullshit, and you can see that if you just ask, "Why not pay on the installment plan?" The answer is, "because then we'd have to wait." And that makes it clear that the spreading out payments is just an excuse to get the money before you've earned it. No. You need to ask yourself if your financial situation will be any better at payoff time, and if it isn't, just sit tight and wait.

There is a problem in government with sitting tight and waiting. Lots of government agencies get their funding by crying poverty, and the system is set up to reward that. A few years ago the Port Authority was flush with cash - at least as transit agencies go - and everyone wanted a piece of the pie. In addition to a new order of PATH cars and related improvements, and chipping in a few billion for the World Trade Center redevelopment and the new train tunnel, Schumer and Paterson wanted the Authority to help pay for Moynihan Station, everyone's favorite vanity transportation non-improvement.

I don't think the Port Authority fell for that one, but pretty much all of its savings have been vacuumed up by various other agencies and projects around the region, to the point where it's almost as cash-strapped as everyone else. But it's hard to save up for a project if everyone's got their eyes on your money. Administrators who want to avoid that kind of headache will avoid saving up money, and simply borrow to pay for what you want and then scream for more when the money runs out.

A time for borrowing

Last week I argued that there are times when it is actually appropriate to borrow:

On one level it's very simple: if you will be better off when it's time to pay the loan back than you are when you borrow it, then borrowing is a good idea. But behind that simplicity lurk many complications...

One of these complications is the question of interest. If you borrow at interest, you not only have to be better off when you repay than you are now, but so much better off that you can afford to pay the interest as well.

We can start with student loans. The idea is that you can't earn a very high salary without a college degree, so tuition, room and board would be a big chunk of your income (if any). But with a college degree - so the theory goes, at least - you will be earning a lot more than without one, and the loan payoff (even including interest) will be a much smaller percentage of your income.

Business loans are similar. You borrow money to pay for a new refrigerator for your deli, and then you sell more cold food and drinks. That increased income pays the loan and the interest. This can be true for Starbucks opening a new store, or Bombardier building a new factory.

John Maynard Keynes argued that when individuals and investors are afraid to borrow that way, government borrowing can play the same role. In a recession, tax revenue is low. The government borrows and spends the money on social services and putting people to work. Those people spend that money on food and other necessities, which puts more people to work. Eventually the economy gets going again and people start borrowing and spending on individual and corporate levels.

The genius of stimulus is that just like student and business loans, it can pay for itself. Every time someone earns that money, they pay a percentage of it back in income taxes. Every time they spend the money on taxable goods and services, they pay a portion of it in sales taxes. The same is true for the additional money that gets borrowed and invested as the economy grows again. Government revenues are higher when it's time to repay the debts.

The most tricky part is of course knowing whether you will be better off in the future. No one can know exactly what's going to happen. You may never be better off than you are now. You could be worse off.

The edge of husbandry

Recently I discussed Nassim Taleb and the idea of being able to withstand black swans. He recommends a healthy level of redundancy, but also argues that borrowing money can make you vulnerable to black swans, and saving money can protect you from them. Borrowing is also discussed in that great This American Life episode where our New York State politicians freak out about it.

In the past I've listed borrowing as an unsustainable good, and I've also been amazed that governments rely so much on borrowing to accomplish things.

Borrowing is good because you get to spend money on stuff. But as Shakespeare wrote, "Neither a borrower nor a lender be, for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry." In other words, you have to pay interest, and it's hard to stop borrowing, especially for people who have difficulty thinking long term. Because of this, many people think borrowing is evil. Lending at interest was outlawed by the first Christian Council of Nicaea, and it is still illegal under Sharia.

Not everyone agrees that borrowing is a universal evil. Shakespeare was actually poking fun at these ideas by putting them in the mouth of the disingenuous buffoon Polonius. Garrison Keillor went further when he made "Neither a borrower nor a lender be" the motto of Bob's Bank, in the little green mobile home at the end of Main Street in Lake Wobegon. Essentially, Polonius and Bob are throwing the baby out with the bathwater. Borrowing has risks - paying too much in interest, and borrowing too long - but it can be appropriate under certain circumstances.

On one level it's very simple: if you will be better off when it's time to pay the loan back than you are when you borrow it, then borrowing is a good idea. But behind that simplicity lurk many complications...