Wouldn’t it be nice if at least one of the Presidential candidates would embrace the basic reform that is really needed in the U.S. tax system? Simply simplification. Previous posts on tax simplification issues are here. Interestingly, one of my least favored Presidential candidates — Rudy Giuliani — has the best tax simplification proposal that I’ve seen so far during the campaign.
Geez, could legalization and regulation really be worse than this?
It has something to do with subsidies for ethanol.
Mark Perry provides this creative map that places the enormous size of the U.S. economy in a useful perspective.
This earlier post noted that a not very flattering analysis of the economic debacle that is the San Jose, California light rail system might very well describe Houston’s light rail system in a few years if we don’t come to our senses. Following up on those thoughts, this Randal O’Toole post reviews a San Jose Mercury News newspaper article that reports on the state of the San Jose transit system on the 20-year anniversary of light rail there. It’s not a pretty picture:
Santa Clara County taxpayers pay as much or more for transit, yet their transit system carries fewer riders, than almost any system with light rail in the country. ìThe heavy tax commitment to transit,î the article notes, ìmeans fewer dollars for road upgrades.î Especially since a half-cent sales tax that voters approved of for roads was hijacked by the transit agency in 2000. [. . .]
ìThe light-rail system should be considered a 100-year investment,î says San Joseís director of transportation planning. That shows how shallow planners are: within another 20 years, that investment will be completely worn out and San Jose will have to decide whether to scrap it or spend another few billion replacing it.
. . . [the] Silicon Valley, with its jobs spread out more thinly than almost anywhere else in the country, was unsuited for large-bus transit service. So to go from buses to light rail, which requires even more job concentration to work, was a mistake. Having made that mistake, VTA now wants to build BART, which requires even more job concentration. . .
Light rail was the wrong solution for San Jose in 1987, it is the wrong solution today, and it still will be the wrong solution in 2027. We can only hope that San Joseís leaders and opinion makers, including the Mercury-News, come to their senses by then and decide to junk the whole thing.
Meanwhile, in Houston, as our local “leaders” continue planning to spend upwards of $4 billion on expansion of a light rail system that relatively few citizens of the area will use, alternative transit projects that make much more sense are relegated to discussion in the blogosphere.
The Houston area is a big place with a vibrant and resilient economy. But Metro’s light rail system is the one urban boondoggle going right now that has the potential to become a serious economic drag on the local economy in the not-to-distant future. It’s far past time that our local leadership noticed and started taking actions to hedge this risk.
I’ve been meaning to pass along this James Q. Wilson/WSJ ($) op-ed that lucidly describes the crisis that has developed in property insurance markets along the Gulf Coast as a result of the litigation risk and attendant cost of clearly inapplicable claims being asserted against property insurance policies:
When Hurricane Katrina hit our southern coast, it was the worst natural disaster in American history, killing 1,800 people, forcing more than a million to evacuate the area, and putting four-fifths of New Orleans under water. In the struggle to recover from this event, people turned to their insurance companies for help. Thousands of claims were handled, but for some people there wasn’t any coverage. The problem was they were not insured against flooding.
Insurance companies’ policies are quite clear on this, and state insurance departments, including the ones in Mississippi and New Orleans, have approved these rules. The homeowners’ policy issued by State Farm, for example, says that water damage from a flood, waves, tidal waves, or a tsunami are not covered. . . .
The reason for the exclusion of water damage is quite clear: Hardly any insurance company wants to encourage people to build or occupy structures in places where such damage is likely. If they did allow this, either the company would go bankrupt from losses it could not pay or it would have to charge a premium so high that hardly anyone could afford the insurance. Even without water-damage coverage, insurance companies paid out around $40 billion to Katrina victims. [. . .]
Not content with these policies and rules, trial lawyers and politicians in Mississippi demanded that insurance companies should be required to pay for flood losses even though they were not covered by the policies. Richard “Dickie” Scruggs, a veteran of class-action suits, and Mississippi Attorney General Jim Hood worked together to create a lawsuit that would retrospectively ban the flood exclusion rule. (Mr. Scruggs was a major source of campaign money for Attorney General Hood.) At the same time, Rep. Gene Taylor from Mississippi urged Congress to require a retroactive payment of flood insurance. Never mind what the homeowners’ insurance policies said or what their coverage was, demanding money to which they were not entitled became “good public policy.” [. . .]
In time some measure of sanity was restored. A federal district court judge upheld the flood exclusion in insurance policies, a view that was affirmed by the Court of Appeals for the Fifth Circuit. More recently, the Fifth Circuit has affirmed that there is no coverage when an excluded peril (such as flooding) and a covered one (such as windstorms) both contribute to the same damage. A Louisiana state judge agreed that policies not written to provide flood insurance did not, in fact, provide it. . . .
But the return of sanity was of short duration. In June Mr. Scruggs filed a lawsuit against State Farm saying that it engaged in racketeering, and Attorney General Hood filed a new civil lawsuit — and then followed up with another grand jury investigation contrary to his prior agreement with State Farm. One wonders how its claims adjusters feel when they are told that they are no better than members of the Mafia.
In light of all this, State Farm announced earlier this year that it would no longer sell new homeowners’ policies in Mississippi, not to punish people there but because politicians had made it impossible to do business in an orderly way. In response, Attorney General Hood demanded that the governor order State Farm to write new policies. Gov. Haley Barbour replied, quite reasonably, that he does not have the authority to tell a private company that it must do business in his state. There will no doubt be congressional investigations of the insurance business because it did what it told people it was doing.
And Hood calls himself a public “servant” (see earlier post here)?
Isn’t it interesting the different reactions that Anne Linehan, Charles Kuffner and Tory Gattis had to the 2007 Houston Area Survey regarding transit options? The Chronicle and other light rail enthusiasts immediately seized upon the survey as evidence that Houston-area residents want to dump more money into the light rail money pit.
But the problem with such surveys is that they generally ask people questions in a vacuum and do not address Peter Gordon’s three elegantly simple questions regarding economic choices:
1) At what cost?
2) Compared to what? and
3) How do you know?
For example, assume for a moment that the persons surveyed were informed of the fact that the average urban freeway lane costs about $10 million per mile and that the average light rail line costs about $50 million per mile while carrying only one-fifth as many people as the freeway lane. And these are only average figures — as Randal O’Toole recently pointed out, Seattle’s recently rejected light rail expansion was projected to cost $250 million per mile, a whopping 125 times more expensive at moving people than a freeway.
Moreover, let’s also assume that the persons surveyed are informed that the expenditure of a billion or so of public money on expanding a poorly-used light rail system has real consequences, such as leaving inadequate funds to make improvements to Houston’s infrastructure that would dramatically decrease the risk of death and property damage from flooding. Or whether the billion or so being flushed down the light rail drain would be better used to fix various area traffic “hotspots” where accidents or bottlenecks occur with high frequency.
No one knows for sure, but my bet is that the survey results would be dramatically different if the foregoing costs and alternatives were included as a part of the survey. It’s a shame that neither the City’s current leaders nor the mainstream media are asking the simple questions set forth above that would generate a meaningful cost-benefit analysis and ensuing well-informed debate regarding continued investment in expensive public works projects such as Metro’s light rail system.
Instead, we get this:
Metro executive vice president John Sedlak led off [a presentation to the Transportation Policy Council, a group of elected officials and agency staffers that sets priorities for transportation spending in the 13-county Gulf Coast planning region] with a slide show describing the [proposed Metro University light rail line] project and told the panel its approval was needed so Metro could get federal funding and start engineering work.
If there was a short delay, Holm asked, “What would be the consequence?”
Sedlak replied that the project is on “an aggressive schedule” and that a delay “would send a message to Washington that there are issues with our overall program.”
Holm asked why Washington would think there were issues and not just loose ends to tie up.
“They watch every activity that takes place very carefully,” Sedlak said. “The federal government is aware we are having this meeting today.”
Holm asked what the application deadline was. Sedlak said it was “in the month of December.”
“If the delay was just a few days, would it jeopardize the funding of the entire program?” Holm asked.
“I truly believe it could,” Sedlak replied.
Kemah Mayor Bill King had questions, too.
How many more passengers would the rail carry than the buses on Richmond do now?
Sedlak said he did not know, but Metro could get him the answer.
King asked how the line would impact traffic on Richmond.
Sedlak said there would be some negative effects, but the finished line should “take vehicles off the street.” Numerical estimates are in the line’s environmental impact document, he said.
Holm spoke again, her voice a little shaky.
“There are cities,” she said, “that have never been turned down for a funding request. It’s not because they agree on everything they want. It’s because they do their due diligence and they do their battles at home.
“We need to still build consensus in this community. We need to be able to walk hand-in-hand in supporting a project,” she said.
Update: As usual, Tory Gattis has additional insightful thoughts.
Tom Rubin is an accountant who has audited many transit agencies and is an expert in transit system accounting. Randal O’Toole channels a Rubin presentation in describing the nation’s worst-managed transit system:
Participants in the Preserving the American Dream conference were encouraged to ride [the] light-rail line to one of the conference events. What they saw was not a pretty picture. Trains were infrequent (one of the supposed advantages of rail is that they run so frequently that riders donít need to consult schedules), the in-street tracks are dangerous (one conference goer slipped on a rail and fell into a curb), and the fellow patrons are not always people you want to be around (several conference goers were treated to the scene of someone becoming violently ill on board, leading one of our members to say, ìSo thatís what they mean by ëvibrant streetsíî).
Beyond these impressions, Rubin observes that [the light-rail system] has ìthe worst operating statistics of any American transit operator.î The reason for this, he says, is that [the area] ó being built mostly after World War II ó is one of the most spread-out urban areas in the country. Not only are people spread out, but jobs are spread out, with no job concentrations anywhere.
This makes large buses particularly unsuitable for transit because there is no place where large numbers of people want to go. So what was [the transit system’s] solution when its bus numbers were low relative to other transit agencies? Build light rail ó in other words, use an expensive technology that requires even more job concentrations.
Now it has one of the, if not the, poorest-patronized light-rail systems in America. So what is its solution? Build heavy rail, a technology that requires even more job concentrations.
What transit system are O’Toole and Rubin describing? Well, it sure sounds like it could be Houston’s, but it’s not. They are talking about San Jose, California’s system.
But how long do you think it will be until Houston’s light rail system is in similar shape?
The big transit news in these parts last week was the announcement that the Metropolitan Transit Authority’s board Metro’s board approved the final route for the east-west University line and decided to deploy the much more expensive light rail rather than bus rapid transit in four other transit corridors. Kevin Whited, Lou Minatti and Tory Gattis were among the local bloggers commenting on this development.
What is perhaps most galling about all of this is the sheer lack of any perspective from the local mainstream media regarding the dubious nature of Metro’s urban economics. The Chronicle article on Metro’s announcement is typical of the vacuity of media coverage of Metro — the fact that light rail systems are notoriously uneconomic and underused relative to cost is not even mentioned. Meanwhile, Metro continues to insist upon investing billions of tax proceeds in an inflexible light rail system that will cost millions in additional annual tax proceeds to subsidize. To make matters worse, the money that Metro is throwing away on what will be a underutilized and expensive light rail system would go a long ways toward dramatically ameliorating the Houston area’s flood control problems and traffic hotspots, two public works projects that would provide far more benefit for far more Houston area residents than the light rail project. In short, wasting huge amounts of public funds on a boondoggle simply does not occur in a vacuum. Such waste will negatively impact more pressing public works projects in Houston for decades.
Transit expert Randall O’Toole recently published this Cato Insitute policy analysis, Debunking Portland (related blog posts here and here), on the failures of Portlandís light rail system, which was built in a far more densely-populated area than Houston and is often touted by light rail advocates as an example of one of the rare successful systems. As O’Toole points out, the Portland system has not been a success. 9.8% of Portland-area commuters took transit to work before the region built its light rail system, while today, just just 7.6% of the area commuters use the system. The fact that Portlandís light rail system led to billions of dollars in economic development is largely a ruse — such development received billions of dollars in subsidies and, before the city started offering those subsidies, not a single transit-oriented development was built along the Portland light rail line. Finally, light rail cost overruns forced Portland to raise bus fares and reduce bus service.
As O’Toole observes, thatís considered a success?
Arnold Kling provides this interesting TCS Daily op-ed on the innovative George Mason University Economics Department, whose members have done a remarkable job over the past several years promoting the understanding of economics issues through the blogosphere. As Kling noted earlier here:
I like to put it his way: at [the University of] Chicago, they say “Markets work well. Let’s use markets.” At MIT, they say “Markets fail. Let’s use government.” At GMU, they say “Markets fail. Let’s use markets.”