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Transport Subsidies Lead to Bad Decisions

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[quote user="cordon"] [:)]I'm having trouble figuring out how it would be any easier to do.  Consider airline tickets in the 1950s, when only the rich could afford them.  Adding in all the hidden costs for the growing commercial airline business would only have made airline tickets less affordable.  Same for air freight, which already was pretty much limited to perishables (e.g., lobsters) and special government shipments (things like aircraft parts and missile parts).  Do you think that train and bus tickets, as well as automobile costs, would also have been much more expensive if all the costs were included?  Getting back to the present, how would society decide whether or not I need a subsidy to ride the train or to fly in an airplane?  I wonder if the process to do that might be just as complex and hard to understand as the current process of subsidizing modes of transportation is.[:)]  [:)][/quote]If the true cost of each mode of transport was passed directly to the user, i.e. in the price at the pump or ticket prices, they would have better knowledge of the cost of each.  Of course, there are other variables that make up the transport value package, e.g. time, comfort, safety, etc. that would still be part of the decision matrix.  They are subjective.  The true cost of each transport mode would be reflected in its pricing mechanisms.  This includes train and bus tickets.  And it would have been included in the 50s if we had not started down the slipper slope of subsidies.    Determining the amount of direct subsidy, i.e. intergovernmental transfers to Amtrak, Aviation Trust Fund, Highway Trust Fund, etc. would be easy.  Without difficulty they can be included in the gasoline tax, which is a user fee, as well as the ticket (haulage) prices for all commercial modes of transport.  The sticky wicket is the indirect costs.  If fossil fuels wear their true cost, as reflected in the taxes or user fees, the cost should include a component for cleaning up the environment because of the damage done by burning fossil fuels.  How much damage does each mode of transport do?  That's the 64 dollar question, and it would be difficult, although not impossible, to determine.  If each mode of transport reflected its true cost in the user fees or ticket prices, several significant changes would probably occur.  There would be a rush out of SUVs and large pick-ups for more fuel efficient vehicles, a decrease in short haul flights, an increase in passenger trains in relatively short high density corridors, more use of public transit, etc. These are only a few examples of the changes that would likely occur.      The 1950s is not a good comparative base for airline fares or who could afford them.  During that era the most common commercial airliners were propeller driven; relatively slow airplanes that carried a smaller passenger load than today's airplanes.  The economics of flying, as well as government regulation, dictated the relatively high fares.  The jet airplane has changed the game.  It is a far more productive machine than the 1950s flying machines.  This fact together with a paradigm shift in pricing, i.e. yield management, is what makes it possible for the average person to fly today.  And it would remain the case if the subsidies were removed, because the per seat mile subsidies for the airlines are less than a penny a mile, excluding the so called subsidy from the tax free financing of airports, which is arguable.  Of course, if aviation fuel was priced to reflect its true cost, i.e. the cost of the naval presence in the Middle East to protect the oil sea lanes, etc., the price would increase more than it has recently.  And this increase would have to be factored into the fares, which could have a significant impact on who flies and from where.  Here is an example of the difference in productivity between the DC-6B, which was in common use during the 1950s, and the Boeing 767, which is typically used for cross country flights.  The 6 could carry up to 102 passengers in economy class at 315 miles per hour at a cruising altitude up to 25,000 feet.  It required a cockpit crew of three.  A typical flight from New York to Los Angles would require about 10.5 hours.  This means that the airplane could fly to LA in the morning and turn around for a red eye back to New York in the evening. The 767 can zip along at 530 mph with up to 375 passengers at a cruising altitude of 35,000 feet.  The 767 requires a flight deck crew of two.  A typical flight from New York to Los Angles requires approximately6.0 hours.  This means that the bird can fly from LA as an early morning flight, turn around as an afternoon flight to New York, and return to LA as a late night flight.Modern airplanes have another advantage over 1950s airplanes.  They require less maintenance, and they are more reliable, which reduces the cost of flying.In 2006 the median household income in the United States was $48,201 a year.  This means that half the households in the U.S. had annual incomes of less than $48,201.  The amounts differed significantly between regions, e.g. Northeast, Midwest, etc., and urban, rural, etc.  Depending on family size, actual income, etc., many of those with incomes below the median household income can take the earned income tax credit on their federal income tax return.  So the mechanism to subsidize transportation costs for low income people is built into the tax system, at least for people who have income.  Expanding it would not be a great challenge.  This is one way to do it.Another way to do it would be to use the current system of granting discounts to select classes of people.  For example, most transit systems grant discounts to students, seniors, mobility impaired, etc.  Similar discounts could be extended to low income people.  However, doing so would require a means test, which many Americans consider demeaning, so it could be a hard sell.  Government would not determine whether people could fly or take the train.  It would simply provide an income support for people below a threshold income level, and they would decided whether they could afford it.  Here is another important point to keep in mind.  If the cost of country roads and city streets, which is embedded in county and local property taxes, was included in the price of gasoline or other end user fees, property taxes, which affect everyone, would go down.  Direct pricing as opposed to burying some of the cost in subsidies would not be a panacea.  There would be plenty of issues that would need to be sorted out.  But at the end of the day it would be a better system than we have now.  And it would be better for rail passenger enthusiasts, because it could put rail in a more competitive position in select markets.
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