The Tyrant in the Train
Transit systems depend on taxation to pay for costs. These extra sales taxes have an excess burden, reducing production and economic growth
July 1, 2008
Fred Foldvary, Ph.D.

It has been said that Americans are addicted to oil, but there is no real addiction. People are just responding to costs and benefits. When the cost of gasoline is lower, the quantity demanded is greater. Moreover, in the USA, driving is subsidized, as car users don’t have to compensate others for causing congestion and pollution.

Now, with gasoline over four dollars per gallon, Americans are indeed economizing. They are buying more fuel-efficient cars and shifting to public transit. But how much people shift to public transit depends on how cheap, friendly, and convenient that option is.

Most urban rail systems in the USA cost more than they are worth. The total cost per passenger mile is much higher than that of highways. Many trains run mostly empty. Trains are efficient when they move a mass of workers to a central destination, as is the case in New York City. But in most cities, many workers are not commuting to the central city, and rail carries only a tiny fraction of the total commute. Light rail does not really relieve congestion, since if the tracks were converted to highways, the car use there would take more traffic off of other highways than does the rail system. Thus light rail often creates congestion rather than relieving it.

Most mass transit systems make the problem worse with inefficient pricing. The marginal cost - the cost of carrying one more passenger in a train - is close to zero. So the efficient price is zero. Hotel owners recognize this and charge zero to ride an elevator. Having to pay to ride a large bus or train prevents the most efficient use of the service. Fares create denial of service.

Mass transit is a declining-cost service. There is a large fixed cost and a tiny marginal cost, so the average cost per passenger declines with more passengers. Thus it is impossible to finance mass transit from user fees. High fees deter use, while low fees don’t bring in enough revenue to pay for the fixed cost.

Transit systems depend on taxation to pay for the fixed costs. In California, for example, the Caltrain rail system is financed mostly from sales taxes. These extra sales taxes have an excess burden, reducing production and economic growth. The sales tax is like an artificial cost of production that depresses wages and shifts enterprise to other places.

Caltrain runs from San Francisco to San Jose. The trains are almost empty for many of the runs. There is political resistance to even higher sales taxes. So, hungry for revenue, Caltrain also raises funds from fines on the passengers. The penalty for riding without a ticket is $300.

The Caltrain conductors can’t fine people when they have a valid monthly pass or buy a ticket to ride. Their best opportunity to inflict a fine is with the 10-ride tickets. These tickets have to be date-stamped before entering a train. The way to squeeze passengers with fines is to have the validation machines out of order most of the time.

I used to ride Caltrain from the Santa Clara rail station to the Milbrae station, where one can then transfer to the BART system to ride to Bay Area locations. I can buy discounted ten-ride tickets at my place of employment. The chiefs of the State of California wish to encourage commuting by rail.

But the Caltrain chiefs sabotage the incentive to use the trains by keeping the validating machines out of service much of the time. The passengers then have to find a conductor and tell him the stamping machines are not working. Here is where the Caltrain personae apply a clever psychological trick. Psychologists have learned that the best way to get a pigeon to madly peck at a button is to only sometimes reward it with food. That is also why gamblers get hooked. They play and play to experience the few lucky times they get money.

Caltrain exploits this psychological device by playing the good-cop bad-cop game. Most of the conductors are good cops. When the frustrated passenger, unable to get his ticket stamped, shleps his stuff up and down the train looking for a conductor, most conductors act friendly and punch or write on the ticket to validate it. Sometimes they will tell the passenger to sit down and then validate it when they make their rounds checking for proof of payment.

But one unlucky day, the passenger is confronted by a bad cop. This conductor practices zero tolerance and cites the passenger for not having a valid ticket. Indeed, the ten-ride ticket is not valid unless it is date-stamped, and with the validating machines not functioning, the passenger has entered the train without a valid ticket. The fine is $300.

I don’t have data on how many passengers pay the fine, but judging from traffic citations, it seems to me that most passengers that get fined will pay it by mail rather than take time out of work to appear in court twice, first to plead not guilty and then again for the trial. The dirty little secret is that if one appears in court and pleads guilty, the judge reduces the fine to $56.50. Also, if you do get cited, before signing, ask to see the badge and record the name and number, so that the conductor that shows up in the trial is really the same one who actually inflicted the citation.

When I got cited, the accusation was “Intent to evade fare.” I refused to plead guilty even with the reduced fine, because in fact I did not intend to evade fare. I had a ten-ride ticket, and both stamping machines were out of order. I could have prevented the citation by buying a one-way fare, but I had experienced the good Caltrain cops who had validated my unstamped tickets previously. I fell into their trap by finally encountering one of their bad cops.

In preparation for the trial, I exercised my legal right of discovery by requesting from the bad cop a copy of his notes and also an explanation of the chronically malfunctioning stamping machines, the inconsistent enforcement, and why the conductor’s name and number on the citation was different from the name and number on the mailed citation notice.

Receiving no response, at my trial I was prepared to move for dismissal, on the ground that the conductor had failed to reply to my discovery request. But the bad-cop conductor did not show up, so the judge dismissed the case due to lack of prosecution.

I must say that having experienced the tyrant in the train, I now have a different outlook on driving. Now when I drive to Santa Clara instead of taking the train, I feel a sense of freedom. I am no longer subject to train tyrants. I no longer have to fear getting hit by a bad cop. Of course I could buy a one-way ticket when the validator machines are out of order, but I also don’t like the feeling of being stuck in a system that is at war with its passengers. When I drive, even though the gasoline cost is high, it’s still cheaper than a $300 fine.

The way to eliminate train tyranny is to make rail transit free of charge. When transit is free, conductors would be there to be helpful rather than to inflict fines. Their incentive would be to be friendly, since a rude conductor would be reported to the authorities and outed in the Internet. The efficient way to make rail transit free is to pay for it by tapping the land values of the communities served by the system. Using land value or ground rent for public transit has no excess burden, and it promotes an efficient use of land, as the payment is based on the best use of the site regardless of actual use. If we are serious about providing alternatives to cars and reducing oil imports, we need to make public transit fee of user charges to maximize use. We need to pay for mass transit with the efficient and equitable source of public revenues, land rent or land value. Tell politicians running for office that if they do not publicly support tapping land value to pay for free public transit, they in actuality support greater oil imports that send money to unfriendly foreign enemies. LVT - land value tapping - is not just the optimal public finance, but it is required to minimize domestic and foreign tyranny.

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Fred Foldvary, Ph.D.

FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary's areas of research include public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.