Austerity and transport

A discussion of the affects of an austerity program on transportation, including public transit.
Yonah Freemark, writing for the excellent blog The Transport Politic, has written several articles of late on the subject of austerity and transit. At the time of this writing, it appears that a debt deal is nearly worked out in Congress; however, the long-term political outlook is fuzzy (the 2012 elections are anybody’s guess at this time–it’s entirely plausible that President Obama could lose but the Democrats could retake the House, given the local approval ratings of pretty much the entire DC establishment). In the short term, there’s a political stalemate which is focused somewhat on austerity, and lack of a consensus for further stimulus–either on the demand side (such as increased spending on infrastructure, as many Democrats support), or on the supply side (tax cuts for the rich, favored by the GOP). We’ll set aside the question of how genuine calls for austerity from various political factions are.

At any rate, there’s a good chance that the US may be in for a prolonged period of belt-tightening. Given that transportation infrastructure in the US has long been subsidized, including transit, how will this affect things?
The models of austerity

There are a couple of different austerity models which have been observed in the past century when major economic powers are faced with a significant withdrawal of capital. (In all cases, it is assumed that democratic political norms are preserved).

  • Leftist austerity. The classical example of this was Great Britain after World War II. Bankrupted by the war and by the terms of American financial support as part of the Lend-Lease program, Britain suffered through a generation of stark austerity. The British responded by electing the then-socialist Labour Party under Clement Attlee in 1945, and the country abandoned most of its colonial possessions and its role as global hegemon. Socialist policy in London would more or less continue until the 1979 election of Margaret Thatcher. Were a liberal austerity program to be pursued, inflationary monetary policies would likely be a part, which would have the effect of reducing the effective value of the current debt–but which would also result in higher prices for foreign-made items, including oil. (Were the national politics to produce this result, which I doubt in the short term, we would likely also see passage of things like carbon taxes and other environmental measures, and likewise a reduction of US military commitments overseas).

    This is probably the least likely outcome for the US, given the present political situation.

  • Shared sacrifice. This is a model seemingly favored by President Obama, much to the consternation of ideologues in both political parties. In the “grand bargain” that Obama favors, the Bush tax cuts would be eliminated, along with some reductions in entitlements, in order to pay down the public debt. Monetary policy would likely continue to be conservative. [It sounds like we’re getting the reductions in entitlements and defense with the recently-announced,but-not-yet-signed debt ceiling compromise; and if Obama keeps his promise to veto further extension of the 2000 Bush tax cuts, we may get the revenue side as well].
  • The conservative approach. Many conservatives continue to support a supply-side approach, in which growth is encouraged by reducing the costs to capitalists, and debt reduction comes from reduction in entitlements (and likely in the living standards of public employees)–with long-term economic growth coming from a return of jobs to the US when labor costs are reduced. A conservative approach would also involve tight monetary policy. Many of the rising economic powerhouses have economies which resemble this, with a significant percentage of the population in poverty.
  • All hell breaks loose. This is what might happen should the US default; with world financial markets thrown into turmoil, the dollar significantly devalued (and interest rates rising dramatically), and the potential for another serious recession, or even a depression. This would likely result in significant political turmoil; we’d be fortunate to see it crystallize into one of the three cases above. In other words, all bets are off. (Have a nice day).

All of the austerity models would result in reductions in the standard of living many Americans experience–with the big questions being how the pain is distributed and how much it hurts. In some cases, it might involve certain groups finding themselves in levels of poverty not seen since the Depression–an issue which I don’t like glossing over, but which gets a bit off-topic for this blog. (If people are starving and there are no jobs available anywhere, and the political system is unwilling or unable to remedy that situation, then how one gets to work becomes completely irrelevant). More relevant to Portland Transport, though, is the question of how people and goods will get around in the United States of Austerity.

Immediate impacts

Depending on the austerity policies put in place, effects could include the following. I’m not taking a position on the desirability (or lack thereof) of any of these; merely noting that they might reasonably occur.

  • A lower standard of living overall. A good indicator of “standard of living” is the disposable income, or amount of household budget spent on non-essentials–i.e on items other than things like food, housing, clothing, medical care, and (important for this discussion) transportation. A good indication of poverty is is a disposable income which goes negative, and forcing the poor to either borrow to pay for essentials (a risky proposition) or having to cope with lower-cost, lower-quality goods and services–which in many cases are inadequate. During lean economic times, decreases in wages lead decreases in prices; decreasing disposable incomes and pushing many families into a position where they have to economize. Brief downturns can often be weathered by depleting savings or temporarily relying on public assistance; but longer-term recessions often require structural changes in households–and downturns lasting a very long time will often cause structural changes in society. A period of austerity lasting a decade or more will have more lasting impacts on how people live.
  • Higher prices for fuel, especially petroleum products. Most of the oil we use is imported; and a devalued dollar would make oil more expensive. A reduction in US military presence could affect the stability of oil shipments, and the continued rise of emerging economies such as China, who will have their own increasing needs for oil, will further increase prices. But even if oil didn’t become more expensive, a lower standard of living would increase the percentage of the household budget paid for transportation–which would become an issue.
  • Fewer funds for capital projects. In an austerity-focused economy, there would be less money available for infrastructure projects–or for anything other than debt service, for that matter. (I’m assuming a genuine period of austerity here, as oppose to a program of redirecting funds from the safety net to wealthy taxpayers while leaving the public debt untouched). While in theory that should produce fewer boondoggles and more quality projects, in practice I’m not so certain. How this would affect the transit/highway balance is a bigger question–were the first two factors to produce a greater demand for transit, it could result in transit projects and not highways receiving more funding (even Car and Driver magazine has seen the writing on the wall). On the other hand, we may also see a shift of funding from new construction to the less-politically-sexy-but-direly-needed maintenance backlog, which would favor road repair over rail.
  • More migration to urban areas. One of the notable 21st century demographic trends in the US, and one which our fair city is a significant contributor to, is the rehabilitation of the city as a desirable place to live. For much of the latter half of the 20th century, cities were perceived as dirty and dangerous places, and many American cities became “donuts”, with wealthy and upper-middle-class (and often white) people, living in the suburbs, and the poor (typically minorities) living in the inner city. The opposite pattern, with the wealthy living in or near the city center and the slums on the periphery, is more common in the rest of the world. But in the past decade, that trend has started to reverse–and increases in the cost of driving might accelerate a return to the cities, and the decline of those places that are dependent on the automobile. Were this trend to accelerate, it might go so far as to make upzoning and redevelopment of existing suburbs–something which is often today fought tooth and nail, in order to keep the poor out–attractive for the residents therein.
  • Wage adjustments in the public sector. This section is above and beyond any reductions in wages to affect the broader economy. A generation ago, public sector and private sector compensation for non-professional jobs (roughly, those not requiring a college degree) of similar skill were comparable. Today, the bottom has dropped out on the private-sector labor economy, as outsourcing has eliminated many of the family-wage positions available to high school graduates, that used to undergird the economy. The public sector has been able, until recently, to stave off a similar fate, as many public jobs are service positions which cannot be outsourced, and public-sector collective bargaining is guided by different dynamics than that in the private sector. Much of the recent rise in unemployment, however, is due to public-sector workers losing their jobs–over a half million public employees have lost their jobs since Obama took office). Unfortunately for public employees, many a displaced factory worker seems to blame their troubles not on the billionaires who sent their jobs overseas, but on public-sector workers who have not (so far) suffered the same fate, and thus are seen as “overpaid”. (By coincidence, I’m sure, it’s the billionaires that own the major media outlets). Given the conditions in the labor market, public workers may well be “overpaid” in an economic sense, given the lack of equivalent deals outside of government. However, I prefer to think of the displaced factory worker who now works at WalMart selling the goods he no used to build, as “underpaid”. Moral judgments aside, long term I expect private and public-sector wages to equalize–what equilibrium they reach depends on the austerity model chosen. Were I to guess, I would expect to see accelerated erosion in the wages and working standards of public employees.
  • More people unable to afford cars. The combination of increased fuel costs and decreased overall disposable income will likely increase the number of households unable to afford an automobile, or cause wealthier households to cut back, perhaps to a single family car rather than one per driver. (And luxuries such as recreational automobiles for teenagers or “spare” cars kept for occasional use, probably will become rare in what remains of the middle class). Some households will shift to used cars instead of new or defer maintenance on their vehicles (which may increase pollution rather than decrease it) in order to hang on to their current standard of living, particularly if their neighborhood has no viable alternative; but many may shift to alternative transportation–both human-powered travel and public transit.


What will the effect of all of that be? I have no real idea, but here are some possibilities.

  • We may see less federal involvement in local infrastructure products. In the status quo, the bulk of taxpayer dollars go to Washington, and a significant part thereof gets kicked back to state and local government in the form of grants–with the result that the projects that get built are those which Uncle Sam deems worthy of funding. If tax rates are lowered, and/or if more federal dollars are directed to debt service, and thus federal transportation grants are harder to come by; local governments may respond by raising their own revenues to pay for local projects. This may have significant advantages, as projects not funded by Washington are not subject to its byzantine regulations and conditions; the original Portland Streetcar and the MAX Red Line both eschewed federal funding, and were able to be done much more quickly than projects which needed to satisfy NEPA. Whether or not this is good or bad will depend on large part on the quality of local government; there are many parts of the country where a lack of federal oversight will result in more boondoggles and not less. (While I have my issues with the quality of governance in Oregon; we’ve got nothing on places like New Jersey or Louisiana when it comes to public corruption).
  • Dismantling or relaxing regulatory regimes. While I’m not an ideological supporter of deregulation-for-its-own-sake, there are many regulatory regimes and standards presently on the books in the US which are outdated, or which serve more to protect incumbent interests rather than advance the commonweal. There’s plenty more, in areas such as safety and design performance, which represent tradeoffs which might no longer affordable or practical in an austerity economy. The entirety of the Federal Railway Administration is a frequent target for critics, who (among other things) allege the agency pursues an outdated safety regime based on making railcars big and beefy, which is akin to improving highway safety by banning anything smaller than a Ford Expedition. When I travel overseas, I’m frequently amazed by urban highways in places like Hong Kong or Beijing which function quite well (most of the time) without the outrageously overbuilt design standards that bedevil US highway construction–standards which often require labyrinthine mazes of collector/distributor ramps, roadworks which both add cost and increase the urban footprint of the resulting roadway. (A big chunk of the CRC project is “improving” a stretch of I-5 to such standards, which has nothing to do with crossing the Columbia). A society forced by economy to make different trade-offs might well determine that maintaining an A level of service on a freeway during most of the day in a dense urban environment, is a luxury which can no longer be afforded.
  • Repurposing of federally-funded infrastructure. There are plenty of laws and regulations on the books which limit the ability of local governments to repurpose infrastructure which was federally-funded. The ability of local authorities to toll Interstate highways, for example, is restricted–generally, tolls can be erected only to fund new construction, and congestion pricing programs on existing Interstates are verboten. The ability to convert travel lanes to another purpose (such as exclusive-transit lanes). If austerity results in fewer cars on the road, there might be support to abandon these restrictions.
  • Increased private sector involvement in transit. Libertarians are fond of complaining about barriers to entry in the public transit market, suggesting that the state is oppressing the marketplace with burdensome regulations designed to exclude private-sector competition with state-run monopolies. For the most part, this is hogwash. Other than a few places like New York City, where privately-operated transit services exist in addition to the public providers, the reason that you don’t see private operators in public transit is that transit doesn’t make any money. (I’m excluding from this discussion the outsourcing of operations, where the operator does not incur revenue risk, which is already commonplace). However, if greater driving costs increase transit patronage, and operator wages go down–we may reach the point where public transit does become a lucrative business. (And driving down operator wages is frequently touted as an “advantage” of privatization, as private employers are far more immune to political pressure from unions than are public agencies). Whether that will be good or bad for riders depends on how well it is managed–Hong Kong’s system where routes, fares, and schedules are set by the government and franchised to private operators, produces excellent results; other privatization schemes have been less successful.
  • An end to the transit stigma. Right now, in much of the US (and to a lesser extent, in much of the English-speaking world), most people can afford cars, and so public transit carries with it the stigma of poverty. Thus, it has little political support and is often viewed as welfare; is often neglected (sometimes intentionally) in land-use planning, and in many places, only bare-bones service is offered–a vicious cycle that cements its second-class status. But if a greater share of the population needs transit for some or all of their travels, the stigma may vanish, and transit may be more widely viewed as a public good than as a social service.

Putting it together

In an earlier thread, I made a comment that transportation in a “post-Imperial America” might look like Curitiba, Brazil. While I was half-kidding there, and this article assumes that the US remains a significant power with far-reaching global influence, albeit a lower domestic standard of living for a while (hardly “post-Imperial”), if there is a long-term period of austerity, I suspect that we’ll be looking at a significant shift of transportation mode share to the bus. The factors that led to the creation of Curitiba’s acclaimed BRT network (widespread poverty at the time, and rather authoritarian government) probably won’t come into play in the US. But in an austerity environment, the bus may well be a “winner”, with greater expansions of both roads and rail “losers”.

  • As mentioned above, energy costs will rise and car use will drop.
  • Limited funds for infrastructure will likely mean a drop in new project starts, with must funds going to maintenance and for projects made necessary by geography (such as bridges) as opposed to surface improvements.
  • Loss of overseas purchasing power will further disadvantage rail; there is a thriving domestic bus manufacturing base, but the US’s capability to produce DMUs and EMUs is limited.
  • Reduction in wages for bus drivers will “solve” one of the main disadvantages of the bus–its higher per-passenger operating costs in busy corridors.
  • An increase in BRT or other enhanced bus services (with infrastructure and service improvements designed to improve speed and reliability) is likely, particularly if less demand for driving (and reformed regulations) makes it easier to do the inexpensive-yet-effective way of installing BRT: removing auto travel lanes.

A rather cruder way of putting it is as follows: If standards of living in the US decline due to an austerity program, the US, over time, will start to resemble other countries with similar living standards–and therein, public transport is a key fact of life, rather than something which is overlooked and ignored. A few transit critics I can think of are fond of making the claim that countries who can afford it, prefer cars–pointing to rising automobile usage in places such as Europe and China as proof. While this analysis is highly superficial (a lot has to do with how old habitations and infrastructure are, as well as cultural factors which shouldn’t be cited as universal fact, not to mention failing to control at all for service quality issues); it does have a kernel of truth to it–cars are what economists call a normal good pretty much anywhere, and transit an inferior good (a rather unfortunate economics term which says nothing abut quality) in much of the world.

As noted above, an economy-driven shift to greater transit use will probably occur over a long period of time, and involve quite a bit of social discomfort. Cities like Portland, with a halfway-decent transit system in place, land use laws which have more-or-less prevented the worst sorts of urban sprawl, and a road system which is less hopelessly overbuilt, will be able to weather the transition more than areas whose built environment is far more auto-oriented. The Portland metro’s land-use planning, with its support for regional town centers, should help suburbs maintain their own economic vitality. Other parts of the country, however, may not be so fortunate.

Whatever the case, passengers are encouraged to hold on to the handlebars while the vehicle is in motion. We may be in for a bumpy ride.

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