I've been using public transit in Cleveland for years. Until this summer, it was generally pretty busy, but never outright packed. Nowadays you need to board near the beginning of the line, or expect to stand on a full to capacity bus. Some of the regulars are getting frustrated; obviously demand for public transit services are up and numbers support the anecdotes, so basic economics would dictate that more buses should get put on the road to meet the increased demand, right? Unfortunately, that isn't how it works, and ironically, less driving is actually killing public transit across the country.

First, it is important to understand that transit agencies are not profit maximizing corporations and, therefore, are not governed by traditional economics. Plus, even if transit agencies were privately owned companies, they would probably be failing for the very same reasons that airlines are failing: the operating costs are too high and the demand for service is too elastic. Americans are willing to fly or to use transit, but only granted that prices are rock-bottom. Start raising fares and all of a sudden driving seems like a great alternative, even given the current price of fuel.

Where does government funding for transit come from? It varies from city to city; big capital projects are usually funded primarily by the federal government and operating funds come from local municipalities. In Cleveland, funding for operations comes from a sales tax levied in Cuyahoga County, which creates an interesting bind. If we're driving less, that could mean we're not driving to places like shopping malls and movie theaters; or, if we're not driving less, by the time we get to the mall, we have less disposable cash to spend on goods and services. Either way, less sales tax is being collected and funding for transit is stalled.

In May, vehicle miles traveled fell 3.7% from a year earlier. Fewer miles driven, combined with some switching to slightly less inefficient vehicles means fewer gallons of gasoline are being purchased. The federal gasoline tax hasn't been raised in over a decade, despite the fact that labor and materials costs have soared, and not surprisingly, the national Highway Trust Fund is expected to be more than $3 billion in the hole next year. There are folks who are still convinced that technology will save us, and thus see a need to continue funding road infrastructure (they talk about "technological breakthroughs", even though the problem isn't that tech doesn't exist, but rather that it is not economically competitive). The Bush Administration has proposed raiding the Department of Transportation's mass transit account to make up the difference.

If you are baffled by all of this, you aren't alone. Fuel prices have skyrocketed; they may come down temporarily, but we have been warned, and yet, our country's leadership is trying to do the exact opposite of what it should: they are stealing money from high demand transit projects in order to fund driving which, for the first time in decades, is seeing a decrease in demand. Really, less driving isn't inherently killing public transit, but the way we're responding to it certainly is.

America's News IQ

I, along with 3% of the American public, scored 12 out of 12 on the Pew Research Center's News IQ Quiz. According to Pew, the average American's score is a 50% and the average score for 18 - 29 year olds is 30%. Should I be proud of my knowledge of seemingly obvious world news events? Or should I be depressed that America knows so little about the world we live in? I've never taken a single class where a 50% was good enough to pass. Pew has done numerous studies which show common American ignorance and I blogged about them last April and last July. Nevertheless, every time Pew (or anyone else) confirms these findings, it always manages to disappoint me.

No We Can't!

About two weeks ago, T. Boone Pickens unveiled a bold energy plan, a new website (www.pickensplan.com), and hired an online marketing company to help make it go viral. Frankly, I'm impressed. The plan isn't perfect, but it is really the first comprehensive plan put forth by someone with the authority and resources to get it done. In a nutshell, this video shows what Pickens wants to do:



Over the past two weeks, I've read a lot of criticisms and backlash to the Pickens Plan. I don't think the arguments are particularly good, but their existance demonstrates something important: even though almost everyone agrees that we need an alternative to the status quo, finding the plan that we can all agree on is going to be painfully difficult. We have adopted a "no we can't" attitude - rather than showing excitement about possible solutions to our energy problem, we have become pessimistic about anything less than the miracle solution. The criticisms of the Pickens Plan boil down to a few objections, which I desribe, followed by my responses:

Wind power is intermittent - the very nature of the wind is that it isn't necessarily a constant stream of air. Sometimes it blows faster, sometimes it blows slower; and therefore we don't want to risk rolling blackouts if we get caught on a particularly unwindy day. The reality is that wind energy will never be only only source of energy. Maybe one day it will produce 19% of the energy we use and the next day 21%, but the system will always have back up power sources. If wind energy can reduce the amount of energy we produce from non-renewable sources by a significant percent, it still seems worth it.

Natural gas power plants are 3x as efficient as natural gas vehicles - if we eliminate all of the natural gas currently used for electricity production, we will need 3x as much of it to produce the same amount of energy in vehicles. The reality is that conservation is the most reasonable solution to the vehicle efficiency problem. How do we reduce the amount of energy used in vehicle consumption? Drive less. Unfortunately, that is a bad sales pitch when trying to sell this idea to sturbborn, suburb-obsessed people who are terrified of change. Even if we switch to natural gas power vehicles, the cost of driving a mile won't be any different than it is today and it might even be more expensive. Of course, Pickens never said his plan would bring the cost of energy down, just that it would reduce our consumption of oil (and implicity cap prices from continuing to rise over time).

Pickens is a greedy capitalist and dirty Republican - a lot of people are rejecting the Pickens Plan simply because Pickens was the one who pitched it. Some say that Pickens is pushing the plan because he owns a natural gas company and is building a wind farm, and thus will profit greatly if his plan is implemented. Others point to the fact that Pickens lobbied hard against John Kerry in 2004 and has already conceded that he will vote for McCain in 2008. The motive fallacy is obvious here, and the author should be separated from the plan in order to fairly evaluate it.

There is an urgency problem when it comes to building at least wind and solar infrastructure. The marginal cost of producing electricity from wind and solar are currently higher than other sources of energy - that will not be true forever. The marginal cost of other sources of energy will continue to rise, but wind and solar will stay basically flat, since the "fuel" is essentially free. It is better to build the infrastructure now because it will be cheaper in today's dollars than it will be in tomorrow's dollars (this is especially true if you subscribe to the dollar collapse theory) and because you can't pop these things up overnight. If we wait until the energy crisis becomes truly crushing (it isn't now) then the pain will be longer and more drawn out. The first step is agreeing on a plan to get behind - Pickens Plan is good and since no one else seems to have one, it seems a good one to use as a rallying call. We need to abandon the "no we can't" attitude and understand that the miracle solution doesn't exist, then we can start making progress with energy.

Edit (9/6/08): Gal Luft has an article published in today's LA Times. Luft spends essentially the entire time blasting every aspect of the Pickens Plan. He concludes with this paragraph:

At a time of great public anxiety about our energy future, Congress should focus on policies that would grant Americans true energy independence, rather than replace one dependence with another. Instead, Democrats and Republicans in the House and the Senate have preferred to follow up on Pickens' plan with bills to increase the use of natural gas as a transportation fuel. Such initiatives would certainly be a boon for Pickens, but not for America.

Does Luft have any suggestions for how to accomplish what he's calling on congress to do? Of course not. Is anyone surprised?

Election Market 2008

Last week, Newsweek made a big stink about their newest presidential election poll. According to their results, Obama had dropped from a 15 point lead over McCain to only a 3 point lead. More importantly, Obama's approval among independents dropped from 48% to 34% - ouch. Given those results, we might expect the Intrade.com election markets to reflect more money moving into the McCain contract and more money moving out of the Obama contract. Has it happened?


It looks like Obama's contract is still near its high...


And McCain's contract has really been hurting...

The Newsweek poll shows Obama ahead of McCain at a 44-41 margin; the Intrade market has Obama ahead of McCain at a 65-31 margin; that is quite a discrepancy. Granted, we're comparing apples to oranges, as the Intrade market follows who the money things will win the election and the Newsweek poll simply asks who a "likely voter" would vote for. Nevertheless, the Intrade numbers might indicate that the election is not even close to as evenly matched at Newsweek might lead you to believe.
Restaurant tipping... it's a topic everybody has an opinion about; it's a strange cultural phenomenon in the United States; and it's one that I feel is misunderstood economically. I realize that this is a highly emotional issue, and many with disagree wholeheartedly on some of the questions surrounding tipping, I just hope to present my case from as purely an economic standpoint as possible.

What You Are Paying For
Profit margins in the restaurant industry (excluding bar sales) are generally razor thin. The price on the menu is barely enough for the restaurant owner to cover the cost of the food, rent, labor, and other overhead. Speaking of labor, most employees in restaurants make close to the legal minimum wage. Servers make well below minimum wage, $2-4 per hour, depending on the state in question; therefore, they rely on tips to make up the difference. Even then, some of that tip money goes to bussers, hosts, and other employees; if you tip on a credit or debit card, some goes to taxes (although theoretically cash tips should as well, but thats another topic entirely). In essence, the cost of your meal is split into two charges: the price on the check is the cost of the meal, and the tip is the cost of the labor.

The Free Rider Problem
Many commonly believe that severs exist to treat the customer like royalty, and anything less in unacceptable; they believe that tipping (or not) is a way to reward (or punish) a server. A common argument is that (by law) a restaurant is required to pay a sever minimum wage if they don't cover it in tips. Therefore, an angry customer can punish both the server and the restaurant management by not tipping. If this happens enough, management will simply raise menu prices in order to cover costs (remember that profit margins are already razor thin). Theoretically, it is in everyone's best interest to leave zero tip, but for everyone else to leave generous tips; a classic "tragedy of commons" is likely to ensue if enough people engage in this behavior.

Table Space is a Commodity
Tipping 18% based on the cost of the meal is standard only when you eat and promptly leave the restaurant to enjoy the night out on the town elsewhere. Legally, a restaurant can't ask you to leave once you've finished eating, but if you plan on sipping water or bottomless soft drinks for the next hour, the typical 18% tip no longer applies. Every table occupied by some people who aren't ordering food or drinks from the bar is lost business for that server. Even if the restaurant isn't completely full, the sever will lose the business to another server. In other words, if a typical meal at a restaurant takes one hour, and you spend an extra hour chatting with friends, your tip should be 36% of the total check. The fact that your sever did not serve you during the second hour doesn't matter, because you took away their opportunity to serve someone else.

What is Proper Behavior?
As discussed, tipping is merely paying the cost of labor, so giving an extra large tip can be used to reward great servers, but holding back tips for bad service can lead to negative social outcomes. A better response to poor service is to leave a standard 18% tip and speak to the restaurant manager directly about what happened; if he/she still isn't able to remedy the situation, simply don't patronize the restaurant anymore. The manager will probably appreciate filing a complaint about a server with them, so that they can directly address that person and the issue. If you spend time in a server's section without ordering, tip based on the opportunity cost, not the actual cost of your check. Obviously, this strategy takes most emotion out of a highly emotional activity, which often involves making judgments about how much someone "deserves" or is "entitled to". Sometimes less emotion is a good thing, though.
In the past few months there have been two instances of seemingly progressive proposals, which, at their core, are nothing more than right-wing agendas in disguise. Both of these cases occurred in places I know well - the first in Dallas, Texas, and the second in Washington DC. With conservatism in the United States becoming increasingly unpopular, it is interesting to see how the right is framing issues to generate support for them.

Welcome to Highland Park, Texas - the ultra-rich suburb of Dallas. If you can't afford a million dollar home, an expensive car for your kid to park in the public high school's parking garage, or membership to one (or more) of the local country clubs, Highland Park probably isn't for you. The city is 95% white and has an average median income 300% higher than Dallas, its neighbor on three sides (the fourth border is shared with University Park; the two cities, referred to as the 'park cities' are bordered on all four sides by Dallas). These statistics are relevant because they paint a picture of how closed off Highland Park has made itself from the rest of Dallas, a big city which suffers from typical "big city problems".

Last month, The Dallas Morning News reported that Highland Park was proposing to make its main street, Mockingbird Lane, a tolled road. Highland Park residents would not be charged to use the public street, but drivers attempting to cut from one side of Dallas to the other would have to pay up or find an alternate route. Legality aside, "congestion pricing" is an idea dreamed up by big city progressives in an attempt to fight road congestion and pollution, and to encourage car-pooling and public transportation. The fundamental idea behind congestion pricing is that for years driving (specifically during rush hours) has been underpriced; as a result we've overconsumed, and the tragedy of commons eventually trapped us, making everyone worse off. Therefore, we should increase the price of driving, so that it more accurately reflects the actually costs that are often externalized.

Why am I so critical of congestion pricing? Actually, I'm not; I think in some places we should give it a try. The problem I have is that Highland Park appears to be manipulating a progressive idea - gaming the system in a way to achieve an entirely different agenda. If Highland Park residents were truly concerned with congestion, pollution, or the environment, there wouldn't be one car for every driving-age resident in the city; they would have traded in their full-sized SUVs and gas-guzzling luxury cars for Priuses and bicycles; the fact that they haven't demonstrates their true interests. Make no mistake, building a physical barrier around Highland Park would be wildly unpopular, and cries of elitism and illegal discrimination would ring out; but using "congestion pricing" might accomplish the same goal, while making Highland Park look social responsible to boot!

On the other side of the country, in Chevy Chase, Maryland, locals are opposing the construction of the purple line - a light rail line designed to connect suburbs in Maryland (and eventually Virginia) to the Washington DC Metrorail system. In the 60s and 70s, when planners designed and built the Washington Metrorail system, it was under the flawed assumption that business would always be conducted in Washington's downtown business district, and that the people working there would all live and commute from the suburbs. The past several decades have proven that people are working both downtown and in the suburbs, and people are living both in the suburbs and the city. Therefore, the system ultimately makes suburb to suburb travel on public transit extremely difficult - the purple line is the answer to that problem.

Locals are viciously opposed to the new rail line because it is currently slated to run next to the Capital Crescent Trail. The trail, they argue, is a wonderful, peaceful, natural place for jogging and bicycling, and running an electric train next to the trail would ruin the aesthetic beauty and charm and create noise pollution. Fair enough, building any transportation infrastructure, whether rail or road or airport has costs, but do those costs outweigh the benefits that thousands of commuters would enjoy? More importantly, do Chevy Chase locals even care about the trail? Or, like in Highland Park, is it merely a political shill, designed to make the locals look like environmental progressives, while masking a darker agenda?

It turns out that the Sierra Club, a leading environmental progressive organization, wholly supports constructing the purple line, arguing that it would be the best environmental option. The so-called "environmentalists" in Chevy Chase are actually sprawl enablers, forcing individuals to rely on cars to get to the suburban business districts and creating incentives unfavorable for people interested in living in the city (where owning a car is expensive and difficult). Back to the trails, it turns out that those clamoring to "save the trails" were actually opposed to building them back in the first place! Apparently these individuals are ardent opponents of change of any kind, regardless of who benefits or what the environmental cost.

Both cases demonstrate the confusion that conservatives are creating by painting their agendas as progressive. These cases also demonstrate the necessity to investigate and understand the motives behind any proposal, and resist throwing support behind every idea that sounds liberal or progressive, because the unintended consequences could be huge. As long as energy and the environment continue to be hot-button issues, I'm sure we will see more of the same.
Here is something that makes me sad... I came across the Associated Press produced graph today, which shows that Hummer sales were stronger this year than they were at the turn of the century (the fact that sales are down significantly from their peak should be consoling, but it really isn't).

In other "whats wrong with America" news, some Hummer drivers seem to be under the impression that Iran attacks would force down energy prices. It turns out that they are dead wrong. Researchers are saying that Iran strikes could lead to destabilization in the region (specifically Qatar) and push oil prices to approximately $300 per barrel. As absurd as that might seem now, consider this: oil has increased about 475% since the beginning of the Iraq war; at this point, the idea that a second war could push prices up an additional 110% really doesn't seem too crazy at all.

I Love TED!

No, TED is not a person... TED is an annual conference held in California, who defines its mission as "ideas worth spreading". Basically, TED is a gathering of the smartest people in the world to discuss ideas about the world. Until about two years ago, the conference was only open to those who were lucky enough to be on the invite list and who had several thousand dollars to pay in membership fees. The fact that it took TED as long as it did to make its talks available to the public is somewhat mind boggling to me, as these are the talks that can truly change the world.

Nevertheless, now hundreds of talks are available on TED.com, with new ones added weekly; they cover just about every topic in the book, from poverty to music to business. My video iPod is loaded with dozens of TED talks, and so far I have to say there hasn't been a single one that has disappointed. With as much ignorance as there is in the world; with corporate media making it more difficult than ever to stay informed; and with American lifestyle making it unfortunately difficult for people to find time to read books, TED comes to the rescue. I have been watching these talks on the bus on my way to and from work - I can't imagine any better use of my time.

It may seem odd that anyone would want to watch lectures for entertainment, especially given all the terrible college professors and their lectures that could put a caffeine lightweight on ten cups of coffee to sleep; but if you think about that one professor who really dazzled the class, who's lectures you looked forward to every week... that is every speaker on TED. Check it out, if you have any intellectual curiosity I have a feeling you won't be disappointed.