Wednesday, October 24, 2012

NY: Subways Stolen!

The subject of the NY subway system is a fascinating read that shows the true greed and hypocrisy of government-run operations.

The private NY mass transit operators were driven out of business in the 20s to 40's by government edict.

The tools used were regulatory -- denials of permits for infrastructure maintenance, denial of permits for expansion to new areas, a cap on fares of 5 cents, and other tactics.

The federal government prints money -- and as it prints more and more of it to cover deficit spending, the cash becomes worth less and less. This phenomenon was happening with federal money in the 1930's, just as it is today. With their nickel fares being eroded in value by federal inflation and the refusal of the city government to permit the companies to raise fares or do just about anything else, the handwriting was on the wall.

How long could **you** run a business if you could only charge one price for your product or service?  For the 42 years since the first subway opened in 1904 the fare had remained a nickel -- by law.

It is by no means a rare occurrence for governments to slaughter the golden goose in this way. For example, Vladimir Putin stole an oil empire from the private sector using the state's monopoly on force and handed the empire over to close political cronies at fire-sale prices.

Something very similar happened in New Jersey just a few years ago (late nineties), in the insurance business: wildly unpredictable, out of line liability awards made insurance in several industries impossible to write. The state government limited premiums on the front end, and allowed outlandish awards on the other. When insurance companies began to lose their shirts, and some began closing their NJ operations, the NJ government quickly stepped in with a law prohibiting the insurers from leaving the state -- so many went bankrupt instead.

Another similar tactic was used by the New York bureaucracy with regard to the subway system.

Check out the sanitized version of the story on the Metropolian Transit Authority's website.  Example: "Around the time the Independent was first conceived, in 1920, there was severe overcrowding on the subways. They were victims of their own success. The word "unification" was very politically correct during this time. The idea behind unification was to have the City of New York buy out the privately owned Interborough Rapid Transit (IRT) Company and the Brooklyn-Manhattan Transit (BMT) Corporation. On April 25th, 1921, the New York Transit Commission was formed to develop a plan to resolve the overcrowding and delays on the current lines in any manner it saw fit, including "recapturing" existing lines from the privately owned rapid transit subway and elevated lines."

[NOTE: Links in the above paragraph were added by this author.]

"Recapturing" is bureaucratese for "stealing".

Notice the sleight-of-hand there?  The bureaucrats assume everything belongs to The State, and you only get title to it by the good graces of ... bureaucrats.  Because if you're not in their good graces, they get to "recapture" whatever they "loaned" to you.

There is a fairly good Wikipedia article about the shady history of the government takeover of the private transit system.

The "progressive" pols of New York from the twenties to the forties followed a well-worn path to seize the private subway and elevated train operators.  And other forms of mass transit.

One of the politicians, Mayor Hylan (also see this), a Democrat, involved in bankrupting the transit companies had earlier been fired from one of the subway companies. Once in a position to do so, he wrought his revenge - big time.

If the subways were crowded, then they were profitable! Thus, the city could have allowed the PRIVATE companies to build more lines. Instead, they put up the Independent (IND) lines in direct competition - right UNDER them - the 6th Avenue subway was put right under the 6th Avenue El and the Fulton Street subway in Brooklyn was put right UNDER the Fulton Street El.

Now, if there was a need for more subway & elevated lines, why not build them in other places not yet covered (for example, 5th Avenue or 10th Avenue?).  In fact, on the East Side of Manhattan, there were 3 IRT owned lines : Lexington, 3rd Av, and 2nd Av - back in 1921.  Now, under GOVERNMENT ownership to "relieve overcrowding", there is just the Lexington!  Transportation bond issues to raise money for another 2nd Av line came about in 1946, 1967, the 1970;s, etc. and were passed - but no subway line was built.  What the government was very good at was TEARING DOWN existing lines (and selling the scrap to our ally Japan who used it on Pearl Harbor).

After tearing down lines, the city then used the Maintenance budget as a slush fund.  The politicians became tools of the unions and paid ridiculous contracts.  "Chic" politicians like John Vliet Lindsay and his ilk encouraged graffiti "artistes" for a while.  As a "public accomodation", they were not allowed to remove winos, bums, beggars, etc. who slept and stunk up the subways.  After hitting rock bottom about 1980, there has been a little bit of a resurgence but more and more people take cars into Manhattan.

One of the few lines built by the City in the last 50 years was a tunnel from 63rd Street Manhattan into Queens that dead ends in Queens with no connections - not even to Queens Plaza a mile away - something like $2,000,000,000 for a tunnel to nowhere!

Mass transit was evolving naturally before government got involved.   The death of it was largely coincident with government interference.  its rebirth as a socialist government enterprise is fraught with waste and delay.  Any student of economics should study the history of mass transit in America -- especially with regard to subways -- if he wants a good picture of the corrupting hand of government.

For additional reading on the topic, here are a few links:

1.  "Subway Hijinks", by Gregory Bresiger, on

2.  "Subway Tax in the Rancid Apple ",  by Gregory Bresiger, on