What Mexico City can teach America about the cost of public transit

By Steve Swedberg of CEI.

"I recently vacationed in Mexico. While in Mexico City, I tried to take the metro to attend a concert. At five pesos, or about 30¢, the bargain was hard to beat. Just one problem – it was so crowded that I couldn’t get on. I ended up taking an Uber.

This inconvenience prompted a larger question about transportation economics: What happens when policymakers make transportation extraordinarily cheap while capacity remains limited?

Mexico City’s crowded Metro has many potential causes, including its density, heavy reliance on public transportation, and the capacity and design of its network. An important factor, however, is the price riders pay. Research on Mexico City’s Metro found that when fares rose from three to five pesos in 2014, ridership fell 12 percent. That research also estimates that a 10 percent fare increase was associated with about a 2.5 percent decline in ridership.

These findings illustrate how transit fares can affect demand. Although there are differences between Mexican and American transit, the same economic principle applies in both because American transit agencies also rely heavily on taxpayer subsidies to keep fares low.

Washington, DC’s metro system, WMATA, provides a striking example. WMATA’s average fare is about $3 per passenger, whereas it provides a subsidy of $10.65 per passenger. WMATA also reports that fares recover just 28.2 percent of operating costs. The result is a transit system whose finances depend heavily on public support beyond the farebox.

BART, the San Francisco Bay Area’s regional transit system, faces similar circumstances. Its operating revenues are projected to cover only 32 percent of operating costs in FY2026, while the agency faces a $375 million structural deficit for FY2027. BART’s contingency plan includes both higher fares and substantial service reductions.

Supporters of cheap transit argue that lower fares help people who depend on transit to get to work, school, and other necessities. But those benefits require resources, and the fiscal pressures facing transit agencies like WMATA and BART show that those resources ultimately come from somewhere.

A universally subsidized ride provides the same price reduction to riders regardless of their circumstances, while the cost of the subsidy is borne elsewhere in the public budget. That makes the results of this spending especially important. Lower fares may encourage people to use transit, but subsidies do not necessarily translate into more effective or productive transit systems.

The same concern applies to who receives the subsidy as well. Lower-income households make up a larger share of transit users than of the overall population, but that does not mean they receive all the benefits of subsidized fares.

Recent research finds that some US transit investments and fare policies disproportionately benefit more advantaged populations, while the distribution of the subsidies themselves remains understudied. That raises doubts about whether making every ride cheaper is the most effective way to direct limited public resources toward those who need transportation assistance most.

The distributional concerns are only part of the problem. There is also little reason to assume that more subsidies automatically produce better transit. In his congressional testimony, Reason Foundation’s Marc Scribner cited research showing that increased operating subsidies were largely absorbed by higher costs and were associated with declining transit productivity. In other words, it has cost more to provide a given amount of transit service.

Similarly, the Congressional Research Service found that government operating support has helped sustain lower fares and higher service levels but has also increased operating cost per vehicle-mile.

One reason is that subsidies can weaken the pressure to control costs. When agencies can rely on public funding to cover operating shortfalls, subsidies can allow agencies to absorb rising wages and benefits without corresponding gains in productivity. Scribner’s testimony points to this dynamic by noting that transit labor productivity declined substantially as operating subsidies expanded. 

Because additional subsidies tend to accommodate higher costs instead of generating more productive service, taxpayers are paying more without necessarily getting better quality in return.

Transportation policy cannot escape the economic reality of scarcity. Lowering the price paid by users can change how they travel, but it does not eliminate the costs of providing transportation. Nor does spending more guarantee that subsidies reach those who need them most or produce a more productive system.

Those costs are harder to see when they are spread across multiple public budgets than when the benefit is visible at the farebox. That does not change the fact that transit agencies across the nation and the world face recurring financial dilemmas that show the costs eventually catch up with the subsidy. Cheap transit may be popular, but hiding its cost from riders does not make the bill disappear."

Mike Munger reviews Kim Phillips-Fein’s new book, Country of Lords: Neo-Aristocrats, Social Darwinists, Tech Utopians, and the Long Fight Against Equality in America

From Cafe Hayek.

"This history of the idea of “hierarchy as good,” focusing primarily on the U.S., is useful and interesting. But there are several aspects of the account, and what is left out, that I find puzzling.

First, the focus on hierarchy here is private, or at a minimum non-governmental. But no subjugation is as complete as that of ruled to ruler. Many of the great hierarchy-mongers of American history have designed and operated their power structures supported by the weapons and boot heels of armies and police. Andrew Jackson’s “Trail of Tears”; Lincoln’s suspension of habeas corpus and confiscation of property; Woodrow Wilson’s summary roundup of dissidents, suspension of postal deliveries, and the “Palmer Raids”; Franklin Roosevelt’s seizure of prices and property, followed by forcing thousands of American citizens into concentration camps; Nixon’s draconian wage and price controls; and the intrusive and unconstitutional surveillance state that has grown up after 9/11.

Most recently, and starkly, we saw the comprehensive confinement and draconian dictates of state scientism. The unelected health czar Anthony Fauci offered “I am the science!” as his justification for complete hierarchy; the Biden administration actively crushed dissent, even among those with scientific credentials who were disputing scientific arguments. Surprisingly, the only state actor mentioned here is Woodrow Wilson; he makes the list only because he hosted a viewing of “Birth of a Nation” at the White House.

Second, and perhaps more important, no one claims, to my knowledge, that the distinctive aspect of the U.S. is that there has always been perfect agreement about liberalism and equality under a rule of law. Phillips-Fein does provide a useful service in her careful documentation of some important advocates for hierarchy (even if it is strangely censored to ignore the state), but the actual argument is bizarrely narrow, even myopic. What’s distinctive about the U.S. is not that no voices have clamored for hierarchy, but that those voices have always lost! More than any other nation over the last 250 years, the U.S. has repeatedly recentered itself in equality before the law, and preserved social mobility in the face of substantial efforts to reify hierarchies of many different kinds.

Finally, Phillips-Fein notably strains, and frankly fails, to fit every personality she can scrape up neatly into a single Procrustean anti-egalitarian lineage. John Adams worried that a majoritarian system might struggle to govern, a plausible concern in 1780 given the world’s lack of experience with democracy. Adams is folded in here on the strength of his “ambivalence” about equality; that’s a much softer claim than outright advocacy for hierarchy. Andrew Carnegie is a similar problem: his philanthropic guilt and paternalistic sense of obligation to give back to the public sit awkwardly next to figures like Sumner or Stoddard who denied any such obligation.

When a 250-year argument has its founding-era anchor express nothing stronger than concern for an untried system, that’s a sign the argument is weak. Phillips-Fein concludes that the American belief in equality has always had to compete with a genuinely mainstream counter-tradition rather than triumph outright, which is surely correct. But then she infers that today’s inequality debates aren’t a betrayal of some past consensus so much as a resurgence of one side of a fight that never really ended.

This is a tone-deaf conclusion, and a deep misunderstanding of the liberal tradition. As Thomas Hobbes explained, each individual wants to rule and sees in him or herself the sort of person entitled to deference from others. But as Montesquieu, John Locke, Adam Smith, James Madison, and John Stuart Mill pointed out, we can design a political system that controls and blunts this urge to power. Liberalism is the instantiation of checks and balances, guardrails that limit concentrations of private power. Though there have been voices of dissent in the U.S., people who have sought power, there are fewer of those voices here, and they have been less effective."

Immigration crackdown hits Kansas, disrupts beef processing

By Tom Polansek of Reuters. Excerpts:

An immigration crackdown in Kansas disrupted beef processing, impacting immigrant workforce and cattle supply.

Community leaders reported ICE targeting Latino areas, causing fear and workforce shortages.

Beef prices rise as processing slows; industry groups warn of further consumer price hikes. 

"As affordability concerns weigh on the Republican Party's chances of maintaining control of the House and Senate in the upcoming midterms, President Donald Trump ⁠has enacted policies aimed at controlling the cost of beef.

Immigration enforcement could be ​the latest to work at cross purposes, causing record-high beef prices to tick ⁠up even higher, according to industry and union officials. Cattle futures gyrated this week as traders weighed tight supplies against processing disruptions due to the crackdown."

"Beef prices soared to records this year after ​a multi-year drought drove ranchers to reduce their herds to a 75-year low and Washington suspended cattle imports from Mexico. Trump has struggled to lower prices with a bevy of policies and other pronouncements, including increasing low-tariff beef imports and launching an investigation into meatpackers.

Meatpackers slaughtered an estimated 90,000 cattle on Thursday, down 16% from a week earlier, the Department of Agriculture said."

Tax Increases Are the Wrong Way of Dealing with the Social Security Mess

By Dan Mitchell.

"I periodically share data showing that America’s long-run fiscal problem is that the burden of federal spending is growing too quickly.

The same thing is true when looking at specific programs. Here’s a chart showing that Social Security outlays are growing rapidly (which helps to explain why the program has a gigantic long-run fiscal problem).

The chart comes from a Washington Post editorial about the program’s shaky finances.

Here are some excerpts, starting with a description of the problem.

The burden of the payroll tax is already enormous. Though the 12.4 percent rate is technically divided in half between employer and employee, workers end up paying the employer’s side of the tax through lower compensation. …Last year, the Social Security payroll tax raised $1.28 trillion. That’s almost three times what the corporate tax raised. Only the individual income tax raises more federal revenue. …it’s easy to see why the program is broke. The payroll tax rate has been the same since 1990, and revenue as a share of the economy has been roughly flat. The program used to run annual cash-flow surpluses but since 2010 has run deficits — because benefits are rising too quickly.

The editorial then explains why higher payroll taxes are the wrong approach.

According to the latest Congressional Budget Office estimates, the payroll tax rate would need to increase by 40 percent — from 12.4 percent to 17.3 percent — to fund Social Security for the next 75 years. For the median worker in 2025, that would be a tax increase of roughly $3,000. …would the median worker today rather pay $3,000 more in payroll taxes or invest $3,000 in index funds? And why should the government decide that the extra $3,000 is best used for retirement in the first place? Perhaps removing the cap on taxable wages, $184,500 this year, is more appealing since it would affect only high earners. The problem is that doing so would make the top rate on labor income one of the world’s highest while covering only about half of the projected funding gap for Social Security…the payroll tax rate has been raised 20 times already. A 21st hike isn’t going to do the trick.

By the way, that $3,000 tax hike is every year, not a lifetime amount.

And only about 10 percent of Americans would be willing to pay that much to bail out the program.

Here’s another chart from the Post‘s editorial. It shows the amount of taxes needed each year from various income groups to finance existing Social Security promises.

Proponents of bigger government will look at these numbers and argue that higher payroll taxes can solve Social Security’s financing problem.

And if you ignore the potentially damaging impact of higher taxes and more spending, they’re right. At least in terms of math.

But they are overlooking the fact that Social Security has another big problem, which is that it is a lousy way of providing retirement income. Workers pay too much and get too little.

As many countries (including Iceland, Australia, Chile, Switzerland, Hong Kong, Netherlands, the Faroe Islands, Denmark, Israel, and Sweden. have demonstrated, personal accounts based on private savings are much better. More retirement income, more national savings, stronger economic performance, and smaller government.

P.S. Here’s a primer on the five options for dealing with the Social Security mess."

Proposed wealth tax risks destroying California’s innovation engine

By David R Henderson and Francois Melese. Excerpts:

"Many wealth tax advocates assume that a founder’s fortune represents wealth unfairly extracted from society. But economic research says the opposite. Nobel laureate William Nordhaus estimated that innovators capture only about 2.2% of the economic value they create. The other 97.8% flows to consumers. In short, a billionaire tech founder’s wealth is only a small slice of the value he or she created for society.

Google illustrates the point. Sergey Brin and Larry Page became extraordinarily wealthy by building one of California’s most valuable companies. Their combined fortunes are over $500 billion.   Yet, if Nordhaus’s estimates are even roughly right, the value that Google’s innovations create for consumers is measured not in billions but in trillions of dollars.

Much like AI companies today, Google’s technology was highly disruptive and displaced several categories of work—from print advertising to travel services. Total U.S. newspaper advertising revenue collapsed from nearly $50 billion at its peak in the mid-2000s to under $10 billion by the early 2020s. Meanwhile, as consumers increasingly booked flights and hotels online, jobs for U.S. travel agents tumbled nearly 50%, from around 124,000 in 2000 to roughly 66,000 today.

Happily, as has occurred throughout history with disruptive technologies, these highly visible losses were dwarfed by massive, but less visible gains. Google helped launch and accelerate new industries—from digital advertising and app development to search optimization and cloud services. Google’s platform helped birth a broad ecosystem where businesses can instantly reach suppliers and customers across the globe. Both consumers and businesses benefited as the cost of search and price comparisons fell, shifting bargaining power to buyers and intensifying competition among sellers to produce better products at lower prices.

According to the U.S. Bureau of Labor Statistics, since Google’s founding in 1998 employment in software publishing, internet services, digital marketing, and related information industries has grown by well over a million jobs. Google itself estimates that its Search, Ads, Play, Android, and Cloud ecosystems support more than 2 million U.S. businesses, publishers, developers, and nonprofits.

Brin and Page became billionaires by revolutionizing how billions of people find information, products and services. The fortunes they accumulated are not the result of wealth redistribution; they reflect a series of innovations that increased productivity, expanded consumer choice, reduced transaction costs, contributed to greater competition and more efficient markets, and helped create new markets and employment opportunities across the globe.

This matters for how we think about wealth taxes. Most startups fail. A handful like Google earn outsized returns that compensate investors and founders for those many failures. Meddling with the potential rewards reduces the incentive to take those risks—not just for existing billionaires, but for the next generation of entrepreneurs deciding whether and where to launch a company or pursue risky new technologies."

"But under current law the wealthy already pay a substantial share of the state’s [California] income taxes. The top 1% of taxpayers—around 180,000 filers—pay 40% to 50% of all personal income taxes. The state’s roughly 200+ billionaires alone pay 2-3% of all personal income taxes. They and the tech companies they founded also pay high corporate, capital gains, and payroll taxes." 

Family Income Continues to Grow in 2025 Data

By Jeremy Horpedahl.

"Yesterday the Census Bureau released their annual treasure trove of data from the Current Population Survey, Annual Social and Economic Supplement. Loads of new data are now available for 2025 on income, poverty, and health insurance coverage. This new data allows me to update one of my favorite charts, showing the distribution of family income in the U.S. since 1967. Census releases this data by grouping families into nine different income groups, which I have collapsed into three groups, each being as close to one-third of the total as I can get using the publicly available data.

Figure 1

 

See also a similar chart from Mark Perry which uses household income (rather than family income) over the same time period.

Figure 1 shows that, adjusted for inflation, the proportion of families with income over $150,000 has grown almost seven-fold since 1967. There has been a roughly constant one-third of the population between $75,000 and $150,000, and the ranks of those under $75,000 has been cut in half since 1967. Again, these dollar figures all adjusted for inflation, using the preferred deflator of the Census Bureau.

What’s even more astonishing is when we look at the number of families at various thresholds, rather than just the share, as seen in Figure 2.

Figure 2

 

In 1967 there were fewer than 3 million families with incomes over $150,000 (in 2025 inflation-adjusted dollars). By 2025, that had grown to over 31 million families. If we look at the highest income threshold in this Census data — over $200,000 — the number of families has grown from just 1 million in 1967 to over 20 million in 2025. And there are fewer lower-income families too: the number of families under $75,000 shrunk, not just as a proportion of the total as seen in Figure 1, but even in absolute terms by almost 3 million families from 1967 to 2025.

Of course, some of these families do have more earners than in 1967, though we shouldn’t overstate that too much. Using other data from Census, we can see that the share of families with multiple earners hasn’t increased much since 1967, and especially hasn’t since the mid-1990s.

Table 1

 

As seen in Table 1, as far back as 1967 the majority of families in the U.S. had multiple earners. Now it’s true these were not all married couples with both spouses working full-time, and hours of work in the household have risen over time — but not much since the 1990s. This data is somewhat skewed by the aging of the population, as evidenced by the rising number of families with no earners. But even if we drop those families with no earners, multiple-income families haven’t grown much: from 58% of the total in 1967 to 63% in 2025." 

Krugman, Stiglitz, et al Flunk Econ 101

By David R Henderson.

"Six winners of the Nobel Prize in economics recently signed a statement in favor of California’s Proposition 40, the measure that would impose a one-time 5 percent tax on California billionaires. They are Daron Acemoglu, Abhijit Banerjee, Peter Diamond, Esther Duflo, Paul Krugman, and Joseph Stiglitz. Their statement showed little understanding of basic economics.

In one section, they write:

Over the 2019-2025 period, the total amount of California income tax paid by billionaires amounted to only 1.6% of their $1.4 trillion wealth gain, much less than what ordinary Californians pay on their paychecks.

There are two problems here. First, they don’t know that billionaires today, the ones who would be paying the tax, got a $1.4 trillion wealth gain. There’s huge mobility in and out of the group of billionaires, especially over a period as long as 6 years. Also, someone might have had a billion in 2019 and have a billion today. That person would be taxed this special 5 percent. What’s his wealth gain? Zero.

Second, it’s a phony comparison because the rest of us “ordinary Californians” don’t see our wealth gain on our paychecks. Our paychecks are for services rendered. Capital gains, whether realized or not, don’t appear. So someone might make $80,000 on his paycheck and have had, over six years, an unrealized capital gain on his house of $200,000. But these economists don’t take account of that. Are they aware that a few million Californians are sitting in houses on which they have had huge capital gains? Or are they just incredibly sloppy or even dishonest?

They also state:

This extreme wealth has translated into extraordinary power, in California just like in the United States more broadly. During the 2000 federal election cycle, billionaires accounted for about 1% of total donations; in 2024 this number had risen to 19%. The Washington Post, the Wall Street Journal, the Los Angeles Times, Instagram, Facebook, TikTok, X are all owned or controlled by prominent billionaires. Sergey Brin alone has already spent more than $100 million to defeat the California billionaire tax.

But there were many fewer billionaires in 2000, for two reasons. First, even inflation-adjusted, there are way more billionaires just as there are way more millionaires. Second, inflation alone has led to more billionaires. One billion in 2024 would be, in 2000 dollars, $549 million.

Moreover, are these economists aware of why Sergey Brin spent more than $100 million to defeat Proposition 40? It’s because it’s on the ballot. If they wanted him not to make political contributions, there was a way to do it: persuade their allies not to put Proposition 40 on the ballot. These economists don’t just flunk Econ 101; they also flunk Irony 101.

The Nobelists also state:

California’s 250 billionaires are collectively worth $2.3 trillion. Their wealth now amounts to the entire annual income of all California taxpayers — some 20 million of them.

But billionaires’ net worth is their wealth, the value of all their assets, and it’s a stock. The annual income of all California taxpayers is a flow. Economists are not worth their pay, a flow, and might even not be worth their wealth, a stock, if they fail to distinguish between stocks and flows.

In his speech at the Nobel banquet of 1974, Friedrich Hayek stated:

There is no reason why a man who has made a distinctive contribution to economic science should be omnicompetent on all problems of society – as the press tends to treat him till in the end he may himself be persuaded to believe.

I’m sure he would extend his generalization to women too, so Esther Duflo isn’t let off the hook.

Actually, though, the six economists’ statement is even worse than what Hayek feared. He worried that Nobelists would pontificate “on all problems of society.” But these Nobelists get even some basics of economics wrong."