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By Ludwig Von Mises Institute (Reporter)
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New York Politicians Have No Idea How to Fix the Subways

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The misery will continue for New York subway riders, who don’t understand how previous subway reforms have failed. State and city officials concede things will worsen.

“There is no question our subways are in crisis after decades of underinvestment and inaction,” wrote New York City Comptroller Scott Stinger in a recent report.

“The Metropolitan Transportation Authority (MTA),” writes New York State Comptroller Thomas DiNapoli in a report last year, “is facing its greatest challenge in decades.” Riders, he warned[,] “are abandoning the system for other transportation alternatives.”

And the problems will continue for years.

“Citing the MTA’s low debt service coverage in the near term and its challenging funding issues, Standard & Poor’s recently downgraded the MTA’s credit rating, which could lead to higher borrowing costs. Debt service is already projected to increase by 26 percent over the next four years, reaching nearly $3.3 billion by 2022,” according to the DiNapoli report.

“Debt service,” DiNapoli wrote, “has been growing rapidly since the early 2000s.” Yet the red-ink woes of the government trains had been going on for many years before that.

Stringer, who is critical of the subways but against any privatization, says bad subway service hurts the area’s economy. Losses range “from $170 million to $389 million” a year.

And that was before the coronavirus crisis. Yet no state or city official says anything about bringing the private sector back into the subways. Its first lines were built by private companies, made lots of money, and helped clear slums in lower Manhattan as people were able to move to better neighborhoods.

Yet the government-run subways, again on the verge of disaster, will follow the same solution even though it repeatedly failed over decades: More taxpayer money.

Here’s what one subway historian wrote of the previous “give the subway more taxpayer money” plans: “If anything has emerged as a timeless and universal characterization of the New York Subway,” writes historian Brian Cudahy, “it is the endless search for some future salvation, some not realized resolution of its difficulties and cure for its ills. Plans are made, programs developed, goals established. But they never quite live up to their initial expectations, and a new cycle must begin.”

Cudahy, who was also a former federal transit official, is against privatization.

The MTA recently approved the biggest capital plan in the agency’s history; some $51 billion. MTA Managing Director Ronnie Hakim, promised that “enhancements” to the system would “improve the riders’ daily experience.”

Dear Riders, Has Your Experience Improved? 

But most of this extra money, as the sad subway history repeats, will not be spent on better trains, but on servicing the huge amount of debt of the government agency running the system.

For instance, how many people know that three separate Second Avenue Subway bond issues were approved over some 60 years—in the 1950s, 1960s, and recently under Gov. George Pataki—yet, in the case of the first two the money had to be spent on closing the subway deficit? As for the third bond issue, very little of the new line has been completed and who knows when this infamous Line—which was designed to replace the Second and Third Ave. els, which were taken down in the 1950s and 1960s—will ever be finished?

Yet again the state agency that runs the subways, which in the 1960s replaced the city agency that made a mess of running them, says it is deep in the hole even with more money coming.

The MTA, already in the midst of a new cash infusion, wants the federal government to provide billions more on top of that $51 billion, with service deteriorating and MTA officials saying the red ink could possibly lead to something I can’t recall ever threatened before in previous crises: Lines discontinued!

Yet our political and media elites today have the same answer as 70 years ago: Give more money to this flawed system and ban the private sector.

Actually, I would argue that, as with so many other failing government services in so much trouble, it is no longer a philosophical debate. Privatization is inevitable, given the messes created by decades of a government-run enterprise.

Yet any privatization is verboten in New York’s increasingly socialist economy. Our leaders push various price controls. They are hostile to the privatization of anything.


In the subways their opposition is based on a historical myth: “Private subways, private transportation companies, can never make money.”

I have been told this many times.

Is the private-transportation argument valid?


The IRT [Interborough Rapid Transit Company] was a private management company that had a subway-franchise contract with the city. It built the first subways, which were considered “an engineering marvel” by Robert Caro in his biography of the controversial New York bureaucrat Robert Moses.

“So superbly engineered and maintained had the system previously been that it took years for the systematic neglect to take its toll,” Caro wrote.

But in the last decade or so of the IRT, the company that built the first subways did lose money and wanted to sell to the city.


The IRT, in its nearly 37 years of existence, was never permitted to raise the fare above a nickel. That fare was quickly and frequently raised once the city, and later the state, took over the subways.

The use of price controls, along with punishing regulation, is the classic case of how socialism comes in the back door without anyone’s mentioning the word “Marx.”

However, the journalists and political elites in our city either don’t know or want to hide some painful history about the subways. In the first 25 years or so of the IRT it made money—a lot of money. (By contrast, a government-run competing system, the IND [Independent Subway System], always lost money.)

Indeed, in the IRT’s 1917 annual report, the transportation company reported net income of $23.2 million. That was an increase of about $1.5 million over the previous year. The IRT was also a good investment. It paid some $7 million in dividends, according to the annual financial report dated June 30, 1917.

Profits and Dividends through Subway Operations? Yes. 

And even into the 1920s, when price controls and rising costs as a result of World War I squeezed profits, when the private operators sued to raise fares, the subways still made money.

But the IRT could see problems coming. World War I had driven up costs and the nickel fare was insufficient.

In a U.S. Supreme Court decision of 1929, Gilchrist v. IRT, a decision that affirmed that the five-cent fare couldn’t be raised to seven cents, court papers documented that the IRT was doing something that the government would never do: The IRT made money.

“For the current fiscal year ended June 30, 1928, the figures for the first six months are available, and show a net surplus amounting to $3,687,000, which exceeds the surplus for the corresponding six months of the fiscal year before by $1,609,000.”

However, after the IRT was repeatedly blocked from raising fares, the price-controlled subways lost money in the 1930s. Soon, we were on the track of a perpetual government-run system: It meant then what it means today and will always mean: Lose a lot and provide rotten service.

But what if we continue down this same road of throwing more taxpayer geld down the sewer?

More cutbacks and fare and tax increases will come in the current system as riders continue to suffer.

Privatization is the only road back to the days when the subways were considered an engineering marvel. The subway system could and should be handed back over the private sector.

It doesn’t have to be this way, a way in which people despair of having to ride this state-run nightmare. In fact, there was a time when the subways were great under a private management company. The people who run the city don’t want people to ever know that. They don’t want them to ever learn the true history of markets, which consistently provide better services than the government. They will then want—perhaps even demand—a privately owned, privately run subway system.

This article was originally published in the January 2021 edition of Future of Freedom.


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