Baumol’s Cost Disease and Transit

This post originally appeared on Orphan Road.

A related thought I had while attending last night’s meeting is that Baumol’s cost disease is a killer for bus service in the long run.

If you’re not familiar, Baumol basically says that the cost of wages in unproductive sectors of the economy go up because those works are living in the same world as workers in other sectors whose productivity has increased. The famous example is orchestras. An orchestra takes the same amount of time to perform Beethoven’s Ninth that it did 100 years ago. Meanwhile, an auto worker can make the same car in half the time it took in 1970. So the auto worker’s wages go up. But the auto worker and the violinist rent from the same landlords and shop in the same grocery stores. So the violinist’s wages need to go up, too, even though he/she is no more “productive” than 100 years ago.

Most sectors of the economy that are afflicted by Baumol — performing arts, education, health care, transit — tend to end up with government subsidies for precisely this reason.

(Recorded music, has, of course, made the violinist more productive in the sense that the same performance can now reach millions of people. This is exactly the increase in productivity necessitated by Baumol. Baumol doesn’t predict the increasing costs of music in general, but specifically live performances of music.)

Similarly, Seattle’s buses likely take the same amount of time and carry roughly the same number of passengers that they did 50 years go. But the cost of living has gone up dramatically. So drivers need to be paid more. They have to live and raise families in the same city with software developers whose productivity has gone through the roof in the last 20 years. Which means one ore more of the following:

Buses need to get bigger and carry more people per driver (i.e. turn into trains)
Fares have to continue to go up faster than the rate of inflation
Public subsidy has to rise, also faster than the rate of inflation
Buses need to get faster – do the same route in less time (while not losing any passengers)

I’m not the first to make this connection, of course. There’s a great op-ed in the Minneapolis Star-Tribune from last July by Steve Elkins that makes exactly this point. But it’s worth keeping in mind as you see agencies like Metro struggle to stay solvent. In many ways they’re swimming against the tide, and that’s before you get into all the efforts in recent years (I-695, etc.) to actively cut transportation funding.

Incidentally, this is also why the suburbs are fundamentally doomed in the long run. But that’s another post entirely.

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