The revenge of the marketplace

The mass transit system in Washington, D. C., is in a financial crisis.  This is because, in an effort to raise money, the government raised prices.  Which has resulted in fewer and fewer people using the system.

The across-the-board fare increase imposed by Metro this summer has led to a drop in bus ridership and less-than-expected rail revenue as a result of changing travel patterns, an initial analysis by Metro shows.

Bus ridership has fallen 7 percent, with overall Metro system ridership 2 percent below the levels of the last fiscal year, which ended in July, and 3 percent below Metro’s projected level. The lower-than-expected passenger revenue is the main factor in Metro’s overall revenue shortfall of 4 percent so far this year.

The number of rail riders remained flat (though it was boosted by major events on the National Mall), but 2 to 3 percent of rail riders have moved their commutes from peak times to the window with the lowest fares, and others avoided certain trips, according to the analysis.

Metro this summer implemented nearly $109 million worth of rail, bus and paratransit increases, including a new 20-cent “peak-of-the-peak” surcharge for some rush-hour riders.

via Revenue, ridership on Metro fall short.

As prices rise, demand goes down.  That is an iron law of economics that cannot be legislated away.  Pricing has to be set by the market, not by government fiat.  The economic marketplace operates as a natural law, whether or not policy makers believe in it.

I lived in Estonia for a few weeks back when it was still a part of the Soviet Union, staying with a family as part of a college faculty exchange program.  Under Communism, prices were set by the state so as to make goods affordable for the masses.  But when the prices were set lower than the cost of production, you couldn’t buy the goods because the stores were virtually empty.

Also, production was not determined by market demand; rather, the government set quotas.  Factories had to meet their quotas or the managers and workers would get in big trouble.  So they took shortcuts.  A shoe factory could meet the quotas easier if they didn’t have to keep resetting the machinery to manufacture different sizes.  So they would produce a whole run of, say, size 6 shoes, the smaller size also having the advantage of saving material.  So if you went into a shoe store, you might find that it only had shoes in size 6.  If you wore a different size, you were out of luck.

Governments can certainly interfere in the marketplace, but the marketplace will have its revenge.