Wednesday, October 27, 2004

The first 100 years of the New York City subways.

Today is the Centennial of the New York City subway, which opened on this date in 1904 with the express purpose of promoting "urban sprawl" -- to enable the city's working classes to escape the noxious congested housing (such as in the notorious Five Points district) into which they were forced by the need to be able to walk their jobs in lower Manhattan.

The new subway system was designed to enable these workers to move to new homes in the wilds of Upper Manhattan ("The Dakota" apartment building on 72nd St. was called that because it seemed that far away) and then in the hinterlands of the Bronx, Brooklyn and Queens.

At this the subway was, of course, a fantastic success. In 1900 most of the city's 3.5 million residents were squeezed into living in lower Manhattan, with the Lower East Side one of the most densely populated areas in all human history. After the opening of the subway the population of the Lower East Side fell by two-thirds, while the population of the Bronx, for example -- which before then had consisted of farms and small villages -- by 1925 exceeded one million.

This movement of the masses from congested slums out to homes in the countryside -- coupled with the new access they acquired to distant resort areas, such as Coney Island -- constituted a great improvement in welfare for the population. And the style and convenience with which the subway moved masses of people between home, work and recreation -- through chandeliered stations -- quickly made it a symbol of New York City that was famous around the world.

The subways also were a great engineering marvel of the era. The IRT Line that opened 100 years ago today and ran from City Hall to 145th Street was built by its private operators on time and under budget. As today's NY Daily News notes:
... astonishing to 21st-century New Yorkers: The construction of that first line - the IRT - took all of four years, from groundbreaking to opening. Think of it. All those miles and miles of tunnels, blasted and smoothed and perfected, and the track laid, and all the stations (25 of them) built. In only four years. Today there are subway escalators that have been out of service longer than four years.
The project entailed advances in construction, train operations, and technologies (such as automated signaling) that pushed forward the state of the art world-wide.

An illustrated opening day souvenir brochure explains the new subway, the history behind it and the work that went into it to the citizens of 1904. It's part of a wealth of historical information about the subway's early construction, as well as the larger history of the subways, located at David Pirmann's excellent web site -- which contains far more such information than official sites associated with the subway system.

The subways soon proved to be a great business success as well. All the trains and equipment were bought and paid for by the operating company out of pocket. Stations were designed by Stanford White and the great architects of the era, each with its own individual theme. The capital cost of ground construction was financed with a bond issue arranged by the city that was paid off by the operating company -- so the city's taxpayers paid nothing. And after paying for all this, the famous "nickel fare" (worth about 95 cents in today's money, less than half today's $2 fare) left the IRT earning a healthy 20% return on investment.

All very different than today. On the other hand, as the Daily News also notes, in some ways things were pretty much same as today...
the subway opened to the public ... at 7 p.m. Among the 150,000 riders to flow into the stations was one Henry Barrett of 348 W. 46th ., who boarded the train at 28th St. wearing his $500 diamond-horseshoe pin. He then looked down and saw that it was gone. That was at 7:03 p.m.
The true golden era of the subway didn't last long, however. Here's a little historical story with a point well worth remembering still...

A decade after the 1904 opening of the IRT, the subway operators and city were planning a major expansion, creation of the BMT line, on the same general terms as the before. But at this point the IRT had for a decade been earning a 20% return after servicing the construction bonds, and the city noticed that that was a great deal more than what it was collecting for managing the bond issue.

So the city negotiated new terms for this expansion under which it contributed the proceeds of new construction bonds to the project, instead of having the operators service them, in return for 50% of the profit from operations. In effect, the city became a 50% equity investor in the for-profit subway system.

But soon thereafter the World War I inflation hit, reducing the real value of the dollar -- and the nickel -- to about only half of what it was before. And what did the city politicians do then?

Well, good populist vote-seekers that they were, they passed legislation price-controlling the fare at a nickel.

Get it? First the city gave up its position as secured creditor of the subway system in the amount it had contributed to the system (about $40 million, more than $600 million in today's money) in exchange for 50% of the profits -- then it passed a law that destroyed those profits. Clever, eh?

Of course, eliminating the profits -- reducing the subway system's real revenue per passenger by 50% -- also put the city's taxpayers on the hook for servicing all those bonds, and decimated the quality of service the operators could afford to provide to riders.

Why would the city's politicians ever do such a thing? From rational self-interest, of course -- to profit politically by collecting votes from "saving the fare". After all, the politicians weren't personally on the hook like taxpayers for the bond payments, nor like investors for investment losses, nor like subway riders for the diminished quality of service. Those were other people's problems. But getting votes from imposing a price control, that paid off for them.

Some people wonder why I am skeptical about the government price controlling prescription drugs and medical services ... but I digress.

Preserving the "nickel fare" became political orthodoxy in New York City, a sort of third rail of local politics, for another 30-odd years, as long as the subways had private operators. The privately operated subways nevertheless rolled on and were able to eke out marginal profitability through deep operating cuts -- running fewer and more crowded trains, with stations and trains that weren't cleaned as often (chandeliers removed), and no more new stations designed by the likes of Stanford White.

In the 1930s the city began operating its own, government-owned subway line, the IND (for "Independent") line. This was the creation of Mayor John Hylan, who was a later-generation politician than those who created the subway, with very different views.

The creators of the subway insisted that it be privately operated, not city owned and operated, because of the staggering sums that Tammany Hall politicians (then in exile) had stolen from municipal projects during the prior decades. But John "Red Mike" Hylan was a Tammany politician who restored its influence at City Hall.

Hylan strongly opposed having the private sector provide municipal services in general, and hated the subway companies in particular, with a personal vengance. Literally. Because as a law student he had worked as a motorman for the BMT, and one day while studying a law book while moving a train through the yard he had nearly run down the head of the BMT as the latter walked across the tracks -- and was fired on the spot. Hylan carried a grudge from that forevermore.

The routes of the IRT and BMT and been laid out to carry people where they could not otherwise go. But Hylan's IND's routes were designed with the intention of undercutting the IRT and BMT. They ran in large part parallel to the other lines' existing routes, with stations located to intercept passengers from the IRT's and BMT's "feeder" surface transit lines.

This was a different political era from 1900. Now the idea was that citizens should have a choice of riding in a non-profit government subway rather than contribute to capitalists' profits. The increased congestion and declining quality of service of the for-profit lines (caused by the government's price-fixing of the fare) proved the need for government-run, non-profit service.

Unfortunately for taxpayers the IND proved non-profit in the extreme. Its government-managed construction cost was 125% more per mile more than that of the IRT and BMT, and upon entering service its operating cost was 14 cents per passenger while charging a nickel fare -- making operating losses 180% of revenue.

To make a long story less long, in the 1940s Mayor LaGuardia decided it would be a good idea to force a city takeover of the privately operated subway lines and unify their management with that of the IND. His rationale was that the city would thus "recover" the capital it had contributed to the private lines, while the management of the private lines would take over the IND to improve its efficiency and reduce its costs. The private operators of the IRT and BMT, seeing they would never be freed to charge a fair fare, and facing new direct city-owned competition, sold out to it for what they could get.

But things worked out reverse from what LaGuardia had intended. The capital thus "recovered" by the city was a sunk cost and the taxpayers' cost of servicing the related debt wasn't reduced a penny by the takeover, while the work practices and operating costs of the of IND quickly enveloped the former privately run lines. And with the politicians now receiving and disbursing the fare, and being forced to pay for their own promises, they quickly jettisoned the political orthodoxy of the "nickel fare" -- after 45 years of existence it was rapidly doubled to 10 cents, and soon tripled to 15.

By the 1970s, after 25 years of city management, the subways were once again famous world-wide -- this time for the state of ruin they were in. Thirty percent of trains were out of service during rush hour. Trains leaving the repair shop had higher break-down rates than when they went it. Almost all trains were covered with graffiti from top to bottom, inside and out, often so that it was impossible to see through spray-painted windows -- something that became a new signature mark of New York City's image in the movies and television shows of the time, shown around the world.

The collapse finally lead state politicians to remove the subways from city management and place them under the management of a semi-independent, quasi-governmental agency, the Metropolitan Transit Authority. Since then, with massive taxpayer-financed capital investment, the quality and cleanliness of the subways has been in large part restored -- the graffiti is gone.

But as to cost ... the Chairman of the MTA, observing the 100th anniversary of the subways (and showing exquisite timing and sensitivity towards his customers) stated that riders now should expect fare hikes every other year going forward, in odd number years. The tremendous productivity gains seen over the last 100 years in every other form of transportation, including railroading, are pretty totally missing. What other form of transport costs more than double (much more, including subsidies) to move a passenger now than it did 100 years ago?

A couple of personal afterthoughts:

I find it amusingly ironic every time I see or hear some enemy of "urban sprawl" propose new urban rail lines as a means of fighting sprawl and supporting denser living -- so often citing the example of the NYC subways as a model -- without ever realizing that the NYC subways, and other successful rail systems like it, had the express purpose and very successful effect of promoting urban sprawl. What successful rail line ever promoted congestion? As Justice Holmes was wont to say, a page of history is worth volumes of theorizing.

And I will have faith in our elected politicians fixing prices for, and/or directly managing the provision of, prescription drugs, health care, housing, and other services, when the day comes that somebody shows me how today's elected politicians face a very different set of political incentives when doing so than did all those politicians who price fixed and managed the NYC subways ever since WWI. Different incentives that will produce a qualitatively different result.

Nobody's even pretended to try and show me that yet, and I'm not holding my breath.