Bus Fares and Extrinsic Costs

In a busy society there are a lot of things which have extrinsic benefits and costs.  The most popular example is pollution:  in a laissez-faire world, a company can dump whatever it wants into the environment.  If the company were living in a closed environment (think of a space station), it would have to deal with this pollution itself, but for centuries, they were allowed to pollute the (seemingly infinite) atmosphere, wetlands and waterways.  During the 1970s it started to become clear that these were far from infinite and governments instituted various measures to force the companies to clean up.  The companies resisted, of course. Now that it's becoming clear that CO² is such a problem with particularly dire consequences, the polluters are resisting again.

Not all extrinsic effects are negative.  Public transit is a benefit to everybody, but especially to the companies and their employees whose riders use it to commute to and from work.  Many communities installed transit in the late 19th and early 20th centuries, generally subsidized by real estate developers.  For a few decades, the fares collected from riders were sufficient to pay for operating costs, but as demands for expansion and maintenance grew, these became insufficient.  Generally, city fathers have been farsighted enough to subsidize them from the broader tax base, but in the cases where they have cut back, the loudest complaints have been from corporate executives: employees can't get to work!  They're getting the benefit, but not paying for it--very much like what was happening with their ability to pollute.  Ultimately, society has to be taxed.

As a society, we need to face these extrinsic costs and benefits and be willing to pay to make them work as well as practical.  There are lots of them--road construction and maintenance, public safety such as police and fire, building inspection, bank regulation, the postal service, lots more.  These things are necessary.  They don't always have to be government run: for example, most road construction and maintenance is done under government contract by private businesses, although a lot of emergency services--snowplows, sanding, pothole repair--are government workers.  When it's practical, we can charge user fees to put as much of the costs as we can onto the people using the facility the most.  Gas taxes and bus fares are good examples of this.

But we must not let the fact that some of the costs can be paid this way confuse us into thinking that these are like private businesses.  They are not; they are public utilities.  These fees should be the highest they can be without discouraging use, but no higher.  Bus fares for poor people getting to work should not eat significantly into their take-home pay.  To the contrary, we want to encourage people to use it, by making it cheap and desirable.