How New York City’s subways, once an essential part of the city’s economy, became a nightmare as the back door to socialism policy triumphs here and around the nation. Why private enterprise must make a comeback underground and elsewhere.

(Editor’s note: The authority running the New York City says if they don’t receive a lot more state or federal soon, they will be forced to cutback service by some 40 percent. Here is a historical piece that explains how the city’s one time transportation jewel has going downhill for over a half century under government mismanagement).

Few believe this but there was a time when the New York City subways were “an engineering marvel.” But they were an engineering marvel primarily under the control of private enterprise.

Yet that was the case a little over a century ago. Today everyone agrees the city’s government run subways are a mess. There’s a consensus that the state agency running them has wasted billions of dollars, driven riders away and made riding them an awful experience.

“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, a report in which he warned that riders are frustrated.

“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 that was before the state’s mishandling of the Coronavirus crisis. That’s when hospital workers were forced to ride crowded subway trains—a perverse kind of accomplishment since ridership declined by some 90 percent as New York went into lockup—with the homeless, who took over the trains. New York Governor Andrew Cuomo, after a month of this crisis, suddenly said it was “a disgrace.”

The state report, “Financial Outlook for the Metropolitan Transportation Authority,” also found that New York’s state-run railroads, such as the Long Island Railroad and Metro North, have “deteriorating service.”

1) More Taxpayer Money Down the Drain?

But the biggest subway problem is one never mentioned in any government or mass media report: The proposed solutions are a rehash of past solutions that never worked: more public funding through higher taxes on riders, drivers and more government subsidies.

Yet Ground Hog Day is about to happen again underground: Various levels of government will soon do what they have done many times since the government took over the subways in the 1940s: They will provide billions more in tax money for the already overleveraged MTA. It is a flawed state agency with headquarters in the most expensive part of the city. For over a half century its wasteful policies have been documented as were those of previous city agencies that ran the subways. (One example: the MTA once maintained a fleet of cars for executives who were visiting community board meetings at night to discuss transit matters. Why didn’t they take the subways there? They wanted to get there on time. An addendum to that was a community meeting in Briarwood, Queens on a Wednesday night some 20 years with my then Congressional representative Chuck Schumer. He arrived by car. That’s despite an E-train subway stop by the meeting place, Schumer arrived and departed in a car).

Now the MTA will get a lot more from New York’s taxpayers, already among the most overburdened in the nation. 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.”

But will they? There was no review of the more than 80 years of government operation of the subway system. And, once again, there is no consideration of the restoration of any private subway operations.

2) A Tax on Work

New tax dollars for the broken-down subway system will come in part from a congestion pricing scheme. The latter will assess a new tax on motorists coming into the city. The state will tax people, often living in distant suburbs—and many with limited or lousy government run mass transportation alternatives—for driving to work to central Manhattan during business hours.

All of New York’s political classes along with the city’s journalistic elites and subway historians seem to agree the MTA, which runs the subways as well as commuter railroads and buses, should receive this new money. Even supposed friends of free markets argue the private sector can’t make money in the subways so the only answer is the previous answer: more of the government solution. (Indeed, this is what I have been told numerous times over the years in having my articles exploring private solutions rejected).
Remarkably, many among mainstream journalists and historians believe the reason for the system’s problems is the MTA has been shortchanged over decades; that it hasn’t received its fair share of state, city and federal aid.

However, that begs the question that one disgruntled rider once asked me: “How is it that a quasi-monopoly train service in the middle of the most car congested city in the world can’t even break even?”

Good question.

The answer, I believe, is in the nature of government enterprise. The politicized direction of business entities, as I will contend here, is a flawed formula. The nature of most successful business is to be apolitical.
Nevertheless, now the MTA will get much more money. The system will recover, New York’s public and media elites say. This is an opinion that ignores history.

2a) The More Things Change, the More They Don’t Change in the Subways

That’s because more taxes or different state/city and federal government solutions have been tried many times before, says a historian of the subways in his book “Under the Sidewalks of New York.”

“If anything has emerged as a timeless and universal characterization of the New York Subway,” writes 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 is not a proponent of privatization, wrote that several decades ago.

We’ve had a lot of new cycles over just the last twenty years. Nevertheless, Cudahy, who once served as a federal transit official, also was in agreement with the consensus of New York leaders: Letting the private sector back into the subways can’t be allowed. It shouldn’t even be discussed, many New York leaders and media elites, say. They insist that history proves them right.

But does it?

3) The Private Sector Can’t Succeed?

Defenders of the current state-run system often say the private sector failed in the New York City subways. Therefore, it should have no part in the system even though the city and state subway system has had problems for generations.

Yet even most subway historians—who almost all argue the subways must continue under public control—agree that in the first years of the subway private management companies were a huge success; that this was a golden era for the subways. Indeed, it was a time when people came from around the world to ride our subways.

The latter was roughly the first 20 years of the system, from 1904 to the mid 1920s. And Cudahy admits that the construction of these first subways would probably have not been possible without private funding. Many historians concede the original system was remarkable.

The first subways were considered “an engineering marvel” many have written. New Yorkers had been “once enormously proud” of their subways, wrote Robert Caro in his biography of Robert Moses, “Power Broker.” The government took over from the last private management company in 1940. But the heritage of the private management companies would be destroyed after the government took over.

“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 some 16 years after the last private management company was ousted and the government took over, things had changed for the worst.

4) No Light Bulbs?

For instance, in 1956, some 16 years after the city government took over, Caro wrote that the state system was crumbling and its deferred maintenance policies meant it didn’t even have enough light bulbs!

In “Power Broker,” he said that by 1956 “every criterion of subway performance—on time-runs, individual car breakdowns—disclosed that the toll was mounting.” During a seven-month period, there were four major accidents in the subways, Caro noted. One of them caused two deaths and was on the Goo-Goos’ beloved IND system at the Roosevelt Avenue station in Jackson Heights, Queens.

The Goo-Goos were the liberal, good government groups that always wanted government operation of the subways. They were outraged when, in the first years of the system, a private management company built the first line and turned a profit. They demeaned the latter, yet profits are how one ensures entities can survive and thrive.

But by 1956 this history of private success seemed little known or disparaged even by the people who know anything about it. And one of the arguments against privatization today by New York leaders is that trains are something “that only the government can do.”

Their second argument against private transportation companies is an economic one. It is often made even by the supposed friends of free markets: Private lines can’t turn a profit. I have been told that by representatives of the laissez-faire Manhattan Institute that subway privatization is not an option.

“Subways don’t make money,” Nicole Gelinas, a senior fellow with the Manhattan Institute, told me

History doesn’t exactly support that point of view.

5) Yes, the Subways Were Making Money

Although subways were never privately owned, private transportation companies operated in the first thirty-six years of the subways under a franchise contract with the city (“The Dual Contract”). And the best of the private transportation companies, the Interborough Rapid Transit Company (IRT), generated strong profits over the first twenty years or so of the system. From its beginning in 1904, on into the 1920s, the IRT was in the black.

For instance, 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 about some $7 million in dividends, according to the annual financial report dated June 30, 1917.

Profits and dividends through subway operations? No, that couldn’t be. Yes, they really happened.

And even into the 1920s, when price controls and rising costs as a result of the inflation of World War I were starting to squeeze profits, when the private operators sued to raise fares, the subways still made money. However, IRT officials warned that, without the ability to raise prices, bad things would eventually happen. But the Goo Goos stopped them.

In the U.S. Supreme Court decision of 1929, Gilchrist vs. 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 still 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,” according to the court papers.

However, after the IRT was repeatedly blocked from ever raising fares, the price-controlled subways inevitably started to lose money in the 1930s. Nevertheless, until then the IRT was well run. It was a good investment. Besides making stockholders happy, it had accomplished great things for the city.

6) We Loved Subways?

Most New Yorkers loved the subways, Caro wrote of the glory days before the subways started going down under government control in the 1950s and 1960s. But before then, the system’s success not only helped develop the city’s economy; they helped clear slums. This was detailed in the book “Tunneling to the Future: The Story of the Great Subway Expansion That Saved New York” by Peter Derrick, who worked as an MTA consultant.

He wrote that the first subways, the subways run by private management companies, allowed people to move from slums near their workplaces in lower Manhattan to healthier neighborhoods uptown or in other boroughs such as the Bronx, Brooklyn or Queens.

So how did it happen that the city destroyed a private sector service that helped it in many ways?

7) More on The Goo-Goos

But many of the Goo-Goos of the 1920s and 1930s wanted the city to compete with the private management companies. So the city eventually built a competing city system in 1932, the IND. It was a mess. As is typical with government enterprise, it lost lots of money from the day it opened.
But the Goo-Goos of the 1920s and 1930s argued things would be better for the IND and the city if the entire subway system was unified under public control. They wanted the IRT. The subway system, they argued, should be a public utility. It should not be run for a profit. It should be run for the good of the general public.

Still, that government running an entity for the good of the people and only at cost begs a question: How can a system be run efficiently without profits?
Any successful economic entity needs to plough back a certain percentage of profits into improvements, pay raises and keeping up with rising costs that are stoked even by low inflation rates.

8) A Bad Time to Sell Socialism; a Time of Prosperity

So the Goo-Goos bitterly criticized the IRT’s profits. Some of them were Social Democrats who questioned the benefits of private enterprise. However, many New Yorkers of the 1920s weren’t quite ready for a government takeover. That’s because the 1920s, after the end of the little-known depression of 1920-21, were a time of incredible economic growth owing to laissez-faire policies.

Austrian economist Murray Rothbard, in the book “America’s Great Depression,” noted that in 1920-1921 wage rates were “permitted to fall, and government expenditure and taxes were reduced.” Rothbard says this was “our last natural recovery to full employment.”

“The old-fashioned” approach prevailed in the recovery from the depression. “Government, the older view which had been the standard many times before, should keep taxation and spending low and reduce the public debt. Unemployment dropped to 6.7 percent by 1922, and was down to 2.4 percent by 1923.

“In 1920-21,” Anderson writes, “we took our losses, we readjusted our financial structure, we endured our depression, and in August 1921 we started up again. By the spring of 1923 we had reached new highs in industrial production and we had labor shortages.” Few really wanted government subways under these conditions of prosperity.

So how does a government go about wrecking a sector or a business without directly proposing socialism? And how did New York ruin the private subway management companies?
The same way it has, and continues to hurt, the city’s housing market: Price controls.

9) “Let’s Outflank Them!”

The Goo-Goos employed what a famous military strategist—Sir Basil Liddell Hart—once called “the indirect” method of attack. You feint an attack in one place, but actually attack elsewhere. You pretend to be one thing, but are actually something very different.

In the case of the private management companies in the subways and the officials who wanted the city rid of them, deny being a socialist but employ a policy of a “socialism without doctrines” that destroys them.

How?

Regulate something to death. You squeeze all the profits out of an economic activity so the capitalists are ready to sell. Indeed, it was in “The Promise of American Life” by Herbert Croly, an early 20th century book by a quasi-socialist, in which this argument was made. Croly called for the socialization of America’s railroads over a long period.

This contrasted with a direct statist strategy advocated by Democratic presidential candidate William Jennings Bryan. He had visited czarist Russia and came back believing in the benefits of state-owned railroads.

10) New York’s Political Ruling Class and the Subways

Ultimately, New York’s most important politicians enacted policies designed to destroy the private transportation companies. In the 1920s and 1930s, most New York pols of all stripes backed price controls just as most New York politicians today support rent controls. That’s even though, again and again, they have proven to be destructive.

Even a politician as honest as Mayor Fiorello LaGuardia—our patron saint mayor from 1933-1945 who actually was more interested in highways than trains—or one as corrupt as Tammany Hall State Senator and later Mayor Jimmy Walker—-agreed on this point.

Normally political rivals, Walker and LaGuardia both pledged the fare would never rise above a nickel. Walker was so corrupt he resigned as mayor in the 1930s and headed to Europe to escape possible prosecution. This was virtually a New York Tammany tradition for venal mayors that got in hot water. It happened again when LaGuardia’s successor, William O’Dwyer, was in trouble. He resigned as mayor a year into his second term so he could serve as ambassador to Mexico, away from the investigators in Congress. Investigators wanted to know about his connections to the mob, which La Guardia detested and had fought. O’Dwyer later came back and offered what one commentator called “evasive” testimony to the Kefauver Crime Commission.

“William O’Dwyer,” writes David Samuels in the October 2019 issue of “Smithsonian.com, “was one of the most corrupt mayors New York has ever seen.” And, by the way, the subway’s nickel fare ended under O’Dwyer after LaGuardia left office in 1946.

But before that happened the private management companies had to be destroyed and the way to do it was through price controls.

11) The “Holy” Nickel Fare

The subway fare, under the IRT, was a matter of faith to New York’s governing class and couldn’t be raised in the 1920s and 1930s, writes one historian. “Occasional attempts to raise it to dime repeatedly failed,” writes H. Paul Jeffers, a LaGuardia biographer in “The Napoleon of New York.” That’s because the fare “was as sacred as Lady Liberty in the harbor holding the torch of freedom.”

Well, maybe not so sacred.

Once the private management companies were destroyed, the subway fare was raised far beyond a nickel soon after public takeover of the lines in the 1940s and in the succeeding decades. Indeed, we will see that later, under government management, subway fares have gone up rapidly. Actually, what the citizen throughout the region pays for the system is much more than that. Toll revenues, various taxes and fees pay for the system and still the system has had, and is projected to continue to have, money problems for decades to come.

A state official today complains that fare raises are outstripping the rate of inflation. But before that, subway critics used hyper regulation to destroy private enterprise.

This strategy of never mentioning the word socialism but using collectivist ideas is what happened to the private transportation companies in the subways in the 1920s and 1930s. It was a very effective strategy for accomplishing a goal while not seeming to favor it.

12) War and the Subways

After the inflation of World War I, the private companies faced higher costs. But they were never allowed to raise fares above a nickel.

And at almost the same time, another arm of the MTA today, the once private Long Island Railroad—which became a subsidiary of the Pennsylvania Railroad early in the 20th century as it needed financing to help to come to Manhattan—in the 1930s and 1940s went decades without a fare increase. The LIRR, which was taken over by the state in the 1960s, was subjected to a regime of hyper regulation that other passenger regulations had been facing for decades.

For example, the railroads were taken over by the government during World War I. After the war, they were then handed back to their owners. However, they were saddled with much higher costs. Here were several examples of the Croly hyper regulatory strategy that was being used throughout the United States.

By the 1970s, dozens of once profitable private passenger roads went broke. Many on the left and even on the right said government ownership and operation of the railroads was the only answer. Yes, on the right. It was the Republican Nixon administration that created Amtrak.

13) Disastrous Economic Policies

The economic consequences of price controls for these companies were dire as they would be for any individual or company. But they don’t enter into today’s debate over the private sector transportation companies, which really isn’t much a debate among New York’s pols and their predecessors.
They were determined to destroy private management companies through backdoor methods—price controls that were designed to go on forever and for 36 years, right to the end of the IRT in 1940, they stuck to the strategy.

Yet think of the applications of these collectivist ideas to everyday life.

Imagine you’re a worker but your salary can never be raised over decades. What would happen to your standard of living? Imagine you run a business but over decades you were prevented by government fiat from raising your prices. What would happen to your business? It would lead to what the economist John Maynard Keynes called a “socialism of investment.” The government had created a contrived rationale for their eventual takeover: the private sector, the government officials and their allies in the media argued, had failed.

But where government controls, F.A. Hayek wrote, “deprive the entrepreneur of all scope for initiative, freedom of choice and the assumption of responsibility, where the government in effect decides what and how he is to produce, he at least be assured of a certain if he is to carry on.”

That “certain sale,” as Hayek puts it in the essay “Full Employment, Planning and Inflation,” must certainly include the ability to respond to market demand, costs and set prices. Without the ability to change a price in an expeditious manner, the subway private management companies, which in their entire 36-year operating history were never allowed to change prices, were doomed.

14) Why the IRT Sold

The private subway companies eventually started losing money and sold out in 1940. It was the same as a landowner in a suddenly rent controlled building or in a market in which the potential for price controls was being threatened, It would be the same for a worker in which it was clear that no pay raises could ever be given (I will offer a personal example on that later). In all these circumstances, one would be happy to escape at almost any price.

Ironically, when the city finally bought out the IRT, some criticized the deal. The city was paying too much for the system, critics complained. The subway system was a shell of what it once was, they said. The city wasn’t buying the “engineering marvel” of the first two decades. However, we will see that it was still a lot better than what was coming under government management.

The big profit, or any profit, years were gone. And they would never return to the subways because this highly regulated business wasn’t allowed to make adjustments so the IRT’s owners agreed to go. But the transaction represented a change in the American economy that has been going on now for more than 80 years.

The city, noted a prescient libertarian journalist at the time of the IRT sale in 1940, was doing more than buying one private property; it was finding a backdoor to socialism.

“The City of New York has set a pattern for the nationalizing of the railroads of the country,” wrote Frank Chodorov. “A regulatory body,” he continued, “with power to fix rates and compel unprofitable operation, squeezes the business into bankruptcy, so that the owners are quite willing to sell their property to the taxpayers, and bureaucracy improves its position.”

This was brilliant analysis. It would come to fruition some three decades later, a time when ICC regulators would say they were shocked by the massive Penn Central bankruptcy. The once mighty Pennsylvania and New York Central railroads had been trying to merge for decades, but regulators had delayed the deal. When it finally happened, it was a merger of two weak railroads. Both were on the way to the grave.

However, even the destruction of the subway private management companies could not wipe out their achievements for those who study the system. Even though the most ardent “the government must run the subways forever” historians couldn’t wipe out the great accomplishments of subway private management.

Indeed, subway historian/federal transit official Cudahy wrote that the first lines might never have been built without private companies because of various city fiscal and political problems. This is true if one judges by history. Few new lines have been built government operation arrived over 80 years, despite countless promises of line extensions and new lines.
For example, subway service in Manhattan has effectively declined compared to the private management company era. Manhattan once had el service on Second, Third, Sixth and Eighth avenues. The infamous and pricey Second Avenue subway, which was designed to provide service for Second and Third Avenue, is a line over 80 years late. It will be discussed later. It is controversial part of the post private management era.

15) No Profits and Subway Service Stinks

But once there was public ownership and operation of all the subways, there were no more profits. That’s despite the grandiose Goo-Goo promises of the 1920s and 1930s. The Goo-Goos said a government system would succeed in running the subways, yet the system never produced any profits.
The argument for public operation of the subways was that when the IRT, and the last private elevated and underground lines, were united with the IND city system the consolidated system would have countless benefits to the rider and the taxpayer.

Have they? Let’s us examine the claims.

The Goo-Goos promised system consolidation would result in economies of scale. Hence, the system would make money or at least break even. Lines would be extended. New ones would be built.

One example of the many promised but never built new lines over the first half century of government operation was the controversial, grossly overbudget, Second Avenue Subway. It is now minimally completed. This is after more than decades of delays. This is despite the fact that the Second Avenue subway, the entire system, was paid for through three separate bond issues over a half century in the 1950s, 1960s and earlier this century. What happened to the money New York taxpayer approved? Was it stolen?
No, the bond money—a la the Social Security Trust fund borrowing techniques—was spent on other things such as covering the endless system deficits.

Another forgotten, never built, but promised, line was in the outer boroughs.

The E and F lines in Queens were supposed to be extended beyond Jamaica to the city line at the Queens/Nassau county border. That much celebrated new line is something that never happened. Luckily for our political class, this promise has been forgotten by most beleaguered riders in Eastern Queens. They must get off the subway in Jamaica and take buses home.
Another of the Goo-Goo promises of public ownership was that there would be no more strikes. That’s because workers, they said, would now come under civil service rules, according to LaGuardia. That, of course, was a joke.

The unions made mincemeat of that promise over the next few generations. There were lots of strikes and wasteful workplace practices that continue to this day. These practices ensure that, no matter how much more public money is poured into the subways, they continue to run in the red.

This keeps the system in shoddy condition and deep in the red, with very little money available for needed repairs.

How deeply in the red?

16) The Warnings of a State Fiscal Watchdog

The recent years of state operation are very different from the first glory years of the IRT and its considerable profits.

For instance, New York State Comptroller DiNapoli, in a recent MTA report (August 2019), pointed to many subway problems. The state analysis of the system is a litany of equipment breakdowns, declining ridership, a poor credit rating in part because of huge operating deficits and projected red ink that will be even larger in the next few years.

Indeed, in Appendix D of the DiNapoli report, he notes the system lost $300 million in 2017. However, in 2022, it projects the system red ink to more than double to $766 million. And this was all before the Coronavirus problems. Will more taxes and still another congestion pricing scheme have to be added?

At the same time, many New Yorkers avoid the subways in traveling to Manhattan. The problem is the Goo-Goos won: They ensured that the profits of the IRT would never be repeated; that the government, despite the Goo-Goo promises, set it up so that subways would perpetually lose money because of the 1940 deal. It is system that won’t be changed by the latest MTA plan—it will be worse. That because more money will be given to a state agency with a demonstrated record of failure. That is a fatal flaw in any service.

As in any other economic entity, if you’re not going forward—earning a vigorous profit rate—you’re going backward. The latter is what happened to the subways in 1940. That’s when Mayor Fiorello LaGuardia and rest of the Goo-Goos finally got what they had wanted for decades: They pushed out private transportation companies and their terrible profits.

Ridership has been declining for several years but the MTA is assuming it will start to rise over the next few years. State comptroller DiNapoli questions this assumption. One reason why ridership is declining is something that presumably would have made the Goo-Goos angry: Fares.

17) Pricy Trains

For over a decade, they have been rising faster than the rate of inflation. Fares went up some 53 percent between 2007 and 2017, DiNapoli noted. That’s almost three times the inflation rate. The private management companies were never able to accomplish that.

DiNapoli’s report also warned that new subway cars aren’t going into service fast enough and that the potential for a higher car breakdown rate is increasing.

But despite higher fares and taxes, the deficits are growing, DiNapoli wrote. The bond markets are also growing bearish on the MTA.
“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 have been going on for many years before that.

Possibly more important than the numbers, the Goo-Goo promises and those of their scions have removed from the historical memory of millions of New Yorkers the idea that the private sector should have any participation in their transportation systems. This only the government could do it idea, which includes heightened regulation of competing private transportation services, is spreading throughout many parts of the economy.

This collectivist philosophy is providing a kind of backdoor socialism. It is becoming a belief among millions of Americans that the government must run more and more of the economy because private enterprise is failing.

18) Don’t Know about Private Enterprise

It’s no surprise that many New Yorkers have never heard of private subways just as millions of others have never heard that private services were once the preferred way of doing a host of things.

(Historical illiteracy reigns with generations of Americans. They have grown up believing that the private sector was, for example, incapable of providing effective retirement savings services. The latter explains why millions of Americans have little or no retirement savings. Many of them are elderly Americans. The result: Tens of millions of Americans retire with only Social Security as their income or their primary income. This is a practice that most financial advisors constructing retirement plans believe leads to a miserable retirement.

It also happens as Social Security, like the subways and Amtrak, has money problems because of mismanagement. Therefore, more and more payments on Social Security are taxed. Doesn’t that constitute double taxation? Our grandparents paid no taxes on their Social Security. The average yearly Social Security benefit is only about $16,000. Try living in New York on that. Luckily, for these flawed government programs, many Americans don’t know that. Some even suggest that Social Security should someday be “means tested.” Means tested? For a program you were forced to pay into for 40 or 50 years?)

Millions of Americans have also never known a time when long-distance passenger railroads were run by the private sector or that private libraries, private schools and private parks provided vital services at reasonable prices. (Anyone who wants to see the contrast should remember what Bryant Park in Midtown Manhattan was under city control in the 1970s/1980s and what it is today under a private, not for profit, partnership.

The difference is dramatic. In any season, Bryant Park, run by a private group, is a wonderful place in contrast to the period of city operation some forty years ago when it was a drug den. It was a dangerous place in which people joked that “the cops only went into it to collect the dead bodies.”).
These kinds of the government must do more and more economic philosophies triumphed in New York in the 1940s. That led to generations of subway breakdowns that we live with today. They are based on the idea that only the government can provide subway, train and bus services or lots of other services. Why did so many people then and today believe the government does better when obviously it doesn’t?

19) Who Should Care About History? Subway Riders

A lack of historical understanding, which leads to the inevitable tyranny of the status quo—“This is the way we have always done it.” Most New Yorkers don’t remember or have never heard of the promises of the 1920 and 1930s for government trains. That is a boom for New York’s pols. They tacitly or explicitly support this terrible system, which rarely affects them since they usually don’t use government transportation systems One can draw an analogy with elected officials lecturing citizens on the virtues of public schools but infrequently sending their kids to them or political hawks whose kids will never have to serve in the military.

Some of the scions of the Goo-Goos are rider groups like the Straphangers Campaign. They protest against poor service but never are against the idea of perpetual government system as the source of the problem.
And, yet like every other player in subway politics, the group has never spoken in favor of any privatization ideas. In fact, it opposes them. Its solution is the same as everyone else’s—more government spending.

20) The Economics of Government Enterprise

Yet the last 80 years the LaGuardia/GooGoo promises have been repeatedly broken. You could write a book on the subways: “Eighty Years of Disaster”. But one Goo-Goo goal was certainly achieved: The IRT profits that so disturbed them were no longer a problem. The city authority—and later the state authority that took over under Governor Rockefeller in the late 1960s when the city could no longer pay for the subway system—ran deeply in the red and continues to do so today.

Why?

About a decade ago, an MTA official, in an annual report, offered her explanation.

Katherine Lapp, executive director of the MTA, wrote about the endless deficits, which she calls “gaps.” Lapp wrote in an annual report that, “Like state and local governments around the nation, these gaps represent structural imbalances stemming primarily from rising debt service, increasing pension, health and welfare expenses, and the depletion of non-recurring resources.”

Translation: When the government runs a business it often overpays and doesn’t know how to keep costs under and earn profits. The government, whether through a city authority in the past or a state authority today, runs the system in an uneconomic, political, way.

It is a way that doesn’t even pretend to achieve profits or even come anywhere near to breaking even. It has been a trademark of the government transportation system along with chronic underfunding of the subway infrastructure.

Other examples of government mis-enterprise are the Federal takeover of the railroads in World War I and the woes of Amtrak today. It began back in the 1970s with Amtrak officials taking over private passenger trains and promising that “now you’re going to see the biggest turnaround in the business history.” Another founding Amtrak official said “This new system can and will succeed.”

These quotes were taken from the book “End of the Line” by Joseph Vranich. It documents Amtrak’s disastrous existence. Vranich, a high-speed railroad expert, is someone who regrets his initial support for Amtrak.
But disastrous government transportation systems are well documented. They go beyond city subways.

One can go back much further than the 1970s to find the disasters of government trains. One could examine the state railroad problems of Michigan in the 19th century. The politicization of the state of Michigan railroad was so bad that a new state constitution later prohibited the state from building railroads.

However, the standard view of the subways’ woes was recently offered by the New York Times. It opined that the system’s problems are the result of not enough government money. This is just what the MTA needed to get still more money out of New York’s already overtaxed citizens (The Tax Foundation says New York, California and New Jersey have the highest taxes in the nation). The Times’ rationale of not enough tax dollars is a familiar one. It is offered almost every time there is a failure in the modern welfare/warfare state.

21) We’ve Failed So Give Us More of the Same

Whenever there is a public failure of any government service, the argument is made, again and again in different forms, that not enough taxpayer dollars have been spent; that, whatever the service, more dollars will fix the problem. It is the argument of the drunk who says “just one more drink” and everything will be fine.

It is a thesis explained in the book “Crisis and Leviathan.” Here is a book that tells us that the more government fails at something, the more money and authority it gets. It is a bizarre vicious cycle: Public sector failure inevitably means public sector expansion.

That is a good description of the last 80 plus years of the New York City subways, which always seem to need more taxpayer geld and always seem to need a new government management scheme. For instance, over a decade ago, when then New York City Mayor Michael Bloomberg was running for re-election, one of his campaign promises was “he (Bloomberg) has a plan to fix the subways.”

Why was there a need to “fix” the subways?

At that point they had been under government management for some 70 years and billions of taxpayer dollars had been spent. Again, the lack of historical understanding is why millions of New Yorkers don’t understand the source of the subways’ perpetual problems.

What was the Bloomberg plan?

More of the same. Instead of a state authority running the subways, have a city/state authority run it. One would conclude that the only thing New York’s power brokers have learned about the subways’ history is that they don’t learn from history.

22) History Matters

With apologies to Henry Ford, history isn’t bunk. It is vital. The understanding of an institution can help us to prevent new mistakes and find new solutions. Or maybe re-discover old methods that we have forgotten or never knew.

A lack of understanding of subway history, a history of government meddling in which it has no expertise, is why we are in this fix. It is the prime reason why we get the same expensive solutions to subways woes.
So the problem of the subways or any government transportation system is clear if one understands history: The thing the Goo-Goos and LaGuardia successfully crushed is the thing that leads to good service in anything: a profitable well-run private enterprise. And without consistent healthy profits no economic entity can rejuvenate itself.

Example: I worked for a small publishing company, Source Media, for 15 years. For the first ten, the company made money, gave nice raises and contributed generously to our retirement plan. The company did well.
The last five the company lost money. No more profits. No more raises. No more contributions to the retirement plan. Workers started leaving in droves. Publications started running down. Readers went elsewhere. The publication I worked for, Traders Magazine, became a shell of what it was once—the bible of institutional trading.

The first ten years, workers and customers, were happy. For the last five, no one was happy because the company made no money.

23) The Wisdom of a Forgotten Labor Leader

This brings to mind the comment of the long-forgotten American labor leader Samuel Gompers, who was not contemptuous of capitalism. He said that the greatest crime that capitalists could commit against working people was “not making money.” Without profits, what is there to debate?
By the way, one reason why many modern labor unions don’t like to mention him was Gompers’ hostility to proposed Social Security schemes.

He thought workers would be better with their own labor union welfare plans because money paid to the government could be spent on other things unrelated to Social Security. Workers could be rooked just as taxpayers today have seen Social Security surpluses spent on other things.
That is exactly what happened as the prescient Gompers expected over a century ago. (A Heritage Foundation study on Social Security says the returns on investment for future workers “contributing” (sic) to Social Security will be minus 14 percent).

24) Virtuous Circle or Vicious Cycle?

No profits mean an entity inevitably lacks the advanced tools needed to improve something and help workers become more productive. No profits mean the average investor looks elsewhere for a business that is dynamic and growing. If the subways were a public traded stock, what investor would want shares of this dilapidated system? That’s a silly example. What investment bank would do an IPO with such a decrepit system?

However, the now decrepit subway system was incredibly advanced in 1904 when it opened. In the early years of the private management companies, people came from all around the world to see our subways. Most New Yorkers riding the subways on a regular basis reading the last sentence are amazed. Some are falling down laughing.

Indeed, the system was so good that the early successes of the system amazed millions of people. Today it is a ramshackle system that people try to escape by using Ubers or working from home or not going into Manhattan as frequently.

Without profits, one can’t pay adequate raises and make some business a desirable place to work; a place where someone wants to spend a career and move up, I’ve had childhood friends who worked for the MTA. They all say it is an unpleasant place; that the system and its equipment are a mess.

25) Don’t Ride on the Subways, Friend

My childhood friend Eugene O’Hea from Woodhaven, Queens was a former motorman on the E and F trains. Often, he warned me about the trains, which he frequently complained were not properly maintained.

“Greg,” he would say, “don’t ride the subways on the weekends. That’s when we often bring out equipment that’s so old that some of it is going to break down.”

These days many lines are virtually closed on weekends or overnight periods, replaced by bus service. Weary riders in outer borough neighborhoods often suffer long subway commutes, followed by additional bus trips. This all has a deleterious effect on the city’s economy as some city and state officials have acknowledged.

Most important of all, without profits one can’t attract the capital to attract new generations of investors who would put money into the subways the way generations of investors once invested in, say, the Pennsylvania Railroad. It was another private transportation company regulated to death.

Yet the Pennsylvania Railroad was once as essential to the nation’s economy as say Amazon or Microsoft are today. That railroad, in its glory days, was highly profitable through most of its history. It went about a century without missing a dividend payment. It was able to build some of the most beautiful railroad terminals in the world such as the original Penn Station in New York.

Today Amtrak struggles to find money to build a new terminal in New York City. The current one is a dive. Amtrak is a shabby operation because it has been poorly maintained. It needs a new Hudson River tunnel. So why doesn’t it build it? The problem is Amtrak has no money; it only loses money and must get bigger and bigger taxpayer bailouts to go on.

26) The True Subway History

So the disastrous nature of public ownership and operation of the subways—or of almost any government ownership of any transportation company—is this: Despite all the promises of the Goo-Goos and their descendants, New York City subways provide lousy service, don’t make money or come anywhere near breaking even. That’s no matter how New York pols—few of whom actually ride the subways—pretend things are fine or will be so once the regional taxpayers or the Trump administration hand over more money.

Most subway riders, especially those who ride long distances from the outer boroughs to Manhattan, know that the subways are horrible. Frequently, city leaders have no idea. Often, the most powerful people in the city tend to live in Manhattan. They usually ride the system very infrequently or just for a few stops. They will often tell you the system is great even though most outer borough riders know it is a disaster, something to be avoided whenever you can.

27) No Private Option

Yet despite generations of state failures in the subways, no one seems to accept the idea of even considering private transportation companies. No notable New York public figure has proposed any sort of subway privatization. All public and private leaders propose today is the same as yesterday: Give us more “Crisis and Leviathan.” Give the government agency running the system more money and they’ll turn things around; it will know how to make the money work for the long-suffering riders.

The problem with this solution is the nature of government. It is not entrepreneurial as proven by 80 years of history; as the years of the government IND proved. The nature of successful business is to win consistently—to make money by pleasing customers, investors and, in the process, attracting the best, most talented, people who want to work for a great organization. Who “wants” to work for the subways or ride them?
Profits are the result of enlightened management. They are owing to the skillful use of revenues; of economizing; of using resources effectively of building customer loyalty to a service or a product.

28) No Political Accountability

None of this has happened under public ownership and operation of the subways or almost any transportation system. Government enterprise is a contradiction in terms.
Government run transportation systems were and are systems in which the economist Alexander Gray (“The History of Socialism from Moses to Lenin”) warned in that the more governments take over a subway system, the less responsibility governments accept.

Gray wrote of the London Underground in 1945, “More and more the state interferes or controls; but the more it interferes and controls, the less does it show a disposition to accept ultimate responsibility.”

That same theme has played out here in New York City as few pols want anything to do with the subways, other than to issue perfunctionary press statements opposing frequent fare rises. The mayor once was responsible for the New York City subways, but not anymore.

It is a sorry history that must be emphasized to a generation of New Yorkers who know the subways reek but don’t know why. They fall prey to only answer they have heard for generations: Only more taxpayer dollars will solve the problems, they are told. All the problems of the system happened because governments didn’t put enough money into it.
But most taxpayers don’t know that this is the “solution” that has been tried and failed many times before.

29) More of the Same

Yes, the Times is right. The system is starving for “investment.” But the reason why is terrible public mismanagement of the system. The subways are no longer “an engineering marvel.” They can never recover in any meaningful sense unless there is significant private operation and ownership of the system, with the government exiting.

An example: The subway signaling system is outdated. It needs reverse signaling. It is one reason why trains are so often delayed between the stations and you hear the announcement that “We will be moving shortly.”

So why doesn’t the subway leadership and other New York leaders get it? Why don’t they let private companies supply a signaling system?
Our leaders don’t because they tilt toward centralization and more government control of the economy. They oppose any mention of the dreaded p word: privatization. They fear that a private solution might succeed.

It is the same fear that won’t allow any Social Security taxes to go into private accounts that would provide better returns for workers. Workers might start demanding that more of their money go into private accounts. The jewel in the crown in the American welfare state might be endangered. The American welfare state might end up like the British Empire in 1947.

Once India gained independence, the empire was cooked.

The ultimate reason why privatization ideas are rejected out of hand is that most of our New York leaders are leaning toward socialism as do more and more mainstream American politicians although few, at this time, want the label socialist.

But they want the government to have more and more power over the economy with mentioning Marx. They want to give us a socialism with no doctrine. “Socialisme sans doctrine” is a phrase coined by French academic and Third Republic politician Albert Metin in 1901.

It is an argument for state socialism policies carried out by supposedly non socialist governments without any reference to socialist theory.

30) Subway History Matters

As we suffer with more and more socialist policies in the nation and in New York, we have more and more subway delays, at the same time as Amtrak goes into the transportation abyss. So it is up to us—the riders, the overtaxed citizens and those who believe in private property—to learn the simple lesson of the history of government transportation companies in New York City.

There are no profits and will never be any until the government gets out of the transportation business. Today the state system is nothing to make anyone proud. It condemns the rider to poor service. It hurts the region’s economy.

Stringer, the city comptroller very critical of the subways but certainly not in favor of any privatization, says rotten subway service hurts the area’s economy. He said losses range “from $170 million to $389 million” a year.
There’s no hope of changing that until the LaGuardia/Goo-Goo revolution of 1940 is reversed.

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Gregory Bresiger
Gregory Bresiger

Gregory Bresiger is an independent financial journalist from Queens, New York. His articles have appeared in publications such as Financial Planner Magazine and The New York Post. The eBook version of his latest book "MoneySense" is available now for Free Download by clicking HERE

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