Tag Archives: Opportunity Cost

Oh Joy, Free T Rides on the North Shore Connector

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With agreement reached between the Port Authority (PAT) and the Steelers and Rivers Casino to provide free light rail service from the North Shore to Downtown in exchange for the payment of $200,000 this year, $205,000 next year and $210,000 the year after that, all rides between North Shore stops and center city will be free.

 

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A Lesson Regarding Causation, Correlation, and Costs in Education

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Correlation: a relation existing between phenomena or things or between mathematical or statistical variables which tend to vary, be associated, or occur together in a way not expected on the basis of chance alone.  Causation: the act or process of causing; the act or agency which produces an effect.  Cost: the outlay or expenditure (as of effort or sacrifice) made to achieve an object-Merriam Webster Dictionary

 

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The Lesson, Version 2010

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Who could have possibly found any long-lasting joy in the recent snowstorms that hit western Pennsylvania? Tree companies would certainly answer in the affirmative. In fact, several did in a news article this morning. Among the quotes: "It was just awesome the way everything happened this year, monetary-wise…This year because of the storm, it was a blessing. It’s really banged up here. Almost every yard has damage. We go from one property right to the next".

Sure, the snowstorm and resultant tree damage was like manna from heaven. Echoing themes laid out by economist Henry Hazlitt, we might even say "wow, how great for the tree companies, if not for the storm, how would they have made it through the winter?" But being able to look "not merely at the immediate but at the longer effects of an act or policy" we have to realize that there are opportunity costs associated with the fallout from the storm.

For private citizens needing to pay for cleanup, the money spent is money that cannot be spent on other goods and services thus affecting the well-being of other businesses. The attention will be on the benefit to the tree companies, not the other businesses that will not get the benefit of a transaction.

This is likewise true in the public sector, as the article notes that the City and the County spent a combined $4.6 million on storm cleanup, with about 6 percent of that going toward tree removal. How do they intend to recover their costs? By seeking a reimbursement from the PA Emergency Management Agency. Numerous other communities will likewise do the same, and the money dedicated to reimbursement for this emergency will not be there for the next incident. For that the government will have to compel more sources of revenue, a power that private businesses do not have.

T Development: A Great Train Robbery?

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After nearly a decade of planning and assembling funding (including $10 million in Federal, state, and local monies) it appears the transit oriented development at the Castle Shannon station in the South Hills could be starting. And that’s a good thing according to the developer since "these excess pieces of land can generate some tax dollars and jobs".

Talk about pumping up the benefits without looking at the costs. Consider:

  • If the annual opportunity cost of the $10 million public investment is 5% ($500,000), then the development must be assessed at $15 million at build-out in order to generate that $500k in property tax dollars to the County, Castle Shannon, and Keystone Oaks School District;
  • If the jobs (the development is supposed to have office space, retail, and restaurant(s)) are simply transfers from other locations then there is no net benefit to the County, and possibly to the borough and school district;
  • The Port Authority has to spend money to lease parking nearby in order to accommodate people who park at the lot.

Transit is supposed to generate its own demand, but we have already seen from studies on other parts of the trolley line that population loss is more pronounced in areas adjacent to the T. Sure, the site, when completed, will be shiny and attractive and there will be much fanfare. But will there be a net benefit from its undertaking?