Opinion: What the Hell Is Wrong with Rhode Island?

The RI economy is so bad that my friends from other states, many of them expatriates themselves, keep trying to talk me into leaving it. Come to New York, or Texas, or Florida, they say. What’s most appalling is that I cannot deny they have a point.

I’m worried that I have in the past been losing the forest for the trees. I’ve written extensively about pieces of the puzzle, such as the looming crisis-level fiscal deficits faced by the state and its municipalities (“It’s the Economy, Stupid!”, Aug 6, 2014), the efforts by the state’s minor-league baseball team to get more than $100 million out of the taxpayers (“The New PawSox Stadium: But Who’s Going to Pay for It?”, May 15, 2015), and even about the potential tax revenue windfall from legalizing marijuana (“Opinion: Will Rhode Island Surrender Yet Another Industry?”, Jun 4, 2015, ), but I’ve tried to avoid articulating even in opinion articles a consistent condemnation of why government policy is so consistently wrong-headed. Now is the time for such an overview.

The theme of the latest budget perfectly encapsulates why the political leadership seems bent on taking the state into a death spiral: tax all productive activity to make it less productive, cut spending on anything that produces advantageous results, and increase spending on anything that produces nothing. This is the work of madmen.

The heavily publicized attempt to impose tolls on commercial trucks is a good example. Whether it ever does get implemented and to what extent is beside the point, because the real problem is the mindset motivating it. Obviously, out-of-state trucking companies are in no position to retaliate by voting against the governor or state legislators, so they are politically easy targets. I am certainly far from a socialist, but there are some things the government provides that enormously benefit everyone by keeping them free of charge, and the road system is one of those things. Creating artificial costs of traveling through the state, which after all is pretty small, is tantamount to creating artificial incentives to go around it. More importantly, increasing the cost of the main mechanism by which goods are shipped forces the cost increase to be passed along to consumers in the price of those goods, and such a revenue source is not the “free money” the politicians pretend it is.

Another focus has been on cutting Medicaid funding, but this is short-sighted because people without access to, for example, mental health services cost society a lot more, often ending up in prison. Medicaid is simply one example of the tendency for the political leadership to fail to distinguish between expenses that result in a net savings to the society as opposed to those that do not. It would be absurd to suggest that the state should buy everyone free pizza, because no matter how popular such a move might be with both the pizza consumers and the pizza-making lobby, handing out free pizza would have at most a static effect on the economy instead of leading to a chain reaction of productive activity.

The Rhode Island Public Transit Authority (RIPTA) that runs the statewide bus service is an example of a service that should be free. That seems counter-intuitive because people are in the habit of paying a per-ride fare, but this is really an historical anachronism: many decades ago, public transit was provided by private companies who made investments of substantial capital and charged market prices for their services, so per-ride fares made sense. In the modern era, by contrast, RIPTA is a government agency operating at a loss and propped up financially by revenue derived not from fares but from the gasoline tax, and this has the perverse consequence that a rise in gasoline price simultaneously causes people to buy less gasoline (thereby reducing revenue to RIPTA) and want to take the bus (thereby increasing demand for services from RIPTA). RIPTA already provides free passes to people who are disabled and by definition unable to work, so the burden of per-ride fares falls upon the working poor who could be productively employed.

Why should RIPTA be free? Someone working an 8-hour shift at the state minimum wage of $9 per hour would earn $72 in gross income for that shift, so if they pay $4 per day to ride RIPTA round-trip to and from work, travel represents an expense of 5.6% of their gross income. Another way to look at it is that riding for free on RIPTA would, for such a worker, be equivalent to an increase of 50 cents per hour ($4 divided by 8 hours) in pay rate. For a worker commuting to a 4-hour shift, these numbers would effectively double, because that worker is paying 11.1% of their gross wages for travel and eliminating that cost would be equivalent to an increase of $1 per hour ($4 divided by 4 hours) in pay rate. When considering the impact on workers at the margins of the economy, small changes of this kind can have enormous effects, making it economical for people to work who might otherwise find it less worthwhile: a reasonable person might conclude that working a 4-hour shift at minimum wage of $9 per hour to gross $36 is pointless when $4 comes off the top for bus fare. Targeting the poorest segment of the labor force for free bus service would do a lot more good for the overall economy than building a baseball stadium.

Why not make RIPTA as free as driving on the roads with a car? Yes, there are all sorts of fees associated with cars, but very few of them end up supporting the roads. Property tax on cars, for example, mostly supports municipal expenses such as schools, and whatever merits schools may have are unrelated and disconnected from cars. Registration fees on cars support the registry office, not the roads. There is the gasoline tax, but as noted even that is thoroughly divorced from its theoretical purpose of road maintenance. The existing per-ride fare model from RIPTA is as bad as putting thousands of toll plazas at every intersection for cars.

Ultimately, RIPTA is merely an example and my key point is that the political leadership is unable to understand the difference between pizza and public transit or between Medicaid and baseball stadiums, and I mean in terms of economic effects aside from any considerations of moral principle. Until they “get it,” nothing can improve.