The $4.5 Billion New Year’s Party

New York City celebrated the new year by opening the insanely expensive Second Avenue Subway. Just two miles and three stations long, this subway line cost nearly $4.5 billion, or more than $35,000 per inch, making it the most expensive subway in the world.

Of course, not all of that money went for digging tunnels and laying track, which cost “only” $734 million (which is still more than $5,000 per inch). The three stations cost $800 million each. But that’s not all: to complete the Second Avenue subway, the city also spend $500 million on engineering and $800 million for “management, real estate, station artwork, fare-collection systems and other sundry items.” If the entire New York City subway system cost that much, it would have cost more than $500 billion, or roughly the cost of the entire 47,856-mile Interstate Highway System in today’s dollars.

Of course, the city didn’t pay for it alone. The federal government chipped in at least $1.3 billion. The state of New York put in some money, but much of the money probably came from bridge tolls paid by auto drivers. Actual riders of the Second Avenue subway will pay very little of the cost and what they do pay will be paid indirectly.

When first proposed in the late 1920s, the line was expected to cost $86 million, which is less than a billion of today’s dollars. Later estimates turned out to be much higher, which is why they didn’t build it then. A more recent, 2007 estimate was about $3.7 billion, so it had about a $700 million cost overrun. But if it wasn’t worth building in 1929, why was it worth building today?

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But the Second Avenue subway is nowhere near complete so it will have a chance to catch up and exceed the cost of the East Side Access. The city wants to extend the subway six more miles, which will bring the total cost at least $17 billion. Between the Second Avenue Subway and the East Side Access, the nation could have built more than 2,500 miles of four-lane interstate freeways. (The Interstate Highway System cost about $10 million per mile in today’s dollars and Texas is building four-lane freeways today at that cost.)

What’s really going on here is subsidies to density. There’s nothing wrong with expensive subways if users are willing to pay for them. But given a choice between multibillion-dollar-per-mile subways and a lower-density area where most transportation costs far less, most employers and residents would choose the lower densities. People tolerate Manhattan’s densities only because other people subsidize those densities.

Many economists say such densities are worthwhile because of agglomerative economies and the value of face-to-face communications. but do 2.2 million people really need to work on a 22-square-mile island (most of them in just seven of those square miles), or is a lot of it just ego on the part of banking and other executives? If the densities were truly worthwhile, they wouldn’t need subsidies and $2.2-billion-per-mile subways.

Of course, people will claim that suburbs are subsidized as well. So let’s get rid of all subsidies and let people live where they want and pay for where they live, not where someone else wants to live. Otherwise, the only real winners are the downtown property owners.