Fixed Cost, Variable Cost

I actually took two years of accounting in high school (and won national competitions through Future Business Leaders of America), and then accounting was one of my concentrations (along with management) in college. But it's been a very long time since I've studied or practiced it. Still, all the years later, the notion of fixed costs and variable costs is seared into my brain.

What do these arcane terms mean? As the words suggest, one (fixed costs) represents something whose cost is the same regardless of how much or little of an activity you engage in, whereas the other (variable costs) goes up and down as you do more or less of something.

In a business context, rent might be a fixed cost: no matter how many widgets you make and sell, you have to pay the same amount to your landlord. Whereas a variable cost might be some input in the widget that you make: say if your business is cupcakes, variable costs would be things like flour and sugar and wrappers.

I think about this principle of fixed costs and variable costs as it relates to transportation and in turn its implications for cities, human flourishing, and global sustainability. In much of this grand country of ours, driving is the predominant form of moving around. Getting to school or work, picking up a gallon of milk, and going out and having fun all involve getting into a car and driving somewhere. Indeed, in many parts of the country, it is impossible to do any of those or really go anywhere without car access. Conversely, those of us who live in cities have many options for getting around, and in fact oftentimes driving is vastly inferior to walking, biking, or taking transit.

But what does this have to do with fixed costs and variable costs? Well, for those of us who are car owners, driving is a high fixed cost and low variable cost activity. Even with record high gas prices, most of the expense of owning and using a car is fixed, namely buying it in the first place and insuring it. Using it more means going to the pump more often, and likely means a little more wear and tear and therefore higher maintenance costs. But, by and large, you've sunk a lot into owning a car irrespective of how much you drive it. Each additional trip doesn't feel like it costs that much, so most people jump in and turn the key without doing much calculation.

Similarly, for most people, transit is a no fixed cost and some variable cost activity. Every time I have to ride transit I have to pay for it, so riding it twice as often costs twice as much. Hence, on the margins, each trip requires thinking about if you want to pay for that trip. And sometimes, when compared to jumping in the car, the car wins.

Some of us live in parts of the country and have travel patterns where we buy a pass. That turns transit into a some fixed cost and zero variable cost activity: I pay something at the beginning of the month, and then every additional trip costs me nothing. Not surprisingly, people with passes use them a lot, because why not? 

None of this has to be set in stone, but because it's what characterizes the status quo, it can make things hard to change in ways that may be better for society as a whole. Driving is costly to society, not just the gas guzzling but land use patterns and congestion and accidents. It is also something that costs very little to most people on the margins to do slightly more of. Conversely, transit is good for society from an environmental, societal, and economic standpoint. But people are deterred from going to no trips to  one trip because that one trip costs money.

What it we inverted this? What if you "consumed" driving by paying for it per trip? And what if riding transit was, on the margins, free? There are models for both in some cities, the former being car share programs and the latter being programs like Key Advantage here in Philadelphia where the local transit agency sells deeply discounted passes to employers who promise to buy them for every single one of their employees.

Maybe high gas prices make drivers think twice about turning the key, but paying as you go for your car would be a far more effective deterrent. And, reducing the cost of hopping on transit to zero would likely compel some folks to try it, and they may be pleasantly surprised at the benefits.

Even if we continue to move towards fewer combustion engine cars, driving is bad for the environment, land use, and society. From the lens of fixed costs and variable costs, maybe there's a way to get people to reconcile what they impose on others from each additional trip, such that they'll be more mindful of driving  and consider other ways of getting around. And maybe that's what it takes to reorganize transportation infrastructure in our cities and regions and throughout the country.