After reading the article I have to point out, from the "Restrictions on validity" section, that it "only applies to regions in which the vast majority of peak-hour commuting is done on rapid transit systems with separate rights of way".
So for most cities outside of NYC, this paradox supposedly does not apply (even though I feel it has some bearing).
Regardless, the general principle behind the paradox is induced demand (http://en.wikipedia.org/wiki/Induced_demand) - which, regardless of the share of transit users, will always apply to highway projects.
In other words, I believe that to the extent new lane capacity is filled as soon as the construction workers pick up their cones, it is because economically and/or socially useful things are happening. Otherwise, why would any of us drive anywhere at all?
Third, economic arguments are a little dicey for driving because driving is filled with externalized costs, subsidies, overoptimistic assumptions, and dependent utility. Driving creates noise and pollution (and it appears that the pollution is more deadly than crashes) but drivers don't pay that cost. There's personal crash risk, but people tend to assume that they are careful drivers and hence less likely to crash than the norm. The cost of the roads themselves is currently subsidized from the general fund; it's not a huge external cost, but it's a cost. Driving also creates (perceived) danger to people biking and walking; that tends to encourage them to also drive for their own (perceived) safety, even when they otherwise would not, and the congestion costs of driving also delay bus transit, making it less useful (it's already slower because of all the stops; traffic jams make it slower yet).
Instead, because the city is optimized for cycling and public transport, I live in a culture where taking even public transport is frowned upon if the bicycle commute is < 30 mins (and even an hour, perhaps).
I think this argument applies to many things. In the city where I live, Amsterdam, there's (almost) always a supermarket at walking distance (or a 5-10 min. bike ride). In fact, this is true for the whole country, as far as I know. 'Hypermarkets' like wal-mart or Carrefoure never really took off. The reason for this is partly culture, but largely it's because of regulation that protects smaller shops.
Most people consider it a very good thing that we can walk to the supermarket and that we are, in effect, 'forced' to have a healthy lifestyle and culture.
Anyways, I just wanted to share how the fact that streets will fill up and hypermarkets will most likely be successful doesn't mean that this is a good thing, or that it's in our best interest.
The general idea is that congestion dissuades some amount of commuters from using the road at congested times. When additional road capacity is added, those people will shift their commute time, or commute mode, or commute route to re-congest the road. (Time, mode or route is the "Triple Convergence" or latent/induced demand.) But in certain contexts like LA or London it's not possible to build enough road capacity to eliminate congestion. So building additional road capacity has the effect of (a) not reducing congestion and (b) reducing usage of public transportation. And (b) causes additional problems for the efficiency that public transportation.
The counter-intuitiveness is why it's a paradox. And the context probably matters for when this theory applies. But supposedly it happens to lots of developed cities. The original study on London was looking at when ~80% of commutes happened by transit. But LA is trying to improve its transit infrastructure because partly because this problem.