Credit Where Credit is Due

(Alternative title: How Curunir Continues to Avoid Studying for Tomorrow's Exam)

The Bush Administration gets a whole lot of deserved criticism around here, not just for its non-libertarian social policy but also for a whole mess of anti-market activities. Nevertheless, when it does something good, we should acknowledge it, and here's an example of administration officials really getting it right.

The Washington Post ran a very nice piece today focusing on the Department of Transportation starting to run experiments with tolling and congestion pricing along with a related article focusing on the DC metro area. Basically, the officials there want to actually start to use the price mechanism to allocate space on the roads. They also proposed actually using prices to allocate airport landing rights, rather than having us deal with the ever-worsening, cascading nightmare of delays of the past few years.

It never ceases to amaze me when putatively pro-market conservatives blanche at the thought of tolls. I'm not a pure enough libertarian (maybe I will be one day, but not yet) to say there's no government role in road building. And given we do not, and probably never will, live in a society where all roads are built privately, we have an obligation not to run them in a way that would make the grizzliest Soviet commissar smile in agreement. Yet if you mention "tolls", you'll see a conservative's blood boil.

I'm sure in 10 months when the White House changes hands these experiments will be abandoned and we'll go back to thinking that light rail boondoggles or bike paths or New Urbanism will be the path to transit Nirvana, as we continue to lose more and more of our lives to pointless congestion because of our flagrant anti-market bias in transportation. But I have hope that little by little, the notion that giving something away for free when it costs real resources to use will be abandoned, and these experiments might help drive us there.

Aside: The second-most hilarious part of the article is when the transit advocates say that the money being spent on these experiments would reduce congestion more if it were spend on mass transit. As if this highly indirect mechanism could compare to actually charging people for using a good. The funniest part, of course, being the description of pricing as a "neocon view of transportation".

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Opposition to Tolls

The source of the opposition, I think, is the not-unwarranted concern that the government takes too much money as it is. I think the institution of user fees would meet with less resistance from the right (and more from the left) if the user fees were explicitly made revenue-neutral by tying them to reductions in income, property, or sales taxes.


I agree regarding revenue neutrality being desirable, but I actually have a bit of optimism that we'd end up without that much higher (if higher at all) overall tax burden if we had road pricing. The federal government share of GDP has been pretty darn stable over the past 40 years or so, though of course I'd like to see it lower. I don't see any real reason that what amounts to fairly moderate tolls would cause a major break in this pattern.

In any case, congestion and queueing is pure deadweight loss. Even if government's share of GDP increased 0.1% if we had tolls, it's hard not to see it as an overall gain. By one estimate, we lose $78 billion a year to congestion. We can do better than that.

...and where it goes

It never ceases to amaze me when putatively pro-market conservatives blanche at the thought of tolls.
Imagine that we had a toll system where instead of handing the cash to a person, you held that cash out the window and it was VAPORIZED by a LASER from SPACE. This would retain the pricing aspect, and so yield pretty much all of the benefits to be found there, but would not give the resulting money to the government for whatever schemes and scams it has in mind.
I think that these conservatives would have a lot less opposition to this system.

Most road toll systems are created to pay down the debt incurred in the road's construction (and, often, to create a fund to finance future repairs), but are retained once that debt is paid and future repairs financed because the state doesn't want to give up that money. (Often the old repair-finance fiction is maintained by the tolls going to a nominally independent organization whose funds the state then rifles for loose change every few years, or which operate as jobs programs for politically connected ne'er-do-wells). In fact, this is such a common (even ubiquitous) thing that people who otherwise like road pricing might quite reasonably oppose it on that basis.

Put another way: The government has a revenue-maximization motive. The revenue-maximizing toll rate is not welfare-maximizing in this case, because there is no (or a very far-attenuated) connection between the revenue raised and the construction of or incentives for additional roads. So setting the price to a welfare-maximizing rate is a socialist calculation problem. Given the inefficiency of state and local governments at socialist calculations, it is not unreasonable to expect that the inefficiency of that calculation (plus the transaction costs of toll collection, which are by the way huge in many states) would exceed the costs of the congestion in the first place.

My strong suspicion is that road pricing schemes will usually be public (or public/private partnership) boondoggles with little or no net benefit to anyone in spite of their theoretical soundness.

Zero is a Price

So setting the price to a welfare-maximizing rate is a socialist calculation problem.

Right now, we have the government setting the price using a socialist calculation problem. They just happen to have set the price at zero, which no one in their right mind thinks is welfare maximizing. But zero is a price, just as surely as if the government set the price of crossing the George Washington Bridge at $1, or $1 million.

Look, I'm all for healthy skepticism regarding what might be regarded as a tax hike. But don't condemn us to gridlock, pollution, and lives wasted on the Washington Beltway. Hayek was right about socialist planning, but right now the roads have been planned, and given away for free, and it isn't working.

There really isn't another feasible option. There some new capacity that could be built (but would probably require eminent domain). And in some areas, even that would be too expensive to work. Transit has no hope of improving this mess. It's time for prices.

Right. Finding the

Right. Finding the welfare-maximizing price outside of a competitive market is hard. But all we really need is a welfare-improving price. Which is not hard to find, given that zero is clearly too low.

Zero need not be collected.

Well one benefit of a zero price is that you don't have to collect it.  No transaction costs.   With the cost of toll booths and union workers that means setting any price above zero has a minimum cost.    Let's call this cost X.     Now if the proper "market" price is between zero and X then perhaps it makes sense to stay at zero.

It's deeply unfair for the

It's deeply unfair for the government to monopolize transportation routes, offer them for free, allow communities to develop around the free model, then start charging. That a private entity would charge for road access does not mean the government should (or has a right to).
Take a different example. Out of taxpayer dollars, the government constructs a sewer system, allowing everyone to access it for free. Twenty years later, they decide to "privatize" the sewer system by auctioning it off to the highest bidder. The new owners start charing monopoly rates. Does this strike anyone as remotely fair? (BTW, this example is true of much of the privatization in former communist countries.)

It's also deeply unfair for

It's also deeply unfair for the government to monopolize transportation routes, offer uncongested routes, allow communities to develop around the uncongested model, and then let the routes get congested. It's a matter of the lesser of two evils.

The sewer example isn't really comparable, unless the government charges revenue-maximizing tolls (comparable to monopoly pricing) rather than welfare-maximizing tolls (market pricing). The only problem with the sewer example, as long as the sale is revenue neutral, is the monopoly pricing.

Are all government actions irrevocable?

It's deeply unfair for the government to monopolize transportation
routes, offer them for free, allow communities to develop around the
free model, then start charging.

People make decisions all the time based on government policies (rather unavoidable when it eats so much of GDP). Which of the following are off limits to changes?

  1. Taxicab drivers made business decisions on the basis of the number of medallions being strictly rationed. I propose liberalizing the market.
  2. A politician proposes moving to a flatter, lower tax system with no home mortgage deduction. People made decisions on where to live (indeed, "communities developed" around the deduction model).
  3. [One that really happened] GM makes labor market decisions based on a world of tariffs and import quotas on Japanese cars. Freeing tade leads to wrenching changes and radically reduced profits for the firm.

All of those involved changes in policy and all of them caused, or would cause, real harm to people who did nothing wrong other than count on a bad policy being maintained. Yet I'm guessing no libertarian would seriously argue we are obligated to maintain quotas forever. So why is this particular form of regulation (and our road network undoubtedly is socialist) so special?

Property is different. Own

Property is different. Own a piece of property and give someone free access? Well, if they go to rely on it, they get a license to use it whether the owner likes it or not. There are plenty of things to do other than make cars. There's only one I-66.