Shortages are Bad

When I was a teaching assistant for introductory microeconomics, one of the main lessons I really tried to impress on the students was the wastefulness of shortages caused by price controls. Lots of issues are controversial in economics, but the wastefulness and pure social loss of shortages are not one of them. Usually the students understand this quite well.

And then I read articles like this [HT: Instapundit], and I despair:

I spent last week staring at parking meters. And wondering if I was witnessing the beginnings of a boycott.

Boycott is probably too strong a term. Quiet rebellion may be more like it.

Whatever the word, on Wednesday at 10:30 a.m. there were at least 10 open parking meters down one short block of Clark Street next to Lincoln Park.

At noon in Wicker Park, where Milwaukee Avenue is usually packed with parked cars, there were open meters waiting.

And at 2 p.m. around the Sheraton Hotel on Columbus Drive, a place where normally you can't crowbar your car into a space, there were at least three or four parking spaces. What's up with this?

What's up is that a month ago, when the City of Chicago privatized parking meters, rates were immediately jacked way up, and you now have to feed 28 quarters into the meter to park a car in the Loop for two hours. In exchange for a 75-year lease, the city got $1.2 billion to help plug its budget holes.

Look, this is a good thing. When the city privatized the meters, then the price for parking went to something resembling a market-clearing rate. And what happened? Well (surprise!) there are no longer chronic shortages of parking spaces. Imagine!

What's exasperating in this article is the idea that the optimum quantity of open parking spaces is zero. That's rubbish of the first order. Where the Sun-Times sees a boycott, I see a market. I see the opportunity to park in front of the Sheridan, rather than the extraordinary inefficiency of 100% occupancy. We don't say it's a "boycott" of milk if the grocery store sets prices above zero and so there is actually an inventory of milk present. Why should it be different with parking spaces?

People think of free parking as a God-given right and costless. It is neither. While I would prefer fully-privatized ownership of parking spaces, competitively set meter rates would actually be a reasonable close substitute. And the cost of "free" parking is enormous. There's a wonderful book on this topic.

Think of all the time you have to circle for thirty minutes to find a place to park. Think of all the traffic that consists solely of people in the endless hunt for the perfect spot. These are real costs. Just because they aren't monetized doesn't mean they don't exist.

I'm sympathetic to people who think that allowing legitimate road pricing just gives the government more revenue[*]. But there is a name for these people, even those that call themselves libertarians. The word is socialist. And it's no wonder this kind of socialism fails spectacularly.

*I actually don't necessarily agree (as I think other mechanisms determine the overall size of government), and I also think that the deadweight loss of our "free" roads and parking is so enormous that I'd deal with it if the government gets slightly bigger in exchange for real pricing. Congestion is an abomination.

Share this

I found the buried

I found the buried lede:

Now, he says, people in his ward are suddenly seeing not only empty meters but more cars clogging residential neighborhoods in search of free spaces, a problem for people who live there.

It's Chicago, so I'm sure

It's Chicago, so I'm sure the program is terribly designed, but I don't think it affects the basic point. The residential neighborhoods chock-a-block with "free" parking are a major part of the problem, actually. I've simply given up on driving to certain areas because the chance of finding a parking spot is zero. Sometimes I go on and take the (longer) train ride, other times I just don't bother and stay home.

It's Chicago, so I'm sure

It's Chicago, so I'm sure the program is terribly designed, but I don't think it affects the basic point. The residential neighborhoods chock-a-block with "free" parking are a major part of the problem, actually.

Right. I wasn't disagreeing with you; I was just pointing out that part of the reason that so many metered spaces are open is that the price increase has caused people to shift towards consumption of an inferior good (residential parking, which is presumably less convenient).

The logical next step is to limit parking in residential areas by restricting parking to actual residents. In Seattle they do this by issuing permits to the residents and putting up "No Parking Except by Zone 4 Permit" signs.

Monopoly?

Did they sell all the spaces to one entity, or do many entities own the spaces? If to one, then we can expect monopoly pricing.

I'm not actually sure of the

I'm not actually sure of the particulars of Chicago's plan. I suspect they did something like a Demsetz auction (competitive auction for monopoly rights). It wouldn't surprise me if they did something stranger, but it'd be hard to be worse than pricing was before.

Alan Greenspan's Price Ceiling

This whole economic mess mostly rests upon a price ceiling induced shortage. The price being controlled was interest rates. Alan Greenspan set the price ceiling below market.

I'm in Oakland, and the idea

I'm in Oakland, and the idea of driving into SF is practically a non-starter if you're going any time other than a weeknight after, say, 8pm (and BART stops operating at about 12:30am). In fact I believe NYC and SF are considered the worst in the US on this issue. Real-time pricing is a must.