Cafe Hayek - Latest Comments in Roads and Public Goods

Re: Roads and Public Goods

John Dewey — Mon, 04 May 2009 08:43:34 -0000

slocum: "there's little doubt that Americans are willing to pay the cost of highway-building -- in the form of fuel taxes"

Many of us pay twice for the highways we use - with fuel taxes and with tolls. Most folks are aware that 15% of Federal fuel taxes are stolen by mass transit. How many know that tolls paid by drivers are also being diverted to mass transit?

Bridge tolls in both New York and San Francisco are currently funding mass transit programs.

Re: Roads and Public Goods

Slocum — Mon, 04 May 2009 08:12:58 -0000

First, people began moving to the suburbs long before the interstate highways were built.

Not only that, they started moving to the suburbs many decades before Americans even had cars, hence the term 'streetcar suburb':

http://en.wikipedia.org/wik...

And note that such suburbs even predated street cars:

"Although electric streetcars were not introduced until 1887, suburbs did exist earlier based on animal-drawn cars, but the distance they could be from a city core (where most jobs were located) was more limited."

Lastly, there's little doubt that Americans are willing to pay the cost of highway-building -- in the form of fuel taxes (some portion of which are, in fact, not spent on highways, but are redirected to subsidize mass-transit and bike paths).

Re: Roads and Public Goods

Martin Brock — Mon, 04 May 2009 06:38:12 -0000

Speaking of random mutation. That last post had blockquotes in preview mode, but the tags simply disappeared on posting.

Re: Roads and Public Goods

Martin Brock — Mon, 04 May 2009 06:36:38 -0000

That doesn't seem so bad. If a privately built toll road can't make enough money for its owner, giving it away to the government means it gets a nice new road for free.

Like AIG gave away its mortgage backed securities? Fat chance.

Even if they paid cash to buy it, assuming the government (or a new private owner) paid an appropriately reduced price it could still be a money maker for the buyer.

Right. I can't wait to read about all the profits the TARP raked in.

The issue is efficiency. Would a quasi-private system of road construction and maintenance really be more efficient, in terms of constructing useful roads and maintaining them at reasonable cost, if proprietors know that unprofitable roads never fail?

Even if proprietors nominally "lose money" when building unprofitable roads, would it make any difference if they borrow the money anyway and simply declare bankruptcy after pocketing handsome compensation during years of construction and initial operation? Would lenders be more discriminating if TARP-like programs often bailed them out?

Would this "privatized" system really be any different from the public system, or would it only create opportunities for nominally "private" rent seekers?

I'm a minarchistic, but I'm not convinced that "private" rents are any less costly than "public" rents. [I don't refer to conventional "rents" reflecting the real marginal value of real capital here.] If market forces don't really operate, then "privatization" only privatizes "profits" while socializing costs.

This more fascistic system is not an improvement over road socialism and seems worse to me. It's a Hobson's choice, but if forced to choose, I'll choose socialism over fascism.

Two distinct theories seek to account for the manifest benefits of market organization.

One theory says that market actors seeking profit just make better decisions than central planners unconstrained by the profit motive. This theory still credits clever planning with the success, but it requires the proper "incentive" on the part of planners.

Another theory says that market actors might as well plan by throwing dice, because the key to market success is creative destruction, not clever planning. In other words, market organization is like evolution by natural selection.

The truth lies somewhere between these competing theories, but I have a lot more faith in the latter than the former.

Re: Roads and Public Goods

Douglas2 — Sun, 03 May 2009 20:01:10 -0000

I used to rent a room from a man who did aid work in the Congo. His team would hike to the villages of interest from neighboring Burundi, and they noticed that prices in the markets of the villages varied radically -- some villages had many excellent basket makers, with very high quality but could not get a high price for their work. In Goma, baskets of lesser quality were much more expensive, but fish were cheap.

Looking for a project to help the people, he bought a pickup truck for a local he trusted, to be paid off from the net income of his fares running an inter-village taxi. He also made known the team's research about the relative prices in the various places. Within weeks he had a phone call from Goma -- "what do I do with all this money, I don't feel safe with it" and told the man to buy trucks for each of his sons who knew how to drive. After a few more months all of his relatives had trucks, and he still felt unsafe in a lawless place having so much cash. My landlord asked him how long the journeys took between each village, and suggested that for each km he hire a labourer and buy a shovel. The labourer was to take dirt from the high spots of the road and fill the low spots, and just make sure that there weren't potholes. Before long the travel time was reduced to such an extent that he could make many more journeys in a day, and the increase in fares and cargo more than paid for his salaries to the labourers. Yes, other people would then free-ride on the better roads. But so what! In his short-term he was making more money as a result, and using the proceeds to build his business.

Re: Roads and Public Goods

John Dewey — Sun, 03 May 2009 13:07:23 -0000

antiplanner: "First, people began moving to the suburbs long before the interstate highways were built."

Absolutely, Mr. O'Toole. Tom Martinson explained in American Dreamscape: The Pursuit of Happiness in Postwar Suburbia, p.19, how rail lines freed urban workers from the congestion of 19th century Boston:

"The urban Yeoman eventually participated in this suburban expansion - just as soon as public mass transportation freed him from having to live within walking distance of work. ... With the extension of public transportation lines after the Civil War, suburban migration became universal, among all economic classes."

Martinson explained how workers used rail transit to escape crowded, 19th century Boston just as workers used automobiles to escape crowded, post-World War II Chicago. Compared to 1950's Chicago surburbs, houses were larger and lots the same size in 19th century suburban Boston. As Martinson points out:

"This provides a much different perspective from the contemporary notion that suburban "sprawl" is a singular, Post-Second World War phenomenon caused by the automobile."

Re: Roads and Public Goods

Bob Smith — Sun, 03 May 2009 13:05:20 -0000

I'm skeptical that automated tolling would work well now, and "private highways" that don't turn a profit would soon become public highways

That doesn't seem so bad. If a privately built toll road can't make enough money for its owner, giving it away to the government means it gets a nice new road for free. Even if they paid cash to buy it, assuming the government (or a new private owner) paid an appropriately reduced price it could still be a money maker for the buyer.

Re: Roads and Public Goods

MERLIN — Sun, 03 May 2009 09:50:42 -0000

Would we have 95 Mexican Truckers in the US in the first place without these publically produced roads? Let's follow your thoughts back to the previous post.

Re: Roads and Public Goods

Martin Brock — Sun, 03 May 2009 07:19:53 -0000

Would manned toll booths work for rural Utah or west Texas?

No. I'm skeptical that automated tolling would work well now, and "private highways" that don't turn a profit would soon become public highways, so I don't see much hope for privatization in this direction.

Isn't a long stretch of highway too big to fail? Would ripping one up to free the land for other uses often be cost effective?

Re: Roads and Public Goods

Martin Brock — Sun, 03 May 2009 07:12:51 -0000

My suspicion is that, in fact, roads aren't subsidized at all, they are 100% paid for by users.

More like 200%.

Of course, all "roads" are not created equal, so road use taxes (like gasoline taxes) don't only subsidized passenger rail and other public transport systems. The taxes also subsidize roads that aren't used as much as other roads.

Re: Roads and Public Goods

John Dewey — Sun, 03 May 2009 05:04:58 -0000

Alex Durdan: "You obviously do not understand why highways were built."

Few will dispute that German highways influenced Eisenhower to champion the Interstate highway system. But, to be fair, U.S. highways were being built long before WW II - just not on the scale of the Interstate system. Furthermore, it is unlikely that Congress would have had support for the gasoline tax had there not been a pent-up demand for non-defense transportation in the U.S.

Re: Roads and Public Goods

Alex Durdan — Sun, 03 May 2009 00:19:33 -0000

You obviously do not understand why highways were built. Please research the Autobahn. Hitler's malignant road was his most lethal weapon.

Read, Learn, Interpret, Spin.

I know your blog is based on gov't funding for highways but who wants to travel 35mph to California?

Re: Roads and Public Goods

Bob Smith — Sat, 02 May 2009 23:42:19 -0000

There's a question about "road subsidies" I've never seen answered. We all know that huge fractions of federal, state, and local gasoline excise taxes are diverted to pay for public transit, including buses and light rail, as are portions of the licensing & registration fees paid by drivers. If all of those tax revenues instead went towards road construction and maintenance, would it still be correct to say that roads are subsidized? My suspicion is that, in fact, roads aren't subsidized at all, they are 100% paid for by users.

Re: Roads and Public Goods

antiplanner — Sat, 02 May 2009 21:13:59 -0000

First, people began moving to the suburbs long before the interstate highways were built. Second, the interstates were not subsidized -- they were 100 percent paid for out of user fees. So all the theory about public goods is moot.

(And I don't believe roads qualify as public goods anyway -- the U.S. had many private toll roads in the nineteenth century.)

Re: Roads and Public Goods

Sam Grove — Sat, 02 May 2009 19:16:21 -0000

Something that the political class wants that the productive class has not been willing to pay for voluntarily.

Possibly because the political class has wasted much of the product of the productive class on things that the productive class would not choose to pay for even if they thought they could afford it.

Re: Roads and Public Goods

vidyohs — Sat, 02 May 2009 19:08:00 -0000

Yep, Randy, is right on the money.

Re: Roads and Public Goods

John Dewey — Sat, 02 May 2009 17:59:41 -0000

Don Boudreaux: "in the case of U.S. interstate highways especially, the notion that it is too difficult to exclude non-payers from traveling along them is incorrect."

Was it too difficult to exclude non-payers 50 or so years ago, when the interstate highway system was first authorized? Wouldn't that have required manned toll booths across the nationwide interstate system? I can see how manned toll booths could be justified for high volume routes such as Pennsylvania or New Jersey Turnpikes. Would manned toll booths work for rural Utah or west Texas?

Re: Roads and Public Goods

John Dewey — Sat, 02 May 2009 17:49:14 -0000

I'm trying to understand the justification of government provision of public goods. Would a economist mind confirming my understanding?

1. One person's consumption of a public good does not prevent others from consuming the good.

2. The public good can be consumed without paying for it.

3. The marginal cost of the public good is zero, or very close to zero.

4. Marginal cost pricing would then imply that the market price is zero.

5. If production of the public good were left to private markets, too little of the good would be produced - because the marginal price is zero.

Is that correct? Is that how eminent domain for procuring right of way is justified?

Re: Roads and Public Goods

jorod — Sat, 02 May 2009 17:35:36 -0000

The middle class moved to the suburbs because the government forced them out of the cities with their socialist housing policies.

Re: Roads and Public Goods

John Dewey — Sat, 02 May 2009 16:25:16 -0000

Don Boudreaux: "The reason private markets allegedly undersupply public goods is that, for such goods, private firms find it to be too costly to exclude non-payers from enjoying the benefits of these goods"

Of course that's true. But with roads and highways, an additional consideration is eminent domain. Private producers would rarely be able to obtain right of way for highways as cheaply as governments can.

Re: Roads and Public Goods

Reach Upward — Sat, 02 May 2009 14:49:15 -0000

Light rail does not suffer from nonexcludability. It only suffers from unwillingness to pay full price for it by the producer class. In most cases it is pursued on the superstitious basis of it achieving a higher moral good than could be achieved through selfish and evil free markets. That is, it is pursued in order to repudiate the belief in free markets.

Re: Roads and Public Goods

The Albatross — Sat, 02 May 2009 13:48:51 -0000

Per,

Agreed, as I said the credit agencies were wrong. However, your frequent posts on this subject imply that there was some sort of logical failure on the part of the credit rating agencies. There was not. They read the intestines and came to a logical conclusion, which any sane person would have thought correct. They were (with exceptions, of course), not stupid, nor greedy, nor corrupt. They gave logical advice. The fact that there are three of them is hardly dispositive—had there been fifty then they would have likely come to the same conclusion—those relying on their ratings likely also gave some thought to the rating—or, at least, that is what the folks I know in the latter biz did. However, the latter saw the same thing—loans based on solid assets. That being said, those who relied on this sound (but evidently erroneous advice) should, of course, lose their money. Sadly, this has not been the case. To tell you the truth, I think you and I agree on a lot. However, I (and I think I could be totally wrong on this point) see your posts as manifesting a belief that the regulatory powers that be would not have made the same mistake. Hey, I am not taking a swipe but that is how it appears—again I think you are right that a central agency would not be very good at this. Agreed, but folks follow poor incentives; and these incentives came from above, so we can’t blame folks for following the road when it was paved by others.

Respectfully,

The ALbatross

Re: Roads and Public Goods

Per Kurowski — Sat, 02 May 2009 13:24:16 -0000

The Albatross “then it looks like AAA to any rational human being—“

And I have no problem with it looking like an AAA to any rational human being what I have problems with is regulators telling the rational human being that instead of looking through millions of eyes they are better off looking through the eyes of some few (3) credit rating agencies.

Now of course if you believe in the capacity of a central agency to be right (or if you work in one of them) then you must agree with it. I don’t.

Re: Roads and Public Goods

Mattyoung — Sat, 02 May 2009 13:24:05 -0000

I got curious and looked up the price changes between urban and suburban residences during this downturn. Zillow compiled the statistics, a sample here:

http://www.zillow.com/advic...

The graph shows prices dropping faster the farther one lives from the urban center. Suburbanites are losing out, if this data holds.

The data also gives us further evidence that we are in this mess because of the gas price bubble.

Re: Roads and Public Goods

The Albatross — Sat, 02 May 2009 13:02:37 -0000

The Usual Line from Per:

Always with the rating agencies, Per, always with the rating agencies—the rating agencies blew it, ergo all organizations not owned or operated by philosopher kings in the government and run by the market are condemned to failure. The rating agencies did what they did because they are not retards. Did they make bad decisions? Sure, but if you bet a million dollars on a ninety percent chance that you will make ten million, then have you made a bad decision? The rating agencies saw securities backed by mortgages—these are historically considered the most conservative and sound of investments (which is why they were bought by those prudish insurance companies). Furthermore, us economists (which is everlasting testament that clever people do not know how to run an economy), almost universally agreed that home prices would never go down (something to do with rising prosperity, second homes, larger homes, dwindling family sizes, anti-sprawl legislation, etc. etc.). I should also add that these securities came with guarantees from Fannie, Freddie, etc. with the subtle (although not statutory) guarantee of federal support. Therefore, if Bubba with a CCC credit rating buys a home whose mortgage is then sold to Freddie and Fannie and guaranteed by them (and wink, wink, the Treasury), then it looks like AAA to any rational human being—except those who can see the future.