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Source link: http://archive.mises.org/13314/the-state-and-scarcity/

The State and Scarcity

July 18, 2010 by

Governments seem to use “market-like” solutions to obvious commons-problems. Consider the cases of Stockholm and Singapore, hardly the same kind of cities or cultures or problems. But the same sort of solutions.

Stockholm, Sweden’s capital city, supposedly has had problems with too much traffic in the city center. Government’s solution? Well, ask an economist! Obviously, he will tell you that the reason there is suboptimal traffic volumes in the city is because it is “too cheap” to drive there. The solution is therefore: enforce a “congestion fee” to enter by car within city limits. Then the political apparatus considers this congenial idea and starts drafting systems for realizing this solution.

Someone within the bureaucracy will then figure out (yes, some of them do think at times) that there are different kinds of traffic. Can we really have ambulances and police cars pay the fees? Obviously not. So an exception is entered into the drafting of the plan. The same type of exception is of course also added for “official” government vehicles – officials and bureaucrats shouldn’t have to pay for this, since they are there to plan the congestion and don’t add to it (?).

And what about those working with different kinds of necessary transportation? What about taxis? The postal service? Another exception is added to please government on all levels, its corporations, and not tick off the taxi drivers’ labor union.

Also, one cannot penalize voters and remain in power. So all people living within city limits in Stockholm are exempt from paying the fee. People have a right to go home, right?

But what about commuters living in the suburbs? Obviously, they are the problem and should pay for their contribution to the overall congestion. But surely one cannot ask them to pay every time they enter the city, since some people enter only once and keep their cars in the city while others go in and out several times every day. It wouldn’t be fair to ask the latter to pay the fee every time they drive into Stockholm, so a daily maximum is added to the rules.

It turns out employers in Stockholm are willing to pay to have their employees drive to work (and show up on time rather than spend hours on trains and buses). Well, we can’t have that – it would only hurt businesses while not affecting congestion much. So employers are prohibited from paying the congestion fees levied on their employees when going to work.

The “market-like” solution suddenly is a huge document of rules, amendments, and exceptions. And it turns out the infrastructure doesn’t support adding tollgates, which means some people traveling from one point in the suburbs to another point in the suburbs (even on the same side of town) need to go via the city center – and therefore pay the fee, while not really adding to the congestion. So official vehicles for county governments around the city are also exempt to avoid political difficulty due to this infrastructure problem; Average Joe is not exempt.

Now consider Singapore, a nation-state consisting only of a city. Surely many of these problems would be solved “automatically,” since everybody is always within city limits and affected by the congestion. But no, the government of Singapore still faces problems of extreme congestion even though there are basically no cars entering the city that weren’t already there.

Their solution? A fee. The government has introduced a hefty fee for permits to purchase a car. And after purchase, there are high taxes and fees and regulations to further make people not buy cars. The effect is that some people can’t afford cars, which intuitively should end the congestion problem. But it doesn’t; the problem still exists, but it is perhaps not as pervasive.

Traffic in Stockholm is also down a little. Apart from the (even more) poor state of public transportation, it seems the congestion fees have worked. Of course, government’s happy – they got more money, so they are planning on adding the same type of system to other Swedish cities.

But what are the real consequences of such congestion fees? Obviously, people will attempt to limit their driving into the city (if they are not already there). This means fewer customers for restaurants, theaters, museums and whatever. It also means fewer visits to grandmas and grandpas in the city by family members living in the suburbs – in a country where old people are already systematically institutionalized and cut off from their families.

The economists’ political solution to congestion was to make it more market-like through adding a cost through usage fees. But such fees cannot mimic the true cost to owners of property if there is no property and no owner. And the fees will not reflect people’s willingness and ability to pay for driving into Stockholm, since the fee structure is not in any sense subject to the profit and loss “system.” There is no property and therefore it is not possible to introduce true market incentives.

Political solutions cannot replace subjective valuations of real owners and users. They only make things worse: adding a politically negotiated fee for usage of politically enforced commons does not make it a market solution. Two wrongs don’t make a right – two wrongs only make it double-wrong.

{ 27 comments }

Matt Pritchard July 18, 2010 at 11:56 am

Excellent post.

Jim July 18, 2010 at 12:27 pm

It seems much of the issues with cities are the result of socializing cost in the first place. Car insurance is a good example. I’d be willing to bet rural car owners are bearing the brunt of owning a car in the comparatively risky city. Which of course brings up the obvious point; the issue is not commuters. It is people in the city. Do they have real alternatives to owning a car? Can the city itself support taxes necessary to build a usable public option? Will a private firm volunteer?

Yes, the typical bungled economist response by taxing ‘externality’ is a fundamental misunderstanding of how free markets work. But then, most cities are great examples of bungled mismanagement and government intervention. Name a well planned, zoned city that works. In most cities we are forced by zoning laws alone to commute for a loaf of bread, or go to work. So the main issue itself is the product of a spaghetti code of bungling.

De-zoning and deregulation is probably the best answer to congestion. Doing so in a recession when office buildings stand empty, lending themselves to re-purpose, seems like the appropriately ironic response to an idiotically surreal issue in the first place.

In the long run, if we survive our bankrupt bureaucracies, technology will increasingly solve the issue. In most cases, the only thing keeping most workers from working from home right now is corporate culture.

michael July 20, 2010 at 11:30 am

Jim: You’ve led me to one of those great flashes of insight. I think I can see the source of this great antipathy toward “socialist” impulses. It’s a dislike of city ways.

Urbanization itself involves a submerging of certain individual rights to the rights of the collective enterprise. You really can’t think of a city in any other way. It’s an agreement between individuals to merge their fortunes through common agreement.

Very understandably there are many who don’t want to live that way. They prefer the open skies and stars above, where no man gets to dictate to any other, and each is captain of his own destiny. They scorn the misguided ideas of educated and ‘urban’ elites, who think they know what’s best for everyone.

But as they say, god has a place in his heart for everyone. For every sadist, he provides a masochist, etc. So it would seem we have need of two republics, one in the built-up areas and one out in the plains and mountain hollers. The collectivists could populate their hives and dictate how they might live to their heart’s content. And the freedom lovers could roam free, beyond the reach of any busybody state.

I’d be willing to offer you guys Utah. It’s already halfway there. Arizona, too. You could chop off Phoenix and give it back if you couldn’t find a use for it.

mpolzkill July 20, 2010 at 11:52 am

Secession it is then, excellent. Oh wait…all of your absolutely corrupted and cheaply bribed stooges. So easy to be flip with them in your pocket, isn’t it?

michael July 21, 2010 at 10:27 am

It’s truly flattering to know you think of me as being the secret power behind the throne. I guess Obama is just a puppet on my strings.

mpolzkill July 21, 2010 at 10:42 am

You desire the state, troll, you have the masses in your pocket in that regard. You’re winning for now, that is why you are such a smug prick (or just a particularly insane troll).

michael July 18, 2010 at 12:56 pm

Washington, DC offers what might be the best example of how to deal with urban traffic congestion. They dug holes in the ground and put in Metrorail. A project like that requires some capital investment up front, but has its benefits. Reduced congestion, increased mobility, less time and expense wasted in parking downtown, where street parking is nonexistent and all the lots are both expensive and full. But it also has its drawbacks.

Fare revenues only cover 60% of operating costs… and no repayment of capital investment. So for the city, it’s a money loser. If it were run at a profit, fares would start around six bucks. No one would use it and it would rapidly go out of business. So projects like this only work out in a socialized (to use the word in an Austrian sense) economy.

Still, rail transit in urban areas will go a long way in reducing our foreign fuel dependence. Conceivably as much as one trillion fewer auto-miles travelled per year, if you assume a hundred million commuters, each driving ten thousand miles a year to and from work, might be saved.

That’s money leaving the United States for foreign climes. Or, put another way, money leaving every other area of the economy to fatten the dividends of investors in oil stocks. So the scheme would save commuters money while costing taxpayers money. You’d need to get out your slide rule to calculate which way we were better off.

Here’s the argument against:
http://ti.org/antiplanner/?p=2521

Walt D. July 18, 2010 at 1:40 pm

Needless to say, politicians and bureaucrats still ride around in stretch limos, paid for by the taxpayer, or recently money created out of thin air by the Fed. We have yet to see the Toyota Prius stretch limo.

Guard July 18, 2010 at 4:35 pm

The Prius is a scam. My Geo Metro, made 20 years ago, consistently gets 45 actual miles per gallon and does not relay on toxic batteries.

htran July 18, 2010 at 1:42 pm

“So for the city, it’s a money loser. If it were run at a profit, fares would start around six bucks. No one would use it and it would rapidly go out of business. So projects like this only work out in a socialized (to use the word in an Austrian sense) economy.”

The fact that the project is a money loser destroys your whole argument about costs to the people. The taxpayers are paying for the project, one way (higher taxes) or another (fees that reflect the actual cost). Just because you “see” the lower fee doesn’t mean the cost isn’t there.

michael July 19, 2010 at 5:18 pm

I agree, htran. The costs of any new mass transit system are high. But people don’t like paying them up front, and wouldn’t use the system at all if the fare price were six bucks. So they wrap the costs into their tax bill, and don’t mind so much.

I rarely used the system myself. But I still gained a benefit from its being there. It reduced congestion and made it easier getting around town. So I gained a benefit and willingly paid a price– in higher taxes. Had the subway never been built– which would have been the case had it required private investment– we’d all have been the poorer for that. Just my opinion as a local resident.

Seattle July 18, 2010 at 1:51 pm

Still, rail transit in urban areas will go a long way in reducing our foreign fuel dependence. Conceivably as much as one trillion fewer auto-miles travelled per year, if you assume a hundred million commuters, each driving ten thousand miles a year to and from work, might be saved.

That’s money leaving the United States for foreign climes. Or, put another way, money leaving every other area of the economy to fatten the dividends of investors in oil stocks. So the scheme would save commuters money while costing taxpayers money. You’d need to get out your slide rule to calculate which way we were better off.

Seriously? You’re really going to use the neomercantilist argument here?

Hard Rain July 18, 2010 at 1:54 pm

This is nonsense, Michael. Why is a massive city like Tokyo able to handle private companies operating public transportation at reasonable rates whilst even having to compete against state-sponsored competitors!?

No, the trouble is when you mix socialized roads with centrally-planned zoning restrictions you get a web of inefficiency and inconvenience. The solution of throwing more theft-funded enterprises to “alleviate” the present woes is negligible. The previous commentor, Jim, said it best: “De-zoning and deregulation is probably the best answer to congestion.”

As far as your appeals to Mercantilism are concerned, if you wish for less importation of energy resources perhaps you should be arguing for the deregulation and desocialization of America’s existing domestic resources.

michael July 19, 2010 at 5:06 pm

If Tokyo’s able to have private contractors run the mass transit affordably and at a profit, more power to them. Maybe we should study their situation and see whether there are any applicable lessons. Meanwhile we’re having the problem that mass transit’s too expensive to initiate by either a public or a private plan. Right of way, for one thing, is highly unaffordable. Also, people prefer using their cars to cheaper methods of travel. In Europe and Asia, there’s no resistance to public modes.

One system I like a lot is the one the People’s Republic of Chapel Hill has been using. This little town grown big has found expanding the road and parking grid to be impractical. You’d have to tear too many useful buildings down to make room to build more roads and parking decks. So they decided to put satellite parking lots at the fringe and run free bus lines.

That’s right, free bus routes from everywhere to everywhere else. And they save money operating these buses, over any other way of solving the congestion problem. So it has proven to be cost efficient over the years it’s been in operation.

As for mercantilism, you can test this theory yourself. Just start spending more money than you take in. See what develops over time.

Curt Howland July 18, 2010 at 2:00 pm

I’m sure that the Future of Freedom Foundation has put the article series on New York City’s private subways online by now, if my points here give anyone incentive to look it up.

The NYC subway system was entirely private. Underground, raised, everything. They were clean, cheap, reliable and heavily used.

Then the NYC government decided to put a price ceiling of 5cents on the price of a subway ticket, to “protect the citizens from predatory pricing”.

As inflation destroyed the value of money, the subway owners found themselves unable to run their lines, and had to sell them. The only buyer was the city (of course) which, after they got their hands on all the lines, immediately raised rates.

The rest is history.

The answer to traffic congestion is the same answer as every other problem: There is a demand, get the heck out of the way and let people figure out a way to profit by serving the demand!

J. Murray July 19, 2010 at 7:16 am

I’ve been on the Metro this past March and I found it to be a pain. Sure, it “works”, assuming you’re only going somewhere that is within walking distance of an actual station. The design itself was highly political as it conveniently ends at places where the politically connected or government agency happens to be. It made sure to take a stop over at Braddock St. and the Naval Yard, but try getting to somewhere between the Green and Yellow lines in the northern part of the city.

It’s just a smaller-scale version of the government planned railroads of the late 1800s. Vibrant, thriving areas were bypassed and politically connected areas were connected. Anything that isn’t connected to the Metro corridors in D.C. has dried up and mostly died while those businesses and entities already connected to the system have thrived at the expense of others. Instead of letting the market decide where businesses set up, the government came in and decided for them, completely readjusting the entire dynamic of the city, and not for the better.

michael July 19, 2010 at 5:13 pm

Those areas of DC that aren’t served by Metro are mostly low-density, and not employment destinations. Cars work fine in such neighborhoods.

There are exceptions to the rule. Georgetown would have been a perfect destination… but local merchants didn’t want people showing up from the ‘wrong’ side of town. So they prevented the stop from being opened. (The subway line goes right under M St.)

I guess that proves your point. The citizens objected, and an onerous government responded by agreeing with them.

Walt D. July 18, 2010 at 1:00 pm

Once again, the main problem of government bureaucracies is the inability to set prices dynamically. Cities such as London and San Francisco try to limit traffic by imposing exorbitant parking fees. Contrast this with the “market based solution” for private toll roads in southern California. The toll changes dynamically based on the level of congestion. The current market price is displayed every mile. If the toll road is operating under capacity it lowers the toll to encourage drivers to use it. If it becomes congested it raises the toll to discourage drivers from using it. The same thing could be done with downtown parking. Before leaving you could use a cell phone app where parking facilities offer parking for various prices. If you see a price you like, you prepay for it and drive; otherwise, you take public transportation or make other arrangements. This system reacts dynamically to supply and demand. However, most cities would not implement it – they are addicted to the parking/congestion fees – they are more interested in collecting taxes than relieving congestion.

Dave Albin July 18, 2010 at 2:21 pm

These issues all go back to urban planning – forced “planning” by trampling on private property rights. Of course, the problems that arise simply need more city regulation to solve, right? Ha Ha

GUILT July 18, 2010 at 2:33 pm

The desires of individuals are irrelevant. They merely get in the way of accomplishing greater, more important things.

terrymac July 18, 2010 at 6:28 pm

http://www.fff.org/freedom/fd0602e.asp – this is the first of a series on the takeover of the NY subway system, which Curt Howland referred to.

Darcy July 18, 2010 at 9:58 pm

This is a great exposition of the economic calculation problem. It needs to be promoted to a full article.

The Wobbly Guy July 18, 2010 at 11:54 pm

The Singapore system also uses a dynamic pricing system for roads in the city center which is based on what the authorities consider a ‘reasonable’ speed – 45 km/h. And of course, there is the quota system on top of it. All of which makes it very difficult to own a car.

It would be an interesting exercise to imagine private ownership of roads and a (voluntarily) collaborative system that enables road owners to levy charges on users. The private toll road mentioned before is certainly very relevant here.

jack July 19, 2010 at 12:48 am

it’s a money loser. If it were run at a profit, fares would start around six bucks. No one would use it and it would rapidly go out of business. So projects like this only work out in a socialized (to use the word in an Austrian sense) economy.

Shay July 19, 2010 at 5:12 am

Spam alert.

TokyoTom July 21, 2010 at 3:03 am

Per, very well said. Your concluding two paragraphs could be tweeked to address most of our present problems; the catastrophe in the Gulf of Mexico, which is directly tied to the government’s claim to own ocean resources (and its refusal to recognize rights for fishermen) comes to mind:

“The economists’ political solution to congestion was to make it more market-like through adding a cost through usage fees. But such fees cannot mimic the true cost to owners of property if there is no property and no owner. And the fees will not reflect people’s willingness and ability to pay for driving into Stockholm, since the fee structure is not in any sense subject to the profit and loss “system.” There is no property and therefore it is not possible to introduce true market incentives.

“Political solutions cannot replace subjective valuations of real owners and users. They only make things worse: adding a politically negotiated fee for usage of politically enforced commons does not make it a market solution. Two wrongs don’t make a right – two wrongs only make it double-wrong.”

TT

tungsten watches July 24, 2010 at 2:46 am

The desires of individuals are irrelevant. They merely get in the way of accomplishing greater, more important things. the main problem of government bureaucracies is the inability to set prices dynamically. Cities such as London and San Francisco ,I also think the main problem of America now find themselves to develop the economy, the development of road, not confined in the previous narcissism, we must recognize the world trend of diversification.

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