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Source link: http://archive.mises.org/7655/reducing-demand-by-increasing-taxes-the-non-logic-of-road-socialism/

Reducing Demand By Increasing Taxes: The Non-Logic of Road Socialism

January 15, 2008 by

When entrepreneurs and business owners and managers face difficulties in the market, it is rare for them to throw in the towel, blame the customer, increase prices and hope that the problem goes away. A business that does not live up to the expectations of the customer becomes marginalized and on the long run goes out of business. Because a business must survive on free exchange, it has to continually overcome the challenge of providing goods and services. Some ways to do that, for example, include continually investing in newer and better technology or finding alternate production processes.

The state, however, does the exact opposite of what the market would usually do. It resorts to rationing and often deliberately increases prices to try to lower the demand for a good or service that it is “offering.” Road socialism is no different.

The National Surface Transportation Policy and Revenue Study Commission is proposing that the federal government should raise gas taxes by 40 cents per gallon. The purpose is to use the additional revenue to improve highways and bridges but also to ease congestion.Citing the recent bridge collapse tragedy in Minneapolis, the report refers to government infrastructure as “no longer acceptable.” Yet because the state has displaced and replaced road entrepreneurs and finances everything through taxation, consumers are unable to express their preference.

Interestingly enough, the report recognizes that demand is very high (or maybe too high; it wants to reduce demand) but that the conditions of the roads and bridges are no longer acceptable. This is the typical consequence of state intervention, for otherwise how is it possible to have a situation where a good or service offered is of very poor quality and at the same time in high demand?

Thus, the bureaucratic solution is never to deregulate or to privatize/de-monopolize but to create other interventions such as higher gas taxes in this case.

More on road socialism: 1 2 3 4 5 6 7


Steve Hogan January 15, 2008 at 10:40 am

The same could be said for energy socialism. I’m always hearing PG&E ads on the radio extolling the virtues of using less of their product. Imagine a business in the private sector using its own revenue to encourage consumers to buy less of their product! Amazing.

Manuel Lora January 15, 2008 at 10:43 am

Sure. The reason why energy companies want you to consume less is because it’s less costly to them to lower use than to try to expand production since that would require a bureaucratic nightmare and billions in bribes to the regulators.

Henry Miller January 15, 2008 at 12:20 pm

Even in absence of regulation/bribes costs to build a new power plant, they would have to raise their rates to pay for a new power plant. So by discouraging use they can give you what you want: lower electric bills; and still make money because they can sell that power to someone else. At sometime they will have to build a new plant, but the less power each individual uses, the more customers they can spread that cost over, and thus the lower the rate increase for each individual.

My local power company will give you half price electric for your AC if you let them run it 15 minutes on, 10 off. They had to because at one time we could move 20 miles to the next utility and get lower rates.

Jonathan Bostwick January 15, 2008 at 5:34 pm

“Even in absence of regulation/bribes costs to build a new power plant, they would have to raise their rates to pay for a new power plant.”

Yet car companies manage to redesign cars every 6 years without having to raise rates?

They would not have to raise rates whenever it becomes time to build a new plant because they would be constantly investing in production and distribution, just like every other industry does.

Henry Miller January 15, 2008 at 8:36 pm

Maybe, maybe not. While I agree that things would be very different (and mostly better) in an unregulated market, I suspect the unregulated market would still encourage conservation because people want low power bills. If my local utility had enough power generation to run everyone AC at once on the peak days, our cost for power would be half again higher because we have to pay for those extra power plants.

Of course I’m not in a TVA area where the feds subsidize power, so we have to pay the costs of our power plants directly, even if it is from a regulated monopoly. The conservation plan was developed because customers were demanding cheaper power power, and the cheapest power is from big coal power plants that use about the same amount of fuel no matter what output they give, and takes weeks to start up. As such I would expect that an unregulated power company would have gone a lot farther down the conservation road because you can serve power cheaper to the customers if you encourage the right conservation. (Of course the turn off lights conservation wouldn’t be seen as much as lights are generally on at night when there is less demand)

Of course since we are speculating what a proper market would be like it is hard to know. You could be right.

Axel Riemer January 15, 2008 at 9:25 pm

This thought flashed across my head: this is what antitrust is supposed to prevent! A company that sells below its costs to shut out competition and attract consumers. Then they slowly bring the price back up when consumers are dependent on their good! Shameful!!

David Spellman January 16, 2008 at 11:14 am

The energy business is just one of many government controlled or regulated industries that needs to discourage people from using more of its product. Road building is the subject of the article, and we can put air travel in the same class, too (witness the congestion this holiday season). We have conservation efforts for all kinds of products from food to timber because the government makes sure there won’t be enough to go around.

It’s an unexpected Paradox of Mises calculation conundrum for socialism–not only can the government not calculate, it can’t even meet obvious demand at any price. When faced with unmet demand for products, the government solution is to drive down demand, and ultimately try to eliminate the demanders by reducing population.

The government’s solution to people wanting stuff is to get rid of the pesky people!

stratton salidis November 24, 2008 at 8:02 pm

The Government does not build and operate roads to make a profit. Our public right of way is not a product like a box of corn flakes. Reducing demand by making it easy and worthwhile for people to share rides or switch to walking and biking for some trips, allows for more private economic development per tax dollar spent than building more roads does.

Additionally, pedestrian oriented development would enhance individual and community health rather than degrade it as auto dependant growth (sprawl) does.

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