Surprise!! I’ve had the intent to wrap-up the Rothbard The Urbanist series for a long time, and it’s been sitting on my todo list for over 6 years.
I want to thank Jeffrey Tucker, then at mises.org, and now at FEE.org and liberty.me for enthusiastically granting permission to reprint excerpts from For A New Liberty. Murray Rothbard’s 1973 classic can be downloaded free from Mises.org as pdf, and audio book read by Jeff Riggenbach. This chapter is also discussed by Bryan Caplan as part of an econlog book club series on For A New Liberty.
It’s been a while, so you may want to catch up on the first six posts:
Rothbard the Urbanist Part 1: Public Education’s Role in Sprawl and Exclusion
Rothbard the Urbanist Part 2: Safe Streets
Rothbard the Urbanist Part 3: Prevention of Blockades
Rothbard the Urbanist Part 4: Policing
Rothbard the Urbanist Part 5: Diversity and Discrimination
Rothbard The Urbanist Part 6: Traffic Control
We pick up in the heart of chapter 11: “The Public Sector, II: Streets and Roads” to expand on a subject core to Market Urbanism: the pricing of highways, and the consequences of a system where politics, special interests, and top-down planning have incarnated a dysfunctional system severely disconnected with bottom-up pricing signals necessary to be sustainable. Tragically, Rothbard’s insights on these subjects have been mostly neglected for over 30 years, while apologists for sprawl and automobile dominance have nearly monopolized the conversation among free-market advocates.
We begin the section with Professor Rothbard’s acknowledgement of what sprawl apologists turn a blind eye to, yet urbanists on the left are keenly aware. Government intervention, fueled by special interests and old-fashioned progressive ideology, massively subsidized the highway system and crowded-out otherwise viable railroads. As a result, we have an overbuilt highway system, urban neighborhoods were eviscerated, suburbs spread far-and-wide, privately built transit could not compete, and congestion clogs many socialized highways.
Pricing Streets and Roads
If, in contrast, we examine the performance of governmental streets and highways in America, it is difficult to see how private ownership could pile up a more inefficient or irrational record. It is now widely recognized, for example, that federal and state governments, spurred by the lobbying of automobile companies, oil companies, tire companies, and construction contractors and unions, have indulged in a vast overexpansion of highways. The highways grant gross subsidies to the users and have played the major role in killing railroads as a viable enterprise. Thus, trucks can operate on a right-of-way constructed and maintained by the taxpayer, while railroads had to build and maintain their own trackage. Furthermore, the subsidized highway and road programs led to an overexpansion of automobile-using suburbs, the coerced bulldozing of countless homes and businesses, and an artificial burdening of the central cities. The cost to the taxpayer and to the economy has been enormous. [p. 209]
Rothbard cites Columbia University economist, William Vickrey on the extent of subsidies to the automobile. 23 years later, Vickrey won the 1996 Nobel Prize in Economics days before passing away, and is known as the “father” of congestion pricing.
Particularly subsidized has been the urban auto-using commuter, and it is precisely in the cities where traffic congestion has burgeoned along with this subsidy to overaccumulation of their traffic. Professor William Vickrey of Columbia University has estimated that urban expressways have been built at a cost of from 6 cents to 27 cents per vehicle-mile, while users pay in gasoline and other auto taxes only about 1 cent per vehicle-mile. The general taxpayer rather than the motorist pays for maintenance of urban streets. Furthermore, the gasoline tax is paid per mile regardless of the particular street or highway being used, and regardless of the time of day of the ride. Hence, when highways are financed from the general gasoline tax fund, the users of the low-cost rural highways are being taxed in order to subsidize the users of the far higher-cost urban expressways. Rural highways typically cost only 2 cents per vehicle-mile to build and maintain.4
A transportation system without a rational pricing system causes dysfunction in many forms – most visibly, congestion. I first realized this while idling in traffic driving home from my first micro-economics class, which had just opened my eyes to queuing which results from supply shortages induced by mispricing. If roads were tolled at a profit maximizing price, especially with today’s technologies that tremendously reduce transaction costs, congestion could be effectively eliminated and inform operators where to increase capacity or build new roads. Instead, the government continuously attempts to solve congestion by buildings more roads without the benefit of price signals. Rothbard calls it, “like a dog chasing a mechanical rabbit,” and references a Washington Post article describing the unintended consequences of Washington’s Capital Beltway construction: more (not less) congestion, sprawl, and hollowing-out of jobs and residents from the central city. I tried searching Washington Post archives for the 1971 article, “U.S. Highway System: Where to Now?,” by Hank Burchard, but was unsuccessful. Please let me know if you find it.
In addition, the gasoline tax is scarcely a rational pricing system for the use of the roads, and no private firms would ever price the use of roads in that way. Private business prices its goods and services to “clear the market,” so that supply equals demand, and there are neither shortages nor goods going unsold. The fact that gasoline taxes are paid per mile regardless of the road means that the more highly demanded urban streets and highways are facing a situation where the price charged is far below the free-market price. The result is enormous and aggravated traffic congestion on the heavily traveled streets and roads, especially in rush hours, and a virtually unused network of roads in rural areas. A rational pricing system would at the same time maximize profits for road owners and always provide clear streets free of congestion. In the current system, the government holds the price to users of congested roads extremely low and far below the free-market price; the result is a chronic shortage of road space reflected in traffic congestion. The government has invariably tried to meet this growing problem not by rational pricing but by building still more roads, socking the taxpayer for yet greater subsidies to drivers, and thereby making the shortage still worse. Frantically increasing the supply while holding the price of use far below the market simply leads to chronic and aggravated congestion.5 It is like a dog chasing a mechanical rabbit. Thus, the Washington Post has traced the impact of the federal highway program in the nation’s capital: [p. 210]
Washington’s Capital Beltway was one of the first major links in the system to be completed. When the last section was opened in the summer of 1964, it was hailed as one of the finest highways ever built.
It was expected to (a) relieve traffic congestion in downtown Washington by providing a bypass for north-south traffic and (b) knit together the suburban counties and cities ringing the capital.
What the Beltway actually became was (a) a commuter highway and local traffic circulator and (b) the cause of an enormous building boom that accelerated the flight of the white and the affluent from the central city.
Instead of relieving traffic congestion, the Beltway has increased it. Along with I-95, 70-S, and I-66, it has made it possible for commuters to move farther and farther from their downtown jobs.
It has also led to relocation of government agencies and retail and service firms from downtown to the suburbs, putting the jobs they create out of reach of many inner city dwellers.6
What would a rational pricing system, a system instituted by private road owners, look like? In the first place, highways would charge tolls, especially at such convenient entrances to cities as bridges and tunnels, but not as is charged now. For example, toll charges would be much higher at rush-hour and other peak-hour traffic (e.g., Sundays in the summer) than in off-hours. In a free market, the greater demand at peak hours would lead to higher toll charges, until congestion would be eliminated and the flow of traffic steady. But people have to go to work, the reader will ask? Surely, but they don’t have to go in their own cars. Some commuters will give up altogether and move back to the city; others will go in car pools; still others will ride in express [p. 211] busses or trains. In this way, use of the roads at peak hours would be restricted to those most willing to pay the market-clearing price for their use. Others, too, will endeavor to shift their times of work so as to come in and leave at staggered hours. Weekenders would also drive less or stagger their hours. Finally, the higher profits to be earned from, say, bridges and tunnels, will lead private firms to build more of them. Road building will be governed not by the clamor of pressure groups and users for subsidies, but by the efficient demand and cost calculations of the marketplace.
In 1973, it would have been easier to argue against Rothbard that widespread tolling was impractical due to the transaction costs involved with tolling. 43 years later, technologies that allow highway operators to charge passengers without slowing traffic are abundant. The only obstacle to tolling highways, bridges, and tunnels is politics. Unfortunately, drivers are voters, and they like their underpriced highways. Can’t we just make Econ 101 a prerequisite for earning a driver’s license?
If highways were priced right, it may become feasible for governments to sell-off the assets. But as we’ve seen in many pseudo-privatization deals, it’s hard to be optimistic it would be a true privatization where the government gets out of the highway business altogether
In the next instalment, we’ll be able to apply new technologies to Rothbard’s insights of pricing local streets, a less intuitive notion even today. But as we’ll see, it’s actually not a new idea.
4. From an unpublished study by William Vickrey, “Transit Fare Increases a Costly Revenue.”
5. For similar results of irrational pricing of runway service by government-owned airports, see Ross D. Eckert, Airports And Congestion (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1972).
6. Hank Burchard, “U.S. Highway System: Where to Now?,” Washington Post (November 29, 1971). Or, as John Dyckman puts it: “in motoring facilities . . . additional accommodation creates additional traffic. The opening of a freeway designed to meet existing demand may eventually increase that demand until congestion on the freeway increases the travel time to what it was before the freeway existed.” John W. Dyckman, “Transportation in Cities,” in A. Schreiber, P. Gatons, and R. Clemmer, eds., Economics of Urban Problems; Selected Readings (Boston: Houghton Mifflin, 1971), p. 143. For an excellent analysis of how increased supply cannot end congestion when pricing is set far below market price, see Charles O. Meiburg, “An Economic Analysis of Highway Services,”Quarterly Journal of Economics (November 1963), pp. 648-56.
Mark Calvert saysMarch 23, 2016 at 8:43 pm
I’m generally in favor of congestion pricing and it is planned for the highways in my area, or more specifically, dedicated tolled express lanes, along with free general purpose lanes. I agree the current funding mechanism around gas tax is outmoded with EVs and CAFE standards. However, if people avoid the congested times, or move closer to work, or take transit or car pool, won’t there a) be a decrease in revenue, b) tighter, or more focused congestion in the work centers? In our local case, with the mix of tolled express lanes and free general purpose lanes, the tolled lanes won’t really be of value, and make any money, unless there is some substantial level of congestion in the free lanes.
Also, if congestion pricing is good for highways, is it not appropriate for other roads and modes? Should transit be subject to congestion pricing as well? And recover their full costs at the (farebox) as seems to the core message of this article?
Adam Hengels saysMarch 23, 2016 at 9:04 pm
Most likely revenue would be lower if behavior changes in response, but mobility would nonetheless increase.
I don’t see why. Congestion should be eased if tolling is priced right.
Yeah. It sounds like there’s a massive oversupply of highway lanes there.
Yes, in theory… Transit services should probably charge more during rush hour if they are crowded, and charge more for longer trips. I don’t think it’s likely that (m)any highways or transit would recover full costs, so they should start by charging prices that ease congestion/crowding.
Regardless, the first step should be to stop building new highways.
Mark Calvert saysMarch 24, 2016 at 1:22 pm
Still a few challenges. Too many drivers and politicians thing driving is free. Even if they do more tolling and congestion pricing, they’ll never change a “free” highway to a tolled highway. New capacity may be tolled, but unless GP lanes are totally congested, gaining toll revenue will have challenges. Then we won’t have the pure economic pricing feedback, so road/highway design will still be challenged with the same pathologies. The only feedback we’ll continue to get is congestion and driver complaints. Regardless, politicians will never charge enough in tolls or transit fares to recover there full costs. And to do true economic driven planning, we have to have true data across all modes of transportation. We can’t be subsidizing roads at 25% and transit at 80% and expect to develop proper plans. It has to be on a level playing field, or were just guessing.
In many cases in road/highway design, the design is the problem. Bad intersections, overpasses, too narrow bridges, etc. lead to bottlenecks. I don’t thing congestion pricing holds up well to mitigate bad design. You want me to pay more on a road that suddenly necks down from 4 to 2 lanes in rush hour? Just fix it. Stop building highways does not make sense when an area is expected to grow substantially. Congestion pricing may help, but won’t help for long. Too many people still will drive… it beats the alternatives.
Re; home closer to work… this only works in communities with a dense business district, and density leads to further congestion, in those areas, and in and out of those areas. You can penalize/charge more for people to leave, but if they desire a better situation with work, they may relocate to mitigate the cost of commuting. Not sure limited job opps vs. a tolerable commute is a worthwhile tradeoff for many compared to where we are today. Job mobility is also a key economic driver. There are lots of good jobs in most communities away from dense urban areas/CBDs, and people will pursue them regardless. Live, work, and play… in a constrained space limits ones opportunities.
I would like more user pays for all modes, and part of that is congestion pricing. I’m fighting some local battles that involve congestion pricing and new highway expansion. Many on both sides don’t like the tolls, but at least its closer to making those who use and benefit from the highway pay closer to their fair share. It’s not perfect, but it’s better that not getting new capacity, and it’s at least a step towards having roads pay for themselves. Until, of course, the politicians want to take the toll money and spend it elsewhere, such as transit, which has come up here and the nearby communities. Why are we never robbing transit fares to pay for roads?… but I digress.