Monday, January 5, 2009

Government Roads and State Pizza

After my last post, Monica commented:

It doesn't seem that obvious to me that our road conditions are a manifestation of socialism. I think most government interference is very evident, though, for rational people who know about any given industry.

I think she meant that it is hard for people with bad or no philosophy to see obvious flaws in government programs or state run monopolies which is absolutely true. I find that the sentiment that a nationalized business is fine or not obviously bad is very common, and it leads to a crucial principle. This essential principle was explained by Henry Hazlitt in his famous book Economics In One Lesson (which is an absolute must read and which echoes the same point made much earlier by the 19th century economist Frederic Bastiat) which is that people often only consider the direct result of an action and do not consider the action that did NOT occur. Hazlitt uses this principle to examine dozens of common economic fallacies.

For example, he starts with an example of someone who throws a brick through a store window which causes the store owner to replace the window with glass. Observers witnessing this conclude that throwing bricks through windows is "good" for the economy since it added revenue to the glass maker's business. Of course, if the store owner had NOT had to spend the money on new glass he would have spent the money somewhere else. So the glass makers benefit was the store owner's (and other businessman's) loss. There is no "net gain" to the economy from throwing bricks through windows. If you think this example is ridiculous, how many people claim that World War II was "good" for the American economy? In fact, isn't Obama telling us right now that "public works" will be good for the economy and that environmental regulations will improve the economy because it will create "green" jobs? This fallacy is everywhere.

The same principle can be applied to roads, airports, public transportation, utilities, education, mail, and any other activity that the government has taken over which should be performed by the free market. Let's take the roads for example.

Since we literally see the government roads, often in decent condition, one might conclude that the government is doing a pretty good job. After all, you drive on the road and your car usually doesn't fall through, etc. What is not seen is what would exist had the government NOT monopolized road construction. Some of what is not there we can imagine, but most often it can not be imagined since we have no idea what the profit motive would have led private individuals to build.

In the case of roads, I believe that government failure is absolutely obvious. Government roads are a literal disaster.

In particular, consider a traffic “jam”. Such an instance is a daily routine for millions of people and has become accepted practice. When you wait in traffic, you are waiting in a government line to use a government road just as you might wait in line at a government subsidized hospital, the post office or the motor vehicle department. The fact that people have become conditioned to accept the traffic jam is a frightening development and conjures the image of mindless hordes waiting for their ration of bread at a Soviet distribution center.

There is no need for a shortage of roads. The traffic jam represents an economic "shortage" in the sense that the supply of roads is artificially restricted relative to the demand. First, the government does not charge a fee to use its service nor does it charge a higher price when demand is at its peak (like a hotel raising rates when a convention is in town). Furthermore, the government is not motivated by profit to supply more roads so the supply constantly is overwhelmed by demand. On top of that, state and federal environmental regulations restrict the construction of new roads even if a local government was inclined to build more. Instead of building more roads, the government's response to increasing demand has been to mandate "carpool" lanes and put up billboards urging its customers (drivers) not to use its product by carpooling or by driving less. Could you imagine any private business faced with overwhelming demand urging its customers to buy less of its product? If lines form around the block for a particular product, how long would it take private business to supply enough of the product to satisfy demand?

The rampant occurrence of road shortages in virtually every city is certainly a manifestation of socialism as is the general quality of many highways especially in large cities that in some cases are barely passable and outright dangerous. The issue of road "supply" is the same problem that any business faces when it needs to expand its supply. If land is not available adjacent to a road then why not build underground and have multiple layers of roads (one for express traffic and one for local traffic)? It is possible that road suppliers could partner with car makers and build a car that drives automatically based on new technology. Why are semi-trucks allowed to drive on the same highway that motorcycles and cars use? Shouldn't larger vehicles have their own lanes? Wouldn't that be safer? This is just a start. We can not imagine the innovations that would take place if roads were privately owned.

The problem of not focusing on what is NOT happening is especially acute in cases where the government has monopolized a business for so long that no one can imagine an alternative. It would be like if the government had nationalized the pizza business 100 years ago and everyone was used to State Pizza. If someone proposed privatizing pizza you could just imagine the objections: State Pizza is pretty good already - if we privatize, then only the rich will be able to afford pizza, what about the employees of the state pizza unions, they will be unemployed, what about people in rural communities, they won't get pizza unless the state provides it, etc.

The most important take away from this is: in order to understand the consequences of government action, do not just look at what it does directly. Imagine what could have happened and what did not happen as a result of government action.

14 comments:

Burgess Laughlin said...

Your closing paragraph is right on target. Unfortunately, implementing it requires two prior skills: thinking in principles and thinking long-range.

Both are difficult for most individuals under even the best circumstances. In our culture of pragmatism, they are impossible for all but those few individuals who have a philosophy of reason.

Thank you for the article. Like any well thought-out idea, it will make me look differently at part of my world.

Monica said...

Great post. As for this, "Imagine what could have happened and what did not happen as a result of government action."

That's why we need people who know about any given industry to illustrate these pragmatic points, so thanks for doing so. I hadn't thought of many of those problems before.

This kind of pragmatic argument is very useful in activism (I wasn't trying to suggest before that it wasn't, only that improvements or what "could have been" in various areas in comparison to what "could be" simply isn't obvious to many people).

In short, I think we should all be making these arguments in our own area of expertise, and spreading them around. They're quite persuasive. Your ideas on safety were very interesting. My father has long expressed frustration that semis don't have their own roads. :)

Richard said...

State planning tends to dominant road placement theories, often based on goals that are not in the interest of business and individuals.

If roads were built privately there would be more of the radial or spoke-like road designs centering on important resources and city centers. Like grid roads, these radial roads would frequently be warped or truncated by topographic features, such as rivers, or very steep terrain.

Only desirable spokes and ring-road connections would be built as they were needed. Improvements would depend on changing economic conditions of the time. The desirable routes become the quickest way for the majority in an region to travel between important resources.

Some industries, requiring relatively large areas of land &/or numbers of employees, would become local spoke centers or hubs. Roads would radiate from these hubs to major suppliers and customers, perhaps with 'bedroom communities' along the way.

Larger cities would have auto-routes between them, paralleled by railroad routes. (If roads were privatized, the railroads would be too.)

Trucks and buses would be used on a much more local basis, which would make the auto-routes safer.

The whole system would be more fuel efficient, reducing any legitimate exhaust pollution problems.

As a result, mileages driven by car would be reduced, particularly since commuting would be quicker and shorter. Longer commercial links would most likely be dominated by rail. The cost of travel for individuals would be markedly reduced, as would the cost of shipped products.

People would primarily use cars locally, preferring to take longer trips by train & plane.

Each of the above five methods of 'over'-land transportation would specialize according to their best uses, but would be in (useful) competition where they overlap one another.

The radiating spoke system can be seen in parts of the world where the state did not first establish their surveyor's grid pattern: e.g. parts of France, Spain & England, some cities in the Eastern U.S.

A little Google Earthing would likely turn up more. I checked Vatican City, and sure enough, spokes extend across the more uniform topography to its East.

I suspect road privatization would cut societal travel costs enormously, perhaps even by half. State roads are just one more way that overall prosperity is unnecessarily reduced.

Richard said...

In my first sentence, my brain thought "dominate" but automated typing produced "dominant".

Beth said...

Hi
Hazlitt’s book is great, straight forward and quick to read. After I first read it over 20 years ago, I bought around 10 copies and handed them out to whomever was willing to accept them! If more people truly understood this one simple concept, their thinking about both politics and economics would be vastly improved.

Another place where I frequently run into this blind spot is in understanding the effects of the New Deal on the Great Depression. This connection is obviously relevant today. The relief and jobs that FDR created were easily visible. The greater number of jobs and business investments which did not occur was not visible. Neither was the drag effect the taxing and spending had on the overall recovery. It is difficult to counter the concretely obvious with the abstractly unobvious, but that is what must be done.

Thank you for your illustration of this principle.

Doug Reich said...

Thanks all for the great comments. I plan to write more posts specifically applying the Hazlitt/Bastiat principle to various economic issues.

Richard, thanks for the details on road theories - I think about this all the time when I'm driving and have some cool ideas I will post about some time.

Jim said...

I guess I am lucky as I do not have to wonder what a private highway would be like as I have one in my backyard, the Dulles Greenway. Taking the private road for part of my commute cut my travel time in half.

Matt, don't hate them just cause they're poor said...

Private roads? Then who would build roads where few people and poor people lived? Your argument completely defies economic logic. Roads are so beneficial to society you cannot leave something like that to a profit-seeking private industry. There would be no benefit for a private road building company to make or maintain roads in areas that have poor people. What about a private army. Will the private army defend the poor? Also, you use the word government with the assumption that it means bad. "you're waiting in a government line"... so? How is that an argument? I guess it's just easy to be negative. Don't take the easy way out, actually think about this stuff before you post. By the way, a public road system is like the most basic economic concept there is. Yea, we would have some awesome roads in some places, and nothing but gravel in the 90% rest of the country. Success!

Doug Reich said...

MATT: "Then who would build roads where few people and poor people lived?

A: The few people who choose to live there.

Why should I or anyone else be forced to pay for a road that I do not use so that someone else can drive on it? How did the people that choose to live where no one else live afford to build a house? Part of the cost of doing something like this is to consider the cost of not only the land and construction, sewer and water, etc. but the cost of traveling to and from the location. This is not a new problem - anyone who builds a lake cabin or lives in the middle of nowhere faces it and has from time immemorial.

How do you justify forcibly expropriating the earnings of someone else to pay for another's road? If someone wants to live in the middle of nowhere, they should just be able to demand that everyone else in the state or country build them a road? Why?

As to "poor people" - how do "poor people" or anyone for that matter afford anything? For example, many poor people do not buy houses, they rent. Similarly, if there is a demand for a road, then just like anything, someone who owns the land builds a road and charges people to use it. Airlines charge people to fly on their planes. Railroads charge people to ride on their train. Buses charge people to ride on their bus. Why can't a road owner charge people to ride on his road? Why is this so difficult?

If you think "poor" people are entitled to roads, on what basis? Why does "need" entitle someone to anyone else's property? Who defines who is in need and when that need supercedes the right to one's earnings, i.e., do you decide or a council or the dictator or who... that someone is poor and they get a road, or a car, or a pizza, or jelly beans or whatever?

see next comment

Doug Reich said...

Part II Anwer to Matt continued


MATT: Roads are so beneficial to society you cannot leave something like that to a profit-seeking private industry. There would be no benefit for a private road building company to make or maintain roads in areas that have poor people.

A: First, what is the government's function in a free society? I hold it is the government's proper and only function to protect individual rights, i.e., to protect individuals from physical force. See the essay "Man's Rights" by Ayn Rand at www.aynrand.org

Therefore, the government has no role in the economy other than upholding contracts and protecting individuals from violence. All of history and all of economics shows us that the free market produces goods and services better than any possible socio-economic system. This is not an accident. As you will see if you read my reference above, the free market is the system that follows from the consistent application of individual rights. Rights are necessary for man to survive as he must be free to think and produce. In other words, the free market "works" because it is consistent with man's nature.

In fact, from an economic standpoint, the more vital a good or service is, the more vital that it be provided by a free market. (See www.capitalism.net and read George Reisman's treatise on economics.) It is precisely the profit motive which acts to induce producers to provide goods and services. The government has no motive other than political ones to do anything. This is why the roads are in such a terrible state of disrepair and why we endure traffic jams and why no innovation has taken place in decades.

Where is there more of an abundance of food - in a Soviet bread line or in a modern American for-profit grocery store? Should we go to collectivized farms and state rationing centers because food is so vital?

MATT: What about a private army. Will the private army defend the poor?

A: Confusion over the nature of rights is what leads you to your question related to a "private army".

As I said earlier, protecting indiviudals from the threat of force is a legitimate function of the government. In a free society, government holds a legal monopoly on the use of force. Therefore, we should not have a private army.

With respect to goods and services freely offered and traded, the government's only function is protect individual rights including property rights by banning the use of force and fraud and settling contractual disputes by providing a court system.


MATT: Also, you use the word government with the assumption that it means bad. "you're waiting in a government line"... so? How is that an argument?

A: Uh, if you read my post and the above you would see that "waiting in a line" is an example of a shortage. An economic shortage occurs when a price is forced to be artificially low relative to demand. When a good is in short supply, obviously the price rises to clear the market. Such a state can only be caused by government intervention. I cited traffic jams as examples of "shortages" created and necessitated by state intervention. If roads were private and owners could charge more at peak usage (like hotels), then demand would be leveled to supply and we wouldn't have such intense traffic jams (shortages).

This argument buffers my more general claim that the free market always outperforms central planning.

end part II see next comment

Doug Reich said...

Part III continued


MATT: I guess it's just easy to be negative. Don't take the easy way out, actually think about this stuff before you post.

A: I answered you seriously here despite this attack but it was immature and unnecessary to make such an argument.

MATT: By the way, a public road system is like the most basic economic concept there is. Yea, we would have some awesome roads in some places, and nothing but gravel in the 90% rest of the country.

A: Why is this a basic economic concept? On the contrary, basic economics shows us that public roads should be a disaster like any government provided good or service. And they are.

Roads would be built wherever there is demand and therefore profit to be made. I much rather rely on someone else's profit motive, then writing a letter to my congressmen and begging him and his bureacrats at the DOT to make me a road.

Richard said...

Doug, your responses to Matt were excellent, and covered all the major bases.

Beth said...

We have lived for so long with roads paid for through taxes (private use, social funding) it can be hard to think outside that box.

In the article “Highway Aggravation: The Case for Privatizing The Highways,” Peter Samuel gives us a glimpse of the possibilities for transitioning from public to private highways—addressing both the why and the how. I can also envision a system where builders own the roads adjacent to their developments and incorporating that cost into the cost of building.

A point frequently lost in the discussion of roads is that public roads are a “subsidy” to private transportation. That fact has significant effects on our economic and behavior choices. Because the costs of building and maintaining roads have been socialized, individual users do not need to take the costs of roads into consideration when making transportation decisions. In fact, they are not even able to as that cost can not be calculated in our current system.

If roads were privatized and users had to pay directly for their road “consumption” we may find that mass transit is actually an economically viable option. As the system currently stands, the obvious costs and conveniences of private transportation far outweigh the inconvenience and costs of mass transit.

If roads had remained private and users paid tolls, perhaps a private mass transit system would have developed as a more efficient use of resources (which must include time and convenience as well as fuel, machinery, operation and maintenance.) The congested traffic which occurs because of subsidized private transportation however is not met with cries to end the subsidy and privatize roads. Instead, we hear demands for government subsidy of mass transit, and the use of laws to require the use of mass transit when, if left on their own, people would continue to choose private transportation-----even with the inconvenience of traffic jams.

This is just one more example where government intervention (public roads) leads to a problem (congestion, air pollution, etc.) which then creates the perceived need for further government intervention (public mass transit.)

It’s important that we carefully consider the increased efficiency and the preservation of choice which would occur in a system of completely privatized transportation--instead of jumping to the conclusion that more government action is the solution.

Richard said...

Awesome comment Beth, and all accurate.

I should add that privately built roads do not follow government survey grid lines, but a multi-radial pattern.

Here in Ontario, every country road follows the survey grid. Eventually, some get so much use they are turned into multi-lane highways.

Highway or side-road, the result is that driving means always following the edges of some rectangle ABCD. Therefore, driving to C (the opposite corner) requires one drive diagonally away from C, to B or D, before driving to C. That is, one must always drive the sides of a right triangle, rather than the hypotenuse.

In the radial system infrequently used routes may be as long as longer as occurs in a grid system, however, more frequently used routes will be much more direct.

Over time, the man hours and expenses the radial systems saves individuals would be substantial (microeconomics), let alone allowing wealth to be directed toward better macro-economic uses

The exact costs of the state imposed grid system are unclear, as you mentioned, because there is no clear standard for comparison. Still, a sophisticated analysis is hardly needed, when the principles are clear.