Free Roads

Here is an example of another aspect of our society that we generally take for granted, and rarely consider the costs.

Like everything the government does, we tend to think of the cost to us on the margin. I have already paid my taxes, so even though I have paid for the roads, the marginal cost of driving one more mile on any side street is $0.00. The marginal cost of driving to work is $.40. I don't think of my total expenditures, and I don't think of my cost per mile; I only think about the marginal cost, which is usually $0.00, sometimes a buck or two.

Actually, the unintended consequences are many, and they are some of our progressive friends favorite pet gripes. Do you, or someone you know, gripe about how more people ought to take public transportation? What about global warming? How about urban sprawl? Lack of alternatives to oil?

I believe that you can tie each of these back to government spending on highways (mixed with credit expansion on the part of the Fed).

Let's look at public transportation:

Today, a good portion of your travel expenses are sunk costs. You already paid your income taxes and your property taxes. If you paid off your car, you don't think about that either. When you get in your car, the only costs you think about are gas and tolls. These are your marginal costs. When you take the train, the only cost you think about is train fare, which is your marginal cost. Rational people don't consider their sunk costs (taxes) when they make decisions, they only consider the additional expenses they will incur, which are their marginal costs.

Traveling by highway has lower marginal costs because most of the cost of building and maintaining roads is built into taxes which is a sunk cost. Traveling by train has a higher marginal cost because most of the cost of building and maintaining rail lines is built into your fare which is a marginal cost.

So, if it cost you $5 in tolls and gas to get to work, but $6 in train fare, then you are more likely to drive than take the train. You are not considering the $100's of dollars you already spent on highway maintenance because you are a rational person that doesn't consider your sunk costs. If gas and tolls reflected the real costs of travel, then they might be, say, $10, in which case you would be more likely to take the train.

The other problem with a subsidized road system is that once rational people started driving instead of taking the bus, people and businesses started to relocate themselves away from city centers and railway stations. There are many reasons people and businesses would prefer to be located away from city centers, but the overarching reason that doing so was AFFORDABLE was that the government was subsidizing their ability to travel by road.

Once the sprawl took place, it became impossible to retrofit an efficient and profitable public transit system into an environment that formed around highways and roadways. It's like trying to fit a square peg in a round hole. The mode of transportation we think is better is impossible to manage in the infrastructure we created.

Whether the benefits of our road system outweigh the hidden costs is difficult to answer. The costs of our current system are largely hidden, and the alternative free market transportation system is strictly hypothetical.

Perhaps I will dedicate some of my next posts to examining how government roads caused global warming (if you're into that) and killed the electric car.