Extraordinary Observations

Eric Morris's two-part series over at Freakonomics is an extremely well written piece and a great read on the case for congestion pricing.

Opponents of tolls are certainly not stupid, and their arguments deserve serious consideration. But in the end, their concerns are largely overblown, and the benefits of tolling swamp the potential costs. Unfortunately, it can be hard to convey this because the theory behind tolling is somewhat complex and counterintuitive. This is too bad, because variable tolling is an excellent public policy. Here’s why: the basic economic theory is that when you give out something valuable — in this case, road space — for less than its true value, shortages result.

Without going in-depth on Morris's specific ideas, this quote is the key point. There seems to be a huge confusion over who wins and who loses from toll policy; even the title of Morris's posts help fuel this confusion. Roads have never been free, it is just that the users (read drivers) never paid the full cost. Now, you might even say that drivers have been paying the full cost, because gridlock and congestion are a massive waste of time. Not to mention that congestion means less fuel efficiency, gasoline costs money, etc.

I agree with Morris that shortages have resulted, but here is the crucial point: drivers are currently paying for congestion with their time, and in most places there is no available alternative. This is why Morris's proposal to toll some of the lanes on our highways while leaving the others untolled makes so much sense; it allows drivers whose time is incredibly valuable to fork over the cash and whiz by, while it preserves the perception of "free" roads for those who think their time is less valuable.

Think of it a different way. A few years ago the Nintendo Wii was the hottest selling new toy on the market. Unfortunately, Nintendo couldn't produce the units fast enough to keep up with demand, nor were they willing to increase the retail prices. As a result, people lined up outside stores for days to buy these games. To some people, waiting in line for 24 hours in the freezing cold was worth it; for others, they forked over double the retail price on eBay and got their own unit too. The difference, of course, is that the option to wait or to pay existed; on most of today's congested highways, it does not.

Further irony comes in the fact that commuting has been found to be one of the most miserable activities that humans engage in (presumably some of the blame falls on stress caused by delays and congestion) so we would think that rational drivers would be willing to pay a huge premium for the ability to make the commute even slightly less miserable. And yet when it comes to policy debates on this question, drivers often call attempts to engage in new toll policies an assault on their way-of-life. In reality, of course, they are the ones with the most to gain. Politicians, fearful of backlash from these policies, fight to preserve the status quo; but as morris concludes, "it’s rare that a public policy can produce so many winners with relatively small costs." I agree, if only the costs and benefits could be more easily understood, we might be able to finally do something.