Socialism and the roads, then and now

I’ve been reading Stephen Goddard’s Getting There: The Epic Struggle between Road and Rail in the American Century, and it’s a great book with lots of excerpable content, but here’s one thing that caught my eye on page 170. I should note that when Goddard talks about “the highwaymen,” he’s talking about the old technocratic highway corps that focused on improving rural roads, which was only a small subset of the overall highway lobby. (The broader highway lobby included politicians looking for Keynesian votes, auto/tire/rubber/oil companies looking for customers, and, increasingly, big city mayors in a misguided attempt to reverse the auto-powered trend towards decentralization.)

Seeing to advance these watershed ideas, yet wary of the power of the highway coalition, FDR set up the urban-oriented Interregional Highway Committee (IHC) in 1941. He borugh traditional engineers and visionaries together and named his osmetime-nemesis MacDonald its chair. Its mix of disciplines led the IHC to the pregnant conclusion that highway building was not merely an end in itself but a way to mold the declining American city while reviving it. At the core of the concept was a twofer: by cutting a selective swath through “cramped, crowded and depreciated” cities and routing downtown highways along river valleys, Washington could eradicate “a long-standing eyesore and blight” while easing gridlock. The autobahns may have inspired the interregional highways, but on one element they differed fundamentally: the German roads sought to serve the cities, while the American roads aimed to change them. The variance would become startingly apparent a generation later.

To the highwaymen, the Roosevelt administration’s visionary proposals were anathema. Michigan Representative Jesse P. Wolcott warned that a “small coterie of individuals who would socialize America” were taking control of American highway policy. A member of the House Roads Committee decried the NRPB’s “cradle to the grave” recommendations, under which Americans’ lives were “mapped out, and planned and controlled and regimented.”

Of course, the old highwaymen were themselves practicing a brand of socialism – the roads they built might have taken in small user fees in the form of gas taxes, vehicle registration fees, and the capital costs of owning an automobile, but they were (and indeed still are) relieved of general tax obligations and much of the land costs, so say nothing of being insulated from the competitive pressures of of opportunity costs by virtue of their socialist allocation.

But the idea of one highway advocate accusing another of socialism reminds me very much of today’s road advocates at places like Cato and the Reason Foundation, who levy the charge of statism (essentially a less politically charged accusation of socialism, or general state interventionism) at New Urbanists and smart growth-inclined planners, while at the same time holding up places like Houston as a paragon of free market urbanism and refusing to acknowledge the massive state intervention in favor of the automobile. Of course, that doesn’t mean the New Urbanists and liberally-inclined planners in general aren’t guilty of much of what they’re accused of – after all, their designs may be different than what we have now, but they’re no less totalitarian.

Urban[ism] Legend: Transportation is a Public Good

In a recent post, commenter Jeremy H. helped point out that the use of the term “public good” is grossly abused in the case of transportation.  Even Nobel economists refer to roads as ”important examples of production of public goods,” ( Samuelson and Nordhaus 1985: 48-49).  I’d like to spend a little more time dispensing of this myth, or as I label it, an “Urban[ism] Legend.”

As Tyler Cowen wrote the entry on Public Goods at The Concise Library of Economics:

Public goods have two distinct aspects: nonexcludability and nonrivalrous consumption. “Nonexcludability” means that the cost of keeping nonpayers from enjoying the benefits of the good or service is prohibitive.

And nonrivalrous consumption means that one consumer’s use does not inhibit the consumption by others.  A clear example being that when I look at a star, it doesn’t prevent others from seeing the same star.

Back when I took Microeconomics at a respectable university in preparation for grad school, I was taught that in some cases roads are public goods.  We used Greg Mankiw’s book, “Principles of Economics” which states the following on page 234:

If a road is not congested, then one person’s use does not effect anyone else. In this case, use is not rival in consumption, and the road is a public good. Yet if a road is congested, then use of that road yields a negative externality. When one person drives on the road, it becomes more crowded, and other people must drive more slowly. In this case, the road is a common resource.

This explanation made sense, but I was skeptical – something didn’t sit right with me.  Let’s take a closer look.

First, Mankiw uses his assertion as an example of rivalrous vs nonrivalrous consumption, while not addressing the question of excludability.  Roads are easily excludable through gates or any other mechanism that could restrict access.

Furthermore, Mankiw’s assertion that an uncongested road is nonrivalrous is simply confusing rivalrousness with the fact that the road is under-utilized and/or over-supplied at certain times.

For a silly example: if the government literally manufactured mountains of marshmallows free for the taking, Mankiw would have to consider marshmallows equally as non-rivalrous and non-excludable as uncongested roads in the US.  Would he then call marshmallows a public good?

Thus we can clearly see that all roads (when done right) are neither nonrival nor non-excludable.   We can use the diagram below (from Living Economics) to see that a congested (or tolled to prevent congestion) road is a private good, and in the case that a roadway is oversupplied, it is simply a “low-congestion good”, often called a “club good.”

I found this diagram at a very helpful site: livingeconomics.com

Roads are the more commonly misused example of a public good, but we can apply the same logic to transit.  First, most transit operations in the US already use a method of exclusions: the turnstyle.  Second, we can see that non-rivalrousness is simply a function of over-supply in the case of the subway car that isn’t full to capacity.

As economist, Don Boudreaux puts it :

So I’m more than sympathetic to the claim that government provision of roads, bridges, and highways distorted Americans’ decisions over the years to drive and live in suburbs.  But my sympathy for this claim comes from my rejection of the classic, naive case for government provision of public goods — and once that case is rejected, it cannot then be used to argue for government provision of, say, light-rail transport.

Does this alone prove that roads should be privatized? No, but the fact roads are either private goods or grossly oversupplied help weaken anyone’s case that transportation is government’s business in the first place.

I should warn you, if your Microeconomics professor teaches you this misconception unchallenged (perhaps using the Mankiw book), and gives you a true/false exam question of whether an uncongested road is a Public Good, you may want to answer “true”, or else be prepared to dispute your grade.  (And feel free to send your professor a link to this post.)

Next time you catch a commenter repeating this Urban[ism] Legend (like Jeremy H. did), refer them to this post.  Here are a few other links to back you up:

Are Roads Public Goods, Club Goods, Private Goods, or Common Pools? by Bruce Benson, Floria State University

Privatizing Roads by Tim Haab, “Environmental Economics” (blog)

Public Goods and Externalities: The Case of Roads by Walter Block, Loyola University

Highways Are Not (Economic) Public Goods by Rob Pitingolo, “Extraordinary Observations” (blog)

Public Goods from an Austrian Economics perspective


When are user fees just redirected sales taxes?

Ben Ross at Greater Greater Washington has an excellent post about the pernicious habit of states (and maybe the federal government?) mislabeling sales taxes as user fees. Sorry for pulling such a long bit, but it’s good:

Maryland is considering raising its gas tax. This long-overdue measure would allow some of the general revenues now subsidizing highways to go to the Purple Line, the Baltimore Red Line, and MARC expansion instead.

This need has unfortunately gotten mixed up with a proposal, originating mostly from the highway lobby and its supporters, to put transportation money into a “lockbox.” The concept is to amend the state constitution to forbid transfers from the trust fund into the general fund.

However, there’s a big hole in the bottom of the “lockbox.” Contrary to what some say, the money in the transportation trust fund mostly come from revenue sources that would have otherwise have gone into the state’s general fund, where it wouldn’t be locked.

If I buy a bicycle in Maryland, I pay 6% sales tax and the money goes into the general fund where it pays for education, public safety, the governor’s salary, and other state expenses. Cars and gasoline are exempt from the sales tax.

Instead, if I buy a car, I pay the same 6%. but it’s called “titling tax” and the money goes into a separate trust fund that is used only for transportation. It’s essentially the same when I buy gasoline, where the tax rate of 23½ cents a gallon comes to a little over 8% of the pretax price. [...]

The idea behind the lockbox amendment is that drivers pay for the roads they drive on. This idea is mistaken, but it’s widely held, and it’s an enormous obstacle to sensible transportation planning. The danger lurking in the lockbox is that this damaging misconception could be reinforced, making it even harder to correct failed transportation policies.

Does anybody know how widespread this is? (It sounds like it happens in most states.) I’m curious as to what my fellow libertarian urbanists have to say about this – if there’s no sales tax on gasoline and cars, then are these really user fees?

If highways push traffic onto local roads, why not toll them too?

Peter Gordon blogs about a paper he presented at the Transportation Research Board conference in DC:

My friends and I just presented this paper at the Transportation Research Board meetings in Washington DC. We tested the effects of tolling Los Angeles’ freeways in the peak hours (we tested 10 cents and 30 cents per mile). It’s a simulation on a real network and many substitutions occur. As expected, peak-hour freeway speeds increase, some people switch to surface streets and that traffic slows, some switch to off-peak hours and some (very few) travel less. And politicians take in a lot of money! That’s for the 10-cent toll. The 30-cent toll overloads the surface streets. Many other options can be tested, including only tolling some of the freeways. Planners have voiced concern that tolling the freeways would overload surface streets. There is probably a “sweet spot” that can easily be found. We also plan to look for effects on freight travel as well as travel by income groups.

He’s established that “very few” people lessen their travel. And if the the number of people who switch to off-peak hours is small compared to the number of people who move to surface streets (and judging from my very cursory perusal of the paper, it seems like this is the case), then tolling is just shifting the burden from highways to local roads. This could be a problem since local roads, unlike highways, are paid for almost entirely out of general revenue, not user fees. It seems like the rational thing to do at this point is to argue for tolling local surface streets as well, perhaps through a congestion charge. Maybe I missed it (like I said, I didn’t read the presentation paper thoroughly), but his talk of a “sweet spot” in the summary makes me think he didn’t consider tolling local roads to be an option.

The origin of user fees?

I just started reading Paving the Way: New York Road Building and the American State, 1880-1956by Michael R. Fein, and though I don’t have time to talk as much about it as I’d like, I will say that I’m only a couple pages in and I can already tell it’s going to be great. Its thesis is essentially that the development of the road building bureaucracy was as important as the New Deal, if not more so, in shaping 20th century political development (this may be something that liberal urbanists, who otherwise support the expansion of the state, don’t want to hear). There’s much I’d like to excerpt, but I’ll stick with this paragraph in the introduction:

Engineers framed their decisions in the language of scientific rationality and professional expertise. But these were merely forms of political expression that advanced their traffic-service vision of highway planning. Though New York’s road-building program predated mass automobility, engineers quickly seized on the phenomenon as a means of cementing their political legitimacy. Traffic censuses became the main foundational beam to engineers’ authority, a scientific measurement of public demand for highways that was difficult to contest [ed. note: reminds me of the Texas Transportation Institute]. As long as state highway construction focused on the improvement of existing roads, dissent was weakly expressed. As engineering projects increased in scale, impact, and potential for controversy, resistance spiked. It was in the process of responding to increased opposition that strong tensions developed between engineers’ service to their professional agenda (building a better highway system) and their responsibility to the public (balancing highway construction with other aspects of social development). These interests, once operating in tandem and instrumental to the engineers’ rise to power, began over time to feed conflict and meet with cross-purposes. The engineers’ solution to this problem was to stop treating motorists as citizens and start treating them as consumers, who paid “user fees” through motor fuel taxes and registration fees that were then dedicated toward the maintenance and expansion of the highway system. The adoption of this “motorist-consumer” logic suggests the extent to which highway engineers sought to crowd out dissenting political voices, diminishing the public nature of highways whilte interpreting the simple act of driving as an unqualified endorsement of the highway program.

Has anyone else ever read this book, or otherwise have anything to say about it? Is the author overstating the purpose of user fees?

LaHood’s revealingly stupid reply to the WaPo’s HSR criticism

The WaPo earlier this week ran an editorial against California high-speed rail, and on Friday ran a response from Transportation Secretary Ray LaHood. As the dedicated anti-California HSR blog High-Speed Train Talk says, the letter does a pretty good job of summing up everything that’s wrong with the guy.

The letter starts off with this stunningly ignorant comparison to highway building in the 1950s:

If President Dwight D. Eisenhower had waited until he had all the cash on hand, all the lines drawn on a map and all the naysayers on board, America wouldn’t have an interstate highway system.

And if it didn’t have an interstate highway system, maybe rail transportation wouldn’t have died out in the first place!

We also learn that “put[ting] Californians back to work” is “perhaps [the] most important” goal of the project – a candid admission that this project is more about making work for union workers than it is about transportation. This was obvious beforehand – we will, after all, pay double for the HSR trains due to procurement protectionism – but it’s nice to see LaHood finally admit it.

And just in case we still harbored any delusions about LaHood’s reasoning skills, he rounds the letter out with this blatant tautology:

Focusing the total sum of our federal dollars in one project, as The Post suggests, is a poor strategy that will not serve our long-term goal of creating a national high-speed rail network.

Sunday links

1. Planners in the Twin Cities have decided to “back away from the age-old compact in which the state tries to keep pace with suburban expansion” (i.e., they’re canceling new outer road projects) and add toll/bus lanes to highways in the inner metro area. Republican governor and business on one side, Republican voters on the other – we’ll see who wins.

2. Philadelphia and Washington, DC try (and mostly fail) to account for and sell off their vacant plots.

3. While DC’s “impervious area charge” that finances for the sewer system makes sense in theory, it does seem a bit inefficient to mandate that people and businesses build parking, and then charge them a fee on something they might not even have wanted to build in the first place. I guess it’s better than California’s solution.

4. NYT architecture critic Nicholas Ouroussoff rails against the NYC Planning Department’s decision to cap Jean Nouvel’s planned Midtown skyscraper at 1,050 feet (he wanted to build it 200 feet higher) and what he views as a mentality that “risks transforming a living city into an urban mausoleum.” According to the planning commissioner, the design was rejected since it failed to live up to the Empire State Building’s grandeur, which it would have rivaled in size.

The Great American Streetcar Myth

by Stephen Smith

Among liberals in the planning profession today, the story of the Great American Streetcar Conspiracy is widely known. There are more nuanced variants, but it goes something like this: Streetcars were once plentiful and efficient, but then along came a bunch of car and oil companies like General Motors and Standard Oil, and they bought up all the streetcar companies, tore out their tracks and replaced the routes with buses, and ultimately set America on its present path to motorized suburban hell. Although the story dates back to a 1950 court conviction and was retold by academics and government employees throughout the ’60s and ’70s, the theory leapt into the public consciousness in 1988 with both a 60 Minutes piece and a fictionalized account in the movie Who Framed Roger Rabbit?. Even today it resonates with liberals – The Atlantic casually mentions it as the reason America abandoned mass transit, The Nation wrote a whole article about it a few years ago, Fast Food Nation discusses it, and in the last week I’ve seen two references to the theory in the planning blogosphere.

Though the story has embedded itself in the liberal worldview, it has little basis in reality. A cursory look at transportation history shows that motorization was already well underway by the time National City Lines – the holding company backed by GM, Firestone Tire, and Standard Oil, among others – started buying up transit companies in 1938. Other factors, often championed by progressives, had already drove the industry into decline and it was really only a matter of time before buses took over. Although General Motors and other car-centric companies were certainly lobbying the government in their favor, the progressive tendency to vilify private transit companies had already turned the public against streetcars, and local governments were already heavily predisposed towards motorization by the late ’30s. It is perhaps because of this progressive complicity in streetcars’ demise, along with continued loyalty to state ownership and regulatory power, that the modern liberal narrative omits the true reasons for the decline of streetcars in America.

By the time the automobile really hit the scene, the streetcar had been around for about as long as the car’s been around today. First powered by horses in the 1830s, later by steam-powered cable systems, and finally by electricity, it’s fair to say that the streetcar was a deeply entrenched mode of transit by the beginning of the 20th century. But while the streetcar gained in popularity, the industry also attracted a cruft of regulation and corruption that dogged it till its dying day. Bribery was endemic in the awarding of service franchises, and their exclusive monopolies (often granted by the government) didn’t do much to endear them to the public, either. Ironically, though, it was these exclusive contracts that eventually brought streetcars down. Eager to receive guarantees on their large up-front investments, streetcar operators agreed to contract provisions that held fares constant at five cents and mandated that rail line owners maintain the pavement around their tracks. These rules made sense in the 19th century – inflation was a relatively minor phenomenon until World War I, and horses were rather destructive to the cobblestone streets – but as the next century dawned, these provisions grew increasingly anachronistic and would soon lead to the streetcar’s downfall.

The five-cent fare became a birthright to early 20th century voters and was a third-rail to politicians, not unlike toll-free roads today. Even when wartime inflation eroded the value of the nickel to half its prewar value, local governments would not release streetcar operators from their obligations to charge the uniform fare for all trips, no matter the distance. (Some have argued that this absence of zone pricing, which was so common in Europe, was itself sprawl-inducing, as it made living in far-off suburbs no more expensive than living closer to the city center.) The paving requirements, too, turned out to be poisonous to the industry. When automobiles started arriving in cities, their roads were literally being paid for by the competition, despite the fact that horses had long been phased out, and electric streetcars ran on dedicated tracks and didn’t touch the pavement. Organized labor also took its toll on the streetcar, driving up wages in a heavily labor-intensive industry where the competition – jitneys, municipal buses, and automobiles – had much fewer labor restrictions (not to mention lower or nonexistent tax burdens). In San Francisco, unions managed to convince the city government to forbid the operation of streetcars by just one person, ostensibly on safety grounds, but more likely to encourage employment of union members. Companies were also required to continue to provide service on all the routes they owned, and in many cases were actually required to modernize them, regardless of profitability. In addition to draining the corporations of funds, this also explains why they opted for cheaper buses on routes that were no longer profitable, but had to be maintained by law.

As the century wore on, “traction magnates,” as the titans of the streetcar industry were known, became the Wall Street bankers of their day. Progressive Era and New Deal reformers reacted against the Gilded Age elites, and the owners of streetcar networks were some of the wealthiest people around. The Nation was, by 1920, editorializing against density and subways (they “make a slum out of a suburb”), and the progressive New Dealer mayor of New York Fiorella La Guardia deemed trolleys to be “as dead as sailing ships” in 1935. Franklin Delano Roosevelt’s own Works Progress Administration was tearing up streetcar tracks in Manhattan years before National City Lines began doing the same in far less transit-worthy places.

Beyond local governments’ direct attacks on private transit companies, all levels of government contributed to rail’s demise by offering the vast majority of roads to consumers free of charge. While the status quo’s more libertarian-minded backers will point to the gas tax as a user fee, the highway funds are hardly adequate to cover the true costs. Though state and federal governments do now cover most of the capital and operating costs of the highways, local roads are still paid for almost entirely out of general revenues. And when you consider the forgone taxes and opportunity costs, roads start to look severely underpriced – to say nothing of the last hundred years of subsidized road building (the mainstay of FDR’s WPA), eminent domain, anti-urban federal home tax breaks and lending programs, positive feedback loops, and density-limiting zoning and parking policies. Private streetcar companies didn’t get the benefit of government-financed, tax-free tracks in their day, and in fact they paid the automobile’s subsidies directly in some cases, as with the aforementioned paving requirements, and indirectly in others, through local property taxes.

But if the suburban bug had infected America long before 1938 and failures of government were the real culprit, then why is the narrative of the Great American Streetcar Conspiracy so pervasive? Martha Bianco has pointed to the universal desire for a clear villain/victim dichotomy in her study of the myth, but I think the real reason is that politicians and progressive academics have too much at stake in the status quo explanations. American politicians have hitched their wagons too tightly to suburban homeowners to admit that it was a mistake. Progressive economists, historians, and planners, on the other hand, have invested so much intellectual capital into the idea of state regulation and control that they cannot admit that the urban planning profession in America is rotten to the core, and that the mere granting of these powers to government was the original sin. With car-borne constituents and an economic ideology to defend, modern day liberals have apparently found their own culpability in the rise of the suburbs too tough a pill to swallow, and so they’ve settled on General Motors, Standard Oil, and Firestone Tire as scapegoats. But just because they can’t face their history doesn’t mean that we shouldn’t.

Academic references

  1. Bianco, Martha. “Kennedy, 60 Minutes, and Roger Rabbit: Understanding conspiracy-theory explanations of the decline of urban mass transit.” [source]
  2. Bond, Winstan. “The flawed economics and morality of the American uniform five-cent fare.” [source]
  3. Lurie, Melvin. “The effect of unionization on wages in the transit industry.” [source]
  4. Schrag, Zachary. ” ‘The bus is young and honest’: Transportation politics, technical choice, and the motorization of Manhattan surface transit, 1919-1936.” [source]