The price of goods

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Prices are magical. The concept of prices, not nearly as widespread as you might think, is, in my personal opinion the single largest advance in human thinking ever made.

It beats all others - the wheel, Expressionist painting, the concept of a higher power, electricity, the light bulb...the idea that things have costs and these costs can be represented by a single price, that the two are inextricably linked makes nearly all other advances either inevitable or irrelevant.

I mention this because Maryland and Virginia are getting serious about soliciting private companies to put in place and operate private roads.

Now, students of public choice will remember that roads are a textbook example - literally, in every textbook, used as an example - of a public good alongside the common defense and monuments. The idea of a private road is an oxymoron. You shouldn't ever have private roads.

Public goods are defined in dry but well accepted terms as those things which meet the following criteria:

1. No one can be excluded from it's use.
2. The costs and benefits of a public good are purely external to the market.
3. The costs of each additional user is vanishingly small.

These are actually very shaded statements; the realm of what constitutes a public good versus a private good gets very murky.

When we're talking about roads, a few things have conspired to make roads less public and more private.

The first is the advent of technology that makes preventing the use of a road easier. Technology, especially easy automated toll collection technology, like the Pennsylvania Turnpike's EasyPass system, for example, have made it much less expensive - for drivers as well as for toll collectors - to collect and pay tolls.

The second is the that the vanishing marginal cost of each user is no longer true for some public roads. Congestion has put an end to that. As with many things governed by chaos dynamics, traffic levels have a tipping point. Below a certain traffic density and the system is in a laminar state: traffic flows easily, with cars able to move and maneuver effectively and at speed. If you add one car to a road at the boundary between laminar and non-laminar flow, it will slow to a standstill. By the same token, if you take a road that is laminar at a certain traffic density and change the boundary conditions - say with an accident - then the road my push through the laminar boundary and become chaotic or turbulent. Because of this effect, it means that the marginal cost of each user is no longer zero. In fact, perversely (and this is what makes this issue interesting, at least for me), all of the cars on the road up to the one at the tipping point have a marginal cost of zero. All of the cars after the car at the tipping point have a marginal cost of zero. But that one special car, the one that holds the special person whose just lucky enough to push the beltway over the edge on that one given day - the marginal cost of that person can be measured in the tens of millions of dollars.

If we were to attempt to eliminate the externalities of this action (a favorite activity of economists), then we would have to impose a fee on the one person who caused the roads to tip from laminar to chaotic equal the the cost of the time of all of the people who were delayed by the traffic jam. This feels unfair to me - mostly because we don't know if it will be us, and it feels as though the person who was on the on ramp right in front of the poor, unlucky bastard who gets hit with the fine must be almost equally guilty - but in fact, a few utterly life destroying, bankrupting fines would be the most efficient way of getting the information into the marketplace about the cost of traffic.

Of course, these fines can only really be imposed by the government, which really only has cognizence over the delivery of public goods, which roads aren't if they get congested, so they should be handed over to the private sector whereever congestion is a problem.

Which brings me to the connection between congestion, non linear physics, roads, the upcoming plans of Maryland and Virginia and the price of goods.

In this article in the Washington Post, critics of the plan have complained that it will create a two tiered system, one in which people who can pay will to avoid gridlock and people who can't pay end up stuck in gridlock.

Of course. That's the point - the incentives that result from different prices will more efficiently allocate our scarce resources than any other mechanism we have available. Thank heaven for different prices and different abilities to pay.

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I did look at the article yesterday, and the point that seemed to escape me was exactly how each motorist is to know how much they are about to pay.

The proposal is for variable fees based on the amount of traffic on the road. During lighter times, the fee for the toll lanes will be rather small. During rush hour or heavier times, they will scale up. There will be an automatic "EZ Pay" system on board each car that will pay whatever amount is required.

However, the driver will not have any indication what amount they will be expected to pay, except for a vague estimate based on the amount of congestion they see before them.

In order for the magic of prices to work, people have to know what the price is at any given time or in any given situation.

On another note, I like the photo montage at the top of your page. Its good to see the classic "glasses hooked in the mouth/eyebrow raised" shot. That's practically your calling card. Someone could take the image and obscure or alter all of your features, but so long as I can see the eyebrow and glasses, I would always know it is you.

This is a wonderful idea, Nathan! In addition to EZ Pay for toll lanes and metros we could expand this concept to even greater extents. Ultimately, rather than taxing individuals for services that they don't use, we'll tax them according to that which they do use. I can see this in the future now. Old people will stop bitching about paying taxes for other people's children to go to school. When a kid goes to school the deduction is just taken from her or his EZ Pay account. For students who skip school, they don't have to pay as much. It gets better, when you are arrested and put into a police cruiser, a county jail, federal prison, EZ Pay will take out a simple deduction from your account to pay for your facilities. However, I propose the privatization of the term "Beltway". As Basil says, it's a sure sign that you've "gone Washington" which, in itself, is a sure sign of having gone Washington (?). But that way, whenever someone says, "Beltway," EZ Pay will simply take a deduction from your account. This will work wonderfully for everyone inside the beltway, they're already familiar with the system!
I would suggest that we also privatize mullets, their time is past, but I don't think that mullet users would be quite able to grasp the notion of "EZ Pay".

P.s. I think that this sounds like I disapprove of privatized toll roads. It's not that, I really don't care about privatized toll roads. Really, I just enjoy harassing you every now and again. Plus, c'mon, charging people with mullets for having them, that's really funny!

But not all mullets are created equal. We would need some sort of standard formula for calculating the cost.

Every week, the mullet will be measured in two ways. First, he distance from eyebrow to front bangs when combed forward (or if the hair is short enough to stand up, the hairline), in inches. Second, the distance the hair in the back descends below the tip of the earlobe, in inches.

Each of the measurements acts a multiplier. We start with a base price of $1.

$1 * X in. * Y in. = total mullet tax

Any value of 0 or a negative number indicates no tax.

But if you had a three inch gap from eyebrow to bangs, and your hair in the bang hung four inches below your eye, your total mullet tax for the week would be $12.

We can train the same guys who do our auto emissions testing to perform the measurements and assess the charge.

This would be a highly regressive tax, I'm sure. Although it would perhaps become a sign of wealth and status that you could afford to pay a weekly mullet tax, and the hairstyle would become popular with the well-to-do.

Charging people for mullets is predicated on the idea that mullets cause a negative externality. This is true, so it's not such a lousy idea, really.

Also, the idea of charging people for the services they use, provided those services aren't pure public goods (public defense, for example) is a pretty solid start to a libertarian stance.

Basil, I agree that people need to know what they will be paying, but I think that it could be done, not by knowing how much you'd pay at any given moment, but how much you'd pay as traffic conditions changed. If we knew the equations that governed the fees, in other words. I'm not talking about everyone in D.C. being able to perform the differential calculus required to identically solve the traffic patterns, but instead understanding them in the same way that we understand that it will take two and a half hours to get from the Telegraph Road exit of 495 to the College Park exit if you leave at four in the afternoon, but only forty five minutes if you leave at two in the morning. And only twenty minutes at any given time of the day if you're Karl. I don't know how he does it.

We "know" these things the same way we know how to catch a baseball without really understanding gravity. Again, with the notable exception of Karl, who probably does understand gravity. Doctorate in Physics, after all. Maybe that's how he gets across town so quickly.

It could still fail, however, if you could get easily trapped on an expensive, clogged private road. So the private road will be more attractive the more entrances and exits it has.

Just a few thoughts.

By the way, I like that photo, too!

I'd like to point out that there are equity concerns with congestion pricing. As with any user fee, it's a highly regressive form of taxation. That's not to say I don't support it, just that measures should be taken to maximize fairness e.g., funding of transportation through general taxation; directing congestion revenues to mass transit alternatives; provision of credits to low-income people).

As to how it works, here's how they do it now on I-15 in San Diego. Basically, the toll varies automatically by time of day, but can also be adjusted by level of congestion; you're alerted to this by signs all over the place.

In the case of general congestion charges, for example the one in London, it's a progressive tax: the more money you make, the more likely you are to try and drive in the London City centre. Complaining about how much congestion charge you paid in London City is a kind of bragging about how much money you make.

This, however, is not a congestion charge at all. It does provide a market of sorts for transportation. As I've suggested above, the market will do a much better job of determining the price of transport than the government, so allowing the private sector into road provision in congested areas is a fantastic idea - but it's fantastic idea because it puts a price on something that we've paid for but never valued: roads.

In the case of the private alternative to 495, it's not a tax. You don't have to pay it. You can choose not to use the private road. By the same token, these aren't really congestion fees. They're a fee for a service. None of the money should be used on mass transit. All of it should go to the shareholders.

Instead, it's a private alternative to an existing public good. In fact, because it's a substitute good to existing public service, we can expect some of the use to be conspicuous consumption as, in certain circles, the Beltway will become an inferior good, similar to the conspicuous consumption in London.

I might have equity concerns if it were going to be implemented overnight, as a toll on existing roads. There are two reasons that this causes me less sleep loss.

First, we've got a few years to adjust our behaviour.

Second, the new roads will act as an alternative to the existing roads, not a replacement, so no one will force you to pay it.

In fact, I'll go so far as to say that this is a generally positive sum arrangement, in which many win and the losers are vanishingly small. Who makes money off of frustrated drivers or air pollution and congestion? I don't know, but those people will lose out.

It's nearly Pareto optimal.

Hey, Basil...I was running through your calculation, and I think you mean that if you had a three inch gap between your eyebrow and hairline but your hair in the back hung four inches below your earlobe then your mullet tax would be $12.

In any event, your tax favors people with small foreheads. Personally, I think the mullet effect is exacerbated by a low forehead.

Also, let me ask you this: Would Dan Alt pay under your mullet tax, or would we need a special provision?

You know, I'd been wondering about this myself. Some of the most heinous mullets that I've ever seen are mullets that have long bangs with a buzzed middle section and long hair in the back! That's just gross. I think that our charge for mullets needs to be different. We could force Bill O'Reilly (mostly because I don't like him and see this as a fitting punishment) to look at people with mullets. And, we can charege the person that causes him to vomit an enormous tax. It would be just like the person who halts the flow of traffic, or in this case, creates the flow of traffic. Someone has to clean up Bill O'Reilly's vomitous bile and that's going to cost more than building an alternative access toll road that runs parallel to the beltway.

I think we should simply find this man, and tax him into complete poverty.

Oh! My! God!

That poor, poor bastard. When I see photos like that, I think: it's punishment enough just having to wake up every day and be him.

I don't have it in me to further impoverish such a creature.

It's sad, so sad.

Before this conversation continues I would like to point out that Nathan once had a mullet. I found the photograph and, like a loving and naive brother, I sent it to Nathan instead of keeping it and blackmailing him for it! I'll bet I could have gotten a lot of good Hollendaise sauce, with authentic duck eggs, out of Nathan for it. Hey, Nae, I'm going to be home Friday night (maybe thursday, too), what would you like to do for dinner. I need to run errands and am hoping that you would like to go with me.

Hence my sympathy for that guy.

I'd like thick cut, hickory smoked bacon, chicken, butcher's sausages, mushrooms and tomato paste, browned then roasted in a chasseur for a few hours. Maybe with a bay leaf and some thyme, served over rice.

Mommy can't have mushrooms, though, and Papa is convinced that tomato sauce will make Mommy sick - although I think she's past that and she kinda does, too. I might try and get her to eat a bit of something with spaghetti sauce tomorrow, just small, as a tester.

If the toll roads are additional roads- and not already existing roads- it seems to me that some people will pay for less congestion thus freely giving those left behind less congestion.

Rae, I think you're right on the money.

Well, who would have thought?! That’s stunning. I wish more details were available though. Did anybody hear anything more?

?????????? wap ????????

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This page contains a single entry by Nate published on December 13, 2005 4:05 AM.

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