An Argument for Fee-based Roads (long)
- I've been noodling on these issues, and this is the result ..
An Argument for Fee-based Roads
The problems of urban sprawl typically are attributed to free
enterprise run amuck, for which the recommended palliatives are
better government planning, public transportation, and raising the
consciousness of the citizenry. "Smart growth" is supposed to reign
in greedy builders. Money poured into public transportation will
provide alternatives to expressways. And once people understand the
harm of automobile culture, they will choose saner forms of transport.
This presentation of the problem is mistaken in every aspect. The
problem is real. Traffic congestion is real. Sprawl is real. The
sickness of the social infrastructure is real. And we need to solve
this problem. But we won't solve it so long as it is discussed in
1. The Most Heavily Subsidized Form of Transportation
There is a sense in which a car is private transportation. It
provides a private space not shared with strangers, locked and hidden
compartments for what one carries, and goes where the individual
driver wants, exactly to the driver's own schedule. For business, the
same is true of trucks and trailers. In the remainder of this
article, these are included in the broader notion of "automobile."
Economically, though, it is a mistake to view cars and trucks as
comprising a private system of transportation. Cars and trucks are
useless without a road system designed for their use. This road
system is built from the public coffer. It includes not only the
roads themselves, and their visible lights, signs and signals, but
also hidden components, such as computers to control the signals, and
maintenance crews to keep all this in repair. It includes the street
sweepers that keep the roads clean of debris in the summer, the snow
plows that clear them in the winter, the asphalt trucks that repair
the potholes, the backhoes that provide access to utilities
underneath, and the workers that operate all of these, including the
accounting and HR departments the workers require.
The public subsidy of this transportation system does not end there.
Every state has a public safety department that licenses drivers,
inspects vehicles, and polices the roads. Every large community has
ambulance services, emergency rooms, and trauma care units that tend
to the injuries caused on the roadways. Every city has local police
and courts that handle the legal matters resulting from accidents on
the roads. Of course, the ambulance, emergency rooms, local police,
and local courts also handle problems unrelated to automobile
traffic, and so it is only some large fraction of their costs that
are related to this transportation system.
No other transportation system is so heavily subsidized, not planes,
not sea transport, and not even the much maligned train. Cars may be
private, but the roadways and related infrastructure on which they
depend are very much public, not only in shared use, but more
importantly, in how they are funded. The simple truth is that we have
a vast, public transportation system, and it is the automobile.
2. What Harm Does Subsidy Do?
It is easy to see the harm in subsidy when everyone pays for the
benefit of a few. It is less obvious when the payors and
beneficiaries include most the population. But the problem with
subsidy is not just that one group benefits at the expense of the
public generally. It is also that it distorts the decisions that
people make, and causes tremendous misallocation of resources. If,
each year, a few thousand dollars of your tax money goes to the
public road system, you cannot get that back by driving less. It is
already spent, no matter how much or how little you use it. From each
individual's viewpoint, the road system is "free." Economically, the
more accurate description is that this is already sunk cost, and the
marginal expense of driving is the relatively small cost of buying a
car and filling it with gas.
In this context, cars are tremendously convenient and even economic.
Why live in the city, when suburban houses are cheaper and more
spacious, and the marginal cost of commuting is so low? Why bother
moving close to where one works, when moving is an expense and a
hassle, and the future of where one works is uncertain? Why *not*
drive to the store, when you already have a car and the gas burned is
so inexpensive? Why not drive a little further out to find the goods
and services more cheaply, since it more than makes up the marginal
costs of driving? The aggregate of these decisions made by millions
of individuals drives where businesses decide to locate, what kind of
housing builders offer, and these increase even further the perceived
demand for roadways, justifying even further public expenditure on
them, which increases the need to drive, without further increasing
its marginal expense to the individual. And thus our urban and
suburban infrastructure is created, built on the base of a
transportation system that is much publicly subsidized. And given
that driving then is made so important to individuals, and that they
spend so much time in cars, it makes sense for them to purchase
bigger and more expensive cars, until these come to resemble mobile
abodes, small homes away from homes.
Suburban sprawl is subsidized in more than the roadways. Phone and
electric utilities have long been regulated, so that the cost of such
services in outlying regions is not much more than its cost in
cities, despite a much greater disparity in cost. Both federal and
state governments have also directly subsidized a variety of projects
to bring utilities and services to outlying regions, under the
general rubric of improving quality of rural life. One has to wonder,
though, what is rural about spreading cities to every canyon and
And finally, besides the direct subsidy of roadways, there is the
indirect subsidy of external costs imposed on others. This manifests
mostly in air and water pollution. It is harder to account for these
costs, but they are nonetheless real.
3. A Simple First Step
When you find yourself stuck at the bottom of a hole, the first thing
to do is stop digging. Very simply, the public costs of the car
transportation system should be borne by its users, in rough
proportion to their use, so that their individual decisions reflect
The simplest way to do this is to roll all the public costs of cars
into a fee placed on each gallon of gasoline. This would be difficult
to do state by state, because people would drive across state lines
to find the cheaper gasoline, creating a race to the bottom. Yet most
of the funding occurs at the state level. The solution is to leverage
the funds provided federally, tying them to mandated regulation on
how the roadways are funded. This is the same mechanism the federal
government uses to pressure the states in other car-related matters,
such as the minimum age for drinking. A federal law could mandate
that all federal spending on transporation would come from a federal
fuel fee, and that only those states that implement a similar rule
internally are eligible for federal transportation dollars. All the
direct costs described above should be covered, including appropriate
fractions of local EMS, police, courts, and trauma care. This fee
ultimately would raise the price of a gallon of gasoline to several
dollars. Such fee could be phased in over a period of years.
The chief argument for this is simply one of fairness and economic
efficiency. We have created a huge system of transportation funded
from the public purse, that gives its users no feedback on its
incremental cost. This leads to overuse, and to ever increasing
demands on the public purse. Overuse is especially pernicious, given
that some of the costs are unaccounted externalities.
There are several possible objections to this. The pure libertarian
would argue that all roads should simply be made private. I think
this impractical, and will not further address it. Conservatives will
point out that states are unlikely to decrease their other taxes,
simply because those taxes no longer have to fund automobile
transporation. There is some truth in this complaint, but it refuses
to address the tremendous harm caused by the public subsidy of car
The greatest opposition will come from individuals and businesses who
are heavily reliant on cheap car transportation. Their strongest
argument will be that this represents a sea change in the rules, on
which they have based investment decisions. The rebuttal is that
phasing in this change will give them time to adapt, but the rules
need to change, because they have too long enjoyed a free ride on the
There will be tactical argument around the form of this fee. Why
should it be a straight charge per gallon? What about the cases where
this does not directly reflect usage? And perhaps that is worth some
dickering. But regardless of form, the cost of the roadways is
something that needs to be shifted from general tax revenues to a
fee. The law should think forward to a time when alternative fuels
are available, so that the fee is also applied to them.
4. The Benefits
With no other policy change besides this, cities will become more
compact, automobiles will become fewer and more fuel efficient,
people will more often walk or bike, businesses will more
conveniently locate themselves, neighborhood groceries, bars,
restaurants, and services will multiply, pollution will lessen,
natural habitat will increase as rural areas are less encroached by
sprawl, parking lots will become fewer in number and smaller in size,
homes will be designed with less focus on the garage, and alternative
modes of transportation will be expanded and more used. This will all
result simply from people making individual decisions on the basis of
their personal budget, having to bear the actual costs of their
transportation choices, and from businesses responding to the changed
demands of their employees and customers. Because people will walk
and bicycle more, they will pressure their city governments to design
public spaces for this purpose. Private builders will also
accommodate to this.
At the national level, there will be decreased demand for gasoline at
the wholesale level. This will decrease global oil prices, and less
the strategic importance of foreign oil reserves.
Fees are particularly beneficial to the poor, or to put it another
way, taxes are particularly hard on the poor. No one can avoid taxes,
and while the poor pay less tax in absolute dollars, they often pay
more than their share. The sales tax is famously regressive. (More
accurately, it is called a retail tax.) Every renter pays property
tax indirectly in their rent. The person today who does not drive
still has to pay for the vehicular roadways. But people have direct
control of the fees they pay. In a fee-based system, the person who
does not or cannot drive avoids paying for the roadways, except for
whatever portion of bus fares and taxi fares that go to this.
Every change has its victims. The auto industry will be hurt by
decreased demand for automobiles. Auto related businesses will also
decrease. Gas stations will be replaced by small neighborhood
businesses. This is good for the new business owner, but bad for the
former gas station owner. The ultimate justification for this change
is that those who are hurt are precisely those who are unfairly
benefiting from the existing public subsidy.
Cities currently bear a heavy burden maintaining "their" roadways,
typically from property tax revenues. In fact, a cities roadways are
more used by suburbanites who commute home, and escape city taxes,
than by urban residents whose driving demands are less. Given a fuel-
based fee, states would have to decide how to allocate it to their
cities. A significant advantage to a fuel-based fee is that it is
geographically collected, so it is reasonable to allocate to cities
on this basis.
Of course, states will have to allocate some of the fee to
themselves, to maintain highways and for state-based costs, such as
licensing, the state DPS, etc. Each state will have to develop policy
with regard to how fees are split between it and its cities, and how
road expenses are similarly divided. While this is a significant
problem in public allocation, it is no worse than what the current
6. What About the Progressives?
Or: Why is this issue not pressed more, in national politics? Part of
the answer lies in popular support for the automobile. The long
development of this transportation system makes it difficult for
people to imagine how alternatives might work as well or better. The
fact that it is subsidized by sales and income taxes causes them to
ignore the cost they are paying. The automobile industry has done an
excellent job of portraying itself as a bastion of free enterprise,
rather than as handmaiden to a public system.
Sadly, many political groups labelled "progressive" are complicit in
this distortion and suppression of the issue. Indeed, any attempt to
make the public cost of car transportation fee-based may haveto
overcome resistance from progressive sentiment.
Many of the politically progressive persuasion do not want to view
this problem as a failure of -- as the inevitable result of --
massive public subsidy. Like the automobile industry itself, they
prefer the view that car transportation is a result of free
enterprise, which they oppose. Correctly viewing the car and its
infrastructure as a public transportation system, massively
subsidized, requires them to reframe the kinds of arguments they
Urban planners and proponents of public transporation -- meaning, a
different kind of public transportation -- have a natural affinity
for active government planning, and a distrust of economic
mechanisms. The often misunderstand economics. (Only a massive
misunderstanding would let anyone think our current transportation
system is private!) I say this not to criticize urban planning. In my
view, there is an essentially public element to cities that requires
it. But I also believe that policy should be informed by economics.
The first step to correct a public boondoggle is not more public
programs, but to end the boondoggle. Once automobile use pays its own
way, we might find that so many private alternatives emerge, that
public transportation is not so big an issue as we imagined. Cities
will change their nature to reflect the better pricing information,
and people who then walk and bicycle more will demand public spaces
for these modes of transport, which public space fortunately is much
cheaper to build and maintain than vehicular roadways.
The progressive misunderstanding of economics extends to how they
view people. When a progressive thinks of someone driving a car a
quarter mile to pick up a quart of milk, they are appalled by the
global consequences of this kind of decision, multiplied a million
times over. They don't understand that this is the natural and
inevitable consequence of the low marginal cost of driving, as seen
by the individual. Progressives mistakenly believe that political
awareness is the way to get people to think globally and act locally.
The economist knows that this is futile, and that pricing mechanisms
are the way to get people to act locally, without them having to
think globally. When the global cost of each additional mile of
driving comes from is the driver's pocketbook, then their decisions
7. Is This Realistic?
Americans love their automobiles. But to date, there is little
economic understanding of our transportation system. If this message
can be spread, it can get support from economists and people whose
politics is swayed by economic argument.
Cities are a primary beneficiary of a fee-based road system, since
they would no longer have to maintain "their" transportation system
purely from property and sales taxes that suburbanites avoid. Cities
should also favor a reduction of other subsidies for sprawl.
Suburbanites, of course, will oppose this change, since they are the
primary beneficiary of this public subsidy.
Progressives SHOULD favor fee-based roadways. It touches on many
issues near and dear to their heart: automobile culture, city
architecture, public spaces, dependence on foreign oil, pollution,
etc. In the ideal world, progressives would be spear-heading this
policy change, uniting economists, cities, and urban residents. But
progressives have been stymied by their unwillingness to understand
the economic nature of the problem, and to apply economic argument. I
hope this changes, and that they do become the vanguard for
controlling the automobile, not by fighting for unproven forms of
public transportation, but by opposing the massive public subsidy the
current system requires.
I. A Small Addendum on Pricing Mechanisms
Anyone with economics training will recognize that a fuel-based fee
introduces its own distortions, since it inherently favors fuel
efficient vehicles, regardless of the cost they impose to the public
roads and infrastructure. In some sense, a mileage based fee,
adjusted for the type and weight of vehicle, would provide a
more "neutral" pricing mechanism.
The issue of pricing mechanisms can get quite involved. An important
question is: What is the cost and consequence of the mechanism
itself? Fuel-based fees will encourage people to find sources of fuel
that are free of the fee, either through black markets, or by
diverting fuels not intended for vehicle use. This is a problem even
with the current gasoline tax. Many a gallon of heating oil is poured
into the tanks of diesel vehicles. A mileage based fee, conceivably
collected each year when the vehicle is registered, would increase
the number of vehicles that are not registered, would create a market
in counterfeit registrations, and lead to massive odometer fiddling.
I suspect a fuel-based fee is the better alternative, requiring less
administrative overhead, and likely easier to enforce. To the extent
that it punishes fuel inefficiency, this serves other policy goals,
and somewhat addresses the external costs of pollution. But there may
be good reasons to base the fee on mileage. Or otherwise. My primary
argument is not over the exact nature of the fee, but that fee-based
roadways are preferable to public subsidy.
- Louis-Luc said:
>It's relative...I'm with you up to this point.
>Knowing there is an environment spoiled with cars, and
>an underground city filled with life (Montreal Underground Network), I
>prefer the subway way over the
>bus, because you can ride it and walk through the underground city for hours
>(or repetedly for days), without knowing cars even exist.
>However, in a city with no car, or where car drivers yield to human-powered
>traffic both in theory and 100% in practice, then streetcars or buses become
>much more attractive, because you don't have the stress of walking through
>car traffic when you ride them and walk in the city.
>The ideal is a monorail:We've had more than enough experience with elevated transport systems to
>- it runs in the air (over street level) NONONONONONO!!!!!
>- it frees the street for human uses true
>- when you ride it, you see outdoors, true, but not at eye-level
>but I think it's more vulnerable to the weather than a metro. probably so
decide right now never to build another one of the damn things. It's
true that newer technology is better in this respect than older stuff,
but it will never be acceptable. (Well, ok, some breakthrough in materials
that allowed the construction of spider-web thin supports for the tracks
(or whatever) might change the picture somewhat, but it still is not
the right way to do it. If you need above-ground transport, trams are
the way to go. If there's too much traffic from the trams to be acceptable,
then you HAVE to build a metro, no matter what the cost. If there's that
much traffic, the cost is not unreasonable (per rider).)
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J.H. Crawford Carfree Cities