Ouch! Regulating infrastructure purely by market mechanisms is an ugly anti-pattern that is well-known for decades, if not centuries.

Among others, this creates an incentive to keep the resource scarce and to not invest into maintaining and expanding it. Why? Because the lowest level infrastructure is a natural monopoly: Even if it was technically feasible (put wires next to existing wires, put pipes next to existing pipes, put streets next to existing streets), nobody can afford to do this. The lowest level infrastructure is only efficient if shared.

And for this simple reason, it only works well as long as the lowest level infrastructure is public good. This is true for all basic needs: water (pipes, sewer), electricity (wires), transportation (streets, rail roads) and even the internet (wires, radio masts and towers).

The debate about the latter one is also known as net neutrality. But it's really just a special case of the general pattern - if you accept internet as a basic need in today's world.

On top of that public infrastructure, a free market can and should evolve. But note that it will only be a free market if the basic layer access is non-discriminatory, which in particular means that it is easy for newcomers to get in. Otherwise you have maket distortion from day one, and all arguments about market mechanisms are moot. Which is unfortunately the reality in many areas, although its badness varies from country to country.

I would like you to reconsider this point.

Specifically,

1. driving causes pollution

2. people local to the freeway are heavily impacted by the pollution,

3. global warming is a real issue - solo drivers are a heavy contributor.

4. the freeway cost money and should have to pay its costs same as transit systems are made to pay their costs.

fyi - i carpool to work / take transit. I would rather see free buses and heavily charged car usage.

Add in that subsidising commuting by comparison punishes locating closer to your destination.

That's what gas taxes are for. Living near a freeway you are better off if they reduced congestion. Increasing congestion increases pollution as cars accelerate and break more frequently etc.

Fuel taxes are a very crude tool, road tolls are much better instrument to actually regulate the behavior you care about.

If you raise fuel taxes because there's too much congestion that's going to equally affect someone who lives in some rural area where congestion isn't an issue at all, and someone who's driving down a busy freeway every day contributing to congestion.

You also raise the price of gasoline, which has other uses that have nothing whatsoever to do with road transport.

If you want to discourage specific behavior you should tax that specific behavior, not tax something one or two steps removed from the behavior you care about.

You could have regional fuel charges. However, you don't want to discrage driving in a specific place you want to reduce it everywhere to reduce pollution everywhere.

PS: People often say you can't out build congestion, but the data in no way supports that argument. D.C. Metro area for example has horrible traffic, but just looking at road layout the failures are obvious.

Discouraging driving in general is one thing with one market price, discouraging driving where it leads to congestion is another thing with a higher market price.

Not all vehicles that cause congestion even use gasoline, which is another reason for why trying to solve congestion with higher fuel taxes is a bad idea. Your Tesla is just as bad for congestion as a gas guzzler.

Even ignoring that, regional fuel charges don't fix the problem. There's plenty of big cities where you can drive in specific areas or at specific times without causing any congestion problems, which is why it makes sense to charge road tolls on specific roads at specific times.

Vehicles can also drive to different regions to fill up, which becomes a big problem of arbitrage if you try to make the regions too granular.

Congestion already has it's own price directly in increased travel time. Which pushes people to use optimal routes to a destination. However, routing around congestion increases pollution via trip length. So you want to increase peoples ability to go from A > B, not hinder peopling moving from A > B with increased cost.

PS: We want higher mileage people to get electric cars, so having no transit tax actually efficiently promotes higher mileage people from making the switch first. It's just one of many subsides associated with electric cars, but we will eventually just charge based on odometer readings.

    > Congestion already has it's own price
    > directly in increased travel time.

Which is clearly not enough, as detailed in the article. If people only had to pay with their own time they would, and the road would be congested, hence the high toll. This is basic supply & demand.

You just keep asserting that people should pay for their pollution, I agree! But that's not always the maximum price you should pay.

    > charge based on odometer readings.

Which would be another case of not charging based on the actual cost. You could drive your street legal car around in circles on a private track, and you should pay almost no road tax, but someone who exclusively uses public roads should pay more. Under this scheme you'd pay the same for both cars.

> Which is clearly not enough, as detailed in the article.

40$ is actually close to the market rate of time saved for a large percentage of people driving on that road. So, you might not think costs that don't evenly map to dollars as equivalent, but clearly the market disagrees.

> around in circles on a private track.

Easily tracked and an exception could be made, but most people would not feel the savings as worth the effort. Remember laws are thousands of pages long first and second order objections can easily be included.

PS: In effect every road in the US is a toll road, you might not agree with the prices and exceptions but people still pay billions.

Pressure to take transit, coupled with few transit stations and low-rise/single family zoning around those transit stations, is worse: now instead of sitting in traffic, commuters with the least access to premium real estate must walk the furthest.

> Among others, this creates an incentive to keep the resource scarce and to not invest into maintaining and expanding it.

Price signals are exactly the sort of thing that can be used to optimize (and fund) the maintainance of infrastructure. Right now roads are placed and funded by fiat, which is why they’re often located nonsensically or in highly irregular states of repair.

I'm a really market-oriented guy, but I have concerns about wealth's distorting effect on markets. That is, the "cost" of an item is much less to a wealthy person than to a non-wealthy person.

Billionaire Bob can spend $100,000 on a whim, but Pauper Paul can't scrounge $10,000 for life-critical health-care. Or after a natural disaster, market theory says equilibrium prices rise to balance demand, but prices cannot rise enough so that Bob hesitates to buy all the ice for his drinks, pricing Paul out of buying ice to keep his insulin cold.

It almost feels like there needs to be some fixed currency that everyone gets equal amounts of per day and that can be exchanged for the really important things. But then some people will accumulate that currency, and we're back to wealth distortions.

Some interesting ideas on this front:

1) Using markets to allocate resources without real money: http://review.chicagobooth.edu/economics/2016/article/why-fa...

2) Finland charges road fines on a "day-rate" that varies depending on the offender's income: https://www.theatlantic.com/business/archive/2015/03/finland...

Making fees and fines dependent on income is a good way to get incentives right. In Germany for example health insurance is based on your income, not a fixed amount like here.

I believe that health care in the US is subsidized to some degree by people with higher income.

—- Medicare payroll taxes are proportional to salary.

—- Low income people that use hospitals generally don’t end up paying for their surgery and care which is passed on to people that do pay their bills.

—- Big pharma offers heavy discounts to low income patients for expensive drugs resulting in higher costs for the rest of us.

—- Under the current Afforadable Care Act free/low cost insurance is provided by raising taxes on the upper income people.

I don’t know what’s the best way to improve the system; I just wish the costs, who was paying for it, and where the money was going was more transparent. It appears that it is intentionally designed to be inscrutable.

But only up to a certain point: the tax is only on the first 50k EUR or so of your salary, and there is a minimum charged (about 100 EUR/mo.) no matter how little you make.

Still fairer than the US, though.

No, they should just improve the economy and supplement income (minimum income, negative income tax) to ensure that everyone can afford the cost of living, $40 tolls included.

Great examples - thanks!

Both the "fake money" and the "cost scales with income" are great ways to extend the applicability of markets to areas without currency or to minimize wealth effects.

For (1) there was a really good Planet Money podcast (#665)

You are talking about ration cards. This has been tried. https://en.wikipedia.org/wiki/Ration_stamp

It is still being used in the United States with the food stamps program.

Food stamps are equivalent to cash. A true rationing program as proposed would prevent you from using cash. This creates black markets which is why it is bad.

The resources people need: ice to cool insulin, food, healthcare, day care, basic housing, etc. are not scarce, or at the very least scarcity is fixable for little money.

You just need to be a little less greedy.

> healthcare, day care, basic housing, etc. are not scarce

“Scarce” in economics doesn’t mean “rare”, it means “has a non-zero marginal cost” and usually “has a concave supply curve”.

My point wasn't to say that these were free.

Merely that they idea that everybody can't have it, and there it must be rationed by economic means is a little crazy.

We can't all have private jets; but efficiency gains in food production suggests we can easily produce enough food. We are choosing not to distribute it.

Isn't that the point of using the money for public services, as rayiner suggested?

That works for this one example, where the government is selling something, effectively creating a tax on people willing to pay to save time.

But most market exchanges do not involve the government (except sales tax). The government can't efficiently capture the excess funds Bob is willing to spend on ice to provide ice for Paul (though the increased price should provide great incentive for people to increase the supply of ice...)

> It almost feels like there needs to be some fixed currency that everyone gets equal amounts of per day and that can be exchanged for the really important things.

Votes could be that, but they too are depreciating.

> Or after a natural disaster, market theory says equilibrium prices rise to balance demand, but prices cannot rise enough

This happened recently in Texas not because of a market failure, but because Texas has “anti-gouging” laws that prevent people from raising prices around a disaster, which entirely predictably had the effect of people being unable to get what they needed (wood, water, etc.) during Harvey.

Yes, anti-gouging laws are well-known for preventing supply increasing to meet the demand.

https://hbr.org/2013/07/the-problem-with-price-gouging-laws

"A well-known gouging case involves the invisible hand actions of John Shepperson. After the Hurricane Katrina disaster, John bought 19 generators, rented a U-Haul truck, and drove 600 miles from Kentucky to Mississippi. In return for his efforts and risk, he hoped to sell the generators at double his purchase price. Instead, he was arrested for price gouging, spent 4 days in jail, and the generators were confiscated. It’s a tricky issue: while Mr. Shepperson’s morality can be debated, his initiative would have unequivocally added supply and made some people better off. We all are charitable, of course, but how many of you would have rented a truck and driven twelve hundred miles round trip to sell generators for the price you purchased them?"

> Instead, he was arrested for price gouging, spent 4 days in jail, and the generators were confiscated.

But we have a free market. /sarc

Usually yes, but when one or a few suppliers are the sole source of a resource it’s not that simple. Especially when that resource is very widely used for a huge variety of applications. That’s becaus the benefit to society isn’t simple captured in the monetary cost.

Consider police vehicles, ambulances and utility maintenance vehicles. Does anybody really think they should have to pay tolls? A real market forces purist would say yes, but in reality passing along those costs efficiently isn’t practical. Similarly in theory all roads could be toll roads, but the cost of raising those tolls would massively increase the cost of the road infrastructure, driving up tolls in a vicious cycle. The gas tax is a reasonable compromise by taxing road use indirectly, it doesn’t capture the differing costs of different segments of roads and the demands on them, hence tolls on specific roads. So in the real world you can’t just treat everything like a nail and hit it with a market forces hammer. It’s a powerful and useful tool, one of the best we have, but still needs to be wielded responsibly with an eye to the intended outcome.

While it varies there are toll bridges and roads where emergency vehicles must pay. It helps that they are electronic tolls where the vehicle does not have to stop.

Here's the infamous Tacoma Narrows Bridge as an example: http://www.seattlepi.com/local/article/Even-police-cars-ambu...

History has shown that in many cases, it's finding an efficient way to measure and charge for a resource which is the real breakthrough to utilizing the resource.

If the electricity meter hadn't been invented, or cost millions of dollars, it's doubtful your home would even have electricity today.

Very true, but that’s a fact regardless of whether market forces are a send to determine price. Ideally they should, because markets are usually good at determining relative value, but not always as for example in the case of industrial pollution. Eventually over hundreds of years we are beginning to implement some ways of factoring that onto market costs, but it’s been a long and painful process and there’s still a long way to go. For most of that time direct regulation has been the only workable answer, figuring out how to factor it into markets would have been too late.

A big reason of income gap is opportunity gap. We keep widening the opportunity gap by adding 'fast lanes' to people who can afford it, rather than improving the situation for all. In this particular case, perhaps, there is no short term solution to improve for all but it makes me little sad anyway.

Ability to pay is not the only way to ration scarce resources, neither is it proven to be the best in all scenarios: this is why you can’t pay to bring your court date forward

But should you be able to pay all the people ahead of you in line enough to convince them to let you move in front of them?

This is a very slippery slope if some people have much more money than others.

Also a great way to ensure people jam up the court system for profit

Or even just to hand it out as yearly lump sum all citizens: than even the poorest person can afford the tolls, as long as they use the average amount or less of road capacity.

The problem with _not_ charging any money for road capacity is that you are still rationing, but now the price is measured in people's willingness to waste time in traffic. And that time is just that, wasted. The money collected can be re-routed to other purposes.

>> a market mechanism like every other resource.

Well... the mechanism is prices. A market machaninism, but not really a market in the full sense...

Anyway the result of this mechanism are fairly predictable. Fixed, scarce, resource. Price system. Unequal distribution of wealth/income. Most of the scarce resource will be allocated to the wealthy, who will outbid the rest.

At present, the non market price-like mechanism is generally time, and all people get 24 hrs per day.

Donated organs are a scarce resource

Radio spectrum is a scarce resource

You can't solve those with market mechanisms

Electrical transmission and generation facilities are somewhat scarce and we all see how the "free marked" worked great in the Enron case there

Are you trolling?

Radio spectrum auctions are fairly commonplace these days.

Organ markets work reasonably well in Iran, and would be great for the rest of the world as well.

Electrical transmission and generation work really well in a market setting in most places that's been tried. What does Enron have to do with it?

> What does Enron have to do with it?

Before accusing others of trolling make sure you understand the arguments presented, which you clearly don't.

Enron did some internal trading of energy. Or what else do you mean?

The lack of market mechanisms for organ donations has lead to an huge undersupply of them in the United States. It's literally causing a massive number of people to die that wouldn't under a more market oriented system.