Free Markets, Free-ways, and Falling Bridges

Several years ago, when my son was taking the undergraduate economics course at university, I asked him how his textbook defined the "free market." Without skipping a beat he replied, "it doesn't." "Surely," I thought to myself, "he must be mistaken; a text-book would surely define its subject." So I read his textbook, a popular college text written by prominent Austrian economists and staunch defenders of the free market. Or so they claim. But my son was right; nowhere did the text define the object of its study, surely a methodological failure of the first order.

And yet, it is not so surprising. Much ink is spilled and much rhetoric expended on the "free market," yet it is an extinct form of life, so that discussions about the life of markets have even less certainty than discussions about the life of dinosaurs. The actual economy we life in is a combination of corporate power and government intervention, both of which are enemies of a free market. Now, this combination may or may not be good, but in no sense does it constitute a "free" market. Indeed, we are so used to government subsidies to one group or another that they have become invisible; we no longer even see even the largest subsidies as subsidies. To take but one example, let us speak of the so-called "freeways."

At this point, some readers will be thinking, "What? Of course the government should build the roads; that's what governments do." Yet, gentle reader, would you not be surprized if we shifted the focus just slightly, and spoke of "free railways" or free airlines"? Any yet, why should one form of transportation be so privileged over these others? The point here is not that the government shouldn't be involved in the road-building business; that may be the most convenient way to do it. Rather the point is to determine who should pay for them, and how. Three-fourths of all "social justice" issues are simply a matter of accurate cost-accounting; that is, of allocating costs back to those who cause the costs. For example, the cost of pollution clean-up should be allocated back to those who caused the pollution, while the cost of roads (rail or automobile) should be allocated to those who actually use them.

While this principle would seem self-evident, I have an economist friend who insists that freeways create wealth. I beg to differ. Roadways create wealth; freeways reallocate wealth. They are a complex system of subsidies which reallocate wealth to one group from another, and to the current generation from future generations.

In the first place, in order to use the freeways, one must first have the large capital and operating budget for a car. So the non-owners are taxed to the benefit of owners. Second, freeways subsidize the suburbs over the central cities, and thus determine the very shape and economic vitality (or lack thereof) of cities. Third, freeways compete with trolleys and buses, putting them at a disadvantage. We should remember that before the advent of the freeway system, most trips were taken by electric trolleys, a service provided by over 1200 companies in this country, most of which were private enterprises. (By the way, the story of how the automobile came to dominate transportation is rather an interesting one. See Bradford Snell's The Streetcar Conspiracy.) Fourth, the freeway constitutes a subsidy to remote landowners; when a new road goes near their property, the value increases dramatically. But the value of inner-city parcels suffers. City folk are taxed for the privilege of seeing their property values decline or fail to rise as fast as they would. Fifth, the freeway is a subsidy to a certain kind of business. Wal-mart would not be possible without the subsidies provided by freeways, while other large companies often move facilities to remote areas where the land is cheap, knowing that they have the political clout to get the govmint to build them a new road in the name of "job creation." The upshot of all of this is that the single-mother, working as a waitress and forced, by lack of adequate transportation, to live in a shack near her work, is taxed to help another person move to the suburbs and buy a McMansion. Wealth is transferred from one group to another.

But there is another and even more insidious transfer: from one generation to the next. The current users did not pay the depreciation costs; that was left to the next generation. Hence we have a vast infrastructure that is aging and in need of repair, but without the funds to accomplish those repairs. So who do you think will pay for them? My generation profited greatly, but at the expense of our children; they will have to pick up the tab. Surely, this is immoral.

A bridge collapsed in Minnesota. I do not know why it collapsed, but surely it is a warning. The papers and the airwaves are filled with grim statistics about the numbers of bridges, roadways, and other infrastructure items that need, or shortly will need, replacement. And there simply isn't the money to accomplish this. Its been spent in Iraq, its been spent on other subsidies, its committed to social security, its needed to pay our foreign debts. But it isn't where it should be. I won't repeat the statistics, because I have no idea how reliable they are, and I doubt that anyone else does either. After all, even the engineers who recently inspected this bridge had no inkling that it was about to collapse. But I have no doubt that roads and bridges, being physical things, deteriorate over time and need to be repaired.

The freeways were financed by robbing one group to pay another. Of course, there is a simple solution. Simply put a toll-booth at the entrance to the freeways and bridges, and insure that the toll is high enough to pay all the costs of the building, maintenance, and rebuilding. This allocates costs to users, which is part and parcel of social justice. I have no objection to people wishing to move to remote areas; in fact I encourage it. But those who do so ought to pay their own costs, and not rely on a subsidy. They may have to reduce the size of their McMansion in order to have funds to pay the toll, but this is only justice. With the toll-booth, there are always funds to properly maintain the assets, and the public is spared the spectacle of the governor and the legislature arguing about who's at fault for not allocating the funds; with a toll, the funds allocate themselves.

Of course like all simple solutions, it is devilishly difficult to implement. People first have to see the roadway as a cost and their use of it as consumption for which they should pay. This is a difficult cultural change, since people have already made a host of personal and business decisions based on the current system of subsidies, and a change in the system is likely to cause them some grief. However, since the current system can't continue anyway, it is just a matter of when, not of "if." Then there will come a shock at the size of the tolls, as people find out just how expensive it is to build, maintain, and replace such massive infrastructures. And there will be any number of powerful business and corporate interests who will oppose such a change, even as they will not be able to give us a viable alternative.

As it turns out, nothing is quite as expensive as a freeway. But on the other hand, nothing is more conducive to self-respect than paying your own way. One measure of a free market is that each person pays for what he or she consumes. But we are so unfamiliar with this beast that we no longer recognize this simple fact. After all, everybody talks about the free market, but nobody really defines it. And if even the Austrians can't tell us what it is, no wonder the general public is confused on the subject.


Dan Monday, August 6, 2007 at 8:15:00 AM CDT  

Thank you so much for this cogent, insightful and provocative posting. I'd never really thought about this before - thanks for shining the light on some unconscious misconceptions I'd been hanging onto.

I mentioned the post on my blog, and hope lots of people will come read what you've written!

John Médaille Monday, August 6, 2007 at 8:36:00 AM CDT  

Thank you, Dan. Rhetoric has diverged so much from reality that we no longer see the world as it is; we are blind to our own subsidies, but indignant about the subsidies others receive. The system of subsidies may be right, wrong, or indifferent, but at least we need to learn to call it by its right name, and that name is not "The Free Market."

Trevor Monday, August 6, 2007 at 8:58:00 AM CDT  

Another great post! Thanks again John.

John Connolly Monday, August 6, 2007 at 1:25:00 PM CDT  

Fine points, to be sure. Especially the point on cultural identity with consumption. But in a way, that's why all Americans pay for freeways: it's impossible for an American to envision life without a car, the same way that they can't envision life without television. When having a car is seen as a staple to life, it makes sense that the assumption would be that everybody must use the freeway, and that everybody must pay for it. The culture must let go, in so many materialistic areas.

Aaron Traas Tuesday, August 7, 2007 at 12:03:00 PM CDT  

Though I disagree staunchly with some of the tenants of distributism, I can find little to disagree with here.

The one minor quip is that simply building tolls on all bridges isn't a complete solution. Yes, some bridges are big, but most of the bridges I drive on every day -- over 2 dozen -- are tiny bridges on the Garden-State Parkway that one doesn't even notice, because they are small bridges over local roads. One could scarcely put tolls on all of them -- that would be cost prohibitive, and would cause innumerable traffic delays. Plus, the output of pollutants near areas that have tolls is significantly higher, as the car must accellerate rather than decelerate.

The GSP, however, is a toll road. There are toll booths every 10-20 miles. The tolls do not, however, cover the entire cost of the GSP -- it's unfortunately subsidized by taxes. I would honestly welcome a drastic increase in the toll if it 1) went off the state and federal payroll, and 2) they actually spent the money on more maintenance. I agree that the users of the road -- whether commuters, truckers, bus companies, etc. -- should pay 100% the cost for its maintenance.

My point is, on a road like the GSP, tolls aren't necessary at every bridge -- having them every so often on the road and doing a cost averaging would work just fine.

John Médaille Tuesday, August 7, 2007 at 1:33:00 PM CDT  

Aaron, you are of course correct. By "bridges" I did not mean to include the over- and under-passes that are part of the freeway roadbeds. And to the degree that the toll booth is "politicized" it will be involved in the same system of subsidies. But in my view, both justice and fiscal sanity require that the toll booth receipts recover all the costs.

I don't wish to be dogmatic about that. There can be certain cases where low volume but strategic roads are subsidized, such as farm-to-market roads. But in general, the person who uses an expensive and depreciable asset should be the one to pay for it.


David,  Thursday, August 9, 2007 at 4:36:00 PM CDT  

Ostensibly, are not roads and freeways funded by the revenue generated by taxes on gasoline? I suppose the argument could be made that not everyone who uses gasoline also uses roads (farmers for instance), but it seems to me that we already have a just solution in place.

John Médaille Thursday, August 9, 2007 at 7:33:00 PM CDT  

David, I don't believe that the freeways are completely funded by gasoline taxes, but even if they are, it would still not be "just." Not everyone who uses gasoline uses freeways in proportion that they use gas. Many do most of their driving on city streets or county roads, which are funded by property taxes, sales taxes, or other city revenue sources. Hence, their gas taxes are subsidizing freeway users.

I know in Texas the gas tax no longer pays for the highways, if they ever did. I do not know how the federal gas taxes are distributed, but I suspect that the funds are not sequestered for highways, but go into general revenues.

The easiest way is to charge the users of the road the costs of the road, something that is easier today then ever, since "toll tags" eliminate the collection problem.


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