I hate driving on highways. The traffic, the high gas prices, the aggravation of other drivers all makes the entire activity unpleasant. I drive often and traffic stoppages leave one to nothing but the radio or their own thoughts. When I turn off the radio, I enjoy thinking about the state versus the market and solutions for issues such as traffic congestion. The past few times I was stuck in heavy traffic I began to type out part of this blog on my Blackberry, or I text friends about the congestion or the fact I will be late. It occurred to me that the things which have made my trip more pleasant have been brought to me by the innovation of entrepreneurs in the free market. I turn off my satellite radio, peruse through the texts, tweets, maps, and email on my phone, check my GPS for how long I am supposed to be on this road, marvel at the different makes, colors, and cars around me, and check out the EZ Pass which allows me to get through tolls quicker. Every single thing about the driving experience has been completely revolutionized in the past twenty years but one: the government highway. All one has to do is think of the creative destruction seen in the car market or the GPS market and ask themselves why the same is not seen with the huge market for highways?
In my last post, I discussed the state’s ability to regulate as rigid, sloppy, and slow as it institutes perverse incentives, funded without any profit or loss mechanism, and is not responsive to customer’s preferences. There is symmetry in the state’s ability to develop and build highways. Government fails because it refuses to adapt to customers and to entrepreneurs latest breakthroughs in a timely manner. This lack of adaptation is derived from a non-functioning profit and loss system. Without profit or loss, there is no discovery process of what good or services are pleasing the customer and what are not. Customer preferences and choice are irrelevant when there is no incentive to improve or alter services. In the discussion of driving, this discovery idea, combined with an appropriate and effective feedback mechanism of communication, is imperative for innovation and creation. Any breakthrough in driving has been the product of creative entrepreneurs looking to make profits from the increased efficiency and ability for people to drive safer, with less congestion, and more options.
Driving provides very clear examples of markets functioning the way they should without the interference from government. Ten years ago only the wealthy could afford GPS’s or satellite radio. Now almost every driver has a device with the capabilities of finding any destination in a given amount of time and smart phones have given us the ability to listen to music and talk while driving. Free-market forces push prices down, enabling people of all economic statuses to purchase goods and services. This is expressed no better than Ludwig von Mises who said, “The luxury of today is the necessity of tomorrow.”
These pieces of technology have made driving more pleasant, more efficient, and have increased productivity of those driving to work and avoiding congestion. Smartphones make life on the road a lot easier and safer in case of emergency. Bluetooth systems have made driving and talking safer. Satellite Radio has revolutionized the way people listen and hear music and talk radio. My favorite driving breakthrough has to come from the EZ Pass system where stopping at tolls has become irrelevant. It is not ridiculous to be dismayed by the current pricing, traffic, and congestion system of highways. To the contrary, it is ridiculous that drivers accept congestion and as a daily and consistent occurrence without any efforts to relieve it and static highway concepts as the norm. We are spending too much time in traffic and not enough time cruising to our destinations. While there are multiple examples of private highways, more privatization of highways is needed to continue enhancing productivity, efficiency, and cost effectiveness.
The federal government uses gas taxes (18.4 cents per gallon) to fund the federal highway system. In addition, state governments impose their own gas taxes (average of 31.1 cents per gallon) for a total of about 50 cents per gallon. A report from the Cato Institute finds the revenue from these gas taxes was supposed to be funneled into a Federal Highway Trust Fund. But what often happens with government trust funds, the money meant for highways has been used for a plethora of other non-highway uses, primarily projects of pork and handouts to interest groups. Cato scholar Randal O’Toole finds that only 59% of the trust fund money will be spent on highways. Federal government intervention in highway funding has led to some of the money from the trust fund being used to establish a federal bicycle route system, among other things. Federal intervention into highway creation completely distorts what should be a clean, simple funding mechanism for those that use highways and turns it into a bureaucratic, special-interest driven, failure of a system.
Despite static growth in highway innovation, there have been some private breakthroughs eventually adopted by government. For example, high occupancy or toll (HOT) highways have been beneficial in relieving congestion on highways. Developed by a private company in 1995, the HOT lanes debuted as “express lanes” where users pay tolls automatically similar to an EZPass system. Hot lanes are seeing more use around the country and lessening congestion thanks to improvements courtesy of market innovation. Electronic tolling and other technological advances have made road innovation very prosperous and exciting.
Even when private roads are given the opportunity to provide for customers without a helping hand from government, gas taxes and government regulation halts the process. For example, the Dulles Greenway is a private highway operating in Virginia. They report a lower accident rate and a shorter commute time for drivers while using a “congestion management toll” to avoid rush hour congestion. But the state of Virginia is working to buy back the private road due to high toll costs that are angering drivers. Critics will use this example to showcase the futility of private highways but fail to mention that the effects of government policy are impossible to avoid. Greenway users must pay the private toll in addition to gas taxes (which do not go to fund the Greenway). Users are paying for both the private road and the upkeep of public highways due to the gas taxes and not mileage taxes. The costs of federal government regulation of highways is estimated at 20-30% of extra costs in order to build and develop a road. By lessening onerous regulation and repealing the double tolls/gasoline tax structure, private roads would more easily operate. Government again bids up the prices of private highways and then shifts the blame to the capitalists.
Government is living in the past. The Cato report found, “In the period of 1980 to 2008, the vehicle-miles driven in the nation increased 96 percent, but the lane-miles of public roads increased only 7.5 percent.” We must allow market pricing to bring forth more supply of lanes and innovation to bring forth new mechanisms for collecting tolls and improving efficiency. Mileage calculation should be used instead of gas taxes which fund pet projects for politicians. The chains of federal intervention and regulation should be dissolved. At a minimum, each city/town, county, or state should have more of a say about their highway system instead of federal government top-down planning of highways. At a maximum, states should focus on market solutions through private companies that use pricing to reduce congestion, change according to drivers preferences, and keep costs low while remaining efficient and safe. The focus for highways should be directly on the entrepreneur pleasing the driver and the state should have no involvement in this relationship.