Status Quo Solutions

Just to follow-up on my earlier post about a proposal to hike the federal gas tax by 40 cents per gallon over five years (and then afterwards to increase it yearly, based on inflation), Transportation Secretary Mary Peters takes to the op-ed page of the Wall Street Journal to make her Bacon-esque case for no tax hike at all. Snip:

Even if Congress loses its taste for pork, raising gas taxes and spending more on highways still won’t improve the quality of Americans’ commutes, though it would likely make them more expensive. We tried this already and it simply doesn’t work.

Over the past 25 years, the federal government has increased transportation spending by 100%, yet traffic has grown by over 300%. Not surprisingly, recent studies, including one last summer by the Government Accountability Office, have found that higher gas taxes do nothing to improve traffic congestion.

We believe that this country can do much better than simply charging drivers more to sit in never-ending traffic jams. Thanks to technology, an innovative private sector, pioneering state and local officials, and a sustained effort by our administration to encourage reform, a clear alternative has emerged.

This past year, over 20 major cities in the U.S. have submitted proposals to the Department of Transportation to implement some form of electronic tolling that will both reduce congestion and generate needed revenue for transportation projects. Thanks to new open-road technology, these pricing programs can be put in place without forcing a single driver to slow down to pay a toll or have their transponder “read.”

It’s worth reading in it’s entirety (I think Rupert has made the Journal’s op-ed pages free to all).

One thing that has always fascinated me about the debate over gas taxes on Bacon’s is that no one (that I know of…forgive me if it has) has discussed the Pigouvian angle.

Now that’s an argument worth having.

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  1. Groveton Avatar

    “You just can’t depend on the federal government to bring the money in that was around when the interstate system was first built,” Peters said.

    No, you can’t. Not when the President is on a mis-guided crusade trying to being “democracy to the world”.

    No, you can’t. Not when a laughable “tax cut” is creating deficits that would stun a walrus.

    No, you can’t. Not when politico appointees can replace government financed roads with toll financed roads, keep taxes the same and say they haven’t raised taxes.

    “You’re doing a heck of a job, Brownie.”.

    Didn’t that sentence pretty much sum up the competence of Bush and his appointees?

  2. Larry Gross Avatar
    Larry Gross

    Wake me up when Eric Cantor and fellow representatives sign on to this…

    Isn’t it interesting that the folks not elected are beating the drums here.

    What is going to get the Solo rush-hour SUV drivers out of those cars faster… 40 cents per gallon or $30 per day tolls?

    and a question for RH…

    if long-distance drivers don’t use any “more” road than short-distance commuters.. then why would they have to pay more?

    also.. if they drive long distance they use more gas, and more car (miles on the vehicle) so why are they not using “more” road?

  3. Anonymous Avatar

    “the federal government has increased transportation spending by 100%, yet traffic has grown by over 300%.”

    And gross domestic product has increased from 1,500 billion to 12,500 billion during that time – an increase of 830%.

    Higher gas taxes do nothing to improve traffic congestion if you are trying to cram 8.3 times as much activity into more or less the same downtown space.

    Or, maybe Groveton is right: if we spent more of the increaseon transport and less on wars……
    we’d be in a transpor situation more similar to our European friends.


    Pigou was among the first economists to suggest congestion taxes. However, his work has been broadly expanded (and partially supplanted) by Coase and others.

    Coase argued that, regardless of what the law says about who is liable, the economic outcome, including the distribution of wealth, would be the same, if transaction costs were zero.

    Coase made it clear that transaction costs are rarely close to zero, and in fact sometimes transaction costs are so high that negotiations and contracts do not take place.

    Suppose the law requires a rancher to compensate a farmer for crops destroyed by wandering cattle. If so, the amount the rancher would pay for leasing the land would be lower by that same amount, while the farmer’s lease would then be higher by that amount. So the distribution of wealth between the two would be the same either way.

    The landowners would also wind up with the same distribution of wealth, regardless of the liability law, if transaction costs were zero. If the liability law were known ahead of time, then the land prices would reflect it, so that the resulting lower or higher price of land would offset the law’s effect on the income from leasing the land.

    As Mankiw put it in the cite you posted “A basic principle of tax analysis — taught in most freshman economics courses — is that the burden of a tax is shared by consumer and producer.”

    Coase points out that the one case where the distribution of wealth would be different even if transaction costs were zero is the case where previously unrecognized rights arise: suppose the law were changed so as to endorse some version of land reform. In that case, Coase would agree that the distribution of wealth would be different, even if there were zero transaction costs.

    The work of Pigou, Coase, and others is the basis for my frequent comment that a new policy is a good policy only of it is structured in such a way that the winners can pay off the losers and still come out ahead. Otherwise it is a wealth transfer.

    Pigou’s earlier work merely implied that if the sum of all costs worked out so that at least one person came out ahead, then the policy was a good one. The work of later author’s develops more complicated ways of dealing with policy issues that result in mass wealth transfer but little real gain.

    There is no escaping information problems in performing the required calculation, but the institutional setting within which environmental policies are resolved means that the calculation required is likely to be significantly less under common-law arrangements than under administrative processes.

    The implication for environmental policy is that increased reliance on competitive market processes and the common law in copying with externality problems may be more effective than attempts to improve current administrative approaches.

    Common law depends heavily on private property rights and therefore private property rights are important to economical solutions to environmental problems.

  4. Anonymous Avatar

    If they drive farther they use more gas. If they drive a heavier vehicle they use more gas.

    If the gas tax was structured correctly they WOULD be paying for the road they use. What’s the problem? They pay the same per mile of road used.

    Incidently, it is the same if you added a carbon or GHG tax to gas. The small short distance driver pays the same as the big car, long distance driver, per pound of GHG.

    Remember that road users are not the only beneficiaries of roads, and they should not be expected to pay ALL the costs just based on use.

    “if long-distance drivers don’t use any “more” road than short-distance commuters.. then why would they have to pay more?”

    the problem with this thinking is that while it considers the use of roads, it has nothing to do with the primary problem, which is not use of the roads, but congestion: too many people using the roads in one place and time.

    If you moved all the fifty miles commuters in to where their average commute was like everyone else (around 23 miles), then the areas from 23 miles in would be just as congested as now, and the congestion levels would “build” much more rapidly every morning.

    That being the case it doesn’t matter how much the government spends on roads, because they are solving the wrong problem.


  5. Anonymous Avatar

    It is hardly stunning that a Bush cabinet member opines in the WSJ op-ed pages that regulation and taxes are bad, bad, bad.

    Now if she said the opposite, THAT would be news.

    Peter Galuszka

  6. Anonymous Avatar

    What, a toll isn’t a tax?

    A Pigouvian tax isn’t a tax?

    If it walks like a duck….


  7. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    Hey no problem. We can use the tax rebate to pay the increased gas taxes. No, wait! We were supposed to buy stuff to get the economy going again.

    Oh well, so much for the Bush and Berny fantasy.

  8. Anonymous Avatar

    “In his Nobel Prize acceptance speech, Ronald H. Coase derided what he calls “blackboard economics”—the practice of assuming simple economic models can be easily implemented in practice, without regard to practical considerations.”

    The tax policy blog picked up on Mankiws article as well. Here is what they have to say, and notice how much it parallels the argument that Larry and I have been enjoying: How do you know what the right price is? Being just an ordinary guy, down on the farm and all that, I’m kind of a stickler for those darn practical considerations.

    “In theory, using Pigouvian taxes to correct for what economists call “market failures” is simple. But in practice, it’s anything but. One important problem often ignored by advocates of Pigouvian taxes is what might be called the “measurement problem.” That is, if gas taxes should be raised purely to offset the social costs of gas use, how high are those social costs?

    Surprisingly, the question is rarely addressed in discussions of Pigouvian taxes. However, it’s central to their application to tax policy. While it’s easy to identify negative externalities in theory, Pigouvian taxation goes beyond that. It demands that those costs be empirically measured, not just identified, and that the tax rate be set equal to the per-unit external cost of gas that “spills over” onto others in society.

    In this way, Pigouvian taxes place extremely high information burdens on policymakers. Clearly, the practical difficulty of compiling data and estimating social costs is not trivial. For one, current estimates in the literature vary widely.

    This lack of a basic scientific consensus on the social costs of gas is a serious problem faced by advocates of Pigouvian gas taxes, which has largely been ignored in recent discussions.

    One common reply to this is that forcing policymakers to estimate social costs of gas consumption imposes too high of a burden on advocates of Pigouvian taxes. For example, it’s argued that we don’t require exact specifications of the “proper” income or sales tax rate before those taxes are implemented. So why require it for Pigouvian gas taxes?

    This response ignores a fundamental distinction between broad-based income or consumption taxes and Pigouvian gas taxes. The goal of income and consumption taxes is primarily to raise revenue to fund a predetermined budget of spending programs. In contrast, the goal of Pigouvian taxes is not to raise revenue, but to provide federal lawmakers with a mechanism to fine-tune markets toward a higher level of efficiency than the free market could achieve without their guidance. While ordinary taxes only burden lawmakers with the task of setting tax rates high enough to meet revenue needs, Pigouvian taxes require that lawmakers set precisely the right tax rate that maximizes the overall welfare of more than 300 million individuals in the U.S. economy. “


    If you do not set the right rate then you are damaging someone elses welfare. Since the premise of environmental activism is tht your externalities should not cause harm to others, then it is important to get this right, or else you damage not only your premise and yoour standing in society – you damage the environment as well.


  9. Anonymous Avatar

    Nice one, Darrell.

    How ARE we to do all this conservation, and keep the economy running?

    Conservation costs money. If you want good conservation, you need lots of money. Therefore, no conservation measures that cost more than they save.

    Now where were we? Oh yeah, how much is it worth?


  10. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    Well I had to do something with this thread. I can’t even spell that word, much less know what it means.

    I got as far as Pig. As an old country boy that’s all I needed to know. I can recognize a pig anywhere. Even when it’s in a poke.

  11. Anonymous Avatar

    Pigou was an economist.

    Three guys are riding the train from England to Scotland. Wehn they crossed the border they saw a brown cow in the field.

    The Politician says, “Look, they have brown cows in Scotland.”

    The Economist says “They have at least one brown cow in Scotland.”

    The Engineer says, “Thay have a cow in Scotland that’s brown on at least one side.”


  12. Groveton Avatar

    A physicist an engineer and an economist are shipwreaked on a desert island. They are basically starving when a case of canned tuna washes up on shore. They want the food but can’t figure out how to open the cans.

    1. The physicist says, “We’ll put the cans in 0.5m of water and wait until 1:30 PM at which time the water will heat the tuna and burst open the cans.”.

    2. The engineer says, “We’ll buld a spring loaded can smasher out by attaching a small palm tree to a rock with a vine and bending the palm tree to form a closed-loop catapult.”.

    3. The economist says, “Assume a can opener….”.

    You probably have to have spent some time with academic economists to find that funny.

  13. Groveton Avatar

    I see Obama made some positive comments about Ronald Reagan and the Republican Party of that day. Of course, Hillary and the Ken doll (Edwards) immediately jumped down his throat saying that Reagan was evil. Obama really is different. He deserves consideration.

    If I were Mitt, I’d say something positive about Bill Clinton and the Deomcratic Party of his day. It would be more or less for show but appearing less that 100% partisan is a good idea right now. Of course, the Republican brian trust would have to be able to out-think a first term Senator to come up with that.

  14. Groveton Avatar

    Here’s my “You’re doing a heck of a job, Brownie.” award of the day:

    Now maybe the recorded Iranian threat to blow up three US Navy ships was not really an Iranian threat to do that at all?

    “You’re doing a heck of a job, Brownie.”.

  15. Charles Barton Avatar
    Charles Barton

    What a curious topic. Peak oil is driving the price of gasoline ever higher, and global warming is making driving gasoline powered cars morally problematic. Some economist believe that the price of crude oil could reach $150 a barrel this you. In 20 years we all may be driving electric cars. What is all this fussing about a $0.40 gas tax all about?

  16. Anonymous Avatar

    For the next few years it is still a lot of money, and the tax helps make other technology viable sooner. Essentially, you are right, it will come down to an nergy tax or a carbon tax evenentually.

    The other issue with the gas tax (or eventual energy tax) is what level it should be set at so that the users (and other beneficiaries) pay the appropriate amounts, and no more.

    Ian Parry and Kenneth Small have stimated the external costs of autos for Global warming, pollution, accidents, and congestion. They respectively contribute: 5¢, 16¢, 24¢, and 29¢ to the optimal gasoline tax.

    I think this is double counting because congestion adds such an enormous amount to pollution, but maybe they included that in their figures. In addition, motorists already pay for accident insurance.

    But, it’s pretty clear that accidents and congestion are a bigger cost than global warming (From cars, global warming and pollution have other contributors.)

    The most important thing is that whatever the external costs are, that we claim no more than that (and no less, either, Larry). If these costs are too high, then attempts to equalize the externalites will cause externalities of their own, and that will lead to different kinds of environmental degradation.

  17. Anonymous Avatar

    “10. Maintenance – Does the proposer have a plan to maintain this facility in conformance
    with VDOT standards? Does the proposal clearly define assumptions or responsibilities
    during the operational phase including law enforcement, toll collection and maintenance?”

    “Fluor’s proposal indicates that operation and maintenance will be the
    responsibility of VDOT. They do include an option (no cost given) for VDOT
    to add “Long Term” Asset management provided by VMS to the project.
    Also included is the option of toll collection operation and maintenance (no
    cost given). These options are not included in the plan of finance as
    presented by Fluor Daniel. Responsibility for the operation of toll collection
    facilities and for law enforcement will remain with the Commonwealth.”

  18. Larry Gross Avatar
    Larry Gross

    re: “If you do not set the right rate then you are damaging someone elses welfare.”

    does this assume that the status-quo “rates” are “right” and therefore we can’t change them?

    I don’t see too many folks claiming that change is simply not necessary because the status quo is already irrefutably correct in this regard.

    oops.. check that.. at least one blogger does…

  19. Anonymous Avatar

    At one point in time, long ago and far away, maybe, the status quo was right because neither side had an issue.

    Now, one side wants to claim new rights, without recognizing, and indeed by denying that the other side ever had rights.

    It is a new property claim, a land grab,if you will.

    I don’t claim to know what the right mix is. I do know that if it is off center, then one side or the other (and probably both sides) is damaged. This can happen in either direction, and neither side gets to have primacy in its claims.

    What most people fail to recognize is that if the rates are set wrong then BOTH sides suffer the consequences. The tax policy foundation put it this way setting the rates exactly right affects the welfare of 300 million people.

    We can start with any rates we want, but we better have a good system in place for continually adjusting them. Right now, the system is who scrams loudest.


  20. Larry Gross Avatar
    Larry Gross

    You seem to think that a “Dept of Truth” is needed to resolve disagreements about who pays what.

    RH – the “Dept of Truth” is the duly-elected government.

    That government serves at the pleasure of voters.

    I know.. this is a really radical concept but it is my understanding that this is pretty-much a world-wide practice except in countries where there really is a “dept of Truth” NOT run by elected governments.

  21. Anonymous Avatar

    Yes, Larry, I agree.

    Unfortuntely, the duly elected government is based on politics and therefor it generates political answers and not (necessarily) truthful answers, or answers that are best fo the peole it serves. They are more interested in perpetuating their own existence and welfare than they are ours.

    I don’t suggest that we have a department of truth of the sort you describe. Instead, I suggest the the government, even the elected government be rquired to adhere to some kind of standards or procedures as to how truth is determined.

    Some government agencies seem to be much more adept at this than others. GAO, FDA, and even FAA seems to me to be pretty level headed. Some other agencies seem to br managed by ideologues, or even worse, proxies to the political parties.

    Ideologues are at least consistent, and when they are wrong there is no one to blwm but thmeselves.

    Political proxies swing like a pendulum: when something goes wrong each claim it is a delayed reaction from policies made by the previous party in power.

    The supreme court has proven that even a last chance judiciary can be politcally motivated: we will never get rid of all political motivation. But at least there, the tenure is long enough that it is difficult for the parties to make a great and long lasting change, exxcept through an accident of concurrent mortality.

    I suppose, that if the people choose to elect a government that will allow them to commit environmental suicide in search of a fast buck, then that should be the law of the land, no?


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