The Highway Trust Fund is crumbling; maybe it should

The federal Highway Trust Fund, which provides transportation funding to the states, is projected to run dry in August. But with a technology-driven revolution underway in the way Americans use surface transportation, applying yesterday’s solution and simply replenishing the fund won’t solve the problem.

According to the Obama administration, if the fund is exhausted, states will be forced to put off 112,000 highway construction and 5,600 transit projects, resulting in the loss of 700,000 jobs. When dealing with the government, there are always plenty of zeroes to go around.

The traditional source of revenue for the trust fund is the federal fuel tax of 18.4 cents per gallon, which has not been increased in over two decades. Given that it’s an election year, an increase is not only dead but already decomposing.

One reason the federal fuel tax doesn’t generate enough revenue is more fuel-efficient cars. But that isn’t the whole story. Surface transportation is in the midst of a quiet but profound transformation because technology is fundamentally improving urban mobility.

Technology advances make it easier for people to navigate public bus and rail transportation. Personal ride-booking and car-sharing services are available in nearly every major city, resulting in an interactive transportation network that generates fewer vehicle miles traveled.

As is always the case, technology is outpacing traditional institutions’ ability to adapt. Customers and markets have embraced the digital revolution. The country is witnessing the emergence of an integrated surface transportation network where each transportation mode no longer operates as if it exists in a separate universe.

Technology is in place that allows cities to operate roadway, rail and water transportation modes that complement each other. This gestalt shift represents a fundamental challenge to the traditional approach of the road gang pouring more and more concrete. This is all happening in the name of market solutions, the kind that would make Adam Smith smile.

The proliferation of innovative mobility tools has major implications for traditional approaches to planning, funding, and delivering surface transportation. Recent lifestyle changes, especially among the millennia! generation, are transforming the surface transportation marketplace. It is hard to resist the temptation to conclude that it is time to deliver the eulogy for traditional surface transportation planning and funding.

History- specifically the Japanese Navy’s strategic failure at Pearl Harbor- can teach us something about not letting business as usual blind us when it comes to the need to overhaul surface transportation in the U.S. The Japanese Navy’s officially sanctioned model for everything it did was the British Royal Navy. Standard histories of the Royal Navy emphasize its victories in spectacular naval battles like Trafalgar during which Royal Navy warships attacked and destroyed opposing warships.

Thus, Japanese naval thinking focused on attacking the U.S. Pacific Fleet’s battleships while they were moored at Pearl Harbor. Lost in the shuffle was any serious consideration of trying to cripple Pearl Harbor’s ability to function as a forward naval base. The Japanese were intellectual prisoners of a past that they believed would shape the future.

So it was that, in a brilliant display of tactical management, six aircraft carriers furtively approached the Hawaiian Islands just before dawn that fateful Sunday, launched their planes into the rising sun, caught the U.S. Pacific Fleet with its pants down and wrought havoc in spectacular fashion. On paper at least, this rivaled the triumph at Trafalgar, the Japanese Navy’s benchmark of success.

But as the sun set on Dec. 7, Pearl Harbor’s all-important fuel storage and ship repair facilities remained untouched by Japanese bombs, allowing it to continue serving as a forward base for American naval power in the Pacific. In reality, Japan’s tradition-bound naval leaders chose the wrong targets at Pearl Harbor.

Tradition is often the worst guide when it comes to doing anything really important. Things that have survived long enough to be venerated are often obsolete. American surface transportation is beset by a host of traditions that have helped produce the problems we face today. We must free ourselves of them if we’re to come up with a truly effective vision for what transportation should look like in the future.

originally published: July 12, 2014

We need to think of our roads as cows

Academics have filled volumes on the differences between what they call public and private goods. Too often the distinction seems to come down to ownership: If something is owned by society as a whole, it is a common good. If owned by one or more individuals, it is a private good.

Common goods are things like public schools, parks or roads that are owned by all of society. The responsibility for operating and maintaining them is (usually) assigned to government and supported by tax revenues.

This is the standard pattern for metropolitan roadway systems in the United States. They are built and maintained by a mixture of municipal, county and state governments that fund most of the cost from general tax revenues. They are often supplemented by “user taxes” levied on the purchase of motorĀ­ vehicle fuel, which implies that motorists pay based on how much they use the roadways.

But even when a roadway network is supported by fuel taxes, there remains a disconnect in the minds of motorists between the act of driving on roadways and paying for them. This is quite different from commodities distributed through the marketplace, where a consumer must buy and pay for some quantity of a commodity before being able to consume it.

The result is an instinctive sense among motorists that roadways are free.

A useful metaphor popularized by biologist Garret Hardin in 1968 illustrates the basic problem. Imagine a community that has a publicly owned pasture where local farmers can graze their dairy cows without having to pay any user charges. Under these circumstances, each farmer seeks to graze as many cows as possible in the pasture because each additional cow will increase milk production but not feeding cost.

This only works so long as the number of grazing cows remains within the pasture’s feeding capacity. Once the farmers exceed this limit, the pasture’s viability begins to break down. The cows consume its grass faster than it can replenish itself with fresh growth, resulting in less nourishment for each cow.

When farmers are faced with cows that are producing less milk to sell, their logical response is to add still more cows to the overused pasture. When all the farmers do this, the result can only be an increasingly dysfunctional pasture and declining milk production for everyone.

In Hardin’s words: “Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit – in a world that is limited. Ruin is the destination towards which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons.”

Severe traffic congestion is a modern example of the tragedy of the commons. Hardin’s metaphor illuminates a broad range of socioeconomic questions about why congestion afflicts so many metropolitan areas.

It illustrates the inevitable tendency to overuse common goods that are perceived to be free. It explains why this tendency leads to a condition in which supply never catches up with the demand. It describes how the widespread availability of free public goods can significantly influence the underlying economics of many private activities that come to depend on them. And it demonstrates the relative ease with which an entire society can be locked into counterproductive behaviors.

The most sensible solution to the tragedy of the commons may be to charge farmers grazing fees. This immediately confronts them with a series of critical business judgments about how to maximize their milk revenues, such as how much to spend feeding pasture grass to their cows or whether to feed them corn or other grains instead.

When all forms of cattle feed are distributed at prices that reflect supply and demand, the business of milk production becomes more rational. Perhaps the same is true for metropolitan roadway systems: directly charge motorists for roadway use and the economics of building, operating and maintaining roadways change rapidly- and for the better.

originally published: March 4, 2014

How (not) to address America’s transportation infrastructure

Americans have been told with monotony that intelligent investment in transportation infrastructure will help grow the economy and create good paying jobs from both sides of the political divide. Still it’s plain by now that between sequestration and budget cutting to deal with America’s deficits, the country will not do the unthinkable and move aggressively to acquire the additional transportation capacity we need to grow the economy. So we have to consider other courses of action.

In simple terms, we have only three options.

Option 1: Do nothing. Forget about spending huge sums of money to build the new transportation capacity our economy needs. Learn to live with what we’ve got, and stop bellyaching about bottlenecks that diminish our mobility.

Leave earlier in the morning to accommodate a more time-consuming trip to work; have dinner an hour or two later in the evening after the kids are in bed. Make fewer discretionary trips. Spend more time at home watching TV. At least this way we’ll be able to keep more income in our own pockets instead of paying it out in higher prices and taxes to support transportation.

Of course, this assumes our incomes won’t shrink as transportation bottlenecks choke off economic activity, leaving a smaller pie to be divided among more people as the nation’s population increases.

The do-nothing option will force us to pay higher prices for consumer goods and services because of the added costs congestion imposes on their producers. Our reaction to higher prices will likely be to buy less. With consumer spending accounting for 70 percent of the nation’s economy, the result will ultimately be a lower standard of living.

Sharp entrepreneurs will exploit this decline of American society. As Rhett Butler told Scarlet O’Hara in “Gone with the Wind,” “There are as many fortunes to be made from the decline of a society as from building one.”

Let’s keep our fingers crossedthat we can be among the lucky few.

Option 2: Have the federal government move aggressively to deliberately shrink the nation’s economy to a level where its mobility needs can be comfortably met by existing transportation capacity.

The assumption here is that a formal national policy of planned shrinkage can spread the inevitable pain more equitably among the American people. The main focus of this policy would have to be the nation’s top 100 metropolitan areas because that’s where most of the economic action is. They generate three quarters of the nation’s gross domestic product and are home to two thirds of the people. Their dominance as economic engines means the effect of shrinking their economies will spill over to the rest of the nation, placing all but the very rich on a low-cal diet of reduced living standards.

On the other hand, think of the money we’ll save by not paying for elaborate new transportation programs, even if most of the savings quickly run through our fingers to pay the extra costs imposed by a society in decline.

Option 3: Convert our top 100 metropolitan areas into true 24-hour societies so we can make use of existing transportation capacity now lying idle during the hours when most people sleep.

By spreading economic activity more evenly throughout the day, we can effectively acquire new transportation capacity without spending billions to build it. Just like factories that operate three shifts per day so the money invested in their plant and equipment can generate profits around the clock.

Roughly half the people living in each of these 100 metropolitan areas would have to switch from living during the day; working, shopping going to school or religious services and seeking medical attention at night.

Of course, the social engineering needed to accomplish such a transformation would be overwhelming. Some heroic regulation and policing would no doubt be needed to assure the right balance (as defined by government planners) between the day and night-time populations.

But just think how cheaply we could obtain additional transportation capacity this way. It’s for the best, right?

originally published: March 19, 2013

Fees for using roads could foster economic growth

There is again talk of raising the state gas tax to address the dramatic under- funding of transportation infrastructure. But even when a road network is fully supported by the fuel tax, there is still a disconnect in most motorists’ minds between what they pay and the act of driving.

Common goods like public schools or parks are collectively owned by society rather than by its individual members. They are normally supported by tax revenues and responsibility for operating and maintaining them is (usually) assigned to government.

This is the standard pattern for metropolitan road systems in the United States.

They are built and maintained by a combination of state and local governments that fund most of their costs out of general tax revenues, often supplemented by user taxes on motor vehicle fuel.

The result is an instinctive sense among motorists that roads are free. This mistaken view further complicates already difficult issues around how much road capacity we need and how it should be managed.

The basic problem is illustrated by Garret Hardin’s metaphor of a community that has a publicly owned pasture where local farmers can graze their cows without paying user charges. The farmers seek to graze as many cows as possible in the pasture, because each will increase the farmer’s milk production with no additional feeding cost.

But it only works so long as the total number of cows remains within the pasture’s feeding capacity. Once the farmers exceed this limit, the pasture begins to break down as the cows consume grass faster than the pasture can replenish itself. As a result, the pasture produces less nourishment for each cow.

Since each farmer’s cows are producing less milk for him to sell, his response is to buy still more cows and add them to the overused pasture.

When all the farmers do this, the result can only be declining milk production for everyone.

In Hardin’ words: “Each man is locked into a system that compels him to increase his herd without limit – in a world that is limited. Ruin is the destination towards which all men rush, each pursuing his own best interest in a society that believes in the freedom of the common.”

When the commons in question is the nation’s roads, especially congested ones in metropolitan areas, some believe their livelihoods depend on free use of the roadways and propose expanding them to support more vehicles.

They believe the purpose of the commons should keep pace with economic growth.

And since, like the pasture, roads are publicly owned, the cost of expanding them should be paid out of general tax revenues so its users can continue to obtain benefits without having to pay for them directly.

Others insist the real problem is not too little supply, but too much demand.

They argue that the time has come to “think green” about the future of public commons.

Then there are those who suggest the time has come to begin charging motorists per-mile user fees. In this way, each will pay more directly for the benefits received .

By using a sensible pricing system to allocate the use of scarce resources, each motorist will be  motivated to make the most efficient use of them, making discretionary trips at times when roadways are less congested and, depending on the pricing system, cheaper. When it becomes necessary to expand the public commons, income from user fees – not new taxes or more debt – can cover expansion costs.

The most sensible solution to the pasture problem is to charge the farmers grazing fees.

The same is true when it comes to roads, especially in metropolitan areas where traffic congestion is afflicting residents and choking off economic growth.

originally published: October 12, 2011