Intro. [Recording date: March 6, 2018.]
Russ Roberts: Our topic for today is traffic, or more accurately perhaps, traffic congestion, prompted by a recent article you wrote for Learn Liberty's website that we'll link to. And, our jumping off point is the idea that some people have proposed that Uber and other ride-sharing companies should have to pay a congestion fee in cities like New York, arguing that drivers spend time cruising around looking for riders and that slows everyone else down. This is what economists call a negative externality, and the argument is that by imposing a tax, Uber and its drivers, Lyft and its drivers, etc., will drive a little less; and that will reduce congestion, making people better off. What are your thoughts?
Michael Munger: It's such an interesting problem. Because, as you have often said, the phenomenon of traffic in the first place is interesting. Traffic is an emergent property of the desire of many people all to use the road at the same time to get to a place as fast as possible. And the result is, we all end up going really slowly and hating each other. And people really get angry in traffic. So, traffic is the collective and unintended but perfectly understandable phenomenon that we're all trying to use the road at the same time. The question is: Is there a way to allocate this scarce good more efficiently? And, one of the things that's interesting about the problem of congestion is that economists always think that there's an efficient solution to the problem. And their idea of efficiency is that we use the price mechanism to allocate it so that the last person to get on is basically indifferent between using the road and not using the road. And if you raised the price, it means that the people who don't value it very much, they'll wait; they'll do something else: they'll take mass transit. And the people who really, really need it are able to purchase what they want--which is a relatively fast trip. So, this notion was first introduced--the notion of using a price to solve the problem of traffic--was first introduced as far as I know by William Vickrey in a study that he did for the city of New York in 1952. And then, he published a series of papers on it, in 1968. One later won the Nobel Prize. The notion that many economists take about congestion is that it's a problem of matching: How can we make sure that the people who want this the most are able to use it? And, when I was thinking about this, this morning, it struck me that there's a problem of exchange. And there's a very deep point that you made on a previous EconTalk that I cite in the little paper in Learn Liberty that you said that you would put up. And, in it, it's that using price is not exactly the same thing as creating a market. And, the effect of taxing congestion. I mean, the problem with economists is that we often have this--it's almost a set of steps that we use automatically: If there's an externality, we should tax it; and if we have the right tax, the amount of the externality will be efficient and the problem is solved. You, actually, made an objection that it took me a long time to understand. I now think that I do understand it. And, remarkably, I think you were right.
Russ Roberts: Oh, my gosh. It's rare. Go ahead. Before you do, can I--although I want to dwell on that last point as long as possible; and I hate to interrupt you when you are in such an eloquent and profound set of insights about my insights.
Michael Munger: Yeah. Just because I said you were right. I understand.
Russ Roberts: Enough about me. Let's talk about why you think I'm right.
Russ Roberts: No, I want to back up just a tidge, and remind listeners that the word 'efficiency' when used by economists is not the same as its use in the everyday English language. In everyday English language, it means sort of, I would say, effective. Or, at lowest cost. There's a piece of that in the economics definition. But, when economists say 'efficient,' what they usually have in mind is the idea that the pie of economic wellbeing, or benefit, or benefit above-and-beyond cost--what we would call net benefit--that that net benefit could be bigger if we put a congestion tax on. That's what we mean by efficient: typically, that the net gain across all people in the country, or even in the world, is--grows. And your point about--I actually, I think I only have two thoughts on congestion, one of which you've made--which is that prices to not a market make. Markets have prices. But, imposing prices don't necessarily re-create what a market does. It can, in theory. But, doing that from the top down as an economics engineer is a little bit tricky. My second point is more about the distributional impact of that. But I want to make the--I want to actually go back to something you said earlier, which was: You said, 'There's a problem. There's too much use of the road, and the price then will limit the number of people on the road.' Another way to look at the problem is that the road is un-owned. It's effectively a commons. It's owned by all of us. So, of course, as you point out in the article, it is rationed. It is rationed by a price. It's just not a money price provided by a seller, or a group of sellers. It's the time price. So, when it's not rush hour, at these points the conversation is not relevant, or when there's not traffic. But when we're talking about traffic, which will be our presumption throughout most of this conversation, the fundamental problem is that the driver getting on the road doesn't take into account the fact that the other drivers will be slowed down. And, as a result, too many people then enter the road. And, as a result, there's a potential gain from reducing the number of people on the road. And my point, which is, in many ways it grows out of a point you've made, many times, about the challenge of choosing in groups: My point is that it's not so easy to fix that problem. You may think it is, but it's not so easy.
Michael Munger: It isn't. And as I said, thinking about it, I want to emphasize both of the points that you just made. One is the information problem; and the other is the distribution problem. So, this, it may seem a little bit tedious to take a sort of deep dive into the philosophy of voluntary exchange; but it's something that I'm really interested in. So, if you'll indulge me for a minute or two--
Russ Roberts: Take your time.
Michael Munger: Well, for a truly voluntary exchange--one of the reasons that economists are so interested in truly voluntary exchanges, it means that both parties to the exchange, if it's not coerced, are made better off by the exchange. Which means that the voluntary part of that also has ethical consequences. So, philosophers think of that as being an erogatory obligation. Which means that in the normal course of things, I have--it behooves me to behave that way. And, in commercial activity it means--an erogatory obligation means--I am not obliged to harm myself. Now, a super-erogatory obligation is charity or the Good Samaritan. So, you see that I'm drowning; there's a life-ring right beside you with a rope; you have a good strong arm. It would be pretty bad of you not to throw it. But you are not obliged to get into the water to try to save me. So, you are not obliged to harm yourself.
Russ Roberts: Although, it would be nice, if I sacrificed my time and put myself at risk.
Michael Munger: Yeah. It's a different thing, where we would say, 'That person is behaving in a way that's very praiseworthy, because the potential of sacrifice--I've given up something to try to help someone else--many of us would say, that's: You are both loved and lovely, if you behave that way. But it's a different context than commercial activity, which is just erogatory. Now, let's think about the way erogatory exchange works. I have a widget that I value $1. You value that same widget at $5. Who should own the widget? Well, you could argue that you should own the widget. And, the nice thing about markets is that it provides with two pieces, two parts of a process. One is, the price tells us that you value it more. Because, you'll pay $5 and I'll take $1. The other thing is the distributional consequences are solved, because you and I can negotiate a mutually beneficial exchange of, let's say, $2.50. You pay $2.50, you're better off, because you'd pay up to $5. I get $2.50 and I'm better off, because I would take anything over $1. That means that there's an actual exchange; the world is a better place. Because the widget moved to a higher-valued use. Now, the question is: Can we use, can we--can a central planner, comes in, and notices this, and says, 'Well, I can match that. All I need to do is make sure that resources are moved to higher-valued uses.' Problem is, that the central planner lacks both parts of the process that we just talked about. Doesn't have price. Has to make a guess about how much I value it, and how much you value it. And, since what is being taken from me and given to you is not compensated--the distributional consequences are potentially a problem. So, when it comes to congestion pricing, I, the person that don't--the value of my time is not very high. I could sit home. I could wait. Suppose I'm going to go to the store: I'm thinking of going to the park. If the road is pretty busy, I might wait. But, I don't mind waiting in traffic. The time I might value--the value of my time is not very high. So, I go ahead and I get out there on the road. The problem is, that contributes to congestion. The estimates of, you know, the amount of congestion that an additional car causes, are between 3 and 10 times the amount of the cost that other cars impose on me. So, there's a complicated process that uses simulations. But, I could just in time[?], adding another car seems to impose higher costs on others that are those that are fully borne by the marginal car. I don't mind, though, because the opportunity cost of my time is very low; and so I go ahead and get out there. You, have to go to a doctor's appointment. Or, you have to go to give a lecture where you are going to create a lot of value and get paid quite a bit of money.
Russ Roberts: Love your optimism--
Michael Munger: Hah, hah, hah. I said, 'value,' too. I understand wealth.
Russ Roberts: Keep going.
Michael Munger: I'm going to create a lot of value. But, there's a thousand people that are waiting for you, Russ.
Russ Roberts: Uh, hoh, hoh, hoh.
Michael Munger: And they are looking at their watch; and they are saying, 'Russ isn't here.'
Russ Roberts: And their breath is baited. I don't know what that means, but I'm sure they are sitting there with baited breath.
Michael Munger: It's because of traffic. They all think it's that darn traffic. You would happily pay for some people to wait. And there are people who, if you could pay them, would be willing to wait. But there's no way to effect that transaction. The mistake is to think that we can somehow approximate that with a congestion price. We don't actually know that the people who are going to pay this are the ones who have the highest opportunity cost value of time. The reason is--and this is kind of complicated but it's the reason I went through all the other stuff--the reason is: the last car to get on the road is the one that pays the congestion tax. But, the marginal user is the one who happens to value the time least. Now, that person may already be on the road--
Russ Roberts: Time out. Time out. I don't think that's right. I apologize for interrupting, but I don't want to go down what doesn't seem right to me. Or maybe I misunderstood you. A congestion tax is imposed on all drivers, at a particular time. Not one--
Michael Munger: Not a dynamic one. A dynamic congestion tax is only imposed once the congestion is bad.
Russ Roberts: Right. Sorry. Sure. So, at 5 p.m.--let's make it simple. Starting at 5 p.m., all cars pay a dollar a mile premium. And, we're going to avoid the toll-collecting problem, which we can, now, through technology: we can all have E-Zpass, a fairly cheap, minimal expense way to figure out who is on the road, when. We're going to ignore the privacy issues that that raises. And, we're going to say that we can monitor when people are on the road and for how long. So, in my city, Washington, D.C., we have such a system on certain roads at certain times. It's not all roads. And it could change every day--it could be literally dynamic, dynamically dynamic. But, I want to just assume that everybody knows that starting at 5 o'clock, there's a surcharge of a dollar a mile on a particular road.
Michael Munger: That's not what I was talking about.
Russ Roberts: Yeah. I don't get your example. I've never heard anyone propose your example. What's your example?
Michael Munger: My example is actual dynamic pricing. So, let's go all the way to dynamic pricing. So, there's a bunch of people on the road already. And, many of them have a low opportunity cost of time. Now, we charge anyone who enters--these are entry fees, and there's a lot of cities that use these--for you to get on the Interstate, you have to pay an entry fee because it's already congested. But you may be a high-valued user. All the cars that are already on there are low-valued users. That's what's causing the congestion. So, the point that I'm making is actually quite a simple one. The question is: At what margin can we charge this? There's no efficient way to charge the low opportunity cost people if you have a dynamic pricing model, which people take to be the gold standard of congestion pricing. Now, what you said is, 'We'll do it every day at 5 o'clock.' Most economists would say that's second best; but it may solve the problem, because, as you say, I know that at 5 o'clock, I'll have to pay for it, and if I'm a low-valued user, I'll avoid the road at that time. Because, then, it's an average, not a marginal cost problem. The pure dynamic one, though, the dynamic pricing means that the road's already congested, because there was a zero price up until the point it was congested. Many of the people causing the congestion are low-valued users.
Russ Roberts: But I don't understand that. I mean, I literally don't. If we only charge a fee for when the road is congested, that encourages people to get on the road before, and start congesting the road earlier. There is no difference between me, who got on the road at 4:57 with thousands of other people--and suddenly it just gets to the point, it piles up to the point where traffic starts to slow--its average speed starts to slow down. And then we say, 'Okay, well now if someone gets on, we're going to charge them.' But I'm just as responsible for the externality as the person who is getting on now. I'm on the road, slowing it down, just like that person getting on the road now will slow it down. It doesn't seem right to me. I think you have to charge all cars, on efficiency grounds, which I'm going to fight against. But to accept the argument of the standard, what I think is the standard argument by economists on road congestion is, there should be either--I mean, it doesn't help, to put a tax--as some cities have suggested, there's going to be, and I think some cities have done this--a congestion fee if you enter the central city at a certain time. After a certain time. Well, what about the people who have already entered? They get off for free? That just encourages people to get on earlier.
Michael Munger: But that's my argument. That's what they're doing.
Russ Roberts: Okay. Explain that.
Michael Munger: Well, you just made the argument. You do understand it.
Russ Roberts: I don't think so. I'm so smart. I can't every understand my own argument. That's how smart I am: My argument is so clever, I don't even understand it.
Michael Munger: I literally [?]
Russ Roberts: I think you've understood your version of my argument. Which is interesting. Just not mine. But, go ahead.
Michael Munger: I am literally going to repeat what you just said. There's a bunch of people already in the central city. That's what's causing the congestion. We're going to trigger congestion pricing once there's already congestion. That means that some of the people already there who didn't have to pay, have a low opportunity cost of time. So, you're saying--
Russ Roberts: Some might have a high opportunity cost of time. It's mixed.
Michael Munger: Yes. But even the ones that have a low opportunity cost of time, it's already congested. Because we didn't charge them. And so, you're saying you don't like that pricing model. I don't disagree with you. We agree about that. But that pricing model means that we are working at the wrong margin. So, the margin that we want to do is to somehow enable the high-valued users ideally to compensate the low-valued users. To say, 'It would be better if you would wait.' So, in the case of the widget, I'm going to pay you. You actually receive it. I get it; we know that the prices work; it's a voluntary exchange. The question is: Is there a dynamic congestion pricing model that approximates that?
Russ Roberts: Yeah; and the one you gave certainly doesn't. Well, now I think I understand your point. You are saying that: if I charge a fee after the point at which the roads are congested, there are a lot of people on the highway already who, people who aren't on the highway would be thrilled to pay, leave and take their spot. Let's make this clearer. Let's say that past 10,000 cars on this particular road, it starts to get congested. So, as soon as it hits 10,000 and starts to climb above it, they put the congestion fee on. Some of the 10,000 are already there are going to be people that would be happy to bribed to leave, let someone else be one of the lucky 10,000. And as a result of this congestion fee, that's not going to work. That congestion fee will not satisfy that requirement. That, to me, is not the problem. It's interesting. It's fascinating that that's what you've learned from our earlier conversation.
Michael Munger: Well, no; that's actually what I thought about this morning; and it turns out that that's a problem that many people in this field worry about--is that, there's a kind of market failure, because the people who want to buy less congestion can't pay those who would be willing to sell less congestion.
Russ Roberts: Yeah, but that's--yeah. Sorry.
Michael Munger: And it's all masked behind the fact that it's apparently a pretty reasonable thing to have a congestion tax based on: 'The road's congested; anybody who also shows up now has to pay an additional entry fee.' That just turns out to be a really bad idea.
Russ Roberts: Oh, that's for sure. So, let's change it. Let's pick--instead of the next, everyone else who shows up after this time, let's say everyone who is on the road at this time. And that solves the problem. On the surface.
Michael Munger: Yes.
Russ Roberts: I still think it's wrong. I'm going to argue why it's wrong. But that's clearly a better tax than just 'Everybody who gets in before the time, before the congestion starts is somehow absolved from having to pay the tax,' because that just encourages them to get there a little bit earlier.
Michael Munger: So, let the record show you went from saying, 'I'm completely incorrect to obviously right.'
Russ Roberts: Fair enough.
Michael Munger: And that it's obviously right in a way that's boring. But I wanted to start with baby steps. There are cities that use this. That's clearly wrong. But is there a better model?
Russ Roberts: Time out. I wouldn't say 'It's clearly wrong.' To me, I would say, 'It's clearly not efficient,' in the sense that it doesn't not guarantee that the highest-value people use the road.
Michael Munger: It just doesn't even accomplish its own object. It's own objective is to try to match up--it's working at the wrong margin. So, now we should go to more interesting pricing models. I agree. I'm sorry I belabored that.
Russ Roberts: That's all right. It's interesting. Go ahead.
Michael Munger: Well, so then, let's suppose we have a better pricing model; and in it we will--one way to do it is to start charging every day for higher prices when normally congestion hits. And that means that the people who have a low opportunity cost of their time knowing that they'll put off trips, they'll take mass transit, they'll do something else; and the people with the high opportunity cost of time will still pay it. And there's some hybrid versions of that. There's HOV [High Occupancy Vehicle] lanes. So, you can have just one lane on the highway. Now, there, HOV, since it stands for High Occupancy Vehicle, you have to pay on a different margin. You have to get other people to ride with you. But you can also have--it would be simple enough just to charge a higher price for one lane. So, you could have a pricing model; and in Santiago, Chile, the Costanera Norte is a private road effectively that goes through the downtown. They charge pretty high prices all the time. There's alternative roads, but the Costanera Norte, almost always there's very little congestion. And so, if you just pay extra, you can buy a lack of congestion. You can buy a faster trip.
Russ Roberts: And I want to just--it's important to mention--you keep saying low and high values of time. Of course, it's the net value of the trip relative to the time that people are taking into account. So, it's not just that the people with the highest value of time are the ones in the toll lane or who would go when the congestion tax is set. It's the people whose net value--the value of the trip itself minus their opportunity cost of time, what they would be doing with their time otherwise--who go. Right? It's not just allocating according to the value of their time.
Michael Munger: Yes. The interesting thing about that, is that one of the reasons that--because this is the money value of my time. And, one of the problems is that our mythical planner who came in a thought 'I can use a tax system' in effect to approximate the good results of voluntary exchange, is that the sort of utilitarian consequences of this will be positive. Because, it's as if I bought this--I who value this a lot bought it from someone who valued it much less--in money terms. That was the reason I was talking about the opportunity cost of time: is that, there's a sort of mythology that in effect there's a kind of transaction that's taking place. But, there's not. This is something that's only taking place inside the mind of the planner, who is using a kind of utilitarianism: That is, the people who have low opportunity cost of time, it's okay that they sit home. And that really was the heart of your objection in the podcast a few years ago, the Winston podcast a few years ago. You can't know that. Because, there's a couple of deadweight losses. One deadweight loss is the deadweight loss--
Russ Roberts: Explain what deadweight loss is.
Michael Munger: Deadweight loss is a loss that is just dissipated. It's not a transfer. So, if I have to pay you something, I lose but you gain. If I just sit in traffic, or I wait in line, then the value of my time is just burned off into the atmosphere. So, I could be producing something; I could be making something for society. I could be enjoying maybe going for a walk in a park. But, some value is foregone. If I sit for an hour in traffic, I burn up an hour of my time and no one receives the benefit. And so economists call that a deadweight loss.
Russ Roberts: And for listeners who might have the following thought is really important: You might think, well, you're not going to waste your time in traffic. You're going to be listening to EconTalk. And what that means, though, is that the amount of traffic there's going to--if everyone can listen to EconTalk--unimaginably, but it does happen, other podcasts; or read, listen to a book on tape, or listen to some other podcast--then the time cost of travel goes down. And therefore more people will be willing to get on the road. Because it's not as unpleasant. Which means it has to be a long enough trip to make it, even with EconTalk, somewhat unpleasant. That's what congestion does. Congestion rations access via the fact that you burned time. And you say, 'Well, you won't waste it. You'll shave in the car, and you'll put on your makeup. And you'll listen to EconTalk or books on tape.' That just means that more and more people are going to get on the road. Because, otherwise the road's underpriced through time. It's not being allocated. People will find it--I didn't say that very well. If it's pleasant to travel, that just means more people will get on the road. And at times of congestion, more and more people would like to get on the road than there is space available. The opportunity to do things that make the time go by actually just means that you are going to be on the road longer.
Michael Munger: Yep, because the disutility--how much I dislike being on the road is reduced. Knowing that I'm going to be on the road, I'll plan for that. And there certainly are a lot of things--cars are more comfortable; the control that we have of the air inside that is better. It really is true that longer commuting times, we're likely to come up with ways to make that less painful. Which reduces, it's true, the deadweight loss. But the point that you made--
Russ Roberts: No, it doesn't reduce the deadweight loss. That's my point. It has to persist. Because otherwise there's no allocation going on. Let me give a goofy example. The example I use in class is that I'm going to give an A+ to the first 5 students--I'm going to give all the answers out to my exam: let's say I have an exam coming up on Friday; and on Thursday night at midnight, I'm going to give out the answers to the exam to the first 5 students who are outside my door. And--this is a stupid example; it's immoral; forget all of that for the moment--but the idea is that there's some group of students in the class who are worried they are going to get a bad grade, who don't have time to study. There's a lot of motivations. And they're going to show up at midnight to get those answers and get a guaranteed A+. That's the goal. So, if I do that--and let's say there's 500 students in my class--if I do that, how many people are going to wait in line? And the answer is 5, because the 6th person realizes they can't get anything. There's only room for 5 people. That's the deal. That's my offer. So, what happens? Well, you have to get there early enough to be one of the first five. So, when would that be? Well, the first year, who knows when that will be. But, let's say after a while it becomes known that if you get there by 2 o'clock on Thursday even though the thing is not given out till midnight, you'll be one of the first 5; and that turns out to be the general pattern. And then after a year, after a while I feel bad. After a few years I say, 'You know, it's terrible. These kids have to sit outside the room for 10 hours with nothing to do. It's just cruel. I'm going to put up some really nice armchairs. And, they'll give them a massage while they're sitting there. And they'll be really comfortable. I'll put a drink holder in. And I'll show movies. So, that way they won't waste their time for 10 hours while they're sitting there. And if I do that, they'll just get there earlier. It won't have any effect on the deadweight loss. They'll just get there early enough now to be one of the first 5 when it's relatively pleasant. Which is before 2 o'clock. Now they may have to get there the night before, or two nights before, to be one of the first 5. So, I don't think that affects the deadweight loss.
Michael Munger: Well, you're right; but you just skipped over the intervening step. Knowing I'm going to--I was trying to do it in two steps--knowing I'm going to wait in traffic, I'm going to get a more comfortable car; I'm going to have a phone that's full of EconTalk, and yes, it's probably true--other podcasts as well.
Russ Roberts: Hissss.
Michael Munger: So, the result of that is that I'm then willing to wait even longer in traffic. I'm less concerned about traffic. And, it ought to be at the same margin--the deadweight loss ought to be the same. It's just that the cost to me per minute of being in traffic is reduced by my anticipation of this. But, overall, yes: the deadweight loss will be the same. It just takes to get there. What I think we're ignoring--what I think some of this consideration, which is what you had picked up in the earlier podcast--if someone wants to go to the store, wants to go to the park, needs to get to work, but the congestion pricing prevents them from doing that, that's a deadweight loss, too, because those are trips that are not taken. That is, I don't go to the store. I stay at home. I sit at home instead of doing the things that I want to do, because now the price has gone up. I'm not compensated for the fact that something useful is being taken from me. So, the--you can say it's a low-valued user, or maybe it's just a poor person who can't afford to pay the price. In a market that works out to be the same thing. They don't objectively in terms of utility have a low opportunity cost of time. They just can't afford to pay the congestion tax. The result is that deadweight losses are imposed on them. And, the hard thing is to balance the deadweight losses of sitting in traffic compared to trips not taken, lives not lived, because some people can't afford to pay the congestion tax. That doesn't mean it's a terrible idea. But it's not the same as a market. So, in a way the point you were making is quite simple and it just never occurred to me before. And I wanted to give you credit for it.
Russ Roberts: I have no idea what you're talking about. So interesting. I don't know if anyone's still listening to us, Mike. I'm always happy to talk to you even if we're just on the phone chitchatting. And I don't know if we've lost all of our listeners. But, whether there are others who have just raced to their phones to hear this because it's so interesting. I'm hoping it's the latter. But, I'm fascinated by the fact that that is not at all what I meant. This is a different point than we got tangentially discussing earlier. I'm going to try to make what I consider my point; and then we're going to see how it interacts with your point.
Michael Munger: Actually, this morning when I was preparing for this, I said, 'I fully expect an Annie Hall moment,' where I say, 'Well, this is what Russ Roberts meant'; and Woody Allen pulls out Marshall McLuhan and says, 'No. Here's what he really meant. You're an idiot.'
Russ Roberts: At least it's not at the point where my payos are growing at the dinner table. But--that's just a Yiddish reference, for those of you keeping track at home. So, here's the way I think about this. And I love the idea of the exchange part of this. And, I wrote a piece a long time ago about--we're going to come full circle to all the past Mungerisms of past EconTalk episodes. You and I have spent, I think, at least two episodes talking about price gouging. And, my point about price gouging is that--one of my points, is that when prices rise, the example I give is that I was going to build a porch on my house in St. Louis. And, my architect, the guy who built up the plans said it's going to cost--whatever he said; I think we were trying to spend, I'd say $10,000. And then the bids all came in at like $30,000. And I was kind of annoyed at the architect. I felt that he had taken advantage of me. He had encouraged me to hire him to draw up some plans for a project that I had said I would do in the $10,000-ish range. But now he was off by a factor of 3. And then I realized, being a slow-witted economist but an economist nevertheless, that the reason it was $30 instead of $10 is that there had been a flood. The Mississippi had flooded. And building a porch was not nearly as valuable to most people as putting back a wall that had fallen down. And so, carpenters charged a premium. And as a result of that, I said, 'You know, I'm going to wait to do that porch. I'm not going to do that, actually.' And when I realized it was because of the storm, I thought, 'Well, I'll try again in 18 months.' Or it was 12, or whatever it was. Or 18. It was something more reasonable. To me. But for somebody whose house was falling down, they were thrilled to pay a premium to get that wall put up by a carpenter. So, what the price does in that setting is it encourages me to step aside. Basically, the person whose wall has fallen down pays me--not pays me, but I am induced to forego using the carpenter and let the carpenter go to the higher-valued use of the person whose house is falling down rather than just adding a porch--which is pleasant but not very important relative to a house. We agree on that, right? We're good?
Michael Munger: Yes. Sure.
Russ Roberts: Now. I didn't think of this the way you are thinking of it, in the context of congestion. The way I think about it is as follows. And it's nothing like the way you think about it. Even though you "learned it from me." But, I think I know why--I think I see why we diverge. So, here's my point about the congestion pricing. I like to start with the world where everyone has the same value of time. But, we differ by, say, the value of the trip we are taking. Okay? So, what's going to happen when we put a tax on, is that we are going to make the road "more efficient." It's going to mean that the time spent is going to be less. Which is great. But my claim is, is that in that world--and this is very unintuitive to most people--in that world, most economists, in that world every driver is worse off. Every driver. Every driver. Plus the people at home. The people at home are worse off because they don't take the trip now. The people who are on the road are worse off because they are paying a tax. And you might say, 'Oh, but they save time.' And my point about the tax is that it has to be the case in some sense that the pain from the tax has to outweigh the gain from the savings in travel time. That is, you might think, 'Well, who knows if you are better off or worse off if you take the trip? In fact, you are probably better off: You took the trip.' And obviously you got there quicker than you would have. That's the purpose of the tax. It took out the congestion. And so it's true you had to pay the tax, but you got there quicker so you are better off. And that's false! That's basically false. That's basically why I'm hand-waving there: maybe not worth explaining. But we'll see. But my point is, is that the whole point of the tax is to discourage people from getting on the road. And therefore, it has to be the case that the pain from the tax paid has to be larger than the gains from the fact that it takes a shorter time. Then you say, 'Well, whoa, that's not efficient.' And the answer is, 'Yes it is.' Because--that, you could argue, 'Well, you didn't set the tax right.' And I would say, 'You exactly--that has to be the case, under a correctly set tax.' Because the efficiency gain, the net gain to all of society comes from the fact that the money collected from the tax can go for some other purpose. So, when we look across society after the tax is put on, drivers are worse off. But the people who get the benefits of the money are better off. And that gain has to be larger. And that's true. You can show that with a graph. But it doesn't accrue to the drivers. It accrues to "someone else." And then people say, 'Well, let's just give it back to the drivers, then.' And the answer is: Once you do that, you are going to start to undo the incentive effects of the tax. 'Oh, we'll do it in a lump-sum fashion so it doesn't affect incentives.' Well, it's really hard to do that. It's almost impossible to do that. And it's really hard to do it with any accuracy. Now: in the real world, of course, people have different values of time. So there will be drivers who are better off. The people who have very, very, high values of time, or higher than average values of time, or higher than median values of time, depending on assumptions you'd make--those people are going to be better off, because for them, that small group, their value of time is so high that the tax is not going to be large enough to offset the gains from the less-congested road. But for everybody else--they're just worse--they are punished by this law. And they don't get compensated for it. So, what you've done, in my view, with the congestion tax, is you've made "society better off" in a utilitarian way. If you added up all the gains and losses, the gains would outweigh the losses. But, you'd have just arbitrarily punished a bunch of people to create this net gain for some others who happen to get the benefit of what the government spends the money on. And that just seems to me to be immoral.
Michael Munger: Maybe not any more immoral than most taxes. But, no less, is your point. It's just a tax. And the other argle-bargle about benefits and distribution isn't right. It's really just a tax, and we should think of it that way. And, if that's the best way of raising revenue, well, okay. But it depends what you do with the money. Usually the argument, as you know, is we'll use the money raised from the congestion tax to subsidize or expand mass transit. Which should benefit those who now no longer can afford to use the roads. So, we have better buses; we have better subways. I think that would be the answer: that, it does matter what you do with the money. If what you do with the money is--
Russ Roberts: I'm thinking food stamps. Expand the food stamp program, or build better schools. Or--pay old people. Higher Social Security benefit. Old people would benefit. It's like: Who would ever imagine advocating for the following: 'You know, there are a lot of people with low value of time. Let's tax them to pay for Social Security benefits.' You'd say: Well, that seems wrong. That's almost as wrong as--I don't know, say, using lotteries to fund schools? We're going to take people who are desperate for money, who probably dropped out of school, and use their pitiful money that they are spending on their lottery tickets to help people who--it just seems bizarre. But that's, I think what we're doing with roads. And I think we're under the illusion, as economists--that we say, 'Oh, it's efficient, 'and that means everybody is better off. No. It means everybody could be made better off. But in reality, they won't be. So, is it moral, then, to impose a congestion tax?
Michael Munger: Well, it is an interesting question: What should be the price of roads? And, most--the efficiency condition is usually price is equal to marginal cost. If there's no congestion, marginal cost is close to zero. Because, I--maybe there's some wear and tear on the road. Big trucks probably impose some of that on the road. But cars, largely the marginal cost is zero. The problem is, with congestion you say that there is something--that I'm imposing some cost. It's not clear that we could figure what that price is. Your point about the tax is an interesting one. The thing that the article took up was congestion pricing on the island of Manhattan; and in particular, I actually got some response to this. I solicited some answers from readers. And the question is: Suppose that we agree that there's a problem with congestion on the lower part of Manhattan. Should--is some kind of congestion tax an answer? And of course, what some people in Manhattan say, particularly taxi drivers, the yellow taxi drivers, what they want to do is impose a congestion tax on Uber and other ride-sharing services. They say, 'At the margin, what's causing this is all these ride-sharing cars.' And, when you look--well, there's 60,000 Uber drivers that sometimes drive in Manhattan. And there's probably between 15,000 and 25,000 most days. And that's compared to 13,500 or so yellow taxis. So, let's go to a third pricing model. We've talked about two: one, just the marginal drivers; one, have a congestion tax generally. Should we tax some groups who, at the margin, have less of a right to use the roads? Because what the taxi drivers are claiming is that the ride-sharing services have less of a right than the taxi drivers; and they ought to have to pay a tax to offset that.
Russ Roberts: Yeah. My first thought, of course, is that I don't think traffic in New York started in 2009--when ride-sharing started. Has it? I don't know.
Michael Munger: It has gotten worse.
Russ Roberts: It's an empirical question, right?
Michael Munger: Yeah. Right. But empirically, it has gotten worse. Now, one of the big problems is double parking. So, even a little bit of double parking at rush hour is a big problem. And a lot of the ride-sharing--because if I drive around constantly, I'm using up gas. There's no place to park. And so, it is true that the big problem that you have is there's a delivery truck at 4:30 on one of the big avenues. Or, an Uber car is double parked or parked in a way that slows down traffic. Presumably you could just enforce the parking laws better and prevent double parking.
Russ Roberts: It's not the [?]
Michael Munger: Well, what the taxi companies want to do is impose a differential congestion tax. And what that made me think about was the sort of history of the taxi industry. And I don't know how deep you want me to go into that. But, the taxi industry in New York has a very interesting history. And the fact that they use these medallions was because, I think most of the listeners probably know, in order to drive a taxi lower Manhattan--that is, one of the yellow taxis, not one of the green borough taxis. But, a yellow tax, you have to have a medallion. And medallions, the price for a while was up over $700,000 for one medallion. They were established in 1937 because there were so many taxicabs; and so many people were trying to drive so many hours a day during the Depression that--partly for congestion reasons, but partly to make sure that the taxis could make, they would say, a decent living, they restricted the number of taxis that could drive legally. So, this is the legacy of a time from during the Depression when prices were quite low. The result was the number of--I think the number of medallions was 16,000. Medallions were not even valuable enough to pay the $10 annual fee to renew them. So, about 3000 people just let their medallions lapse. Now, we're down to about 13,000. They had a couple of auctions where the value was pretty high. But now medallions are extremely valuable. And the price of a taxi in New York is not that high. The density of use, if you compare it to other cities, taxi rates in New York City, you are not unreasonably high. Why not just use the medallion system? Why allow Uber at all, is the question that the taxi drivers would ask? 'You are saying that we have a problem with congestion. We paid for our medallions. Isn't the solution just to outlaw anything that doesn't have the medallion?' Isn't that the solution? Forget this congestion tax. What we need instead is this third model of better regulation.
Russ Roberts: I mean--it's--well, there's no reason to think that 13,600 is the right number of medallions to have in the city. It's, as you would be the first to point out, it's the result of a political process, not an economist trying to figure out what the right number is. Obviously, the taxi cab drivers like it this way. It's easy for them to find rides and to fill those rides at the prices that the taxi commissioner sets, which, as you say, they're not unreasonable. But I think Uber is cheaper.
Michael Munger: Well, Uber must be cheaper, net. The time spent waiting, the inconvenience of giving directions, the inconvenience of paying, or otherwise people wouldn't use Uber so much. So, they really do use Uber a lot.
Russ Roberts: And I raised the question, the empirical question, of whether traffic has gotten worse, because it's--there are two thoughts I have, which I hadn't thought of before. One is: It's possible fewer people are driving around in their own cars because they don't have to have them any more. They are using Uber. They're not parking them on the street; there might be more parking available, because people don't use cars as much because they can trust Uber and it's relatively cheap. So, you would think the access to ride-sharing would reduce the number of cars, at least that are owned in New York; it doesn't necessarily reduce the number of miles because now with the lower price you might drive more. It's complicated. Of course. The second point is: I wonder if Uber has an incentive, and Lyft, to take account of congestion when they set their prices. Because, surge pricing--we think of surge pricing as a--okay, demand's higher because it's raining or it's rush hour or it's after a concert has gotten out in some particular part of town, and so there's surge pricing because there aren't enough people willing to drive relative to the increased demand. And Uber then raises the price that drivers can get and charge. And they get a share of that. So that helps ration the shortage. But it could be the case that--wouldn't they not want to slow down their own drivers? Which--I mean, obviously they don't have a monopoly; they don't own the roads. They don't have a full incentive to internalize that externality. But you'd think it might have some.
Michael Munger: There are a lot of mysteries in Uber's algorithm for deciding price, and I don't think anyone--it's proprietary. No one's announced what it is. Perhaps--well, like a taxi, if you sit in traffic for a long time without moving, you are also charged for that. So, that is part of the algorithm on Uber. But, that means that I'm more likely as a passenger, as we've said before, to try to find some other way of riding. Including walking, if necessary, or taking the subway. So, if the surface roads are really, really congested, I may try to take something else. It's interesting that the origin of taxis in New York--I actually had wondered why it was that the taxi industry developed the way that it did. You may know this story. But, in 1907, apparently a man took a taxi in which he was disgusted with the price. So, apparently it was about 3/4 of a mile. He took a taxi 3/4 of a mile and was charged $5. Now, I tried to investigate how expensive $5 really was, and it turns out that a full meal at Delmonico's, one of the most expensive restaurants in New York, would have been about $2.50. So, it's the equivalent of $125. He was charged $125 in 2018-dollars for a Hansom cab. And he decided that he would start a taxi company. Almost immediately, he started having labor troubles. So, the regulation of taxis in New York has a long and contentious history. The taxi drivers--I actually wonder if it's something like, in terms of industry structure, if it's something like monopolistic competition. And so that actually raises the question you just did, about Uber and its pricing model. Uber isn't a monopoly, but they do have a monolithic pricing model. They should be able to--
Russ Roberts: They have a large impact on the condition, the roads--
Michael Munger: And it's dynamic[?]. They can update it. They can update their pricing. So, monopolistic competition, what happens is, you get entry, where I don't serve much but locationally I can serve the people that are around me. And monopolistic competition is something that was made up first by Joan Robinson at Cambridge University. And restaurants or other things that have local monopolies work that way. I had wondered, and it's interesting that you brought that up about Uber's pricing model: Don't they have some incentive for solving the congestion problem? And they might--taxis, the problem with taxis is they are locked into a pricing structure. They can't change their price. It's always the same. Which means that sometimes the price is too high, and people who would pay more than the cost of giving a ride still take the subway because the taxi can't cut its price. And sometimes, during a rainy night or after the plays let out, or a sports event, a lot of people would pay more. But they can't do that. So, taxis can't adjust dynamically. Uber has, in a way, a better pricing model. That was all just a long way of wondering, if you're not right, might Uber account for the fact that there's an entry problem that they want to worry about. And congestion harms everybody. Why don't they charge a little bit higher price? I just don't know--I haven't seen any evidence that that's true.
Russ Roberts: I mean, the point being that if you had private roads, and it was easy to start a new road--it's not, obviously. But if it was easy to start new roads, and--I mean, if you think about flying. If you think about putting roads on top of each other--this is like the greatest EconTalk ever, Mike. It's got more--let's assume a can opener. It's got so many of those. But they are actually good ones, in my view. But that's what an economist would say when they make a ridiculous assumption. So let's, if we had different roads and we could just build a road on top of one another, it goes from Point A to Point B, but doesn't interfere--which of course you can't do. But if you could, and then you let people do that and enter, then there'd be privately held roads. And none of those would have congestion. The point being that, when you wait in line at the supermarket, in general, as you point out earlier, that's thrown-away time. They don't want you to wait in line. The reason that you do sometimes wait in line is that there are surges of demand that they can't anticipate. The ones that they can, such as people coming in between, right after work, it's very expensive then to hire an extra person for just a short period of time. So, they can't easily solve that problem. But, in general, stores don't have long lines all the time. That just doesn't make sense. It means they should raise the prices of all the goods a little bit, even, if that's the case.
Russ Roberts: But I want to go back to the point you made earlier. Because, I made a long speech, about 10 minutes ago. And, you responded by changing the subject. And that's because you are very polite. Which is very impressive. But, I actually wanted you to push back on that. And since you didn't, I'm going to push back on it with what I learned from you earlier in the podcast. Because, I wanted to--I wanted to reconcile the way you were thinking about this congestion problem with the way I think about it. So, in my model, my--the way I'm thinking about it--it's like everyone's got the same--let's just start with this can-opener assumption. If you don't know what I mean by that, just google economist jokes and can opener and desert island. So, I'm going to make this economist's simplifying assumption: everyone kind of has the same value of time, to show that when I put the congestion tax on, everybody is worse off. People who don't drive; and the people who do drive. They've all been punished a little bit. And the gains are being captured by whatever the government spends the money on--whether that's food stamps or Social Security or improving the sewer system or whatever it is. And since the tax falls heavily on one small group--drivers or would-be drivers--that seems unfair. Immoral. Not so attractive. Even though it adds to the net benefit to society. And that's why I'm not a utilitarian. One of the reasons I'm not a utilitarian. I do not like that tradeoff. I don't think that's what government should be in the business of doing. But, your point was, the way I understood your point was: Well, but people have different values of time. And what's actually happening when you put a tax on, is you are persuading some drivers to give up and stay home. And normally in a market--and this, I think is very deep, and I, this is something I didn't appreciate--in a market, the people who want something badly, compensate the people who don't want it as badly. That's your widget story. You make the widget--you are willing to accept it costs you 50 cents [$0.50] to make it; you are willing to accept, given the value of your time to sell it, you are willing to accept, I think you said, say, $1.50, or a dollar.
Michael Munger: I think a dollar.
Russ Roberts: A dollar. And I love widgets. So, I'm willing to pay $5. So, $2.50, $3.00--any price in between a buck fifty and five, you and I are both going to be better off. And I'm compensating you, effectively, for giving up the widget. What happens in the road case, because it's not a market--and this is what, the humor of this is that you claim you learned this from me. I didn't understand your point. And this is what I think--this is what I'm learning what you learned about from what I said that you learned from me that I learned. Which is: That, when you put the tax on, nobody's being compensated. Not the people who stay home. Not the people who drive, either. So, I'm the--let's say I'm the high value of travel. Meaning, it's really important for me to take the trip. And I have a high value of time, so even though there's a congestion fee, I get on the road. I don't compensate anyone who got, who chose not to go on the road. I think that's your point. And that's very deep. I'm also adding the point--the reason I was reacting so strongly in my monologue a few minutes ago was that, 'Yeah, but I'm not getting compensated, either.' I'm getting punished, too. But there will be people who are not punished, who are better off. Who have high value of travel, and very high value of time. And they have--the tax induces other people to get off the road so that they can enjoy that road with their high value of time and not be punished by a lot of congestion. And what you are saying is that, 'That's not the way it usually works with an exchange.' Is that right?
Michael Munger: Absolutely. And it--the fact that we use, that the people who advocate for this use a sort of exchange-based language--we want to make it efficient. And as it is, what we want to do is deter the people who have a low opportunity cost of time so that the people with the high opportunity cost of time can use money to buy their way out of the deadweight loss of having to wait in line--in traffic. And, it's not an exchange. It's just as you said: The people who have, because of the high price of the congestion tax, if they don't drive, they are staying home. And that should be a deadweight loss that we account for also. They are not being compensated. In the exchange metaphor that we started out with the widget, and again, this is what you just said, that means that, 'Yeah, I don't have the widget any more, and that makes me sad.' But I'm only sad a dollar [$1.00]. But, I'm happy, $2.50. So, I'd like to have the $2.50 and the widget. But, I'm pretty happy to give you the widget and have the $2.50 in payment. But, that's not what's happening with the congestion tax. It's just a net loss to me. I'm not being compensated. And I think that, not taking trips, not going to the park, the things that people who, because of the tax, now it's not worth it for them to undertake the trip, should at least be counted. Now, usually we count that in terms of ability to pay. And so, I guess I'm making sort of a point that many of our friends on the Left would often make. What we're really doing is not valuing--we're not rationing by value of time. What we're doing is rationing by the ability to pay. And, so, rich people are going to be the only ones who use these roads, at a time when there's a congestion tax. And that's the objection. That, if you look at the cities where the use-congestion tax--so, Singapore, London, Milan, Stockholm--that's the objection that everyone makes, is 'Well, only wealthy people are using this road.' That might be okay if they were compensating the people that were being kept off. But they are not.
Russ Roberts: Well, my point, which is, a variant of this, is that: There will be some poor people on the road, who really want to use the road at that time--because they have to get to work--
Michael Munger: Yeah. That's right. And they benefit from that, actually.
Russ Roberts: Not necessarily. Well, they don't. My point is that they might not. Because they have to pay the tax. And that offsets some of the gain that taking the trip had. And, it's true they get there quicker. That's nice. But the tax is very large, to get enough people off the road so that it's not congested. It's not obvious that they are going to be better off.
Michael Munger: Well, not compared to the old system where they would have been on the road anyway. Not pay the tax and have to wait longer--
Russ Roberts: A little longer. But they have a low value of time.
Michael Munger: But that's no longer available to them. That's taken away.
Russ Roberts: Correct.
Russ Roberts: I want to go back to the widget example, because I think that really helps me see your point. Which is that, what a congestion tax is like, is the government comes--and it is a little more complicated than this, but it's close. What a congestion tax is like, is the government comes along and says to they guy with the widget, 'You know, I don't think you value it that highly. I'm going to give it to this other guy.' Hmmh-heh. And then, the guy who made the widget doesn't get any, doesn't get compensated. The guy who gets the widget gets to enjoy it. But, actually, we're also going to make the guy with the--who gets the widget pay a tax also. Hmmh-heh.
Michael Munger: Yeah.
Russ Roberts: We'll pay a tax. We're going to take it--We're going to--sorry. He's going to--it's more like this. He's going to pay the $5. In fact, he's going to pay a little more than $5. Not a little more. Excuse me. He would have paid $2.50 in the private equilibrium in the market. Now, the government charges him $4. He's still better off; he's happy to get the widget. But the government takes the $4; doesn't give it to the guy who made it. And, um, the guy who made it, and the guy who gets to enjoy it are both worse off than they were before.
Michael Munger: Yeah.
Russ Roberts: The difference is that there's no supplier, in the case of the road, except the government, in some sense. There's no residual--what we call in economics, the residual claimant. In the case of the widget, we all understand that if widget owners, widget makers, don't get paid for making widgets, they are going to do something else. That's not going to work for very long. So, no one thinks of that as an attractive option, at least literally. 'Oh, well, let's just take the, we'll just confiscate the, expropriate the stuff.' Most people realize after a while that doesn't work so well. Some don't realize it for a long time. But, in general, the market system maintains that incentive for the supplier to make the stuff. The road is a little trickier, because there is nobody profiting from the road directly. There is nobody who owns the road to collect the toll. The government does. And so, to the extent that the government, whatever you want to call the government's decision-making process--we know, from our previous conversation about choosing in groups, in your book, that that's a complicated phenomenon. It's not simple to say, 'Oh, the government will just make this decision.' Or 'that decision.' Depends on what the institutions are. Depends how the political power of people who are, who have a high value of time, political power, the people who get the money spent on them ultimately. It's going to be messy. Right? But it's clearly not like a supplier who gets a profit and has an incentive to make a great product.
Michael Munger: Yep. And I--I had not realized that I should, but I will from now on, object to the sort of metaphor that was used as if it was an exchange. Because it was the--in preparing for my notes, it's eerie, actually. In preparing for my notes for this, I actually had really had written out the second part of the example of the widget, a social planner shows up--
Russ Roberts: Hmmh-heh--
Michael Munger: and says, 'All right. I think you value it one. And you value it five.' And let's suppose she's really good at it. She actually gets it right.
Russ Roberts: Yeah.
Michael Munger: The police come to your house and take the widget from the person who values it one. They give it to the guy who values it five. But they charge him for the service. That's not an exchange.
Russ Roberts: Yeah.
Michael Munger: They are actually both worse off than they would have been if they would have made an exchange. Now, you can say--and I think this is right--a difficulty is the transactions costs are so high, there's no way that they could have found each other and made the exchange. I cannot find an individual or the 5 individuals I need to pay to stay off the roads so I can go quickly. So, the exchange is impossible. But the analogy to an exchange--
Russ Roberts: Yeah--
Michael Munger: for people who advocate for congestion--that's wrong.
Russ Roberts: Yeah--
Michael Munger: This is something else.
Russ Roberts: Yeah, that's great.
Russ Roberts: So, that leaves us, or me, any way, you can speak for yourself, that leaves me with the challenge, okay, so: You're so smart. You're so high-falutin' about your principles with respect to a congestion tax. What do we do about the fact that there's traffic in the city? Because when people say, 'You need to widen the roads,' I always say, when you do that, you encourage people to live closer to the city or more people to move there. That might be good. That's a very complicated calculus. You could try to make it right. But it's not obvious that that is an improvement. It could be. But it's not obvious that it is. And the improvements in terms of time savings tend to be short-lived. Similarly with public transportation. 'Well, let's build more public transportation.' Well, that has a short run effect. But eventually it encourages people to live where the stations are; and that then crowds out other roads around there. And if it frees up people from the main roads, more people move in to be able to use the main roads. And you could say, 'Well, that's good,' because there are more people in the city enjoying the benefits of the city. And that's true. Which is good. Which is why sometimes you should build roads. Which is why you should build public transportation. But it's a cost/benefit analysis. But, the standard economist's answer of, 'Well, we should need to tax the roads,' to me is unacceptable and false. It's not morally obvious that taxing roads is a good thing. But it does then leave us, put us into no-man's land without an easy solution. What are your thoughts on that?
Michael Munger: I have a friend, Jason Scheppers, who works on congestion pricing for the state of Texas and a couple of universities in Texas. And I asked him just that question, Because I was confused, myself, that, 'Allright, you're so smart. What should we do?' And, his claim is that Newark is the city in the United States that is closest to having a congestion tax make sense. At some point, if you have enough congestion, you might be that you want to use this blunt instrument. But, in fact, most people pay the full average cost of being on the road. And the general equilibrium effects, which is what the fancy way of saying what you said, that people will take into account of the costs of having to commute. And they'll make location decisions that are based on that. Well, since that's true, the congestion tax is not an improvement. We're probably better off saying that we have a plan for the way that the--and by plan, I mean we have an announcement about this is that roads are going to be for the future so people can predict. They make location decisions. And yes, they pay, then, the amount of waiting costs that are involved in traffic. Congestion--there is no evidence that congestion pricing is an improvement in the way that it's often advocated for. And I have to admit, I was surprised at that conclusion. I've, I always accepted the economist's idea that it would be better if we priced for it. Now, let's--there is one caveat to that. If it were possible to have private roads--and I think this is an interesting question: it's too big to raise at the very end of our podcast. But: Why are roads public goods in the first place? Public goods are, have the two properties that they are rival in consumption, nonrival in consumption. And nonexcludable in provision. That is, it's difficult, it's expensive for me to charge you to use it. And, if you use some of it, there's no reduction in the amount available for someone else. Neither one of those things is true for roads any more. So, my private road, sort of unexpectedly be an alternative. So, instead of public roads with congestion pricing, private roads. And like you said: We'll just build another--on top of 5th Avenue, we'll build another road. Heh, that's 50 feet up. And well, okay; we're making stuff up. But private roads might be a solution. And a number of places have done that. Toronto, sold off one of its central arteries to a private company. Maybe it hasn't worked out very well. But the dynamic pricing mechanisms where you were able to charge something where you were covering the average rather than trying to focus on getting the right margin, might be an answer. So I think that's not a very satisfactory answer. That's the best thing that I could come up with. I've changed my mind about congestion taxes. I think they are a bad idea.
Russ Roberts: Yeah. I don't want to go too far on that point. I would say they are not a good idea based on the standard arguments that people usually make--"they are efficient" or there's a negative exernality. Again, the real--I think the reason the reason the intuition breaks down, for the economists in the audience, is that usually a negative externality is me imposing costs of everyone else, and not taking into acount. The driving is, everybody is imposing costs on each other. And it's not the same--it just doesn't go through the way it normally would. When I tell economists that congestion tax makes drivers worse off, they always laugh: 'Oh, you didn't do it right.' Because we always are in a case where I impose an externality on someone. Pollution, say. Well, then the people who were breathing the air are better off. Yeah, they are. It's not the same kind of--it doesn't work that way. It's not same. It's not analogous. I think that's one point to make. But coming back to your point about private roads: I think you are ultimately getting into the same challenge there because of the existence of transaction costs. And I'll say what I mean by that. If we took the Beltway--which is the 495 that goes from the City of Washington, which is horribly congested numerous times during the day--sometimes on a Sunday afternoon at 3 o'clock, even, but certainly with great regularity at rush hour on weekdays. And we said, 'We're going to sell this to a private person. A private entity. And we're going to let them put a toll on it.' Well, they would put a toll on it for sure, because it's cost effective, the technology. So, to get on the road you'd have to have the box or the EZPay pass, whatever it was. And then they'd charge. And they'd be able to extract money from all of us who had made our decisions already about where we live. And to get around. And they would make a lot of money off of it. And they would presumably--they would set the fee--I think this is true, we'd have to think about this more but I think it's a result, standard result--they'd set the fee so it wouldn't be [?]. So, at times--they would charge, all the time, but they would particularly charge a lot when it was high demand. Say, rush hour times. Morning and evening, when people are going and coming back from work. Well, that's going to end up being efficient. Hmh, heh. Because, if they sold that to the highest bidder, people would pay a lot for the privilege to extract money from drivers. But we all understand that wouldn't be a nice thing. It wouldn't be a good thing. It wouldn't be attactive. Even if it were true that it got rid of traffic. Because of the opportunity to [?] price. And if you say, it's true, that drivers are worse off; but look at all the money that the government got from the auction. They can use that money to compensate the people who are worse off. Well, they could, interesting theory. But most of them won't be able to do that in a way that will actually work. And if you start thinking--well, they'll--I don't even want to explain why it's hard to do. But it's hard to do. So, it seems to me that the fundamental challenge is that getting to place to place--because you can't build 50 roads on top of each other at the same--tje second road isn't as easy to build as the first. It has to be above the first one. It has to have higher cost. And it's going to be ugly. So, there's no attactive--my conclusion to this is, I think, you just have to live with the fact that when a lot of people want to live near each other, there's just going to be congestion. And there's no way that, as smart as we are as economists--we're somewhat smart--we can't "solve that problem" through pricing or private ownership. The standard ways we solve problems. It's just the fact that there's a bunch of people trying to live near each other and they pile up. And there are ways to make it a little bit better. I'm open to the possibility that HOV lanes maybe are an improvement. Or, maybe it's possible that a congestion tax could be a good thing. But, you and I would be the first to point out that there's no reason to think that the government is going to set the prices arguably to efficiency. It is just a tax. And once you say it's a tax, the level that the tax could be set by the political process, not by the engineers who have somehow solved that credible set of informational challenges you mentioned earlier.
Michael Munger: I'm afraid there's no way around that. And so, I raise private roads partly tongue in cheek. Because, one of the tests that I always propose to the people, is they have some idea that' 'This is the way that markets are failing. And I could do it better.' 'All right. Well, why don't you do it? You could start one yourself. There's a tremendous profit opportunity.' As far as I know, there are no examples of major cities where a private company has come in and said, 'You know, we are going to pay all the costs; we are going to borrow the money.' I'd be interested to know if there were any of these. But, 'We're going to borrow the money; we're going to build a road'--and we're going to, and it's an alternative to the existing road structure. And then, 'We're going to charge for it.' So, I don't think that private roads in the usual sense are actually viable. So, while I changed my mind about congestion tax, it might still be the best solution that we have from a bunch of imperfect ones. Recognizing all of the difficulties that we've brought up. But, you might very well persuade me that a congestion tax that works in a way that we haven't yet specified might be the best thing that we could do.