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The Solution to Traffic Problems

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Tags Big GovernmentFree MarketsTaxes and SpendingU.S. EconomyEntrepreneurshipProduction Theory

05/11/2001Christopher Westley

Cornell Univerity’s Robert H. Frank has come up with a novel explanation for increased traffic congestion in a recent op-ed in the New York Times, and it’s very simple, you see.  The problem can be blamed on increased income inequality.

Frank’s explanation is based on something he calls the Aspen effect.  "Greater Aspen," he tells us, is now fifty miles around the city limits of the Colorado city.  Many of the wealthy are attracted to Aspen, and they require low-wage workers to staff the area’s restaurants, ski resorts, health spas, and other attractions.  Since these workers cannot afford to live in Aspen, they have to commute, and this causes traffic congestion.  "As a result," writes Frank, "all roads into Aspen are clogged morning and night with commuters, many of whom come from several hours away."

The Aspen effect has been multiplying in the many U.S. cities in which income differences have been pronounced.  The solution, Frank sheepishly tells us, is to reduce income inequality by removing tax cuts from the budget.   

If you are confused at this point, then you obviously have never studied economics at Cornell.  Let’s put the argument into plain English.  The government undersupplies roads, while throwing pitfalls in the way of private efforts to provide them.  (The firm that produced the recently opened Greenway private road in Virginia paid over $50 billion before being allowed to begin construction.)  

The lack of roads soon becomes a textbook example of market failure—i.e., the primary argument for government intervention is that the state should supply those goods which are valued by consumers but which would be undersupplied if their supply was left to private markets.  This is the argument for public libraries, national defense, and highways.  

But since the state always perverts the distribution of the goods it produces because it is free from profit-and-loss considerations, it either underproduces or overproduces these goods relative to the quantities that would have resulted by the market, and it does so in a more costly manner.  It is a mystery why we don’t insist on private distribution of more goods and services.

It’s not a mystery why academic economists don’t see the state’s role in causing road congestion.  The mainstream of my profession views markets as inherently unstable, while viewing the state as having inherently good intentions and being essential to correct the market for its shortcomings.  It is accepted as gospel, dating back to the Book of Samuelson, that markets would normally underproduce roads; hence, following the public goods argument, the state must provide them.  This benign view of government represents a serious shortcoming in the mainstream’s perspective.

Since Frank’s theoretical limitations impede him from blaming the producer for the problem, he blames the consumer.  His scheme involves increasing taxes on upper income earners, forcing them to be content with his definition of an acceptable level of income.  Then, presumably, these individuals wouldn’t demand as many of the services provided by low-wage workers and that would result in less congested roads.  Moreover, the poor would have less reason to clog the roads since they (i) no longer have work in places like Aspen, and (ii) are recipients of involuntary exchange with the rich.

Some thoughts:

First, since potential disposable income is reduced under such a scheme, the rich will engage in less productive activity, resulting in fewer employment opportunities for low-wage workers.  This increases the likelihood that low-wage workers will become dependent on the state.

Second, Frank’s argument is another classic example of blaming productive members of society for the government’s shortcomings.  The lack of private alternatives to public roads is a scandal, but the blame lies in its own regulatory scheme meant to reduce private alternatives and to promote massive federal transportation projects.

Finally, let’s fight cavalier arguments that traffic congestion results from income inequality--unless the solution involves abolishing the U.S. Department of Transportation (which spent $47 billion in 2000) and its regulations that limit road production.  By allowing individuals to invest the resulting savings as they wish, the level of voluntary exchanges that take place in society will increase, and all income groups will be better off.

And, presumably, many would invest in private roads.


Contact Christopher Westley

Christopher Westley a professor of economics in the Lutgert College Business at Florida Gulf Coast University and an associated scholar at the Mises Institute.

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