But who WILL build the roads?

This is a long post. I resisted the temptation to break it up for digestibility, it works better as a complete thought.

Given that the name of this blog is But Who Will Build the Roads, it seems fitting that one of the first (and longest) posts here addresses the issue. To clarify the question: when advocates of privatization of government services question the morality or practicality of services that government now “provides” to the public, they often hear the response “but who will build the roads?” It is such a ubiquitous question that it has become a sort of running joke among some economists and other privatization advocates.

However, it is an understandable question in a world where a large segment of the population is composed of people who were born after the establishment US Department of Transportation in 1966, and therefore during or after the construction of the Interstate Highway System. These people have lived all or much of their lives in a world where roads are predominately built by government.

I could answer the question “if there is no government, then who will build the roads?” with “if there is no slavery, who will pick the cotton?” Let the implications sink in.

I feel that responds to the question fairly, but I’ll do more than that. In this post I will address the morality of state-funded roads, the pragmatism of allowing the state to build roads, whether we need government to provide roads, and some possible (but by no means definitive) ways the private sector can build roads and perhaps do it better than government at a lower cost to drivers.


Morality:

It may seem odd to view public road building as a matter of morality. My family owns some land in the northwest part of Colorado. It is land-locked, and surrounded on all sides by private owners or national forest/parks. There are no roads that lead onto the property. If we wanted easy, convenient access to the property, would it be right to force the adjacent private owners to pay for it? Would it be right to attempt to have the US Forest Service pay for it? The answer to both questions is (probably obviously) no. Clearly the private owners in the area have no responsibility toward us in that regard, and trying to force them to pay for our road would be morally wrong. But what about the US Forest Service? That agency presumably has lots of money, and behind it is the federal power of taxation. Even in this case, it would be wrong. Even if the US Forest Service were willing to pay, it would be the same as asking all tax-payers to pay for our road. That is not fair.

Extend the moral here to the country at large. Right now taxpayers pay for some roads they never or may never use. I pay for the interstate highways on the east coast, where I probably will never visit, and people on the east coast pay for interstate highways on the west coast, where they may never visit. If it is not fair to force individuals to pay for my road on a small scale, how does the increased scale all of a sudden ascribe moral high ground to those who force individuals to pay for roads on the large scale? It doesn’t. And, if you dig deeper, one might see that the way individuals are forced to build roads is through involuntary taxation. (There are probably people out there who happily pay taxes and would pay them even if they didn’t have to, but my guess is that they are few in number.) That’s theft, another immorality.

One might argue that people pay for roads they do use as well. That’s true. But should they be forced to pay for them whether they use them or not? How is it not more fair to have people pay for roads based upon their level of use? They pay nothing if they don’t use that road at all, and they pay increasing amounts commensurate with their use.

The basic evil associated with government roads is that they are coercive. And coercion is evil. We don’t have a choice other than to pay for them because if we don’t we get put in jail. People may be seduced by the idea that it’s a necessary evil. First, I’ll show farther down that it’s not necessary, and even if it might seem to be so, since when do ends justify means?

There is no morality in government roads.


Pragmatism:

Consider the following:

  • Why does road construction take forever?
  • Why do we see road crews standing around?
  • Why is it so hard sometimes to get roads repaired?

The proximate cause is because the employees of the Department of Transportation (and other related agencies) who are directly responsible for the above have no incentive for speed or efficiency. If they don’t use up their budgets in equipment and wages, then they often lose it the following year. Whereas, if they exceed budget, then they have a reason to ask for more the following year.

The ultimate cause, is because there is no competition. Government experiences no significant competition in road building (people hate private toll roads right now, I’ll discuss why farther down). Government is sometimes said to a have a natural monopoly on road building because of the costs. This is ridiculous because the costs come from the people, which is where it would come from if roads were private. In addition, costs would be lower without government bloat.

However, the state does have an effective current monopoly on roads, which reduces or eliminates its incentive to do things any way than what it’s currently doing. Why go quickly when they’re not facing any real repercussions (like a competitor building a road faster and “stealing” customers) for going slow? Why supervise the road crews better so there’s not so much downtime when they don’t have to worry about managing costs well in order to be competitive? Why bother repairing the roads in a timely manner when there’s no competition to make you look bad by better service?

That is the real reason why those problems exist, and is the reason construction of roads by the state will never be the most satisfactory solution, and therefore will never be the most pragmatic solution.

Note: For more on the morals and practicality of privatization of roads, I highly recommend economist Walter Block‘s video titled “Privatizing Roads“. I have to say that he actually makes the argument better than I do.


Do we need government to build roads?

Sometimes, when I suggest that we don’t need government to build roads, people sort of act like this. When in fact, this is more accurate. (The second link is from the movie Office Space. The link depicts a scene where a consultant has been brought in and requires people to explain why they’re valuable to the company. In the image, the text is changed to fit the context of road-building. This is called a meme.)

Statists often counter the privatization argument with Somalia. The popular consensus about Somalia is that it is a real-world example of what true anarchy looks like. I question that, but lets take it at face value. No government. Everyone is just running amok with no order or anything. Well, here is a map of Somalia (Mogadishu in specific). I see roads, do you? Here’s a WikiProject of Somalian roads. For thoroughness’ sake, here’s a Bing Map of Somalia. I see roads again. How did these roads get there if there’s no government? Somalia is held up by statists as the manifestation of all of their worst fears of libertarianism. Yet there are roads there. They didn’t just disappear as soon as that part of the world went crazy.

Think too of all of the private roads you’ve probably been on. Many private communities have private roads. They tend to be nicer than the road you took to get to the community. In rural and suburban communities even today there are signs marked “Private Road”. Perhaps you’ve seen on Google maps the warning that says the route takes you through a private road. Maybe you’ve even seen the roads named after someone in the community where that person is. Likely as not, they built that road at some point in history.

Think of the toll roads. I hate paying tolls in today’s world. I don’t hate the toll in general; I hate it because if I want to use the road and pay the toll, there is no corresponding decrease in taxes owed for the public road that I didn’t use because I used the private toll road instead. In Colorado, where I live, there is a toll road called E-470. It receives no state or federal funding, but is instead controlled by eight local governments (more on why this works in a bit). It is not perfect, but it operates in a very similar way to a private toll road. It is annoying to pay the toll without getting a tax deduction. However, there are many benefits that perhaps would endear us more to the concept of private toll roads if we didn’t still have to pay taxes. (See the “Short History” section of this page to find out why E-470 was needed.)

  1. E-470 has free 24/7 roadside assistance. This includes changing flat tires, out-of-gas assistance, radiator refills, engine oil refills, battery jump-start, and cell phone service.
  2. E-470 has higher speed limits (75 mph vs 65 mph along the same stretch) with fewer accidents than I-25.
  3. E-470 has less traffic. I used to commute from Boulder to Greenwood village. I could take I-25 for approximately 30 miles and get there in an hour and 20 minutes. Or I could take E-470 for over 60 miles and get there in half the time or less.

That sounds good, right? Imagine how good it would get if there were no taxes to pay and E-470 actually had real competition!

The road isn’t perfect. The signs are confusing. Often, I hear about people accidentally getting on the road before they even knew what was happening and then owing a toll. These are all problems that would be resolved with competition. If E-470 was confusing and sneaky, and Jordan’s Road was clearly marked and easy, which would people like more?

Note too, that government doesn’t actually build roads. They just figure out as best they can (none too well, often) what work needs to be done, and then hire the cheapest possible crew to do the work. Anyone who has done government contracting is familiar with that process (unless they have a connection, then perhaps they can charge more and still get the contract).

This is a summary of conversations I’ve had:

Me: “We don’t need government for services.”

Well-meaning Statist: “But who will build the roads?”

Me: “Good question. Who actually pays for the roads now?”

Well-meaning Statist: “Well, the people do through taxation.”

Me: “So people are willing to be taxed for roads because they want to have good roads?”

Well-meaning Statist: “Most of them besides you, yeah.”

Me: “And after the taxes are paid, who actually builds the roads?”

Well-meaning Statist: “Probably the Department of Transportation [sic usually, it’s private contractors hired by the DOT].

Me: “So it’s just people who are building the roads in the end?”

Well-meaning Statist: “Sure, we’re a government for, of and by the people.”

Me: “So there are people out there willing to pay for roads, and people out there willing to build roads. The whole thing is organized and carried out by people. So how is ‘government’ essential to the process?”

It’s not; governments and business are both organizations composed of people, so there’s no reason to believe that a private company can’t do it if government, in all its non-competitive inefficiency can do it.

In fact, government in this case is simply acting as the middle-man for road builders and road consumers. They find consumers (tax-payers) and then give money to builders (who also happen to be tax-payers and to a certain extent are paying their own salaries). People sometimes hate middle-men, but there is actually an economical argument to be made for them, so I’m not criticizing government roads because government is a middle-man . I’m saying that because all it’s doing is act as a middle-man, it brings nothing to the table that private organizations can’t likely do better. Businesses have also been operating as middle-men for as long as governments. Take a read at this final example for this section:

Disney World: they build and maintain their own roads (aside from Interstate 4 which goes right through the property). Have a look at all their roads. The legend even mentions a monorail beam, though I can’t see it on the map. This is an example of a private company building its own roads. Why would they do such a thing? Because it makes things convenient for visitors. And if things are convenient for visitors, Disney will make more money. Incidentally, Disney takes care of its own security, has a fire department and maintains its own gas, sewage and power lines, all without government.

We don’t need government to build or maintain roads.


Private Solutions:

Caveat: I don’t claim to know that any of these solutions is best. It’s all academic for me because I’ve never faced this. Necessity being the mother of invention, the best solutions will be discovered once roads are the purview of private industry.

One private solution for roads is something that I’ve already touched on. There are times and places where individuals might pay for their own roads, which is the prospect we face with our land in northwestern Colorado. If someone goes out and lives in the boonies, what right expectation can they have that anyone be responsible for a road to get out there other than that person? An internet search reveals that there are plenty of cases of people building private roads in the US and abroad. Here is a resource created by the University of Georgia: The Layman’s Guide to Private Access Road Construction. Timber Home Living provides a guide to avoiding the pitfalls of private road ownership. Even the federal government provides a guide to building private access roads. This shows that people are already doing this, which is proof of concept.

I promised I would talk about why the E-470 works, when it is paid for by governments. It is proof of concept that (relatively) small communities can pay for their own roads without someone taking away their money by force. HOAs pay for roads. That’s another proof of concept. If a community exists and needs roads or road maintenance, whether they have those roads or not will be directly proportionate to how much people want them. If someone wants them sufficiently, then someone will be willing to pay for them.

One of the concerns that many have with community-paid roads is how to force free-riding members of the community to pay for roads or road maintenance. The problem is that people with that concern are still thinking in terms of coercion as opposed to market incentives. The would-be free-riders don’t have to pay for private roads to be built if they don’t want to. But if they want to use it you better believe one solution is that their road maintenance toll is going to be much higher than the toll paid by people who paid to build the road (or perhaps the contributors to the road don’t pay maintenance fees at all for X years). That’s only one solution. Others would probably present themselves as necessity arose. Here is an example when this has happened in real life, relatively recently.

In a new community, HOAs and construction companies could build the roads out to the community and within the community, as an incentive to buy the house. Costs of building and maintenance could be recuperated through an increased purchase price (which would likely be more than offset with tax savings, no license and permit costs etc. if there were no government), and possibly through HOA fees or tolls. (I hate HOAs, and I’m not married to them; again, this is just one idea to show that the concept could work. I’m not advocating HOAs.)

Property developers would have an incentive to provide plumbing, connections to water, electricity, and roads (that connect to towns, schools, jobs etc.). They often build all of that anyway, and would do the same if government didn’t “build” roads. What do real estate agents talk about? They talk about how close the community is to everything, how easy the drive is to stores, how great the schools are. All of those incentives would still exist even if government weren’t involved.

Interestingly, some people in third-world countries think nothing of a lack of government funding for private roads, and assume that it’s the responsibility of the village to build any roads that it wants. It’s almost a “first-world-problem” to think we can’t have roads without government.

Building roads from one community to another, or from one business hub to another would likely not, however, be something the individual or even the community would pay for in most cases. This would be something businesses would pay for, either alone, like Disney World, or as a group. It would be a business investment. “Trade” with other communities or business hubs is economically preferable to being limited to business within one’s own community.

Again, this is just one possible solution: companies could potentially cooperate to build roads and other infrastructure. Companies who invest in road construction would be partial owners, which would allow them free or reduced cost of access to the road. There is precedence to companies working together on projects. Companies in the automotive industry work with competitors all the time. This is a way to voluntarily share costs and risks, as well as benefits.

It is even conceivable that entrepreneurs could create road building companies that cater to businesses who want to expand their commerce, just like shipping companies do now.

Another concern that people bring up is being denied access to the roads. First of all, if you don’t own the road, then you really don’t have an actual right to use the road. No one has a right to have roads provided to him or her. However, for most private roads that aren’t just leading to people’s houses on their property, denying access to roads is extremely unlikely, because it’s unprofitable. It is in the best interest of the road builder (be it private individual, entrepreneur, a community, a corporation or a group of communities or companies working together) to allow as many people to use the road as possible in order to recuperate costs of building and maintenance and even possibly make a profit. Not making a profit on the road itself though is not necessarily a deal breaker, however. If the group of companies making the road are able to realize greater profits through increased trade, despite the cost of building and maintaining the road, then they will still build it.

Stefan Molyneux, a philosopher who started a website called Free Domain Radio, is a bit of a self-important jerk. However, he makes a good point about having for-pay private roads versus the “free”-use roads we have now. I don’t know how to come up with an actual figure, but try to imagine all the pollution caused by vehicles on the road. This is in part due to free-use roads. The cost to use the roads is so dissociated from the use that it seems free. That fact has engendered a culture of driving that would have been curtailed if we all had to pay every time we went out on the road. Every 2-minute drive to the store that could have easily been walked or cycled, had there been a financial incentive to do so, contributes to the levels of pollution we have today. (Imagine how much better shape we’d all be in, too.)

I know people hate tolls. Aside from the fact that I think people would hate them less if they got a deduction in their taxes for paying the tolls (due to an ostensible commensurate decreased use of public roads), tolls don’t even have to be used in every case. Think of websites. Most don’t charge you simply to access the site. The traffic itself generates profit due to advertising. The hopes of making a sale on the site also makes it worth it to host the site. This can work with highways as well. People who want to advertise on the roads in order to appeal to the traffic can pay the road owners to do so. If the road gets lots of traffic, advertisers will pay to advertise there.  If the road owners have a reputation for making roads that people want to use for whatever reason (perhaps because of the service, speed limits, destination, traffic levels, road quality, who knows), then advertisers might even contribute to the cost of building and/or maintaining the roads in exchange for advertising rights for a certain period of time after completion. Lots of people hate advertising as well. Advertisers would have to figure out a way to be unobtrusive or people might avoid the road. Additionally, road builders would need to be sensitive to their consumers. In Boulder, for example, most people would hate advertised roads and would probably prefer a toll or another solution we haven’t thought of. In New York, it might be different.

Insurance companies might potentially provide incentive funds to road-owners to get them to maintain the roads, as having sound roads could help prevent accidents and cost the insurance companies less in the long run.

There could be options to pay for special perks on the roads. Perhaps there could be priority lanes that one can pay to drive in and drive as fast as one wants (or at least faster than everyone else). Combining this with advertising would likely work out better for everyone. This is similar to how allowing access to a website to everyone, advertising and having people pay for premium content as opposed to having a paywall works better for everyone, including the website owner. Another example that proves this concept is software, especially phone apps. There are thousands of free apps out there that reserve premium functionality or content for those who pay for the app.

Private solutions can work.

Conclusion:

I know this was a long post. My goal is to be around 2000 words and I’ve written almost double that. Perhaps I’m not a concise enough writer to do this topic justice in only 2000 words.

To summarize, government roads are immoral because they rely on theft to function. Government roads are not pragmatic because they have no competition and therefore no incentive to do a good job. There are plenty of examples of private roads even today. There are plenty of potential ways that all roads could be private.

 

On the Minimum Wage

I’m not an economist. However, I love economics, which is perhaps why my sister, who asked me a question about minimum wage, suggested I start this blog.

She had read this very good article on fee.com, which presented the idea that minimum wage was a way for eugenics proponents of the last century to eradicate “undesirables” using public policy.

My sister asked me how minimum wage could possibly harm the poorest of a population. While I had never before heard the claim about eugenics (read the article and come to your own conclusions), I am familiar with minimum wage.

Here is the response I gave her, edited a bit for clarity, conciseness and continuity:

When people conclude that the minimum wage will help the poor, it is at first glance, a reasonable conclusion. If the poor make more money, then perhaps, hopefully, they will have enough to provide for their needs (perhaps I’ll discuss what needs are in another post). If, for example, the minimum gross income needed is 16 dollars an hour at 40 hours a week, and that is what the minimum wage rate is, then things are great, right?

Think about what would happen if there were no minimum wage at all, which before the Fair Labor Standards Act of 1938, there wasn’t.

Employers could hire people for less than what they do now.

An extremely unskilled person, or someone who seems in today’s world to be unemployable or “undesirable”, could potentially get hired for… a dollar an hour lets say. If the would-be employee voluntarily accepts the job and the business owner is fine with paying a dollar an hour, who’s to say it’s not a fair exchange for the value the worker contributes?

However, if the government makes the minimum wage four dollars an hour, despite the fact that the market said that some employees really only did work that was worth a dollar an hour, then employers have to make a decision. They’re now required to pay 400% the wage they used to pay those people. Is it worth it to them to pay that much when they really only bring in value that’s worth a dollar an hour in exchange?

Depending on the job, the profit margin the business has, and other factors, perhaps the business owner can say “ok, I was paying them a dollar an hour and they were making me 9 dollars an hour. Now, if I pay them four dollars an hour, I’ll still make 6 dollars an hour…still worth it.”

However, are they going to keep that specific employee? Are they going to hire similar employees going forward? If they have to pay a wage that’s 400% what it used to be, savvy business owners are going to be more picky about who they choose to hire. They will need the extra expense to be worth it. If the original cost was one dollar, and the profit was 9, imagine when the minimum wage gets up to 10 dollars an hour. If employers aren’t proportionately picky about who they hire as the minimum wage increases, they will reach a point where continuing operation will be financially impossible. Unless they have employees that are so much better that they’re able to bring in more than the “one-dollar-an-hour and four-dollar-an-hour” ones were, the employer won’t make any money (since in our example it was (1 dollar out in wages for 9 in in profit, or 4 dollars out in wages for 6 dollars in in profit). If they have to pay 10 dollars out in wages, the employee who was profitable when he made 9 dollars an hour for the employer is no longer profitable. He is no longer fiscally a possible person to hire, because he isn’t skilled or efficient enough to bring in more than 10 dollars in return, and the employer will lose money and/or go out of business.

Note: An employer could certainly choose, out of the goodness of his heart, or for some other reason, to continue operation while losing money. There are even some cases where that is preferable to going out of business (see here). However, it is unreasonable to expect most employers to do this long-term, and immoral to force them to do so. If it’s immoral to force people to work (slavery) then it’s immoral to force people to provide work (also slavery).

Therefore, when a minimum wage is put into place, or when it’s increased, it makes the people who are less marketable* the people who will lose jobs because not only will employers likely have additional costs (in training, special accommodations etc) in general, but as the minimum wage narrows the gap between cost and profit (or even total revenue) employers are only going to hire people who have more skills, and are therefore able to produce more or more efficiently.

There have been numerous articles, reports, and research papers written by economists on how raising the minimum wage (since we’re already past implementing one in the first place), hurts the poor (usually the ones with the fewest skills or for whatever other reason are difficult to employ) the most. See below if you’d like to read some.†

A modern-day example of this is McDonald’s considering, or perhaps they’re even past the consideration phase, automating some of the functions in their “restaurants” because minimum wage is becoming so expensive that in the long run the immediate increased cost of developing and buying all of the automation equipment will be offset in the short enough long run in savings from not having to pay such a high minimum wage, pay for health insurance, pay for workman’s comp when people get injured, etc.

*These are people with the fewest skills or who are for other reason not desirable, E.g. people with mental, emotional or physical disabilities, alcoholics/drug addicts, or people who are difficult to get a long with or work with for whatever other reasons.

In conclusion, minimum wage is bad for everyone. It is bad for the poor because they won’t get hired. It is bad for the middle class because inflation caused (something not discussed in this post) by the minimum wage will make things more expensive for them. It is bad for business owners because they will not be able to afford to hire people and still be profitable.

The Minimum Wage is Cruelest to those Who Can’t Find a Job – James A. Dorn, Senior Fellow at the Cato Institute.
The Negative Effect of Minimum Wage Laws – Mark Wilson, Economist at San Diego State University.
Repeal the Minimum wage – Art Carden, Economist at Rhodes College.
Minimum Wages: A Poor Way to Reduce Poverty, Joseph J. Sabia, Economist at San Diego State University.
The Effects of Minimum Wage on Employment Dynamics – Jonathan Meer, Economist Texas A&M, and Anthony West, Economist at MIT.
Let the Data Speak: The Truth Behind Minimum Wage Laws – Steve H. Hanke, at Johns Hopkins University.
Outlawing Jobs: The Minimum Wage – Murray Rothbard, Renowned Economist.
Rape and the Minimum Wage – Matt Zwolinski, Philosopher and co-Director at USD’s Institute for Law and Philosophy.
Does the Minimum Wage Hurt Workers? – Antony Davies, Economist at Duquesne University and Research Fellow at The Mercatus Center.
Unintended Consequences of Price Controls – Antony Davies, Economist at Duquesne University and Research Fellow at The Mercatus Center.
The Minimum Wage Hurt the Young and Unskilled… – Preston Cooper, Policy Analyst at Economics21.
An Economist’s 10 Objections to the Minimum Wage – Mark J. Perry, Economist at University of Michigan.
Minimum Wage, Maximum Automation – Adam C. Smith, Economist at Johnston & Wales University and Stewart Dompe, Economist at Johnston & Wales University.
Low-skilled Workers Flee the Minimum Wage – Corey Iacono, Economics student at Rhode Island University.
Minimum Wage Myths – Milton Friedman,Renowned Economist.