Shall We Continue in Sin, So That Grace May Abound? God Forbid.

I used to blog sometimes about how many things we call "public goods" really aren't. People label things they like "public goods" because it eliminates opposition of the public provision of these goods. So folks call all sorts of things "public goods" which are not public goods: education, health care, etc. Actual public goods, which are both non-excludable and non-rival in consumption, are pretty rare. I stopped harping on this because I thought I'd made my point and nobody else seemed to care.

But now I see Mike Munger twisting himself into knots over whether roads are public goods, so I'd like to revisit the topic. Munger's conclusion is that roads are public goods, kind of, sometimes. But not other times. He reaches this conclusion by comparing the marginal cost of use under different scenarios: if the addition of the marginal car has a zero (or near zero) impact on the cost of the using the road then it is a public good; otherwise it is not.

This is mistaken in the same way that it is mistaken to say that the "Tragedy of the Commons" is a story about externalities (or public goods). A public good is not defined by comparing the cost of additional units of consumption at various margins. For true public goods the marginal cost of additional unit of consumption is negligible at all margins. That is the definition of a public good: increasing consumption does not reduce the amount of consumption available to others. When we compare costs at varying margins all we're doing is talking about relative levels of scarcity. Public goods are not, cannot, be sensitive to scarcity.

To understand where this logic ends consider that under Munger's definition -- public goods are good, and less-used roads are the most public goody of all roads -- we should build a bunch of roads (and bridges) to nowhere. Almost no one will use them, so the marginal cost of an additional vehicle will be the closest to zero that it can possibly be. Let's start building!

This is the sort of absurdity for which Saul of Tarsus admonished the early church in Romans 6: if God's grace is good, and grace is only extended to cover sins, then should we sin as much as possible in order to maximize grace? Of couse not. Similarly, we should not build roads which will not be used.

Roads are excludable: to use them you must possess a motor vehicle as well as an assortment of licenses and insurance contracts which permit you to operate that motor vehicle on that road. You and your vehicle must also physically be in the place where the road is. Roads are also rivalrous in consumption: the more people use them the fewer additional people can use them without congestion. Roads are therefore not public goods. Ever.

It does not necessarily follow that there should be no public provision of roads. Just because something is not a public good does not mean that there is no reason for public provision of it. There may be a case which can be made on consequentialist grounds that collective action (via taxation) to provide a non-public good is justifiable. I believe that many roads will pass this sort of cost-benefit test. But this case needs to be made on its own merits.

And if we make that case on its merits, we will likely come to the opposite conclusion of Munger: scarcely-used roads in rural areas are the ones which should be tolled/taxed. Why? Because the case for public funding of roads is not that they are public goods, but that they increase efficiency by reducing transaction/transportation costs. They function like a utility in an environment where a monopolistic market structure is likely to be more efficient than a competitive market structure so long as the monopolist is not a profit-maximizer (i.e., where the monopolist's producer surplus is redistributed to consumers, i.e. where the monopolist is a government -- subject to an electorate -- rather than a firm). Those efficiency gains will be highest when and where the roads are used the most, and lowest when and where the roads are used the least. Public subsidization should be highest where there is the most potential for efficiency gains. This occurs in the busiest areas.

If we see lots of congestion on some roads that is a signal that we should build more roads there. Not to make roads more like public goods (by reducing the cost of the marginal unit of consumption), but to try to reap the social gains from whatever economic activities are causing the congestion. If we cannot build more roads (because there is no empty land, say) then we should build some other transportation network, like bike paths or subways, to allow people to engage in productive activity more easily. The positive spillover effects from such investments are more likely to pass a cost-benefit test than in a rural area.

I'm not opposed to congestion pricing in general, but we need to recognize congestion pricing for what it is: a tax on productivity. People don't drive into Manhattan during rush hour because they enjoy it. They go through that nightmare to get to work, often in high-wage/high-productivity sectors of the economy. I'm not sure why we'd want to discourage that.