On Keynes, Marx, Krugman, Cowen, and the Possibility of Utopia Via Inequality

At the end of a good post on the shift of income shares earned by capital (more) and labor (less) in the US over the past few decades, Krugman writes:

I think we’d better start paying attention to those implications.

What implications?

[I]t makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won’t do much to reduce inequality if the big rewards simply go to those with the most assets. Creating an “opportunity society”, or whatever it is the likes of Paul Ryan etc. are selling this week, won’t do much if the most important asset you can have in life is, well, lots of assets inherited from your parents. And so on.  

I think our eyes have been averted from the capital/labor dimension of inequality, for several reasons. It didn’t seem crucial back in the 1990s, and not enough people (me included!) have looked up to notice that things have changed. It has echoes of old-fashioned Marxism — which shouldn’t be a reason to ignore facts, but too often is. And it has really uncomfortable implications.

As it happens, I've been writing about this for quite some time. It was the focal point of my criticism of Tyler Cowen's "Great Stagnation" hypothesis (e.g. 1, 2, 3, and others), which I said was a "Great Redistribution". Basically the question I'd like to answer is why mean and median incomes have diverged, as pictured in the graph above. A "Great Stagnation" hypothesis seeks only to explain the flattening of median income growth. But we haven't had a Great Stagnation, since mean income growth has continued, at least until the Great Recession.

A Great Redistribution view, on the other hand, says that the structure of the global economy has changed over the past 40 years in ways that benefit (US) capital and hurt most of (US) labor. Specifically, the rise of a low-skill labor force in the former global South has competed away wage gains from low-skill American workers, while the rise of a medium-skill industrialized labor force in places like the NICs has competed away wage gains from medium-skill American workers. Additionally, the rise of mechanized labor (via robotics, which prompted Krugman's post) shifts income from labor to capital. Take a look at this chart:

Wages are converging globally, and since the US had disproportionately high wages this is hurting American labor in relative terms. At the same time, the global market has expanded dramatically. This increases the return to high-skill American labor as well as the owners of capital, who can now sell their production to much larger markets. This is particularly the case for goods and services which are reproducible at essentially zero marginal cost: think intellectual property and entertainment. Since the "high skill labor" and "owners of capital" groups are not mutually exclusive, this shows up in the data as both a) increasing wage inequality, and b) increasing returns to capital.

This is the simplest story in the world... basically just stating comparative advantage, at a mix of sectoral and factoral levels. The fact that it's so novel -- even to someone with a Nobel Prize in international macroeconomics! -- is a point of evidence that our intellectual class is way too focused on explaining everything locally. The Great Redistribution view has plenty of implications for political economy at global and local levels, but it is essentially a rejection of many public choice arguments, which tend to emphasize capture of political institutions by bankers or other oligarchs as the fundamental driving force in recent trends in the American economy.

I'm not sure what Krugman means by "uncomfortable implications". It could mean that the fact that the economy is working the way the way it's supposed to is an inconvenient truth for those who think that our political economy is being wrecked by those who prefer public choice explanations. But I doubt Krugman means that. It could mean that the "Golden Age" of American labor that Krugman loves so much -- the 1950s-1960s -- was a historical anomaly, the result of specific contingent circumstances that are not likely to be replicated ever again (and would be tragic if they were, given that that arose because of two devastating world wars and a Great Depression). But I doubt Krugman means that either. It could mean that the technocratic neoliberal vision is a fraud, and that the politics of distribution is likely to dominate capitalist political economies for the foreseeable future.

In any case, as an example of this Krugman talks about "re-shoring", the process of bringing manufacturing production back to the United States. Krugman suggests that this will have no major effect on employment or the income accruing to labor, because much of this production is done using robots. I think he's right that the direct effects on labor and wages will not be much. The indirect effect could be much higher, however. Why? Because in order to have robots build things, you first have to have factories. Humans have to build those. And you have to have roads to transport the goods. Humans have to build those too. And you have to have shops where the goods can be sold. Humans have to work in those shops. The desire for human labor that is complementary to robot labor can support wage gains for the median worker. That may not be enough to overwhelm the relative redistribution from the median worker to the top 10%, but it can help the absolute numbers.

American labor can benefit in another way: by receiving more non-cash compensation. The trend in the US is to provide more years of subsidized non-work at the beginning and end of life -- longer periods of education, longer retirements as lifespans increase -- and more non-cash benefits -- subsidized health care and education -- in a somewhat egalitarian way. These programs are overwhelmingly funded by the top 10% of wage earners, who are the high-skilled workers and the owners of capital*. To the extent that goods are increasingly created by non-human labor they free up people to do other things, some of which will not be market work. We'll call that "unemployment" or "underemployment" but if we generate sufficient national income to guarantee minimum standards of living at a level that ensures human dignity it will function as quasi-early retirement.

At the same time, quality of life continues to increase rapidly as the marginal cost of entertainment, education, and other goods approaches zero as a result of advances in information technology. This gain is felt by the median member of society as much as the richest person in society, and is more valuable for those with more available time. In terms of maximizing valuable leisure and minimizing alienating labor the typical citizen might be doing better, maybe even much better, than she otherwise would even while the data continue to show that she is doing much worse.

If this is an equilibrium it will have some negative consequences, for sure. Among them will be a reduction in social mobility and an increasingly bitter political economy. But Keynes dreamed of a world in which the gains from capitalism were distributed in a way that allowed people to work less, and some people are still dreaming of it. Marx too: his criticism of capitalism was not just that it generated inequality, but that it created alienation as labor became routinized. Marx didn't care about social mobility... he cared about human dignity. So maybe the left should welcome our new robot overlords (and their capitalist owners) for bringing the vision of Keynes and Marx closer to reality. Instead of slaving away in factories we can all post kittens to Tumblr and write stimulating blog posts. Yeah, maybe it looks like inequality, but it could end up being Utopia.

*The US tax code is already pretty progressive, and is likely to get much more progressive over the coming years, beginning with whatever deal comes out of the fiscal cliff negotiations. At the same time, the US benefit system is one of the least progressive, but I expect this to change over the coming decades for political economy reasons. Ultimately it will be up to the democratic system to manage these structural shifts.

DeLong Smackdown Watch(?): Central Banking Edition

Brad DeLong takes Marco Rubio to task for not understanding how central banking works:

Rubio, you see, wants the Federal Reserve to stabilize three things: 

1. The path of the price level, 

2. The value of the dollar, and 

3.The level of interest rates.  

But you cannot do this. cannot stabilize the path of the price level and the exchange rate and nominal interest rates. Were we to confirm The One Who Is to chair the Fed, she could not do it.

If you stabilize the exchange rate--i.e., set up a gold standard and join it--interest rates and the price level will do their thing.  

If you stabilize the nominal interest rate, you will find yourself in either an inflationary or deflationary spiral.  

And if you stabilize the path of the price level, you will have to do some serious leaning against the wind with interest rates, and that will set the currency bouncing around.

This is true of the proverbial "small open economy" that macroeconomists generally model, and is therefore true for most actually-existing counties. But it is not necessarily true of the United States. Why? Because of the fact that in a world with n countries there are n-1 exchange rates. Whichever country controls the base currency has quite a bit more policy flexibility than all the others.

The United States is still that country, despite not having a formal exchange rate peg since the end of Bretton Woods. Other countries still conduct monetary policy with a view towards impacting exchange rates vis-a-vis the US dollar. So long as those countries are stabilizing (nominal) exchange rates, the US central bank can conduct monetary policy with an eye towards stabilizing the path of the price level and interest rates. Absent shocks on the real side, these are the same thing.

This is not what Rubio is saying... DeLong is right about that. What Rubio actually wants -- "The Federal Reserve Board should publish and follow a clear monetary rule – to provide greater stability about prices and what the value of a dollar will be over time" -- is a new way to criticize the Fed. But on its face this is not so crazy. It is what Scott Sumner wants: a stated 5% nominal GDP growth target. Others want some form of a Taylor Rule. The Fed itself actually has stated a goal of 2% long-run inflation. To the extent that the effectiveness of monetary policy depends on expectations, wanting a clearly-articulated policy is perfectly sensible.

If you incentivize it, will they come?

On Monday, I argued investment incentive policy is best understood within a political framework that takes seriously the electoral incentives state and local officials face. Looking through the New York Time's interactive database of investment incentives, it is striking how widely states vary in the amount of incentives offered. What explains this variation? One possible explanation is individual agency. Perhaps Texas has a very large incentive program because of the political influence of G. Brint Ryan; this is the implicit argument forwarded in the New York Times Investigative Series on Investment Incentives. Comparative political economists would point to institutional variation; differences in governance structures and how susceptible local governments are to corruption may explain the extent to which states pursue incentive programs.* Partisanship might matter too, although it is difficult to make the case that voters see incentives as clearly benefiting benefit at the expense of workers. Indeed, as I mentioned on Monday, experimental evidence suggests voters see incentives through the prism of job creation. This makes a partisan-based mechanism less plausible.

While people and institutions may help explain a portion of variation in incentive programs, I’d argue structural conditions are most important. (This probably won’t surprise readers of the blog – contributors here tend toward thinking about the world in such terms.) As I mentioned in Monday’s post, states and localities are working to attract jobs in a context of open capital markets. Consequentially, absent transaction costs, capital is mobile while labor is relatively fixed and this makes capital strong. Capital gets locational incentives because its exit option is credible. Labor, however, is captive so governments can tax it more. The problem with this view (besides the fact that suggesting governments face little pressure to reduce taxes on middle-class workers will get you laughed – and voted - out of Washington these days) is that the global economy, while open, is not frictionless. Transaction costs, or in network terms, negative externalities are important.

There is a large literature in economics on agglomeration effects – basically the idea that centers of economic activity form due to positive externalities generated by the success of a few enterprises.** In the 1950s, Detroit was perhaps the best example of one of these centers. Successful, large manufacturing enterprises require deep supply chains, preferably located with geographic convenience to reduce transportation costs and to decrease production times. Competitors often locate nearby to be better able to recruit management, design, and other knowledge workers. In network terms, when a fit enterprise center emerges, preferential attachment reinforces that center.

Today, thriving centers of economic activity in the US include New York City, the Silicon Valley, and perhaps even NC’s own Research Triangle Park. It is then not surprising that, according to the New York Times report, California is reducing its incentive program, which is already comparatively small at $112 per capita. New York and North Carolina have relatively low per capita incentive programs, $210 and $69 respectively. Compare that to the three largest incentive programs on a per capita basis – Alaska at $991, West Virginia at $845, and Texas at $759. Economic geography matters. The states with the largest incentive programs are those that either never generated large centers of economic activity, or whose centers have become obsolete as our economy has shifted from manufacturing to services.

Economic centers form due to a confluence of factors, some of which governments have control over and some that they don’t. Investments in education and infrastructure can provide a skilled workforce and inexpensive access to energy, telecommunication, water, and transportation networks. And, it is true that offering locational incentives may reduce governments’ ability to invest things that will actual increase their locality’s fitness. But, this ignores the fact that incentive programs are fundamentally designed undermine powerful network effects that concentrate economic activity. That is why they are so inefficient; because they are swimming against the current. Fitness is not the whole story – preferential attachment entrenches economic centers. So, incentives ultimately are big risks – if you are lucky, you may attract enough high-quality enterprises that you can build a thriving center. But, network dynamics are working against you.

* Nate Jensen pointed me to this particular NBER working paper , which finds evidence that corruption increases incentive programs.

**See here (firewalled) for a review.

Political divisions and currency (re)alignments

Last week, the U.S. Treasury (once again) declined to label China a “currency manipulator.”  The decision was followed by the usual refrain about the U.S. taking a soft line on China, to the detriment of U.S. manufacturing.  To some, it is inexplicable that the U.S. does not more directly confront China on the issue.  This is especially so in light of the substantial support in Congress for currency-related legislation.  See, for example, the fairly recent Currency Exchange Rate Oversight Reform Act (CERORA).  The Act sought to provide a number of avenues through which the U.S. could punish China if the yuan did not substantially appreciate against the dollar.  This high-profile piece of currency legislation was passed (only in the Senate) in 2011. 

Did the bill pit senators who represent manufacturing interests against all others?  Not really.  As the plot below indicates, senators from states with higher levels of manufacturing production as a share of state GDP were actually less likely to vote for the bill, on average.  

 

 

Work by a number of political economists provides an explanation as to why might this be the case.* Simply put, the exchange rate preferences of manufacturers are not homogenous.  Broad labels like “manufacturing” and “tradables”cover a lot of ground. Thomas has work showing that internationally competitive manufacturing firms are often not vulnerable to exchange rate based influences on competitiveness (Oatley 2010). Others have done (or are doing) research on the various firm/industry-level factors that determine how sensitive businesses are to appreciation and depreciation. For example, Broz and Werfel (2012) find that the extent of exchange-rate pass-through in an industry, as well as industry reliance on imported intermediate inputs, have an impact on their vulnerability to exchange rates.

These factors might go great lengths in explaining the apparent negative relationship between tradables production at the state level and senators’support for CERORA. (It is also worth noting that in a simple statistical model, state-level manufacturing production had a negative and statistically significant relationship with senators’ support for the legislation – even when controlling for other factors such as party, state unionization rates, unemployment, etc.   More on this to come.)

In short, exchange rate preferences are a lot more complex than popular portrayals suggest.  The political wrangling on the CERORA bears this out.  The voices that diverged from the hardline “undervalued yuan = unemployment = America’s immediate decline” story were not insignificant ones.  Speaker John Boehner vocally opposed the law.  David Camp, chairman of the Ways and Means Committee, indicated that a currency bill was not a priority for 2011.  And, President Obama suggested that the bill was not the best way to handle dollar-yuan misalignment.  As it turns out, these individuals have a fairly significant role to play in determining the fate of any currency realignment legislation.*

*Oatley, Thomas. 2010. “Real Exchange Rates and Trade Protectionism.”
Business and Politics 12 (2): 1-17.

 

*Broz & Werfel. 2012.  available at:  http://dss.ucsd.edu/~jlbroz/pdf_folder/ wip/broz_wefel_resubmission_071712.pdf

*In fact, because of this clear opposition at the tippy-top, the Senate's vote on this legislation was often considered to be "symbolic."

Can I Have Some Politics With My Investment Incentives?

On Sunday, The New York Times unveiled the first of a three part "investigation" of investment incentives in the United States. The story has generated a lot of media chatter, and caught my attention because I actual study investment incentives, albeit within the context of developing non-democratic regimes. I plan to write a series of posts directly engaging with the Times reporting, and I want to start with a short post laying a critical framework.

The report finds that states and local governments in the U.S. provide, on average, a combined $80 billion in investment incentives each year. The author, Louise Story, frames the issue as a tradeoff between incentives and broad-based government spending; investment incentives amount to a transfer from workers to businesses. Today, the second part in the series focused on Texas's incentive program (it's the biggest in the country), and blames its excess on the close relationship between a tax incentive consultant G. Brint Bryan and basically every elected official in the state of Texas. Tomorrow's installment will focus on incentives for the entertainment industry.

As someone who studies this stuff, I'm glad it's receiving national attention. The New York Times released a database cateloging the investment incentives, which I along with many others will be glad to use for our own research purposes. Yet, there are some real weaknesses with Story's analysis. And, while she mentions economists who have concluded incentives are inefficient, she never once sources good work in political science about the political motivations for providing incentive packages.

The closest Story gets to a political explanation for incentive programs comes when she mentions academic research that concludes incentives are inefficient:

One, [economist]  in Minnesota, used mathematical proofs and game theory to show that competition between states did not increase overall economic value. Several other economists have since called the practice a zero-sum game. 

Okay, let's unpack that a bit. Incentives inherently are inefficient because, best case, they induce a company to invest in a location that it otherwise wouldn't because doing so without the incentive doesn't make financial sense. If investing made financial sense, a government shouldn't need to offer an incentive in the first place. But, of course, the investor-government relationship doesn't exist in a vacuum. States and localities (not to mention other countries) are all trying to entice companies to invest within its borders. So, capital has leverage because it is mobile and governments will engage in competition with one another for the investment, ratcheting up the value of incentive packages. Story takes this as evidence that incentives are bad and should be curtailed. As a political scientist, the inefficient outcome is the starting point because it is puzzling: Why do governments offer incentives when they are inefficient? Story's answer seems to be "because tax consultants have corrupted the halls of power." This is an incredibly unsatisfying answer. Why did the tax consultants get so much political power in the first place? Why can't politicians just freeze them out?

Indeed, there is actually a decent amount of work in political science devoted to understanding incentive programs and policies toward foreign investment. Nate Jensen has a really neat working paper along with several other authors in which they use experimental data to show that U.S. voters reward governors who offer firms incentive packages and punish those who don't. Sonal Pandya finds workers, and in particular skilled workers, are more inclined to support efforts to attract foreign investment. At a global level, the lack of an institution governing investment policies is routinely pointed to as the source for recurring prisoners' dilemma-type dynamics. Politicians provide incentives because the localities with which they are competing for investment provide them and because their constituents reward them for doing so. You don't need a story about corruption to understand the dynamics perpetuating incentive programs.

I mention this because I don't think the corruption meme is helpful. What drives the high value of investment incentives in the US is fiscal federalism. If the Federal government had authority over taxation and investment incentives, states wouldn't be able to use the tax code to compete against each other. This is a distinction that is lost in the New York Times report. Story finds it bizarre that, amid a national discussion about austerity and government debt there hasn't been a sustained discussion about investment incentives. Well, investment incentives happen at the state and local level, so it's unsurprising that dicussions about the national budget don't normally veer off in this direction. Moreover, investment incentives, for the most part, do not generate budgetary outlays - a point Story obscures in her reporting. Of the $80 billion in incentives offered each year, $70 billion are in the form of income and sales tax exemptions or reductions. Sure, this $70 billion can be considered lost revenue, but it doesn't amount to spending and it is also difficult to determine exactly how much tax incentives cost because firms often argue that they would not make an investment without the incentive. When governments do provide incentives that require budgetary outlays, mostly in the form of loans, a national discussion often ensues (remember Solyndra?). 

In all that, I have hardly touched the global conditions that affect policies toward investment. I'll discuss that further in a follow-up post.

 

Changes

Look for a few changes around here as we move toward the new year. First, we are recruiting new contributors. Robert Galantucci has agreed to join us as an occasional contributor. Rob is a graduate student in political science at UNC with interests in US trade politics. Prior to returning to school, Rob was a practicing attorney with a specialty in trade law. Welcome aboard, Rob!

We are actively recruiting contributors, so look for more new voices soon.

Also, many of you may not have heard, Will has found a job and will be leaving UNC for better pay. Congratulations, Will! I will let him provide details. In the short run, this means he may be likely to dissertate more and blog a bit less. This may have long term implications for us too, but these remain uncertain.

UNC Everywhere

Right at the middle of the budget negotiations:

“There’s a standoff, and the staff hasn’t gotten anywhere. Rob Nabors [the White House negotiator], has been saying: ‘This is what we want on revenues on the down payment. What’s you guys’ ask on the entitlement side?’ And [the House Republicans] keep looking back at us and saying: ‘We want you to come up with that and pitch us.’ That’s not going to happen.”

Rob Nabors received his M.A. in political science from UNC before going to work in D.C. at the Office for Management and Budget. He was also the co-author of Thomas' most-cited paper (per Google Scholar).

Is There An Asian RMB Bloc?

Michael Pettis says "no". But that doesn't mean the RMB doesn't matter. It does. Just not so much for the US or EU or the broader currency reserve and exchange system. It matters more for China's competitors in global export markets.

Read the whole thing. I'm looking forward to Pettis' forthcoming book as much as any scheduled for next year.

Potential US-EU Trade Deal Inverts Typical Trade Politics

Standard stories of trade politics often begin with reference to Olson's logic of collective action, which argues that small groups with common interests may be able to effectively mobilize politically, thus influencing policy in ways which benefits them at the expense of the majority. Trade generates diffuse benefits for large numbers of consumers but concentrated costs for smaller numbers of (comparatively disadvantaged) producers. Consumers will find it more difficult to overcome collective problems and mobilize politically than affected producers. Therefore, the logic of collective action expects trade policy to be protectionist absent two conditions:

1. A countervailing small group of comparatively advantaged producers that is able mobilize politically in favor of open trade, at least for their goods/services.

2. An international negotiating process that allows states to reciprocal concessions: you liberalize your comparatively disadvantaged markets and I'll liberalize mine.

But the trade deal that the US-EU are negotiating inverts this dynamic. According to the NY Times, because trade between the US and EU is already relatively liberalized, the benefits and costs of further liberalization are diffuse:

Tariffs on goods traded between the United States and the European Union are already low, averaging less than 3 percent. But companies that do substantial amounts of trans-Atlantic business say that even a relatively small increase in the volume of trade could deliver major economic benefits. 

“The reason we care about this is because these base line numbers are so huge,” said Karan Bhatia, a former deputy U.S. trade representative who is now vice president for global government affairs at General Electric in Washington. “This could be the biggest, most valuable free-trade agreement by far, even if it produces only a marginal increase in trade.”

As a result, the normal political dynamic does not exist, and all of the major parties seem to be in support:

There does not seem to be any broad-based political opposition to an E.U.-U.S. trade agreement, as there was to Nafta.

Indeed, the political push seems to be for more liberalization rather than less:

Last week, a coalition of food and agricultural groups led by the National Pork Producers Council in the United States wrote to Mr. Kirk, expressing concern that a free-trade agreement might leave them out.

The council complained that in the past, Europe had blocked imports of genetically modified corn and soy products and objected to American companies’ use of product descriptions like “Parmesan” cheese. In Europe, that label is reserved for cheese that comes from the Parmigiano-Reggiano region of Italy.

Presumably Italian cheese producers would be opposed to this, but because the margins are so low they may not be willing to pay the high costs necessary to build a broad enough coalition which would be able to meaningfully impact the bargaining process. And, in fact, it seems as if no such coalition has yet formed:

“I haven’t heard anyone say it doesn’t make sense,” said Peter Beyer, a member of the German Parliament from Ms. Merkel’s party, the Christian Democrats, and a major advocate of an agreement.  

That could always change as details from the plan emerge. Technical details can matter quite a lot in these negotiations, particularly if the negotiators start harmonizing technical standards on goods like pharmaceuticals. But because the underlying dynamic is different -- diffuse benefits and costs rather than diffuse benefits but concentrated costs -- this negotiation may go more smoothly than other trade deals.

Finally, this deal could invert trade politics in another way: by bringing other countries back to the WTO table to complete the Doha round. I wrote about the potential for that previously.

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.