Last month, I wrote a post that asked whether Manhattan should tax ride-shares, tax all vehicles, do something else, or do nothing at all. And you had some ideas about that.
Below, I have tried to combine your answers (I got nearly 30) into a manageable set of categories. Responses were about evenly split among Do Nothing, Impose General Congestion Tax, and Impose Taxes on Ride-Shares.
To save space, and avoid repetition, I chose some of the most representative of each group, edited them very lightly, and combined them to make what I print below as an illustration of a general view.
That means that some individual nuance was lost, but I wanted to give readers a chance to see something of the breadth of views. I also present, in the final section, a response that questions whether a partial approach to one policy change is a sensible method in the first place.
I. Do nothing (or at least do nothing more).
- The taxes are coercive, don’t accomplish their objectives, and in any case will be misused. It seems to me that morally, the coercive nature of taxation makes me dubious to support an expansion of these mandatory payments to the state. Uber has been a wonderful free market solution to dismal public transportation. In my eyes, we should also be thanking Uber for ridding the streets of countless drunk drivers and allowing a voluntary system of ride sharing. The trivial amount of “congestion” added to the roads (as it can be assumed that one way or another these customers would be on the road) can be dismissed as an attempt for the state to confiscate ever more of our money.
- Uber should not be selectively taxed, because why hinder innovation — and how often are “public officials” right anyway? Winston’s view [advocating congestion pricing] does seem to be well argued. Less dead-weight loss, and using queuing revenue towards subsidizing and improving transportation, could benefit all involved.
After listening to your talk on transaction costs, which was awesome btw, I’m not convinced congestion pricing is best. After a few classes of economics, I believe my final answer is that we just leave the market to clear on its own. Incentives, supply and demand, and stuff. “The genius of markets is the ability to create harmony and agreement out of disagreement.”
- The right goal is that transactions should be set up to establish efficiency and guard against theft. You are correct that the information is lacking when there is no market equilibrium of seller and buyer. I would add the price should not be fixed by a regulator; quality markets have both supply and demand move and that is part of the information.
What all modern implementation plans miss, in my opinion, is the need for simple general equilibrium analysis. In regular market transactions all participants are made better off. But in congestion pricing, paying for the full price in all operational models seems to make the users they have stated that they intended to help worse off. Many of the remaining payers of the toll remain worse off.
Drivers on average pay the full price of congestion. On the margin in most congestion situations one more marginal-value user causes far more incremental delay cost on all other users than the benefit the marginal-value user experiences himself.… But the point to keep in mind is that the marginal-value user that we want to eliminate is not the last-in-time user, but the lowest-gain user.
If no price discrimination is used, the marginal price has to be charged to all users, which starts out by tripling the delay cost to the users that are desired to be helped.… Manhattan NYC-owned streets are the best candidate for effective congestion in any US Metro Area, but transaction costs mean any implementation will cost more than it delivers to NYC residents and commuters.
II. A general congestion tax is better.
- A first best solution would be a congestion tax. The way to do this would be to equip all vehicles with sensors that detect the presence of other sensors and record it. Being near a large number of slow-moving or stopped vehicles would be “congestion,” and the time spent in the situation and the number of other vehicles involved would be the basis for the tax. The tax could be calibrated to include a road use charge, leaving the gasoline tax a pure CO2 accumulation charge.
The tax would be optimal because all vehicles would be charged in proportion to the harm done to the free flow of other vehicles. The cost per person would be smaller for buses and carpools than for single occupant vehicles, giving people the incentive to shift means of transportation and the time of use and choice of routes.
If the charge were equal to the harm inflicted, there would be no reason to use revenues to subsidize mass transit; they could be returned to the owners of the streets as a tax credit. If the tax cannot be extended to other vehicles, then it should at least apply to both taxis and Uber equally, to prevent substitution between the two modes.
- First, there is a market for transportation. Even with a congestion charge, each road user chooses to interact with the government (as owner of the roads) and only travel if it makes that road user better off. Where it gets strange is when thinking about who owns what property rights. If current road users have a property right to continuing to use the road at the same time they currently do, then you are correct that congestion pricing doesn’t represent a market transaction in that those who start or continue to use the road do not compensate those who stop.
Second, in any case, congestion pricing likely leaves many road users worse off (relative to the status quo). However, there are ways to design it so that adding a toll makes all road users better off, even before using the revenue.
Third, my vote would be for implementing congestion pricing. Yes, you cannot have a toll booth at every block, but second best solutions can capture a lot of the gains while avoiding the large transaction costs of having a toll booth at every block. I would start by adding tolls to all highways. Furthermore, once we have autonomous vehicles it should be possible to have tolls that vary block by block, as the vehicle can calculate this. There are potential privacy issues with this that should be addressed first.
III. Ride-shares are the problem, so they should be paying for the costs they impose.
- Rideshare vehicles, which are causing the congestion, should be singled out and made to pay additional fees! If the city will not regulate the amount of rideshare vehicles allowed on the road, why should ordinary vehicles, taxicabs, or delivery vehicles be asked to subsidize all the rideshares, which are the cause of the problem!
- There are too many For Hire Vehicles chasing too few passengers that need the service. Cut the number of Uber and Lyft vehicles by at least 50% if not more, then cap their number. Double the number of Yellow Medallion Taxis to compensate and all will be fine. It’s not that difficult a problem to solve.
IV. There are problems with thinking of this as “redistribution”
I would like to offer what I imagine Robert Sugden would reply, based on my understanding of the following excerpt from one of his articles:
Ultimately, I think, one has to decide how far one is committed to the (for me) deeply attractive idea that underlies [James Buchanan and Gordon Tullock’s] Calculus of Consent — the idea that the market is a cooperative endeavour among individuals who accept differences in their endowments without rancor and who look forward to mutual gains from transacting with one another. I cannot see how that idea can be sustained unless it really is the case that, on the whole and in the long run, everyone does tend to benefit from the continued operation of the market. That need not imply the kind of egalitarianism espoused by Rawls, but it may require a collective commitment to some degree of redistributive taxation of the surplus generated by market transactions. Such taxation may be an essential component of a society in which (to adapt [John Stuart] Mill’s words) people can see one another’s wealth and prosperity with good will. (Robert Sugden, 2012, “The Market as a Cooperative Endeavour,” Public Choice, Vol. 152(3/4): 365-370, at p. 370.)
The initial redistribution (the incidence of the congestion tax) is not the kind of redistribution that Sugden augurs. Perhaps other components of the larger “policy package” — for example, allocations of congestion-tax revenues (or of income-tax revenues or of wealth-tax revenues) to mass transit projects or social transfer payments — would conform to the spirit of Sugden’s analysis. One must ask whether the overall policy package will exacerbate rancor about unequal endowments.
The answer to your questions hinges on an empirical issue: Are the proposed congestion tax and its complements (e.g., investment in mass transit) designed and explained in ways that foster broad acceptance of the new efficiency? Or, at least, is it highly likely that people will accept the policy package without rancor, after implementation, even if they mistrust it at the moment? If the policy package does not meet these criteria, then economists and policymakers should sharpen their pencils and go back to the drawing board. Or … hire a better PR firm?
Feel free to respond to these responses. I’d be interested in what you think. Email me at munger at Duke dot edu!