Thursday, April 25, 2019

Highway Funding Part I: Farewell to Your Privacy

Can a libertarian support a form of highway funding that requires a GPS tracker in every car? No. And still, the vice president of policy at the Reason Foundation thinks it is a fabulous idea.

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I have met many economists who have spent their days sitting around playing with equations, indifference curves and statistical correlations all day. Most of them pass through their careers without doing much harm to anyone or anything - except the occasional student, of course, who learns that the world can be optimized and that we all behave as though we are maximizing utility around the clock.

Sometimes, though, the harm done by economists can become quite significant. I could return to the forecasting disasters associated with the Greek economic catastrophe, or even the grossly incorrect predictions made about the future of the euro zone when the currency was minted. But fortunately - or unfortunately, depending on how you want to see it - the economics profession continues to give the world reasons to hold astrologers in high esteem. 

Or meteorologists.

In fact, the economist's inability to predict the future is only surpassed by the almost other-worldly failure of the climate alarmists. And just like the unending drumbeat about the world boiling us all to death in ten years (which I first heard in 1985 - before that we were always ten years away from an ice age) many ideas that economists concoct are so bizarre that one is left wondering how intelligent people with Ph.D.'s let them slip through their lips.

One such idea is miles-based funding for highways. It sounds innocuous enough, doesn't it? Those who drive more should pay more; those who drive less and inflict less wear-and-tear on the highways, will pay less.

The only problem is that this is an idea suitable for college classrooms and eclectic economist seminars. It is not designed to work in practice. In fact, the only way it can work is if it is part of an economic central-planning system where government can rearrange economic resources as per its own ideological preferences. 

Unfortunately, the miles-based highway tax is making progress in circles with influence over federal legislation; it is actually possible that we will see a miles-based tax for traveling on interstates in the near future. As part of the effort to make it happen, the Information Technology and Innovation Foundation (ITIF) organized a panel conversation on April 25, during which their president Robert Atkinson and three other participants presented as many arguments as they could come up with in support of the miles-based tax.

One of the panelists, Adrian Moore, vice president of policy at the Reason Foundation, defended the tax as a means for optimizing economic behavior. Before they got there, though, the panelists worked hard to explain why the miles-based tax is not going to invade your privacy. 

The privacy argument is apparently among the strongest in opposition to the tax, and is based on the idea that the tax-collection system would require every car in America to have a GPS device installed. This, critics say, can be used by government to track our every move.

You would expect a libertarian such as Adrian Moore to be opposed to this. He is not. He was in fact on the panel, enthusiastically endorsing this new tax, including the idea that it is not an invasion of privacy. However, in fairness Atkinson led the charge against the privacy concerns, claiming that the GPS device would not provide government with the where-and-when-you-drive data. All government would be able to see is how many miles we have driven. 

Right here, theory and practice part ways. In theory, government would not have any other information than what Atkinson suggests; in practice, government will actually need that very information in order to apply the tax as economic theory suggests. The miles-based tax is, namely, not just a tax to fund highway maintenance, but also a tax that is supposed to re-engineer our driving habits. 

And, by consequence, large parts of how we live our daily lives. 

The key is a little feature called "congestion fee". Its purpose is to charge us a higher tax for driving when there are many others on the road, and thereby encourage us to drive at other times instead. In order to apply this fee, government needs to know what roads you travel, and when. 

Secondly, the definition of “congestion” is entirely open and can be tailored to apply to Wyoming highways as well. All the government needs is the “right” definition of highway congestion.

Conventionally, we think of a highway as being congested when we have to slow down because there is too much traffic. For example, if traffic is moving at 55mph on a 65-limit stretch of highway, we could say that it is congested. If you drive the I-80 down toward Salt Lake City and traffic slows down below the speed limit, you will suddenly be hit by a fee – because government knows where you are, and when.

If they don't know that, they cannot determine whether or not you owe them a congestion fee on top of the miles-based tax.

Proponents of the congestion fee and the miles-based tax will claim that government will not be able to see the actual time-and-space data; where we were, and when. This, of course, is absurd. Government cannot tax us blindly: if they send you a tax bill demanding, say, $100 in miles-based taxes and $12 in congestion fees, they cannot just tell you that "we have no idea where and when you raked up that $12, but we know you owe us." They will have to be able to prove in court that you were indeed at a place and time where the fee applies. 

This goes for the miles-based tax itself, as well. If I get a tax bill that I think is a bit high, and I challenge it in court, the government entity that has collection jurisdiction will have to be able to demonstrate that I was indeed where they say I was. Logically, this means knowing when I was there - or else I could just claim that "no, I was at my cousin Drooly's wedding in Backwater, California, and I didn't drive. Ha!"

To make this absurd form of highway funding work, the economists who concocted the miles-based tax must also accept another privacy invasion. If you don't want the government to know every inch you drive, you can always fly. Until, that is, the new facial-recognition technology has been rolled out at our airports (and, in due course of time, ground transportation as well). 

Then we are left with two choices: surrender your privacy.

There is another problem with this miles-based tax. It will cause ripple effects of changes to economic behavior that will rake up far more costs than I have seen any economist take into account. The economic thinking (to use the term generously) behind this new tax proposes that people will respond to it by altering their driving habits and thereby change their behavior in some way that is desirable from the perspective of microeconomic theory (welfare economics, to be specific). 

This does indeed happen: when people are faced with higher highway tolls during parts of the day, they try to drive at other times. Congestion-fee advocates take this as an indication that their idea is successful: people change their behavior as predicted.

Maybe this is one of the rare exceptions of forecasting success that economists need in order to look at that Ph.D. diploma on the wall and still feel good about themselves. If so, I will give them that. I, for one, have a lot of reasons to be proud of my Ph.D., but be that as it may. Given the deplorable state of the economics profession in general, I will let them keep their lunch money on this one. 

That said, for people who live in the real world, outside of economics models, it is trivial that you try to use or buy less of something that costs more. The fact that people rearrange their commutes in response to a congestion fee is hardly an argument for the congestion fee itself, and here is why.

Suppose we apply the congestion fee to the morning rush hours of 7-9AM. In response, some commuters go to work at 6AM instead of 8AM, others at 10AM and a few even at noon. However, here is where things get tricky for the congestion-fee proponents. When people change their behavior, the revenue collected changes as well: if too many people move their commutes out of, say, the 7-9AM window in order to avoid the fee, revenue declines again. Since the revenue was supposed to help out with highway maintenance, government now falls short in its funding. Keep in mind that the volume of traffic has not changed - only its allocation in time. 

Here, miles-tax proponents will point to pilot studies showing that some people will use mass transit instead. That's fine so long as we are only talking about pilot studies with very smal samples of individuals. Consider what will happen to mass transit systems once we apply this tax to everyone; as soon as people realize how hopelessly under-capacity mass transit is, especially in the wake of the surge in demand that those pilot studies allegedly indicate, they will run back to their cars and once again crowd the highways.

At times, of course, when the congestion fee does not apply. 

Now faced with the conundrum of a largely unchanged traffic volume and far too little congestion fee revenue, government will obviously adapt the fee to when people are driving. After all, that is precisely what theory says government should do. If too many people move their commute from 8AM to 10AM to avoid the congestion fee, the fee will simply kick in for the 10AM commute instead. If too many commuters move their commutes back to 8AM, the fee again applies at that hour. 

As people move their commute around to find a time when the congestion fee does not apply, things start unraveling for employers trying to maintain functioning office hours. With some workers coming in at 6AM and leaving at 2, others rolling in at noon while staying to 8PM, scheduling meetings between coworkers becomes a real chore. Just try to predict when you can get hold of someone at the IRS, call your insurance agent or schedule a plumber.  

Then imagine if people change their commutes every day in order to try to dodge the congestion fee as it applies from one day to the next.

Absurd? Sure, but not the consequences. As I will explain in Part 2, these repercussions of the miles-based tax and its congestion-fee component are perfectly logical, even expectable under the theory that economists use to advocate this tax. 

What is absurd, of course, is the tax itself. We need an alternative. More on that in Part 3. 

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