Comments on Bacon's Rebellion: Congestion Pricing for the Washington Region

If the price is high enough, we can create diamond...

2008-03-23T00:45:00.000-05:00

If the price is high enough, we can create diamonds and oil from scratch. Assuming we have energy.

I worked in a commercial printing company, and one day this hippie looking character came in and said, "Hey dudes, can you guys print me some $10 bills?"

My boss explained to him that this was a profit making enterprise. We would be happy to print him some $10 bills, but we would have to charge him $20 apiece.

That's a free market.

No. Economists only define it as a free market sit...

2008-03-23T00:36:00.000-05:00

No. Economists only define it as a free market situation when suppliers can respond to higher prices with more supply.

If your only option is NOT buying something at the given price, then that means that you have decided you "cannot afford it". In that case, you are not in ANY market, let alone a free market.

The way you have the question stated, the only way you could NOT have a free market is if you are required to buy something, regardless of the price.

That is what we have government for, and i think we enerally concede that government is not a free market operation.

RH

No RH.. I don't get paid by the word though I susp...

2008-03-21T08:20:00.000-05:00

No RH.. I don't get paid by the word though I suspect some readers of this blog would pray for me to have to pay by the word...

:-)

so back to the question..

you said..."...there is a limited supply, then the market may still find a way to respond with more supply..."

I'd like to pin you down on this.

What ..IF.. there is NO extra supply or worse.. the existing supply is decreasing...

would the buying and selling of that limited-available item be considered a "free-market" as long as the buyer had the option of not buying something they considered not worth the price?

Re speculation in commodities. Just amend the fed...

2008-03-20T21:46:00.000-05:00

Re speculation in commodities. Just amend the federal tax code to require that, in order to deduct the full cost of a commodities future, the buyer must take delivery of at least 80% of the commodities traded. Otherwise, one can deduct only 50% of the cost of purchasing the futures. I also suggest a rule that would permit a party that grew, mined, pumped, etc. a volume of commodities equal to 80% of the futures contracts could deduct 100% of the purchase price of the futures contracts.

This would permit farmers, miners, oil companies, etc. to hedge in the market, but would put the speculators out of business.

Let's get investment dollars back into activities that actually create something.

TMT

You get paid?No wonder I can't catch a break aroun...

2008-03-20T21:03:00.000-05:00

You get paid?

No wonder I can't catch a break around here. You are subsidized and I'm not.

RH

If the market is not capable of responding by prov...

2008-03-20T20:59:00.000-05:00

If the market is not capable of responding by providing more supply, then it is, by definition, not what economists define as a free market.

If there is a limited supply, then the market may still find a way to respond with more supply, although the price incentive to do so will be greater.

The HOT lane example is NOT anything like a free market. The fact that you are "free" to choose not to buy what is offered, does not make it a free market.

RH

you know RH.. they don't pay us by the word....was...

2008-03-20T19:42:00.000-05:00

you know RH.. they don't pay us by the word....

was there a (hopefully short and concise) answer to the limited supply question?

If something is limited in supply, does that fact preclude the buying and selling of that limited supply in a "free market"?

In the developing world, where growth is paramount...

2008-03-20T15:54:00.000-05:00

In the developing world, where growth is paramount, there is no thought of shutting off coal, especially when, on average, a person in China emits about one-sixth and an Indian less than one-tenth as many greenhouse gases as "an American "Coal will continue to be king in India. There is no way out," said Kumar, of the Confederation of Indian Industries. "The other choice is asking the country to stay poor. . . . The question is, are we going to allow poverty or allow a little bit of pollution?"

One sixths as much, per person. And yet China uses more coal than the U.S., Japan, and All of Europe combined.

Have a nice day.

RH

Spot prices may not stay down, though:"World consu...

2008-03-20T15:45:00.000-05:00

Spot prices may not stay down, though:

"World consumption of coal has grown 30 percent in the past six years, twice as much as any other energy source. About two-thirds of the fuel supplies electricity plants, and just under a third heads to industrial users, mostly steel and concrete makers.

If high prices last, that would raise the cost of U.S. electricity, half of which is generated by coal-fired powered plants. "

Example from today's news:"An untimely confluence ...

2008-03-20T15:41:00.000-05:00

Example from today's news:

"An untimely confluence of bad weather, flawed energy policies, low stockpiles and voracious growth in Asia's appetite has driven international spot prices of coal up by 50 percent or more in the past five months, surpassing the escalation in oil prices."

"Meanwhile mining companies are enjoying a windfall. Freight cars in Appalachia are brimming with coal for export, and old coal mines in Japan have been reopened or expanded."

Mines that previously could not run profitably are suddenly ramping up to go back into production. Spot prices on coal are very high right now, but they will drop back as more production comes on line.

You can expect the same thing with American corn. At $6.50 a bushel a lot of places can grow corn that cannot do so when the price is $4.00 a bushel.

RH

"how about OIL?"Two years ago you could drive arou...

2008-03-20T14:59:00.000-05:00

"how about OIL?"

Two years ago you could drive around texas and see idle oil wells. If you go there today, you will see those donkey engines running again.

Why? Because at a higher price the operators could afford to run them to extract oil they could not afford to get out at lower prices.

Oil isn't agood example either. When it is $500 a barrel you will find we "discover" a lot more oil, even if we have to make it from scratch.

Go get you economics book out. When you have an increas in demand prices go up out ofproportion to what the market will ultimately support. But as new suppies come on line that initial price spike goes down - some. It doesn't necessarily and usually doesn't go back to where it was. Therefore the new price (at a higher level of supply) is higher than the old price, but not as high as the spike.

So yes, the oil goes up in price, and that means two things: more suppliers can provide it at that price, and fewer consumers want it at that price. Which means the market is now balanced. That is a free market, even if oil will eventually run out, and even if the price is climbing.

In the case of the HOT lane, there is no additonal supply at a higher price and it is NOT a free market. There will only be 2000 slots per hour, no matter what the price.

I don't make this stuff up, it is all in the book. Only charlatans spin this to make it something it isn't.

If either the price is high enough or demand low enough, some slots will go unused, but you can't save them for later. The slope of price vs slots and slope of demand vs slots won't be the same. That's what brings up the issue of whether you manage for income or manage for throughput.

From society's point of view it's bst to move the most cars so that people can go about their buisness. But from the operators point of view, that may mean the price is too low. He could make more money for himself by resricting flow with higher prices, and to heck with society.

This is exactly analogous to a guy polluting: he is making more money and society bears the cost.

How do you suppose the contractor's operating license will be written? max through put or max revenue?

------------------------------

There is such a thing as inferior goods. Usually when you have mmore money you buy more of a product. But some products are the ones you buy more of when you have less money. You buy more suits when you have money and more jeans and t shirts when you don't have money.

It doesn't mean they are cheap or shoddy t-shirts, just that certain market conditions apply. You get those when you can't get something else.

HOT lanes are going to create a new class of "inferior" products, and those products will increase their sales when sales of HOT lane slots go out of sight. North Carolina, Albuquerque, and Texas are growing quite nicely right now, and for similar reasons.

We will see more businesses operating outside the toll zone, and more traffic on roads that are untolled.

RH

"In a free market, if demand goes up, the market w...

2008-03-20T11:23:00.000-05:00

"In a free market, if demand goes up, the market will be out of balance, until suppliers can respond. Temporarily the price will be very high, but it will drop back as more product becomes available. In this case the price will be very high, compared to what a free market would provide, and the market will be permanently out of balance."

let's take a simple example.. ummm... (you obviously did not consider the Elvis memorabilia as valid)

how about OIL?

tell me again.. how we get more oil and avoid the "temporary" price increases?

If oil keeps going up in price, does that mean that the buying and selling of oil is not a 'free market"?

do you think that anything that is not totally elastic with respect to supply and demand is not traded in a "free market"?

A fundamental part of free market theory is that s...

2008-03-20T09:34:00.000-05:00

A fundamental part of free market theory is that suppliers are free to produce more or less, in response to market signals.

If you don't have that condition, you don't have a free market, and you cannot use free market theory.

In your example the user is free not to buy what is offered at the price offered, but he cannot influence the market. "...raising prices for these types of goods serve no economic purpose because they cannot bring forth additional supply."

It is government sponsored rationing. Since the government sets the price, irrespective of what the market would be willing to buy IF MORE SUPPLY COULD BE MADE AVAILABLE, then it is the government that indirectly decides what business is worth the price.

In a free market, if demand goes up, the market will be out of balance, until suppliers can respond. Temporarily the price will be very high, but it will drop back as more product becomes available. In this case the price will be very high, compared to what a free market would provide, and the market will be permanently out of balance.

Which is why it is the government that decides what business is worthwhile, in this case: because the free market condition is not in play.

In your example the user is free to pay the govt price or not. In a free market example he would be free to pay the govt price, somebody else's price, or not. and somebody else would be free to offer a higher or lower cost, for a better or worse product.

And, in this case the government will use the excess, gained from the artificially high price that can be sustained through lack of competition --- to buy Metro tickets for someone else.

And yoou have the unmitigated gall to claim THIS is a free market.

RH

"Those people with the most valuable business will...

2008-03-20T09:13:00.000-05:00

"Those people with the most valuable business will pay the tolls, and others won't."

Who decides what business is valuable enough to pay the toll?

Isn't it the person who pays the toll?

do you think that what you think is valuable .. someone else may not.. and vice-versa?

see this is why they call it a 'free market" because you are free to decide how much something is worth to you....

you can choose to NOT do the transaction if it is not worth it to you.

if you think a market is not free unless the supply is infinitely expandable to meet demand.. I do seriously wonder how you reconcile that idea.. in a world where virtually anything that is sold is not available in unlimited quantities.

The easy way out of this is to simply admit the tr...

2008-03-19T20:42:00.000-05:00

The easy way out of this is to simply admit the truth. The real purpose of tolls is to allocate the goods to their highest value use. Those people with the most valuable business will pay the tolls, and others won't.

If we can agree that this is the real value and the real purpose behind tolls, and that this is a reasonable economic goal; then your argument for tolls makes sense to me, but not with the pious and mistaken mumbo jumbo previously stated.

"History has witnessed considerable controversy ov...

2008-03-19T20:36:00.000-05:00

"History has witnessed considerable controversy over the prices of goods whose supply is fixed in the short run. Critics of market prices have argued that rising prices for these types of goods serve no economic purpose because they cannot bring forth additional supply, and thus serve merely to enrich the owners of the goods at the expense of the rest of society."

In this case the owner is the government which will enrich itself and those that can afford the price of HOT lanes - at the expense of the rest of society.

RH

"and yes.. it is STILL a free market."Not accordin...

2008-03-19T20:15:00.000-05:00

"and yes.. it is STILL a free market."

Not according to the accepted definition.

What you describe is a constrained market. If the supply curve slopes downward instead of upward, it is not a free market: by widely accepted definition.

In medicine, a free market would allow more people to become doctors, in HOT lanes a free market would allow more lanes.

That is the definition of a free market. Get used to it.

You can pull and EMR and choose to redefine it, if it makes you feel better politically, but it won't help your sales pitch. Anyone who knows the definition will think you are an idiot, and the sales pitch loses credibility.

Even so, when the price of elvis memorabilia gets high enough, some people will stop hoarding or collecting, and more will be available on the market, even if the total supply is stagnant.

(In the case of housing, restricting supply through development regulations leads to gentrification of (formerly) poor areas. Housing remains pretty affordable in the fast-growing states of Georgia, North Carolina, and Texas, because land-use planners have not yet seized power in those states. Harvard economist Edward Glaeser has shown that land-use regulation not only drives up housing prices, it makes them more volatile too — more prone to crashes.)

The same idea is not true with roads themselves, because no one owns them to sell. No more of HOT lane will come on the market from any hoarded source. You can drive users away, but you have created no new value in the process.

The other difference is that if Elvis memorabilia is too high, people won't buy it. But if the price of one road usage is too high, then people won't buy use of that particular road. They still need to get their work and errands done, so then much of the use may be displaced to other locations - maybe, Georia, North Carolina, and Texas.

The new "supply" then will come from other currently underused roads. THAT is what toll lanes and congestion pricing will do, but if we choose to do that, we can do it a lot more cheaply than through congestion pricing.

RH

re: free market and scarce supplyThere can be a co...

2008-03-19T16:14:00.000-05:00

re: free market and scarce supply

There can be a completely free market for Elvis memorabilia or 8000 carat diamonds but no amount of money will increase the supply of either.

.. and yes.. it is STILL a free market.

so we have some fundamental .. and continual and chronic confusion here as usual.

free market does guarantee an increased supply ... it only means that the market will determine the price.

So in a congestion pricing scenario - what you are selling IS .. NOT an unlimited supply of congestion-free trips...

in fact, you are selling a limited number of trips...

and in the process, you are doing the same exact thing that would be done with Elvis memorabilia or 800 carat diamonds..

... the supply will not increase in response to higher prices...

"Put in the HOT lanes and give everyone a certain ...

2008-03-19T14:48:00.000-05:00

"Put in the HOT lanes and give everyone a certain number of free passes, which they can use, buy, or sell at will."

There's an idea. The one thing that has come out of all the arguments on HOT lanes and congestion pricing is an assumption that pricing is the only way to allocate the congested space.

Perhaps a simpler solution would simply be to allocate based on quota (cards, stickers, electronics, whatever) with a pricing method to take care of the balance. e.g. Give all applicants for the congested region 3 or 4 passes per week, depending on demand, and then on other days the user would have to utilize transit, carpool, telecommute, etc. This would deal with the "Lexus lane" argument and with those who can't utilize transit on a daily basis. For those from outside the region tolls could be implemented during peak times at the borders near Fredricksburg and Warrenton and those corresponding in MD.

Since it's been shown that traffic dropoffs of 10-20% during the July/August timeframe are enough to get "all" lanes freeflowing, this type of solution would be superior to having only some lanes freeflowing.

BTW: Every other day driving privelages are common in a number of other cities worldwide.

ZS

You want free trade?Put in the HOT lanes and give ...

2008-03-19T14:14:00.000-05:00

You want free trade?

Put in the HOT lanes and give everyone a certain number of free passes, which they can use, buy, or sell at will.

Everyone is going to pay for the HOT lanes anyway, might as well let the (probably minimal) benefit be shared equally.

RH

What this is, is a monopoly (the government in thi...

2008-03-19T14:06:00.000-05:00

What this is, is a monopoly (the government in this case), doing what monopolists do: charging more because they can get away with it.

And selling it as if it was some kind of a good deal, when it is actually a power grab for more control.

The govenment is not charging more in other places, because they have not yet created an artificial and overheated demand through land use controls that favor business and cause the congestion they are now tolling for relief from.

Economy, Environment, Equality.

RH

Free market: "a market in which supply and demand ...

2008-03-19T13:31:00.000-05:00

Free market: "a market in which supply and demand are unregulated except by competition policy and property rights"

That seems clear to me.

You can define it any way you want, but you can't sell me on your idea with a definition I think is wrong or different from generally accepted.

RH

" look at the question of transportation and human...

2008-03-19T13:07:00.000-05:00

" look at the question of transportation and human settlement patterns as a unified issue. "

now you are talking sense.

"When free market approaches are applied to the whole range of transportation and human settlement patterns "

Never mind the free market "approaches". You have already quoted people who plainly state that what they want is control. You have lost my sense of trust here. What I need to see is that control is managed equitably, and I don't see it.

Not even close.

I'm not the one trying to sell something here.If y...

2008-03-19T13:01:00.000-05:00

I'm not the one trying to sell something here.

If you want to sell to me then show me the upside, show me the downside, and show me resonably conclusively why the upside is sufficiently better to make the downside worthwhile.

As long as you merely say that all is sweetness and light, I'm not convinced.

I propose some problem with the plan. I might be mistaken, and it's not a real problem, but generally, once stated, then it is an issue.

You can ignore the issue. You can claim it isn't an issue. You can attack me. You can attack my credentials. You can claim I have an ulterior motive. You can re-state the other issues redundantly, and go the big lie route.

I don't care. I'm not the one promoting something. As far as I'm concerned, once the issue is out there, then it is still an issue.

Once you accept and incorporate it into your argument, and if you can still shoe the plus side outweighs the minus side - then you get my respect.

Otherwise, its just another saleman selling snake oil. Maybe he is a well intentioned, environmentally green salesman, but he is still selling snake oil and not true solutions.

Wamsley says this is a free market situation. Nice sales pitch.

I say it is not because a) there is no ability or intention to increase supply as a free market would. b) the source of supply is a government monopoly. c) the source of intrinsic demand (job sites) is also controlled by government d) the government monopoly is selling a "product" in one place (a place where it is cheap in terms of ROI) and giving away a better product in other places (where it is expensive in terms of ROI) for free.

You can say whatever you want as long as you want, but if you don't accept and address the issues, if the only tactic is to refute the issues and the authors, then I can't take you seriously.

We have a situation where we wish to force autos to pay for all their externalities, and we sell this by simply saying that the user should pay for ALL of his full costs, and we call this a free market because he can buy or not, when that isn't what it means at all. We claim that a handfull of the very autos we wish to exterminate are going to provide all the funds for for a bunch of other stuff that is NOT user pays, and we don't see any of this as an intellectual house of cards.

You can do whatever you want, but you are the ones doing the selling, and I'm simply telling you that I'm not sold yet.

I suggest that whenn you are trying to sell something, you don't start by calling the customer stupid.

RH

A couple of clarifications.If you follow my link y...

2008-03-19T12:13:00.000-05:00

A couple of clarifications.

If you follow my link you will find a discussion of the free market with fixed supply: http://en.wikipedia.org/wiki/Supply_and_demand

A better approach then “Public transit does not exist in a free market” is to look at the question of transportation and human settlement patterns as a unified issue.

When free market approaches are applied to the whole range of transportation and human settlement patterns issues to provide a unified solution you reach conclusions far different from the current “command and control” or fiat approach to highway funding.