Winston on Transportation

[ozbob]

http://www.econtalk.org/archives/2013/10/winston_on_tran.html

Winston on Transportation

Cliff Winston of the Brookings Institution talks with EconTalk host Russ Roberts about his recent article in the Journal of Economic Literature on the U.S. transportation system. Winston argues that the while the United States has a very good transportation system overall, it is extremely expensive and poorly organized. What is needed, Winston argues, is not more money, but to spend the money already allocated more wisely. He discusses the evolution of the U.S. transportation system, government's role in transportation, dramatic innovations that might transform aviation and driving, and the potential for privatizing airports and roads.

[petef]

The discussion relevant to SE-QLD starts around the 21 minute mark, here's one of the key points.

Russ: So do you think we spend enough on infrastructure? We've had an interesting debate with Robert Frank on this topic, centering around this claim you often hear that we don't spend nearly enough; our infrastructure is crumbling; it's dangerous. How would you respond to that argument, given the point you just made?

Guest: Okay. So, this is just a basic economic point that's obviously very simple for economists. But non-economists often don't recognize this. Before you make an investment decision, one, whether you should do it or not or make an overall assessment are we doing enough of it or too little of it, you've got to first ask the question: Is the facility properly priced? Forget about transportation. Just think of any commodity. Talking about oranges: and if oranges were priced at, oh, a nickel, and we are constantly running out of oranges, then the instinct of most people is, well, we need to increase production of oranges and build more orange factories or groves or what have you. Whereas in fact someone else might say, en economist, hopefully: Wait a minute--you know, oranges are greatly underpriced.

Russ: Underpriced--when you say underpriced, you mean legally there is some constraint on them. That someone has set the price artificially low.

Guest: Yeah. There was an artificially low price; this is not a market price. And you say, look, let's get market pricing here. And prices go up, and all of a sudden you realize supply is equal to demand, and the market is clearing and we really don't need to make any investments in the production of oranges. Well, that's the same idea with roads. Roads have an artificially low price. Cars are not charged for congestion, so they put pressure on peak capacity. Trucks are not charged efficiently for the damage they do to roads; they pay a gas tax when they really need to pay an explicit charge that reflects the damages they do to roads. This underpricing causes road capacity to fill up, causes the roads to wear out a lot sooner. And it generates a demand for: We need more spending and our infrastructure is underfunded. I say, let's get the prices right. Now, the same thing is true for airports, same kind of thing; even ports. Same thing. My guess would be after getting the efficient prices, yeah, there probably is room for some efficient--and I mean efficient that would satisfy cost-benefit criteria--investments in highways in some high density areas. Certainly additional runways in high density airports. But not the trillions of dollars that people talk about and not nearly as much as people are led to believe. So, I think that the claims of the infrastructure crisis are grossly overstated, and what we really have is a pricing crisis. And if we can get the prices right, that will do an awful lot to improve the condition and service of our infrastructure.

[ozbob]

Thanks Pete ..  and welcome!