Road pricing when? Old fleet, new fleet.

Ryan Avent at The Bellows argues in his post No Choice

“The bottom line is this: we can no longer afford to not tax important negative externalities. We can no longer afford to not do the stuff we really ought to have been doing in the first place. The options we have are to ratchet up current taxes with bad incentive effects and diminishing returns, or to cut spending on important priorities, or both. But cutting back on education spending and infrastructure investment while increasing taxes on income will squeeze growth, making the task of closing these financial holes harder.

Or we can bite the bullet, suck it up, and start charging an appropriate amount for valuable public infrastructure. We can stop giving away space on roads and parking spots for free, costing everyone a lot of wasted time. We can stop letting companies foul the air and slow-cook the earth with no negative impact to their bottom line. And then we just might have enough dough to keep critical infrastructure running. We might even be able to invest in a new and better infrastructure capacity.”

Similarly, the blog Grush Hour argues No more RUC [Road User Charge] trial please, suggesting we know enough and the time for action is now.

While any claims I have to working in transportation economics would be revoked if I did not support road pricing, there are several issues that keep getting ignored in the progressive blogosphere when endorsing quick implementation of road pricing.

  1. Gas taxes send the right signal about general use, and encourage conversion from gasoline to electric powered vehicles if set appropriately, though does not send a useful signal for time and place. See: A Dozen Reasons for Raising Gas Taxes
  2. Gas taxes are administratively efficient, road pricing loses on the order of 20-30% of revenue to administration and collection costs. See: Too Expensive to Meter
  3. Imposing a new mileage based user fee/road user charge/vehicle mileage tax on existing vehicles is going to be unpopular, probably less popular than simply raising gas taxes. See: Road pricing killed off by Transport Secretary

Everyone now recognizes gas taxes will cease to be effective as user charge as hybrid and EV adoption rises (unless the gas tax rises with MPG, and even then 100% EVs will get off the hook). If we rely only on gas taxes, we eventually will have to tax 100% of the cost of roads on the last gasoline powered vehicle. The system will break down long before then. See Beyond the Gas Tax

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This suggests an obvious transition point. Use gas taxes to collect revenue from the “old fleet” powered by gasoline or diesel, use a Vehicle Mileage Tax to collect revenue from the “new fleet” powered at least in part by electricity. It can be easily communicated that the new fleet does not consume gasoline (or as much) and this is about fairness. The relative gas and electricity charges can still be skewed to adjust for environmental externalities associated with gasoline, but other than that, should be equalized to reflect costs imposed and benefits received. A standing, independent “Highway User Fee Commission” can set federal rates to ensure full funding of the Highway Trust Fund (and secondarily manage traffic by time and place). States could piggy-back on the apparatus.

Each new electric or quasi-electric car can have an on-board device to compute tolls specific to the vehicle (based on MPG, and therefore discounting for the gas tax already paid) and for time (hour of day, day of week) and general place (in the city, on the freeway, vs. in the country, on local roads, etc.). Since this would apply only to new cars, no older EVs would be harmed (it is a small price to pay for political harmony).

Trucks are another story, since the fleet is smaller and more centrally (though not centrally) managed. They can be converted sooner.

How many jobs? Roads, bridges and the stimulus

Hattip to Strong Towns Blog, a report from MPR on the number (or lack therof) of jobs created due to stimulus in Minnesota: How many jobs? Roads, bridges and the stimulus


“I checked in with the Minnesota Department of Transportation on Friday after seeing a jobs number on its site that just couldn’t be right — 483 full time equivalent jobs.
It wasn’t. A MnDOT spokesman said that represented only jobs from the last quarter of 2009 and that the total FTE was about 1,500. That made sense and I was going to post the 1,500 number on Friday but then the spokesman called back and said they were still working on a calculation and I shouldn’t use the 1,500.”

I have no clue what the real number is, nor does anyone else, but I do suspect the methodology is nonsense. The prediction for 5000 road construction jobs in Minnesota did not come to pass. As I said last year, highways are a lot more capital intensive than they were in the 1930s, and macro-economists who think of highways as job-creators are simply remembering black and white films of the Civilian Conservation Corps with gangs of workers and pickaxes building roads through national parks. This of course doesn’t mean roads should or should not be built, but the stimulus bill was not terribly effective in this arena for job creation.

Transportation should be justifiable on its own merits (private + social benefits > private + social costs), not because it creates jobs (which in any case is a cost not a benefit — I am not a macroeconomist).

A recession may however make the case stronger. If a recession causes employment to go down (and thus wages to drop, and other demand to drop, so other capital costs to drop as well), the total costs of a project will drop, and the benefit cost ratio should rise (the benefits may be lower due to lower initial demand, but that is only short-term and thus a small fraction of the benefits, while the cost drop for initial capital costs is a large fraction of the costs). If the benefit-cost ratio goes up, funding is more justifiable.

It is most optimal to run the capital equipment required for road construction at a continuous level of “full” utilization, because this equipment is expensive, you don’t want it lying about unproductive, and you don’t want to buy more for only a short-term spike. Due to specialization, the equipment is not terribly fungible (nor are its operators), you cannot use road construction equipment on non-road projects very easily. Continuous rate of utilization is achieved by a steady rate of expenditure on projects which is not very spiky due to stimulus or other money bombs, or on the other side, drops in revenue due to failure to authorize expenditures, short term drops in user fees etc.