The Progress of Liberty

I offer the thirty-second part of my response to Mr. Jetton’s critique of my essay, “How to Privatize the Roads: The Mechanisms and Benefits of Road Privatization.”

Regarding my argument that private road entrepreneurs would be more likely to make roads initially sufficiently wide so that future inconvenient widenings would not be required as often, Mr. Jetton writes: “Why will a private road builder buy unneeded right-of-way for road X which will begin to generate revenues decades in the future, when the same money could be used on road Y that will generate revenues immediately?”

To this, I respond that the costs of building an entirely new road elsewhere might be much higher than the costs of building the initial road with more lanes, especially considering that significantly larger amounts of land would need to be obtained for the new road. Certainly, it is possible that the road entrepreneur could choose to build two smaller roads instead of one larger one, but I suspect that there are economies of scale that come into play when a wider road is being constructed at the same time (for instance, all the asphalt can be poured at the same time, and if there are barriers on the sides of the road, the road builder still needs the same amount of material for the barriers, irrespective of how wide the road is).

Regarding the government’s gross underestimates of the cost and time it would take to construct the Interstate Highway System, Mr. Jetton writes: “I’m not at all surprised the government failed to anticipate the increase in civilian traffic.  I expect hardly anybody in the 1950’s anticipated (1) the migration from cities to suburbs, in which the new roads played a strong role, and (2) wives entering the workforce, a significant factor in the number of vehicles. I strongly doubt private road builders/owners would have anticipated it either.”

Mr. Jetton continues by writing that cost mis-estimates are much more common in the private sector than I alleged and that the consequences thereof for private firms are much lower than I alleged.

While it is true that private road owners could grossly underestimate future consumer demand, I ask what would happen if they did. Typically, another private road company would simply build another road in parallel to existing insufficient ones, and this new road would bear some of the additional traffic. Because of a vibrant competitive market, other road entrepreneurs would be jumping at the opportunity to seize some of the profit opportunities that resulted from their predecessors’ oversights. I still claim that firms which made too many errors of too great a magnitude would either lose enough money or enough reputation (which translates into losses of money) to go out of business. This is particularly true for firms that are of small or medium size. It is true that larger and better-funded firms (such as the consortium that built the Trans-Alaskan Pipeline) would be able to absorb the costs of some cost mis-estimates, but nowhere to the extent that a tax-funded government can.

On the other hand, the government has a virtually complete monopoly over roads and thus has no real competition to speak of. Moreover, it is not funded solely through revenue from its service operations and thus will continue to exist whether or not it makes catastrophic mistakes. If the government mis-estimates future traffic, then virtually nobody will be able to provide another road to absorb the unexpected increase. Hence, we have the sorry situation today of 1950s-1970s-era roads bearing 2000s-era traffic and only occasionally being widened. Moreover, government officials have no systematic incentives to correct their mistakes, as their agencies will continue to exist, and they will continue to enjoy lucrative incomes no matter what happens.

Moreover, Mr. Jetton himself wrote: “I suspect more accurate estimates were made, but the official government one was a lowball estimate to make congressional approval easier.” In other words, the government officials interested in constructing the roads intentionally deceived congressmen in order to get them to pass a plan they otherwise would have rejected. This practice would not pass muster in the private sector. Companies that selectively revealed only the estimates that were most favorable to them, instead of addressing all available data, would be quickly shunned by intelligent and prudent investors.

If there are systematic cost over-estimates in a private sector, then this is a warning sign that something is being meddled with in that sector. Perhaps there are tax or regulatory advantages to producing low-cost estimates now and absorbing the increasing costs later. Perhaps we have a case of fly-by managers who want the prestige of initiating apparently low-cost projects, dropping their job with their companies, and leaving their successors to deal with the actual higher costs. (The severe dissociation of ownership from management in many of today’s companies is due to government intervention – namely, to the many regulatory barriers to entry for small firms, which encourages large, highly inefficient forms of organization to prevail – including the modern publicly traded corporation, where many of the owners are speculators, many of the managers simply try to pad their salaries and benefits with their companies’ assets, and many of the employees are unionized and try their hardest to get more pay for doing less work, while keeping out competent non-union labor.) Perhaps we have the macroeconomic instability caused by the Federal Reserve’s artificial infusions of credit, which lead entrepreneurs to systematically believe that there is more capital available than is in fact the case, and that this capital is available at a lower price (interest rate) than would be warranted by the real economic state of affairs. I do not claim to know precisely why the software companies systematically underestimate development efforts, but I suspect that if we looked closer, we would find some government measure responsible for it.

Finally, I would like to address Mr. Jetton’s words that “[i]t seems [Mr. Stolyarov] gave up on the idea of retractable rollers. Instead he throws out some new ideas about remote-controlled or robotic barriers.”

I would like to clarify that this is in fact the same idea. The barriers would have retractable rollers which could be deployed remotely and moved to the location of one’s choice – or else could move themselves. This is not too improbable given even today’s technology. I own a cleaning robot which is extremely effective at accomplishing its intended tasks and which can move in much wider variety of ways than the kinds of devices I am envisioning here.

At this point in the discussion, I think that I have made my arguments sufficiently explicit that I can safely let Mr. Jetton have the last word and let our readers decide who has the upper hand in this discussion. It was interesting to address some original and in-depth critiques of the road privatization position – as typically the counterarguments to road privatization are nowhere near this level of sophistication or persuasiveness. (Most people tend to dismiss the notion without argument simply because it is unfamiliar to them or outside their zone of comfort.) Hopefully, others who wish to examine this issue will be benefitted by the arguments made here.

Sincerely,
Gennady Stolyarov II

Editor-in-Chief, The Rational Argumentator: http://rationalargumentator.com

Writer, Associated Content: http://www.associatedcontent.com/user/46796/g_stolyarov_ii.html

Author, Implied Consent, A Play on the Sanctity of Human Life: http://rationalargumentator.com/impliedconsent.html

Author, A Rational Cosmology: http://rationalargumentator.com/rc.html

Author, The Best Self-Help is Free:  http://rationalargumentator.com/selfhelpfree.html                      

Author, The Progress of Liberty Blog: http://progressofliberty.today.com/

Trackback URI | Comments RSS