For Pete’s Sake, There Is a Better Road!

– April 2, 2021 Reading Time: 5 minutes

“Mayor Pete” Buttigieg lost his bid for the presidency but he did end up becoming the Biden-Harris administration’s successful pick for transportation secretary. It remains unclear what qualified him for that cabinet position, other than the fact that South Bend, Indiana has some roads. His first major proposal, a vehicle mileage tax (VMT), has thankfully bitten the dust, at least for now, but like all poorly grounded policy ideas, it will probably resurface in the future. Buried inside, though, runs a road leading directly to a second Transportation Revolution.

For almost 30 years, an 18.3 cent per gallon federal gasoline tax has been earmarked for transportation infrastructure building and repair. There appears to be little political will to increase that tax, which is eroding in real (inflation-adjusted) terms and in overall impact as more fuel-efficient hybrid and full electric vehicles overrun America’s roadways but without reducing overall wear and tear on our cheap but expensive road surfaces.

A VMT constitutes a more precise way of measuring actual infrastructure (ab)use, especially if vehicle weight and/or number of tires/axles is built into the tax. For progressives, however, both gasoline and VMT taxes are embarrassingly regressive because they fall hardest on the poorest. Rural folks aren’t happy with the VMT either, which could also crush the emerging rideshare and home delivery industries. To reduce its regressivity, the VMT would have to be indexed to incomes and maybe county or zip code, with allowances or exemptions for business miles. Tax accountants and tax software companies must be salivating at the thought!

Buttigieg did make one interesting comment, though, when he defended his VMT proposal by suggesting that the “user-pays principle” should apply to road usage. Indeed my boy! There is no reason why America should retain the many nefarious cross-subsidies that distort the usage of various modes of transportation. If you use it, you should pay for it, for all of it, by which I mean, of course, the marginal cost of your travel. We have the technology — free markets and toll transponders (like EZ Pass) — but not yet the political will.

If Buttigieg were to intelligently auction off federal transportation infrastructure, though, he could be the federal government’s last and greatest transportation secretary and run again for POTUS as a bona fide progressive policy guru. Not only would the sale of transportation infrastructure reduce the deficit and/or provide cash for progressive causes, it would free up tens of billions of dollars from the federal government’s budget annually and, I daresay, reduce greenhouse gas emissions.

Privatizing (actually reprivatizing) transportation infrastructure would help all Americans by allowing the creation of better, cheaper transportation alternatives by putting competition back into the mix. Transportation competition is complex but encompasses two major concepts, route and mode. The former includes networks of connections, the latter the characteristics of the connections, be it by automobile/road, pipe, railroad, or waterway.

Ever since the regulation of railroads began in earnest in the late nineteenth century, state and US government policies have greatly influenced, even dictated, which mode of transportation prevailed. Automobiles supplanted passenger trains and trucks seized market share from freight trains in large part due to government subsidies for roads. Before Americans’ supposed love of the automobile, they adored railroad cars. People switched to automobiles because they were more convenient but also because they were cheaper due mainly to overregulation of the rails and fossil fuel subsidies. Similarly, Americans fly short distances that Europeans and Japanese cover by rail because commercial airlines received subsidies unavailable to passenger rail until it was too late, and America found itself stuck with Scamtrak.

Regulations and subsidies also put up barriers to the construction of new modes of transportation, like hyperloops, and the proliferation of established modes, like air taxis. While new modes might prove too costly or unpopular, we will never know for sure so long as government bureaucrats like Mayor Pete, instead of consumers, drive decisions about driving. Or flying. Or floating. Or pedaling. Or hyperlooping.

People worry that privatized infrastructure will lead to the monopolization of their favorite roadways or subway routes, i.e., high costs, without considering that they could recoup some of their costs by investing in infrastructure company securities.

More importantly, though, competition between modes will help keep tolls in check by opening up viable alternatives, like trains or small planes. Tolls could be regulated, like public utility rates are, but in most instances well-established antitrust (competition) rules will prove sufficient. Don’t allow the same company to own I-80 and I-76 in Pennsylvania, or I-80/90 and I-70 in Ohio, and threaten to allow a third company to build a new turnpike between the two existing routes if the two companies collude and we’ll end up with something close to competitive tolls, i.e., tolls that match marginal costs based on vehicle miles traveled, weight, number of tires, and even road conditions. For example, tolls could be higher in snowy weather, lower during off-peak hours, and perhaps zero in case of construction delays.

Speaking of construction delays, Cliff Winston showed in Last Exit that private turnpike owners would build roads much better and more durable than government contractors do today. (Contractors want to be summoned back in 5 or 10 years, not 20 or 50, and politicians want to minimize today’s costs.) Construction repairs would still be necessary at times, of course, but they would be handled in a less intrusive way than is typical today, saving American motorists the aggravation and cost of many hours wasted spent merging so they can pass single file a half-dozen guys who always seem to be on coffee break. Efficient peak pricing would also reduce the approximately 54 hours that the average American commuter unnecessarily wastes in traffic jams each year.

Transportation infrastructure privatization is also downward scalable, as states, counties/parishes, and even towns/villages could also sell or donate their roads and relieve themselves of the attendant costs. Property owners must be given first dibs to purchase or simply be deeded adjacent roads and efficient small-scale POAs (property owner associations) will have to be developed to manage repairs and snow removal. Agreements to compensate the owners of emergency routes will have to be made, and so forth.

What makes the reprivatization of America’s road systems possible is transponder and camera technologies that reduce transaction costs to something akin to what they were in the first half of the nineteenth century, when America built its first road network, a mostly private one. Back then, most tolls were not paid in cash but rather via the purchase of yearly passes. Tollgate keepers soon came to recognize who possessed a valid pass and who did not, eliminating the stop time of the former to zero.

Many turnpike companies were only marginally profitable, which is exactly what one would expect in a competitive system. In addition to choosing between several turnpike companies to bring their produce to market, many farmers could also opt for seasonal water transportation (via spring freshets, frozen waterways, or snow-covered trails) or poorly maintained government roads. Turnpike managers noted that when the weather was dry, some farmers chose to take government roads, paying “tolls” with their time and a higher risk of broken wagon wheels. When wet, government roads became so muddy that farmers opted for well-maintained turnpikes instead. A few used so-called shunpikes to avoid toll booths while enjoying straight, hard, well-drained turnpikes for most of the trip.

America’s private road system died because automobiles travelled farther and faster than wagons and carriages, decreasing the utility of annual passes and raising the transaction costs of paying/collecting tolls. (I remember dumping exact change into buckets every few miles on the Garden State Parkway in the 1990s. Not fun!) So it made some sense to make the roads “free” by turning them over to the government, though that raised a host of political economy issues that have flummoxed Mayor Pete and his predecessors since the Department of Transportation began its official life 54 years ago, on 1 April 1967.

Today, electronic surveillance renders shunpikes less likely to prove profitable for free riders, modern asphalt roads are not heavily damaged by rain, and, as suggested above, extra tolls could be levied to cover snow and ice removal damage. Moreover, transponders can charge vehicles for each mile traveled and vehicle type/weight/axles.

In short, America’s transportation system could again become a privately-owned and competitive one, both as to mode and route. All we have to lose are our chains, the policies that prevent competition on transportation price and quality alone.

Robert E. Wright is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic Review, Business History Review, Independent Review, Journal of Private Enterprise, Review of Finance, and Southern Economic Review. Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997. Robert E. Wright was formerly a Senior Research Faculty at the American Institute for Economic Research.