Internalizing the Externalized: The Case of Roads

Samuel Staley's picture
Blogger

In a previous blog post, my discussion of externalities, public goods and roads spurred an unexpectedly lengthy set of posts and repostes. In this article, I want to address a trickier topic: Whether road users have effectively shifted the burden for paying for roads to non-users and whether the reason we pay for roads out of general taxes is a result of that lobbying effort.

Some planners have referred to this process (if I interpret their comments correctly) as "externalizing" the costs of providing services and goods. Essentially, the idea boils down to whether a private good is paid for by the general public when the general public doesn't benefit from its provision; it's a version of privatizing the benefit while socializing the cost. At its core, this is a question of subsidization.

I'll continue to use roads because that's the case in which the term emerged, and this topic seems to create the most controversy in the planning community. And, let me acknowledge from the outset the obvious: The vast majority of roads are subsidized in the sense they are funded by government. The question is the degree of subsidization by non-users and whether those subsidies should continue.

On the surface, the case for automobile users externalizing the cost for roads makes sense. Tolls, gas taxes, and other user fees made up just 52.5 percent of the revenues spent on highways nationwide in 2008 according to the Federal Highway Administration (Table HF-1).  The share ranged from just 28 percent in Arizona to 82.3 percent in West Virginia. Moreover, the U.S. General Accountability Office recently found that federal general fund transfers to the Highway Trust Fund have been significant enough to make every state a "donor" state based on pure dollars flowing in and out of the account.

But, this breakdown is a little too facile. Not all roads serve the same purpose or lend themselves to user-fee applications. Moreover, the public benefit properties of roads have been recognized for centuries (and even discussed by Adam Smith in the Wealth of Nations). The U.S. Constitution explicitly enables the U.S. Congress to authorize funding for Post Roads. The economic returns to the investment in the Interstate Highway System ran into the double digits during its early decades (financed by the gas tax) as the efficiencies of improved mobility translated into stronger bottom lines for U.S. business. Road building dramatically curtailed urban traffic congestion to the point only Los Angeles faced severe regional traffic congestion in 1982. The returns to highway investments have declined in recent decades. While the causes are not well known, many analysts believe the increased politicization of road funding and diminishing marginal returns to investments as a national network play important roles.

As a practical matter, if a strict user fee approach to road finance had been in place prior to the mid-20th century, quite simply very few roads would have been built, let alone improved or adapted to changing economic circumstances. A fascinating short history of U.S. tollroads and their economic demise in the 19ths century can be found in Daniel B. Klein's extensive work and his summary at EH.net with John Majewski.) The economic and social implications of severely curtailed road building would have been decidedly negative.

But, as the saying goes: Then was then, and now is now.

Personally, I support privatizing the entire road system. I've been publicly supportive of a distance-based fee (probably based on vehicle miles traveled) that is set to ensure free-flow travel. I believe that a price at this level would be "market clearing," eliminate the need for public subsidies, rationalize modal choice, improve land-use efficiency base on more transparent transportation costs, and generally improve urban economic competitiveness. (By implication, our failure to price roads has led to a general oversupply of roads although the local circumstances vary.)

Nevertheless, the reality is that systemwide road pricing is not quite technically feasible, currently impractical, and economically infeasible for most of the road system in 2010. The technology is close (within 20 years), as the recent road-user fee pilot project in Oregon demonstrated, but we aren't quite there yet. Limited access highways? Yes. Collector roads? Maybe. Local roads? No.

Which gets us back to the original issue at hand: If mobility has general social and economic benefits, and roads are key elements of providing that mobility, than the idea that we fund roads largely because a narrowly defined group of users have manipulated the process to off-load those expenses to nonusers is pretty weak. We tend to forget that the basic skeleton (and design) of most urban road systems predated the widespread use of the automobile. Moreover, in the case of federal interstate highways at least, the gas tax covered virtually all the construction costs until recently. Indeed, a recent Reason Foundation analysis of a re-purposed Highway Trust Fund suggests that gas taxes could cover the needs of the federal Interstate Highway System if current gas tax revenues were rededicated to that function. So, in the broad sense, users paid (and could continue to pay) for federal interstates. 

But, roads are more than federal interstates.Local and neighborhood roads provide different levels of service, and we don't yet have the technology to apply real user fees to these roads. Local roads are still largely public goods for practical purposes.

So, are road users externalizing their costs? Road investments have historically predated the widespread use of the automobile and modern-day urbanization in concept if not scale. The grid street pattern pre-dated the automobile as well as the system of roads knitting rural villages and towns to urban areas.

I don't believe road users externalized the costs of roads as much as governments recognized their social benefits (for commercial purposes as well as passengers) and the practical inability of the private sector to provide those facilities and services. As a consequence, governments dedicated funds to building what was considered social infrastructure that served rural and urban purposes.

Now, the rationale for non-user based public expenditures on roads and highways is weakening, and weaker by the decade with each new spurt in technology. While we can expect intense lobbying by current users to retain the subsidies they have, that's not the same as arguing that the reason we subsidize public infrastructure is because of special-interest lobbying for a redistribution of funds away from non-users to support their own narrow projects. The more productive discussion, I believe, is over whether the rationale for public funding of roads exists any longer and how to phase it out.

Sam Staley is Associate Director of the DeVoe L. Moore Center at Florida State University in Tallahassee.

Comments

Comments

Roads And Their "Social Benefits"

I want to address a trickier topic: Whether road users have effectively shifted the burden for paying for roads to non-users and whether the reason we pay for roads out of general taxes is a result of that lobbying effort.

I don’t believe road users externalized the costs of roads as much as governments recognized their social benefits

I don't think that most people who talk about externalizing the costs of roads believe that it was the result of a lobbying effort by road users.

I myself believe that the US decided to subsidize roads because people at the time believed that consumerism would bring everyone a better life and that road building would promote growth and provide jobs - that is, because government thought the subsidies would have "social benefits." And, of course, no one thoughtt at the time about global warming or peak oil.

The subsidies led to overbuilding of roads in the United States, whatever their motives.

I think they were wrong about the social benefits of consumerism and jobs. It seems to me that Netherlands made a better decision: they did not promote auto-dependency, where they decided to work shorter hours rather than endlessly creating jobs

It doesn't seem to have hurt them economically: their productivity per worker hour is higher than the US, though the average worker works only about 70% as much time as in the US.

Ask the Dutch, and they will tell you that the social benefits they get from their free time are greater than the social benefits that Americans get by having more cars than registered drivers and not being able to go anywhere without driving. (Not to mention the health benefits they get from bicycling while we suffer from an epidemic of obesity.)

"an unexpectedly lengthy set of posts and repostes."

"Repostes" is a good new word. It is a combination of:

Reposts: Posts in reply to someone else's post.

Ripostes: In fencing, the riposte (French for retort) is an offensive action with the intent of hitting one's opponent, made by the fencer who has just parried an attack. In everyday language, a riposte is synonymous with a retort and describes a quick and witty reply to an argument or an insult. http://en.wikipedia.org/wiki/Riposte

Charles Siegel

Urban form, the reasons for policy

Charles, I think you are largely right. The Netherlands, and I think Switzerland, are examples of nations that never abandoned the original mixed land use urban form.

I don't think it is fair to blame "consumerism" as such, or a "love affair with the auto" as some do. I think the health benefits were the main motive in getting the families out of the highly polluted, congested inner cities. In hindsight, the Europeans were right because technology has solved the pollution issue without it being necessary to separate the families and commerce by many miles, through zoning. This would not be the first time that the wrong decisions have been made by planners who were blind or pessimistic about technology.

Auto-mobility is the way the USA "enabled demand" in contrast to high density and walkability or cycle-ability or transit-ability. I have seen a series of tables somewhere where an analyst rated the effect of auto-mobility and the effect of density to show the rough levels of effectiveness of each. For example, a low density jurisdiction with a good roading network and low congestion, enables just as much interaction between similar numbers of people (and commerce) as a very high density jurisdiction where similar amounts of time are spent travelling by non-auto means. Of course, the auto-mobile jurisdiction has higher costs of travel in running autos, per unit of GDP generated; but it is easy to under-estimate the costs involved in extremely high density. Extremely high density jurisdictions still need roads and autos and road-based transport of goods; congestion, and difficulties associated with access to multi-story buildings, go a long way to negating the advantages.

But this is a diversion from Sam's main discussion point, which I will address separately.

Private systems and viability

Why are comments all turning to italics?

But to address Sam's main point. I find this a fascinating subject.

Sam, I really appreciate this candid comment. Many advocates of private infrastructure find this really difficult to admit:

"....As a practical matter, if a strict user fee approach to road finance had been in place prior to the mid-20th century, quite simply very few roads would have been built, let alone improved or adapted to changing economic circumstances. A fascinating short history of U.S. tollroads and their economic demise in the 19ths century can be found in Daniel B. Klein’s extensive work and his summary at EH.net with John Majewski.) The economic and social implications of severely curtailed road building would have been decidedly negative....."

EH.net looks like a fascinating site, and I must spend some time looking at it. It was hard to find the summary you refer to. It is HERE:

http://eh.net/encyclopedia/article/Klein.Majewski.Turnpikes

I believe that benefit-cost ratios for roads can be overwhelmingly positive, and yet the amount that a typical driver is willing to pay for a trip, falls far short of the "benefit" broadly imputed to that trip. I believe this is why so many toll road projects are failing today, as well as what the historical record shows.

Ironically, environmentalists who oppose roads and autos, should be the main supporters of a fully privatised roading system, because this system would almost certainly provide far less roads, and create far worse congestion (incentivising public transport use) than any alternative mainstream road funding mechanism.

I believe that the only "fully private" way in which many times more "trip value" can be captured for funding of the roads, is for regional associations of commercial property owners to fund the roads. That is, those who wish to be the "destination" of drivers trips, fund the roads. They are the ones who capture the most immediate value, have the cash flow, and have incentive to compete with one another to improve access to their region in comparison with other regions and their "roading associations".

Austin, Texas, actually has a "trip generator" estimate by site use, size, and location, as the means of assessing a "road infrastructure charge" component of their land taxes. This is exactly the sort of model that could work even under a fully private system. The complexities involved are not unlike those of utilities, and insurance assessment.

People riding an elevator up a multi-story building do not "pay" for the use of the elevator. The businesses on the higher floors, and the owners of the building, regard it as their responsibility to fund this means of "access". Why shouldn't they fund "access" right from the perimeter of their region?

Pricing Policy agreement across the spectrum

What I find interesting, is that transportation planners and theorists from both the left and the right (or statist and libertarian, if you prefer) agree that auto-mobility needs more tolling and VMT based pricing, while non transportation experts are opposed to tolling and VMT pricing. I was at the TRB session where Todd Litman, Sam Staley and two other panelists (Alan Pisarski and ?????) where supposed to play Left, Right, and Center regarding increasing density to reduce VMT. Instead there was general agreement about reforming transportation pricing to a per mile basis.

Left-leaning transpo people see VMT pricing as balancing the playing field between autos and transit, and right leaning experts see it as linking pricing signals directly to travel choices (user-pays). However left leaning non-transpo people feel that tolling and VMT charging punishes the poor more than the rich for much needed mobility, and right leaning non-transpo people think that tolling is paying again for something they've already paid taxes for (they forget these things need to be maintained). AND both sides fear the civil liberties implications of paying for travel by the mile.

Right-pricing.

Why, yes, per-mile charges would hurt the poor until public transportation catches up and becomes adequate. This is an issue that must be figured out as our transport prices are grossly distorted, and once we start charging for carbon, will hurt the poor yet again (which is why you see 'tax shifts' being argued so often).

Best,

D

So we can't make any changes until the solutions are in place?

So we can't make any changes until the solutions are in place? I think in real-world situations the stick has to come before the carrot. Because the stick usually pays for the carrot.

M

It gets better!

For these people, the solution is never in place! Here in New York, opponents of congestion pricing insisted that it will hurt "the poor" despite overwhelming evidence that the poor - and most of the middle class - all take transit. Their arguments were repeated without question by the "liberal media."

When they responded to challenges by congestion pricing advocates, often they conflated people driving for delivery or to provide services - who would have saved more from reduced congestion than they would have paid in fees - with commuters. Sometimes they insisted that there was one poor person somewhere who drove, and even one poor person being priced out of commuting by car was too many. Sometimes they shifted the goalposts, using Marxist rhetoric to defend the disadvantaged upper-middle-class drivers from the predations of upper-class drivers.

Basically, there is no way to win this argument as long as driving fees are presented as an attack on the poor. No matter what you say, you sound like an apologist for the rich. The only thing to do is to change the frame.

About the poor

It is not even certain that "most poor people use public transport". Some studies have shown the opposite, because so many poor people cannot afford conveniently located homes, whether convenient to roads or public transport routes.

Colin Clark actually analysed public transport subsidies as boiling down to a subsidy to the owners of conveniently located properties. This contrasts with road subsidies where the benefit captured is not nearly so "localised".

Joel Kotkin argued in "Back to Basics" that the poor suffered the most from neglect of roading infrastructure by the authorities, because they are the ones most obliged by circumstances, to own and use autos.

But back to your main point, it is extremely odd that the political activists who claim to care the most about the poor generally also subscribe to environmentalist ideologies that certainly hurt the poor, and limit the ability of everyone else including the government itself, to help the poor.

Hurting the Poor

Cap'n Transit was talking about the controversy over congestion pricing in New York, where most poor people definitely do use public transportation.

"political activists who claim to care the most about the poor generally also subscribe to environmentalist ideologies that certainly hurt the poor"

How much has anti-environmentalist skepticism about global warming helped the 20 million poor people in Pakistan who are now homeless because of flooding aggravated by global warming?

Given enough time, even the most obtuse anti-environmentalists will ultimately realize how much damage they have done to the poor people of the world.

Charles Siegel

Glass half full, or glass half empty?

Sea levels have been rising for millennia, as numerous under-sea cities testify. Monsoons and flooding have also been happening in certain parts of the world for millennia. I don't get the connection between what has happened in Pakistan, and "anti-environmentalists" alleged guilt.

A lot of people's crops grow better in warmer conditions and with more CO2. And the first world is certainly doing its bit allowing the millennia-old migration flows of humankind to continue. The world's poor are probably better attended to consequent on natural disasters than any of their ancestors ever were. Things are slowly getting better on these fronts, not worse.

Some parts of the world would benefit very much from bringing their own land management methods up to the level of our own, if their culture was amicable to the progress and the instituions that have enabled our own.

Half-full of Groundwater Tainted by BigAg.

Wow. Look at all the incorrect assertions and implications in this comment.

Good thing such "thinking" is ignored as the world enacts policies to adapt to and mitigate man-made climate change.

Including trying to develop new crop strains, as it is utterly basic knowledge (to most) that most crops today are at their max temps. Unless wodehouse is arguing all the $Ms spent on rice vars is wasted, or that newly-melted tundra and taiga is really good soil for crops, or current vars can take the extra stress from moisture fluctuations...

Best,

D

Not Like The Current Disasters

There has not been flooding like the current flooding in Pakistan in more than 80 years. There is a good video about it at http://climateprogress.org/2010/08/18/monckton-co2-is-plant-food-crock-p... which has a chart showing how much more common extreme rain has become and which points out that the American mid-west has just had its second "500 year flood" in the last 15 years, causing $15 billion in damage.

There has never been a hot spell like the current hot spell in Russia since temperature records have been kept. Based on statistical analysis of recorded temperatures, the current temperatures in Russia are a one-in-a-thousand year occurrence. But it is just a matter of time, as I said, before everyone sees that heat waves are occurring more frequently than they used to: the connection of record high temperatures and global warming is too obvious for even the most rabid ideologue to ignore.

"Some parts of the world would benefit very much from bringing their own land management methods up to the level of our own, if their culture was amicable to the progress and the instituions that have enabled our own."

You confuse criticism of lunatic-fringe anti-environmentalism with criticism of all western institutions. The people who ignore science and claim that crops will grow better because of global warming are not the people who have brought us progress.

Charles Siegel

Chaos

But Charles, climate IS a chaotic system. There are ALWAYS records being set somewhere for high temperatures, and low temperatures - including right now. And for high rainfall, and low rainfall. And there are always events occurring outside statistical prediction frameworks.

I think you agree with me about the western institutions that are beneficial. But it is true that crops will grow better because of global warming IN MORE PLACES than it is true that they will not grow so well. There is far more "cold" land mass on the globe becoming fertile than there is "hot" land mass becoming less fertile. Farming has not been so viable in Greenland since the medieval warm period. (Perhaps the medieval warm period was the last cycle of the previous "1000 year" period?) Russia stands to do well out of global warming on balance, likewise Canada and Scandinavia. That involves far more land mass than what is closer to the equator.

The Copenhagen Consensus deserves credit for doing the economics about all this. We CAN help the world's poor, and we can do a lot more good per $ by ways other than reducing CO2 emissions. Nordhaus and Shellenberger (whose environmental credentials are unquestionable) have it right - all proposals so far for CO2 reduction are mere tokenism if "the science" is right. We won't reduce global emissions 80% by moving first world citizens into high density living and replacing our roads with railways. We are in any case talking about trillions of dollars in foregone economic growth just to delay 2100 temperatures to 2106. We could decently house a lot of third-worlders for that kind of money.

We especially rob our whole cause of sincerity when things like unionised work practices are regarded as "untouchable" even when they are a prime cause of high emissions. I presume most people here are familiar with Ted Nordhaus and Michael Shellenberger's writings on this?

Economics Of Controlling Global Warming

So much misinformation, and so little time!!

"We are in any case talking about trillions of dollars in foregone economic growth just to delay 2100 temperatures to 2106."

The Congressional Budget Office found that Waxman-Markey would reduce economic growth 2%-3% by 2050 - that is a loss of about one year's economic growth over 40 years in order to stabilize CO2 levels at 450 ppm, which is what is needed to hold temperature increases down to 2 degrees Centigrade. We would get the 2050 gdp in 2051 instead, and in exchange, we would have a more stable climate.

As the current disasters prove, the costs of uncontrolled global warming would be far, far greater than this. The worst costs of global warming would occur after co2 levels exceed 450 ppm, so what we are seeing now is just a small foretaste of what could happen.

One effect of global warming is that warmer air can hold more moisture. That means the ground becomes drier and crops fail, as is already happening in Russia. It also means that, when the rains come, they are worse, as is happening in Pakistan and the US.

NASA researchers have found that global plant productivity is declining because of drier conditions caused by global warming. http://climateprogress.org/2010/08/19/climate-science-nasa-drought-drive...

In addition to farm land, there are changes to the ocean. 40% of phytoplankton have died since 1950, and they are the basis of the ocean's food chain. And the oceans are becoming more acid and therefore less hospitable to life. This is a major source of the world's food that global warming would destroy.

"There are ALWAYS records being set somewhere for high temperatures, and low temperatures - including right now. And for high rainfall, and low rainfall."

The American midwest has had two 500 year floods in the last 15 years. What is the statistical probability of that happening because of random changes in the weather?

PS: Here is a news item I just came across about the costs of global warming:

"Climate change may add 50 percent to the storm damage costs incurred by some Caribbean nations over the next two decades, said Swiss Reinsurance Co., the world’s second-largest re-insurer. Wind, storm surges and inland flooding already cost some Caribbean nations up to 6 percent of their economic output each year, the Zurich-based company said today in a statement on its website. Global warming could add costs amounting to another 1 to 3 percent of output by 2030, it said."

This one cost of global warming could be up to 3% of the Carribean nations' GDP by 2030. Think about how much all of the costs of global warming could be by 2050.

Charles Siegel

All very baffling

Charles, I appreciate the courteous exchanges, and the information you provide. I can only conclude that on this subject, there is such wide disagreement between the experts of opposing camps, that perhaps one side or both is disastrously mistaken; and/or both sides are being extremely arrogant in assuming such omnipotent knowledge.

I did not understand the economists involved in "The Copenhagen Consensus" to have been proven to be shills of "big oil" or the like. They disputed among themselves about by how much the costs exceeded the benefits, but the most generous estimate was 90 cents benefit per dollar of cost. It is clear that a lot depends on discount rates used, and assumptions about economic growth and population growth:

http://www.opposingviews.com/counters/reports-of-economic-crisis-unfounded

I certainly wish for the world's poor to be aided by the "most effective" means.

Of course, there is nothing like the global economic crisis to make a nonsense of everyone's assumptions, AND reduce emissions!

But to address one last point you make, I understood that the effect of each new increase of CO2 has less and less effect than the earlier ones, and that we are close to the expected total effect already.

There are, of course, still studies coming out that show a close connection between solar activity and global warming. It is next to impossible for rising temperatures in the atmosphere to transfer heat to the oceans; if the oceans go through warming and cooling cycles, the sun must be responsible. (Plus a role for undersea thermal activity). The atmosphere will follow the oceans, not the other way around. The "greenhouse" effect on the oceans is negligible compared to the effect of direct solar heat. We do not want to impose costs on our economies if it turns out we had little effect anyway.

I do still hope that the issue will soon be conclusively decided against "anthropogenic" causes - that is much preferable. Of course, were we to enter a new "little ice age" there are sure to be scientists who will claim that THAT is also anthropogenically caused, possibly by some emission other than CO2.

Crops, chaos and order.

But it is true that crops will grow better because of global warming IN MORE PLACES than it is true that they will not grow so well.

No, this talking point created so the gullible will spread it like Astroturf is demonstrably NOT true**, just like all the other talking points spread by gullible rubes in the guise of 'rational' discussion.

This is why the planet has moved on and is discussing policies for adapting to and mitigating man-made climate change. Because denialists have nothing to say outside of parroting false talking points.

Best,

D

**“A snapshot of Earth’s plant productivity in 2003 shows regions of increased productivity (green) and decreased productivity (red). Tracking productivity between 2000 and 2009, researchers found a global net decrease due to regional drought.” Credit: NASA Goddard Space Flight Center Scientific Visualization Studio.

Snapshot of Earth Plant Productivity

This snapshot is also in the article about the recent NASA study at http://climateprogress.org/2010/08/19/climate-science-nasa-drought-drive...

Charles Siegel

Declining NPP and climate change.

Thanks for the fix, Charles. Not sure what happened with my tag.

Best,

D

NASA said the earth was "greening"

What do you think of this NASA article? They say the earth was "greening" because of climate change. I don't know if this has been re-done more recently.

http://www.nasa.gov/centers/goddard/news/topstory/2003/0530earthgreen.html

Greening dates and critical thinking.

What do I think?

1. On our planet, newer empirical evidence replaces older empirical evidence. Or,

2. Distracting away from empirical evidence that negates worldviews is a diagnosable condition.

HTH.

Best,

D

The bottom line about global warming

The bottom line about global warming is this: if it's real, and humans are causing it, then we are risking everything. Ice caps will melt, sea levels will rise, cities will flood, entire populations will be displaced, economies will collapse, ecosystems will be disrupted and civilization, itself, could be lost.

If it's not real or humans are not to blame, we will have moved our society away from wasteful energy consumption patterns, eased geopolitical tensions, restrained coporate power, rolled back sprawl, invested in civic infrastructure, improved the lives of the working class and the poor and helped preserve the fragile habitats that sustain all life.

The choice is clear.

Not that easy

That does not all follow logically. Choosing more expensive options for energy and urban form, and policies on transport and other things that will require higher tax levels and lower economic growth, will certainly not enable society to ensure that the lives of the poor and the working classes will be improved. Some spokesmen for minorities, for example, are already starting to complain about urban planning driving up the price of property to the point where most African-Americans and Hispanics cannot afford it. Then, of course, the CRA and the FHA and "sub-prime" and Fannie Mae and Freddie Mac all come into the picture to "help".....

Helping the poor

I agree that per-mile charges would hurt the poor, but I also think that limiting the poor's transport options to public transport hurts them at least as much. Just as the poor cannot afford property conveniently located, and would be obliged to pay the highest VMT charges; they also cannot afford the properties where the public transport is most viable - especially in jurisdictions where land values have been driven up by the urban growth boundary effect. It is in the cheap-land jurisdictions that the poor have by far the greatest choice of housing location.

This is one reason why I favour a radical alteration to who pays for the roads, and how. We do not expect to pay to use an elevator in a high rise building. The property owner provides it so that businesses in the building will be viable. Commercial property owners should also pay for the roads that bring customers and staff and freight to their properties. This is completely consistent with "who benefits" from Ricardian rents.

Other political contradictions

I also find it ironic that environmentalists who oppose roads and autos, are also usually statists who oppose a fully privatised roading system, when this system would almost certainly provide far less roads, and create far worse congestion (incentivising public transport use) than any alternative mainstream road funding mechanism. (See my other comments below).

I regard myself as an economic libertarian, but even I would prefer public funding of roading to continue if the alternative is going to be a dismal failure (like one toll road project after another today) because of a widespread failure to grasp the "driver willingness to pay"/"value created" gap paradox.

Getting back to externalities

Sorry for the multiple posts, but I want to capture a few thoughts that have been rattling around in my head since Staley's first post. I want to get back to the idea of what is and what isn't an externality.

It seems to me that there is a fundamental difference between progressive-minded planners, and libertarian-minded planners on this topic. As a progressive ,non-economist planner (who took Econ 101), externalities serve as a way to quantify, primarily, the costs that are not incurred by the producer of a good with the intent of re-introducing them, through state mandated means, back into the market transaction on either the producer or consumer at the point of purchase. I'm not saying this is right or wrong by traditional economic standards, but I think it is a wide spread approach in advocacy. You see it a lot in environmental economics; for example when advocates try to quantify the costs and benefits of habitat preservation. How do you put an economic price on flowers, or open space, or how do you capture the "true" costs of pollution? Are there separate values for clean air, and "clean enough" air? However, my impression is that this results in a lot of "fuzzy" or interpretive math. I think this type of quantifying of qualitative features stretches progressive thinkers' arguments, and of course is seemingly dismissed by traditionally economically minded and certainly libertarian leaning planners.

Getting back to the topic at hand, Staley above makes a very good case for capturing the external benefits of roadways of all kinds. They are economic engines that have been with us since Roman times. However, he seems, in other posts, to be uncomfortable with the way that progressive planners wish to quantify the costs of auto-mobility in terms of 1) pollution, 2) congestion, 3) sprawl, 4) health, and 5) climate change (in order of abstraction). Sprawl, health, and climate change are especially difficult to quantify, and a traditional economist would see them as exogenous to the transportation system. So how do you carry over costs created by one economic transaction (mobility) and factor them into a completely different economic system (housing preference, job location, life-style activity choices)? This is where is gets complicated for economists, and frustrating for progressives.

Marginal Benefits and Externalities

"Staley above makes a very good case for capturing the external benefits of roadways of all kinds. They are economic engines that have been with us since Roman times."

I think we should be looking at marginal benefits and costs. If we had as many roads now as they had in Roman times or in the nineteenth century, building more roads would provide huge external benefits.

But we in America today already have more than enough roads to provide all these external benefits. There are undoubtedly some exceptions where new roads are needed to open up undeveloped areas. But adding more roads in Houston or Atlanta would not not provide any external benefits today - as it would have 100 years ago. They already have far more roads than they can use.

Charles Siegel

We have grown a lot in 100 years

Charles, it has to be a question of growth in both population and economic activity. I think most cities are in a substantial roading infrastructure deficit situation. I agree that it is possible that cities like Houston and Atlanta might have SOME roads that do not meet marginal benefit-cost criteria, but I do not believe that economists who analyse benefit-cost for new roading projects as "positive" again and again, and by a sizable factor, are getting it wrong.

There are reasons other than benefit-cost, for the repeated failure of toll roads. I believe that benefit-cost ratios for roads can be overwhelmingly positive, and yet the amount that a typical driver is willing to pay for a trip, falls far short of the "average benefit per trip" calculated by economists.

More Roads In Atlanta And Houston??

Compare Atlanta with Amsterdam.

Amsterdam has far fewer miles of roads per capita, but it is just as successful economically, it is a more pleasant places to live, its people are healthier, and its transportation is more convenient and does far less damage to the world's environment.

QED. Net benefit of building more roads in Atlanta < 0.

Charles Siegel

European Planning history

Charles,

Many old European cities never departed from the mixed use urban model of the pre-auto, pre-train era. In fact, the social consensus AGAINST "renewal" was extremely strong - making Jane Jacobs look like a wimp. Colin Clark actually says in more than one of his books, that we should not underestimate the power of the European tradition of walking home from work for lunch. Growth, epecially in Amsterdam, was of the multi-nodal, edge city variety - they deliberately avoided planning for a "CBD" as we understand it.

In the USA, planners acted in what they thought was society's best interests; get the families out of the congested, polluted inner cities. The negative externalities of emissions did not occur to them as a reason not to do this, as the positive externalities were so high at that time. Had they been more technology-optimistic, they might have predicted that inner city living might eventually become less unhealthy than "suburban living plus commuting".

The problem Atlanta now has, was discussed very thoroughly by Alain Bertaud in "Clearing the Air in Atlanta". If you have never read that, you have really, really missed something important. Atlanta is like a genie out of its bottle. Turning Atlanta into Amsterdam now requires either a massive time machine; or so much destruction of existing capital and reconstruction with fresh capital, that the effect on resource use and emissions would take centuries to recoup in efficiency gains.

I suggest that technology-pessimistic planners today are making a new set of mistakes that a new generation of planners one day will be frantically trying to undo. I think decentralisation of a hitherto unimagined scale will be the new requirement, driven at least partly by a newly-understood need to reduce "food miles to market". Again, it is the old, old European "mixed" land use form that will be foremost as the model. Places like Atlanta will be the easiest to adjust due to their "sprawl" and their low land costs.

Detroit could show the way today, by using ghost suburbs and underutilised parks for massive "social gardening" projects. (Much harder to do when you've forced your urban form into wall-to-wall high density housing and apartment blocks.) One of the primary obstacles to localised food production today, is the extremely high subsidies that apply to rural roads and rail freight infrastucture.

There are many discussions of "optimum size" for a city. I think we would see many more cities, of smaller average size, under a freer-market, less subsidy-distorted model. I think the "efficiency" of monstrosities like Manhattan and Hong Kong is over-rated.

Europe is still mostly no model for commuter rail transit, which is still inefficient and needs massive subsidies to exist. The more efficient urban forms that maximise walking and cycling, as Amsterdam's does, still does not result in "sustainable" rail transit. There is an urban model where rail transit is viable - a massive "ring" with tracks running in opposite direction, and no development inwards or outwards from the ring. It would have to be built from scratch - it could not gradually evolve or grow. Urban growth and evolution; and rail transit; are incompatible, peroid.

Europe's marginal benefit-cost ratios for new, congestion-reducing roads, would be at least as high as in the USA, even though they are well ahead in mixed land-use, walkable urban forms. By the way, I admit I am exaggerating a bit here to make a point about the difference between them and the USA. They have still become increasingly "auto dependant" in Europe, and they now are having the same debates about roads and autos and rail transit. The voice of reason was epitomised by the Vatanen-Harbour paper "European Transport Policy: Strangling Or Liberating Europe's Potential"?

Atlanta certainly should, though, abandon MINIMUM lot size regulations to allow for obvious, natural, "by choice" gains in efficiency. As should any city. I am almost as opposed to these regulations as I am to urban growth boundaries of insufficient diameter to prevent land price bubbles. As should be any advocate of "freedom". The US's founding fathers would not have agreed with these regulations either.

Rural USA the new wave?

Someone just recommended THIS to me:

http://smartgrowthusa.wordpress.com/2010/08/10/census-maps-show-americas...

This is extraordinary. Under the radar, many rural areas in the USA are booming.

I think this is important. I think these rural areas are the parts of the USA that actually correspond more to the highly efficient mixed land use model that makes parts of "old Europe" score well on so many statistics, low VMT etc. This can only be for good.

The author of that blog posting has dug out some interesting investigations. Apparently rural areas can be attractive to the young and to artistic, bohemian types. Maybe this is a new trend that does not yet have a "Richard Florida" to identify it?

Michael Lewyn's picture
Blogger

Don't forget cross-subsidies

The relationship between roads and users is not just a simple case of "road users vs. road non-users." The road system is also full of cross-subsidies among road users. For example, suppose that Developer City builds a new highway into the rural hinterlands, paid for by the gas tax. Even if the cost of the gas tax equals the cost of the road, urban drivers who use existing roads pay the cost, but only residents (and developers of) the suburbs created by the highway reap the benefits.

Turn your thinking around, Michael

Ah, here we have an important argument to engage with.

As metro areas grow, Michael, bigger and bigger property value increases are captured by the inner locations. There are exceptions, and the main one is where blight sets in and this is arguably the result of the jurisdiction failing to stay ahead of infrastructure requirements, especially roads.

But these natural, Ricardian value increases are one consequence of the highways to the urban fringe and beyond, and the new developments. It is not the residents of those new developments who "benefit", their land value remains low, linked to the value of land beyond the fringe, provided there is not a "step up" in value at the urban growth boundary as the result of "land banking".

Turn your thinking upside down, Michael. The people who benefit should pay. The property owners in the center whose property values go up by millions, should pay for the fringe infrastructure. Henry George was wrong in so far as his value-confiscatory ideas would have prevented land being redeveloped for efficient uses. "Ricardian" rents are "good" rents. But Henry George would have been right had he developed his ideas like I am suggesting.

There is so much value to be captured here, it is a question why the major property owning interests aren't already advocating for it. They are certainly suffering from the status quo of infrastructure neglect, especially if their area collapses into blight because of it. THIS is where the "value" is; there is nowhere near the same value to be extracted from the buyers of fringe homes and the drivers of autos - which is where most jurisdictions are trying to extract it.

Look at it this way, too: the people who benefit from the highway out to and beyond the fringe, are not the people who travel "in" on it; it is the "destination" of their trip that benefits - the retailer, the employer, the recipient of the freight.

There are refinements that should be made to this concept. One is that the kind of use of the properties concerned, might generate different amounts of "trips". This should be taken into account. High traffic generators located near urban centers are currently "free loaders" in the worst sense of the term. It is THEM that should be considering their location as a result of "road user charges", not the vehicle driver considering whether he can afford to make the trip there as a result of charges levied on HIM.

In Town Pays

People with higher property values also pay more in property taxes which means they pay more into funds for city services even if they use less in city services (e.g. fewer road miles).

I'm confused; you're arguing that in town property owners are suffering from infrastructure neglect yet they should be asked to pay for fringe infrastructure? You're also arguing that trip generators should pay. It's likely those trip generators (like employment and entertainment centers) have more to do with the increase in land value than the suburban fringe development (recognizing commercial centers may be supported in part by the total population size of the metro). In town businesses likewise are also paying higher property taxes and higher rents due to their higher property values.

Linking expenditure with funding

Thanks for the questions, Eliza. I am pleased when anyone has taken the trouble to work out what I am trying to say.

What I am arguing is certainly that "in town" property owners are suffering from infrastructure neglect, but I am not saying that they do not already pay more than enough in taxes. The infrastructure neglect is for political-ideological reasons rather than conscious equity decisions about what the payers of tax are or are not entitled to.

Austin, Texas, has a very interesting de facto property tax component called a "road user charge", which is levied by site, varied according to size, value, and (estimated) "trips generated". The funds thus collected are spent on roads. The constituencies involved can clearly weigh up the consequences of paying more or less, and getting more roads or not.

I believe that jurisdictions who fund all infrastructure, including for fringe development, out of revenues that may be provided proportionally more from higher value properties rather than targeted from the fringe developments themselves, are striking an equitable balance, for the reasons I outlined. The occupants of the fringe developments bring more value to the higher valued properties than they capture themselves.

Higher trip generators should pay more for ROADING infrastructure, otherwise they are free loading on the revenue paid by low trip generators who have higher property values. If they cannot pay the higher cost due to their contribution to traffic quantities, they should be located somewhere cheaper. The failure to distinguish between levels of trips generated, in terms of "who pays", leads to an inefficient use of land.

Not that we aren't doing too bad anyway, compared to the "Cities Without Land Markets" that Alain Bertaud analyses in his paper of that name.

Terminology is hiding something

You use the single term "roads" to describe all sizes and designs in all places.

We may get lots of public value from having a connected network of appropriately designed and sized streets. LEED-ND recognizes and rewards this public value.

We are totally subsidizing drivers and sprawl if we build larger and auto-only roads in urban areas. Building high-speed 6-lane arterials all over the place is not providing public value; it's subsidizing those who want to live and work out there.

BTW, the usual term for the local network is "streets" and paved things outside of urban areas are "roads" with the highway being a long-distance connection.

Michael Lewyn's picture
Blogger

poverty and transit

It is not necessarily true that most poor people use transit- because in places with minimal transit service such as the American Sun Belt, even most poor people either drive or don't take trips at all.

But it is VERY DEFINITELY the case that poor people are more likely to use transit, and that in places with poor transit, the majority of transit users are, if not poor, at least significantly poorer than the average driver. This article discusses the issue in detail:

http://www.uctc.net/papers/701.pdf

More misleading commentary

The issues that officially motivate this site are urban in nature: “Planetizen is a public-interest information exchange provided by Urban Insight for the urban planning, design, and development community”. So the issues concerning surface transport that animate discussions here are properly focused on the intersection of planning, development and transport modal mixes in urban areas.

The major discussions in the urban transport literature have essentially concerned 1) the appropriate mix of urban expressways and mass transit to handle peak hour commuting trips and lead to more efficient land use, and 2) more generally, the appropriate share of urban auto based trips compared to other modes: rail, bus, bicycles and walking, usually taken up in the smart growth and transit based development literature. Michael Lewyn’s earlier post based on his paper was on target both in terms of the focus and demonstrating the externalities caused by minimum parking requirements.

So Staley’s persistent talk about roads in general as opposed to the basic urban issues of modal mixes is a classic red herring, an argument designed to mislead a discussion by cloaking the destructive and inefficient overinvestment in urban expressways with the larger issue of the benefits of transport in general – thus his insistence on treating all roads as public goods . Polly Teek gets this exactly right; “the usual term for the local network is "streets" and paved things outside of urban areas are "roads" with the highway being a long-distance connection”.

Sam states: “I don’t believe road users externalized the costs of roads as much as governments recognized their social benefits (for commercial purposes as well as passengers) and the practical inability of the private sector to provide those facilities and services. As a consequence, governments dedicated funds to building what was considered social infrastructure that served rural and urban purposes.”

One really needs to provide evidence for this assertion by grounding it in the available peer reviewed literature. We are talking about the mechanisms that drive public sector investment decisions, and one’s beliefs are of little significance – what is the evidence?

One place to look is in the large literature on the public choice process, produced mainly by political scientists, and including one on interest group capture of governmental agencies and regulatory bodies. The issue of professional bias (as in traffic and highway engineers love highways) is less well treated, but having served on transport committees in our MPO and county government , as well on the zoning commission, I got to see this first hand. And there is also a literature in public finance on the perverse effects of earmarked taxes, such as those that support the highway trust – they lead to overexpansion of the targeted investment.

Further, the graphic film “Taken for a Ride” shows how General Motors conspired to eliminate rail trolley systems around the country. So much for the social infrastructure argument.

A relatively recent review of the degree of shifted costs is one by Delucchi (http://pubs.its.ucdavis.edu/publication_detail.php?id=1139) in which he states that “ The analysis indicates that in the US current tax and fee payments to the government by motor-vehicle users fall short of government expenditures related to motor-vehicle use by approximately 20–70 cents per gallon of all motor fuel”. Litman provides a good summary of the literature on the economic development impacts, especially the section on “Roadway Improvements”, p. 47 and ff. ( www.vtpi.org/econ_dev.pdf ).

The Reason Foundation’s publications do not illuminate our understanding of these issues, but rather are just apologies and arguments for more indiscriminate highway funding, and against mass transit, such as urban rail, as in “We don’t think there is any national interest or benefit from local transit systems or reason for the federal government to help fund them” (“Restoring Trust in the Highway Trust Fund”, p. 4). Sam does not bring disinterested analysis to the topic, and in fact, as I have argued before, does not seem to bring ANY valid analysis to the issue – just ideologically based positions, with constant references to the non-peer reviewed “studies” of the Reason Foundation. Todd Litman’s post of last year (http://www.planetizen.com/node/39239) is a much better analysis of the issue.

In the light of the widely acknowledged national need to diminish our carbon emissions, such ideological statements cannot withstand scrutiny, but certainly do provide a graphic lesson of how ideological posturings serve as impediments to serious discussion of the issues that confront us.

More helpful would be a discussion, for example, on how a carbon tax could produce “double dividends”: reducing carbon emissions, expanding mass transit where the benefits justify the costs, replacing interstate highways that are at the end of the lives, replacing them with rail or BRT where indicated, shifting technology toward renewable energies, and reducing costs shown to be discouraging of job creation, especially employer sponsored health insurance.

Response to Baffling Global Warming

This is my response to Wodehouse's comment at http://www.planetizen.com/node/45499#comment-13916. It has gotten too skinny to respond down there.

First, it is definitely not true that "we are close to the expected total effect already." The world agreed at Copenhagen that our goal should be to keep increases down to 2 degrees centigrade because effects will be far, far worse if we cross that line.

Second, you do not have much grounds to "still hope that the issue will soon be conclusively decided against 'anthropogenic" causes.' Ninety-five percent of climate scientists agree that it is human caused.

The really interesting question you raise is:
It is clear that a lot depends on discount rates used This is a question where economists take over from scientists, and I think the economists are suffering from the typical tunnel vision of their profession.

Economic studies discount future costs of global warming, which means that any costs that occur more than a few hundred years in the future have a present value of about zero. Though global warming will have costs that last for many, many millennia, these future costs are all discounted to a present value of about zero.

Even if we do discount these future costs, many econmists have argued that it is economically justified to control global warming as a sort of insurance policy, Global warming can have a range of possible costs over the next century or two, and the worst plausible costs - hundreds of millions of people dead and billions of people displaced from their homes - are so serious that it makes sense to spend a few percent of the world's GDP as insurance against them.

I myself have doubts about discounting future costs of global warming so steeply.

It certainly makes sense to discount future financial costs. If we have a financial cost of $1 trillion in one thousand years, the present value of it is negligible, because I can put a tiny fraction of one cent in the bank today, and its value with compound interest will be $1 trillion in one thousand years.

But money will not pay back the cost of global warming completely, as it would pay back a financial cost. If we do not control global warming, then even if people living one thousand years from now are very wealthy financially, they will still be living in a world that has lost most of the species that now exist, that has dead acidified oceans, that suffers from widespread desertification, and so on.

If people have a less livable earth for many millennia, we should not use the discount rate to calculate that this is a cost of zero.

Does that make any sense to you, Wodehouse?

Charles Siegel

One has to be careful with generalizations and so-call "experts"

To add to Charles comments.

Charles says: “It is clear that a lot depends on discount rates used This is a question where economists take over from scientists, and I think the economists are suffering from the typical tunnel vision of their profession.

“Economic studies discount future costs of global warming, which means that any costs that occur more than a few hundred years in the future have a present value of about zero. Though global warming will have costs that last for many, many millennia, these future costs are all discounted to a present value of about zero.”

One should always be careful about characterizing a discipline without digging into what the various members are saying. It is certainly true that some economists accept Richard Nordhaus’ view of the future, which uses a relatively high discount rate to discount future damages from climate change, making the present value of those damages fairly low. This is certainly an attractive conclusion to those who place a lesser value of the welfare of our children and grandchildren and think that we should not taken serious action now.

Others, such as Nicolas Stern of the UK take the discount rate to be rather low, suggesting a high present value of future damages, and that we should take drastic action now. Still others, such as Martin Weitzman at Harvard, point out that Nordhaus’ estimates are not robust to assumptions about functional form – translation, different equations lead to widely divergent conclusions. I am not providing references to these folks as the writings are very technical. A Google Scholar search will turn up the relevant pieces.

As someone has observed quite properly, science is never settled, and such is true for economic analyses as well.

Wodehouse says: “There are, of course, still studies coming out that show a close connection between solar activity and global warming. It is next to impossible for rising temperatures in the atmosphere to transfer heat to the oceans; if the oceans go through warming and cooling cycles, the sun must be responsible. (Plus a role for undersea thermal activity). The atmosphere will follow the oceans, not the other way around. The "greenhouse" effect on the oceans is negligible compared to the effect of direct solar heat. We do not want to impose costs on our economies if it turns out we had little effect anyway.”

While it is true that the ocean-atmospheric flux is generally the ocean to the atmosphere, the atmosphere warms from CO2 radiative forcing more than it would without the greenhouse gases (GHG), and this effect melts polar ice caps, as is happening dramatically now. This warmer water enters the oceans, raising average temperature, and the thermal expansion plus the additional water raises sea levels. This is elementary.

The atmosphere is undeniably warming – that is enough to melt polar caps (see http://www.nytimes.com/2010/08/23/opinion/23homer-dixon.html?hp). This is sufficient to cause major problems of sea level rise, and the warming plus excessively CO2 rich carbon atmosphere is causing ocean acidification and other serious problems (http://www.bbc.co.uk/news/science-environment-10781621 ).

The world's present knowledge is at our fingertips -- a few keystrokes and little time will lead one to it. And for relatively nontechnical discussions, the climate experts post at http://www.realclimate.org/

Sounds like Wodehouse is reading too much of the climate change denialist unfounded claims. The evidence is overwhelming, except to those who choose not to see or hear.

And indeed one of the links supporting Wodehouse’s reference is traceable to the Heartland Institute, another of several libertarian “think tanks”, in which there is not a lot of thinking going on, just policy opinions serving their corporate funders. The National Center for Policy Analysis is just another of the misleading and intellectually dishonest libertarian obfuscation operations, and employs no experts. Experts publish their findings in the peer reviewed literature which these outfits do not. Check out the “expert” at http://www.desmogblog.com/h-sterling-burnett .

Assailed with doubts - here's why

Thanks for the courteous exchanges here, Charles and others. I am aware that some forums simply will not countenance any discussion of this issue.

I have never read up on the abstruse questions of science in depth, merely followed the to-and-fro for years enough as to be aware that there are questions at many levels of this whole issue. The temperatures and their measurement; the causes; the best response from humanity; the cost-benefit. These questions cross so many disciplinary boundaries, that it is surely difficult to find the expertise to judge all of them.

On the economists and their discount rates, etc; there is a very basic problem to my mind. That is, we are going to incur the "costs" of the warming ANYWAY - all we are talking about is delaying temperatures by a few years. Therefore, the true calculation is not "Costs of inaction plus costs of coping; VERSUS Costs of abatement"; it is "(Costs of inaction minus x years increase) plus costs of coping; VERSUS costs of abatement". I am sure the economists are on top of this, but at the political-public-debate level this is seldom understood, and abatement advocates exploit this fact, often probably not even grasping the distinction themselves.

On the point made by HCGoddard about melting ice caps, I am no expert, but I have read enough to know that this is still disputed, because firstly, air temperatures near the poles are far too low to cause melting, most of which is actually the result of the ice being in contact with ocean water that IS warm enough to melt it. This effect is not so pronounced in Antarctica and Greenland, where most of the ice is to be found - and the ice of the Arctic, as "floating" ice, does not affect sea levels. The ice of the various "shelves" in Antarctica may well be argued to BE at least partly "floating" ice anyway before it melts. Furthermore, warmer oceans mean more evaporation, and more precipitation of snow onto Antarctica in particular. So there are some incredibly complex systems involved here, and I think "science", (or rather, some scientists), really is being arrogant in many of its assumptions to certainty.

I am mostly concerned with the proposals of transport and urban policy, that themselves are of extremely poor benefit-cost and highly questionable as mechanisms to "combat global warming". This disposes me to be sceptical about the arguments that are taking place at every other level of the issue. It stretches my credulity when the argument at every level of the issue - the temperatures, the causes, the cost-benefit; is decided in favour of one particular set of policy settings - which involve basically social objectives.

Yet, if "the science" really was so convincing, as Ted Nordhaus and Michael Shellenberger have pointed out, it is utterly wrong to rescue and prop up any auto manufacturer (let alone one that makes inefficient autos), it is utterly wrong to be subsidising agriculture, it is utterly wrong to leave inefficient work practices embedded by militant trade unions; and so on. Nordhaus and Shellenberger are sincere environmentalists who call the inability of the environmental mainstream (including bureaucrats and politicians right up to the President himself) to tackle issues impartially and non-selectively in the cause of saving humanity, "The Death of Environmentalism". The whole issue has been pulled down to the level of a PRETEXT for the enactment of policy that suited a certain political class anyway; while the claims that this really is a genuine crisis confronting humanity, are undermined by the fact that all the "mitigation" policy rolled out so far, is so marginal as to be ephemeral, and things that SHOULD be addressed are not, when favoured constituency groups are affected.

It should not be any wonder to any of us if the public has become sceptical and issue-fatigued, and the democratic mandate for action weakened.

A colleague has just alerted me to the following - it seems a team of economists at the LSE have now joined the sceptics on the benefit-cost of mitigation versus coping: these people are sufficiently credentialled and impartial as to not be dismissed lightly:

http://eprints.lse.ac.uk/27939/1/HartwellPaper_English_version.pdf

No one cares about the false doubts of a small minority.

It should not be any wonder to any of us if the public has become sceptical

The public is not skeptical.

The overwhelming majority of the planet doesn't believe the effete wailing of a small minority that refuses to see reality.

Alternatively, the overwhelming majority of the planet ignores pleas from the carbon lobby disguised as sock puppets and using the same usual suspects to justify their profits (just like the tobacco lobby did).

Either way, the italicized is BS.

Best,

D

Eh?

We must read completely different polls, with questions carefully framed to give completely different results.

How's things in the Senate and Congress? If anyone has a careful eye on what their constituents feel about the issues, and expect of them, it's these people.

'Polls'

Every global questionnaire must be ignored by denialists who can't have their confirmation bias sullied by facts.

Who cares what a small, diagnosable minority thinks. The planet is acting. Even Bjorn Lomborg is recommending we do something.

How pathetic can you be if the denialists' icon/poster boy/king/priest has finally come around publicly and you are still stuck in your silly delusion?

Best,

D

Limiting Temperature Increases

That is, we are going to incur the "costs" of the warming ANYWAY - all we are talking about is delaying temperatures by a few years.

Not true. At Copenhagen, the world agreed to adopt the goal of limiting temperature increases to no more than 2 degrees centigrade - not just delaying temperature increases but limiting them.

That requires cutting world emissions 50% by 2050, so CO2 concentration peaks at 450ppm. That is the first step, and that is what the nations of the world are talking about.

I agree with Bill McKibben that subsequently we should aim at reducing concentrations to 350 ppm, which would bring temperatures back down and stabilize the world's climate. That is the second step, and that is what some people are already talking about.

(I will write more about discount rates later today if I have time.)

Charles Siegel

The Experts Miss The Obvious About Discounting Global Warming

Nordhaus uses a discount rate of 3% while Stern uses a discount rate of 1.4%.

My point is that, even at Stern's low discount rate, most of the future cost of global warming is discounted to a Present Value of near zero. Using very rounded figures to give a general idea of the orders of magnitude involved:

At a discount rate of 1.4 percent, a one-time cost paid 1000 years from now has a PV of less than one one-millionth (10^-6) of the payment.
A cost paid 2000 years from now has a PV of less than one one-trillionth (10^-12) of the actual payment.
A cost paid 3000 years from now has a PV of less than one one-quintillionth (10^-18) of the payment.

To put that in perspective, if our current policies created a one-time environmental cost 3000 years from now that is 100 times as great as the total of the world's current GDP (which would involve overwhelming environmental damage), we would calculate that cost has a PV of less than 1 cent using Stern's discount rate.

If people in the year 5000 live on an earth with dead oceans, with deserts on most of the land, and with most of the species that now exist being extinct, they will be shocked when one of them looks back and sees that, 3000 years earlier, when the decisions about controlling global warming were being made, even the economist who wanted to do the most to control global warming valued the environmental devastation they face as a cost of less than 1 cent per year.

Because global warming will have effects that last for many thousands of years, most of the effects are discounted to a PV of close to zero.

As I said, it does make sense to use that sort of discounting for flows of money. But it does not make sense to discount massive environmental destruction in a way that makes us conclude that it is not worth spending 1 cent a year today to avoid having a mostly dead earth 3000 years from now.

I sometimes feel that academic disciplines today are a bit like scholastic philosophy during the Renaissance, when the humanists ridiculed the scholastics for debating about how many angels can dance on the head of a pin. In these debates about discount rates, economists are trying to decide exactly how many years in the future it will be before a mostly dead earth is counted as a cost of less than 1 cent.

The problem is that academics have to publish in peer reviewed journals to get tenure, and the best way to get published is by using the conventional methodology of the field and applying it to a problem. You don't get very far by rejecting the conventional methodology. That means economists study global warming by assigning a money value to environmental destruction and using the discount rate to determine its PV.

They have to do this despite the fact that there is no way in the world to come up with a plausible discount rate to apply over thousands of years. A modern financial system has existed for only a few hundred years, and we don't have the slightest idea of what the appropriate discount rate will be in a few thousand years.

That is what I meant when I said the tunnel-vision of economists leads them to undervalue global warming. I am aware of the dispute between Nordhaus and Stern, but I am also aware that they both use a methodology that forces them to undervalue environmental devastation that extends thousands of years into the future.

When people think concretely about global warming, about what it would actually be like to live in the worst-case scenario that we might be leaving to future generations, no one would say that we should not pay 1 cent per year now to avoid having a mostly dead world 3000 years from now.

Charles Siegel

One still has to be careful with generalizations

There is much to agree with in Charles’ observations. Just a couple of clarifications, and a renewed request to be careful with generalizations, especially if they are about a discipline or profession other than one’s own. We all find it hard enough to stay current in our own fields, let alone others.

Charles’s concerns about the consequences of using high versus low, or zero, discount rates is properly placed – many, including economists, share the concern.

“But it does not make sense to discount massive environmental destruction in a way that makes us conclude that it is not worth spending 1 cent a year today to avoid having a mostly dead earth 3000 years from now.”

I completely agree with that.

But if you dig into what Nordhaus is saying, among other things, he is trying to make statements about when to act based on the long observed pace of technological change that leads to cheaper solutions in the future, and based on that observation, there is an argument to be made that the future will be wealthier than the present, and be better prepared to deal with the problems of climate change.

Considered in isolation, that is alright, but that is the problem – it cannot be considered in isolation, in particular, in the presence of huge structural uncertainties and irreversibilities (no quick and easy way to undo the damage to a planet that has undergone climate change with no time to make evolutionary adjustments). Economists such as Weitzman try to make that clear http://www.economicsclimatechange.com/2009/05/reactions-to-nordhaus-crit...

“That is what I meant when I said the tunnel-vision of economists leads them to undervalue global warming.”

Those of us economists who work on constructing cap and trade mechanisms to guide investments to reducing pollution problems are not to be included in this generalization and thus such statements do not properly discriminate. We taken the environmental objectives as exogenous and do not attempt to compute the benefits before deciding what to do. The environmental objective has to be set based on the relevant scientific judgment of the risks, and then the economists seek to devise a market based mechanism to achieve it. No tunnel vision there.

“The problem is that academics have to publish in peer reviewed journals to get tenure, and the best way to get published is by using the conventional methodology of the field and applying it to a problem. You don't get very far by rejecting the conventional methodology.”

True enough for young assistant professors, somewhat so for associate professors, but not at all true for folks like Nordhaus, Stern and Weitzman. And that is exactly what Stern and Weitzman do. So again, I understand the frustration, as time is a wasting, but broadsides against a very heterogeneous group of people only gets in the way of rational discussion.

Limits of Economic Thinking

I agree with most of your points. Let's see if you agree with me after I clarify.

"But if you dig into what Nordhaus is saying, among other things, he is trying to make statements about when to act based on the long observed pace of technological change that leads to cheaper solutions in the future"

I agree. If we absolutely had to choose between immense environmental damage one year from now or the same damage 3000 years from now, it would obviously make more sense to choose it 3000 years from now, because people then would have better technology and more wealth to cope with it - and because 100 generations would escape the devastation. So, it does make sense to discount future environmental costs to some extent.

My point is that it does not make sense to discount future environmental costs to near zero, as it does for financial costs. Remember that I was responding to what Wodehouse said about ROI of investments in controlling global warming. All of those studies of ROI (including Nordhaus and Stern) discount the cost of immense environmental devastation in a few thousand years to a PV of a tiny fraction of 1 cent.

"Those of us economists who work on constructing cap and trade mechanisms to guide investments to reducing pollution problems are not to be included in this generalization"

I agree. Actually, my point is an argument for cap-and-trade and against calculating and internalizing long-term environmental costs.

We can agree on the goal of keeping environmental destruction within some tolerable limit (such as 2 degrees centigrade of global warming) and then economists can come up with a cap-and-trade mechanism that is the most efficient way of keeping within this limit.

We cannot calculate the environmental cost of global warming and charge a tax that internalizes that cost, because of this problem with discounting. That works for financial costs and for short-term environmental impacts, but not for long-term environmental issues like global warming. It is the theoretical ideal, but it doesn't always work in practice.

Again, remember that i was replying to Wodehouse, and I was just talking about the tunnel vision of economists who calculate ROI for investments in controlling global warming, since their calculations always convert the cost to a money value and use a discount rate, so they assign a cost of near zero to devastation 1000s of years from now.

In general, I think there is great value to economic analysis - if we have the common sense to recognize its limitations.

"True enough for young assistant professors, somewhat so for associate professors, but not at all true for folks like Nordhaus, Stern and Weitzman."

Here, we may disagree. I think it is rare to get to the position of Nordhaus, Stern, and Weitzman unless you applied the standard methodology when you were young and internalized it so completely that you ignore its limits - as Nordhaus and Stern ignore this discounting problem. (I am not familiar with Weitzman's work; feel free to provide a link.)

Of course, there are exceptions who question the conventional wisdom, such as Herman Daly and Joseph Stiglitz - but there are far more who apply the standard methodology without thinking about it critically.

Charles Siegel

I see something. You see something too.

When I said "we are close to the expected total effect already", I meant that the greenhouse effect of CO2 in the atmosphere is close to its maximum possible effect already. Its effect is logarithmic; each addition of CO2 has a reduced greenhouse effect compared to the previous addition.

".....The world agreed at Copenhagen that our goal should be to keep increases down to 2 degrees centigrade......."

Charles, what politicians say in their press releases and what intelligent people can work out for themselves from the IPCC's own science, are 2 different things. We apparently emit 30 billion tonnes of Co2 per year. That is the equivalent of 2ppm per year extra in the atmosphere. That is 15 billion tonnes per each ppm increase. The UN says we are going to increase by 468ppm in the next century. That is therefore 7.02 trillion tonnes total. Those 7 trillion tonnes are going to cause 3.8 degrees C warming. That is, 0.54 degree C per 1 trillion tonnes. Therefore, we need to abate 3.3 trillion tonnes to reduce temperature increases by 1.8 degrees C. Divide 3.3 trillion by the WHOLE 30 billion per year that we currently emit; the result is 110 years. Actually it's not that simple because of the logarithmic relationship between CO2 and the greenhouse effect; the initial amounts of CO2 abated are a lot less effective in terms of temperature reductions than later abatements.

If we are brutally honest, and Ted Nordhaus and Michael Shellenberger are in their writings, we will only achieve these sorts of reductions with a large scale reduction in numbers of humanity. (I wonder if Ted Nordhaus is any relation of the other economist Nordhaus you and HCGoddard are talking about?). I for one do not feel "the science" is certain enough to morally justify us to take the ghastly steps that this entails. I am therefore very glad I do have grounds to hope that the issue will soon be conclusively decided against "anthropogenic" causes. (More on that below). Thereapon we can get on with developing the best "coping" strategies. These may include things that are the opposite of our "mitigation" strategies.

And yes, I do see something in what you say about discount rates, but I hope you see something in what I am saying about the moral realities we have to confront "if the science is true". I still stand by what I have said on here, that most policy makers are acting purely symbolically and opportunistically, using AGW as an excuse to enact policies they like on other grounds anyway, but that achieve little and at extremely poor benefit-cost ratios, given the real scale of the claimed issue. And no sacred cows are to be sacrificed, including industry-wide unionised work practices that are inefficient on every other grounds in addition to CO2 mitigation. Come to think of it, I wonder what the results would be of extreme right-wing libertarian politicians using AGW as a reason to stop subsidising farmers, let auto manufacturers go out of business, and deregulate public transport? Or as reasons to let nuclear power plants be built, and as many hydro dams as possible? Wouldn't the results be telling, in terms of who suddenly thought "the AGW crisis" justified any action or not?

"Ninety-five percent of climate scientists agree that it is human caused."

Who decided on the "set" of scientists that were polled or scrutinised to achieve this finding? If any such poll or scrutiny has taken place. The Wegman (National Academy of Sciences) Report to Congress in Dec 2006 actually used the word "cabal" to describe the IPCC's climate science lead authors and the authors and reviewers of the papers chosen "by the IPCC" to represent the state of the science.

Who has debunked the OISM Petition sufficiently to disallow it completely as an indication that all is not well after all, in the "consensus"?

I still stand by what I have said here about the transfer of heat from the sun to the oceans, from the sun to the atmosphere, and from the oceans to the atmosphere. The whole case for the PRIMARY role of anthropogenic CO2 is so contrary to the most basic laws of science, that any intelligent person does well to be sceptical.

I was taught at school decades ago that sometime in the next few thousand years humanity would indeed be cooked to death as our sun went into its inevitable next phase. I also learned about ice ages and warm periods. I am appalled that any "scientific" group would have perpetrated such a disgraceful historical revision of the truth, as "the hockey stick" graph. I cannot see that the whole argument for "the sun/nature versus anthropogenic CO2" is not decided on this issue. Conditions were warm enough 1000 years ago for Greenland to be farmed, grapes to be grown further north in Europe, oranges to be grown further north in Mongolia. Record crops were grown and prices of produce low as a result.

Whichever climate scientist famously said "we have to get rid of the medieval warm period", was exactly right. And you can't. If we have to differ on the credibility of the hockey stick graph, I am happy to let the argument rest at that point - you assert its validity, I assert its invalidity. This is probably not the forum to argue that point, it has been done to death on all the appropriate forums - at least those that allow it to be discussed. It is not a good look, that all the forums that disallow discussion are on one side of the argument. I don't know of any "sceptical" forums that disallow alarmist arguments.

Outdoing Yourself

Wodehouse, you have outdone yourself on this one. Here are a few replies:

Scientists agree that temperatures will keep going up if we don't reduce ghg emissions. You yourself say in the following paragraph that temperatures would go up by 3.8 degrees. Your statement about the effects of co2 being logarithmic doesn't change this fact and is irrelevant to the discussion.

I cannot follow your calculation, because you seem to have left out a few steps. I think the problem is that you are taking current emissions and multiplying them to get future emissions, ignoring the fact that emissions are increasing, but I am not sure. Note that emissions are increasing logarithmically, which might explain why temperatures will continue to rise despite your earlier point that the effect per unit of co2 declines logarithmically.

Needed reductions in emissions do not require a large scale reduction in the numbers of humanity (and I don't believe that Nordhaus and Shellenberger say they do). They just require a massive shift to clean energy, which the Congressional Budget Office has calculated will reduce GDP by 2% to 3% in 2050, as I said earlier - a very small cost in comparison with the costs of global warming. On the other hand, the effects of uncontrolled global warming could cause deaths of hundreds of millions of people.

That was a poll of all US climate scientists, and 95% responded that global warming is real and is caused by GHG emissions.

It does not all depend on the hockey stick. Research in many different areas converges on the conclusion that ghg emissions are causing global warming.

"most policy makers are acting purely symbolically and opportunistically, using AGW as an excuse to enact policies they like on other grounds anyway,"

There were never any cap-and-trade bills introduced in congress until recently. Do you think that those nasty politicians really wanted to put a price on CO2 emissions all along, on some nefarious grounds that we do not know about, but that they never mentioned it until they had global warming as an excuse?

"I was taught at school decades ago that sometime in the next few thousand years humanity would indeed be cooked to death as our sun went into its inevitable next phase."

The sun will become a red giant in billions of years, not thousands of years. Your memory apparently dropped a couple of zeros each decade from the figure you learned in school.

But you have invented a good new myth for global warming deniers: no need to deal with global warming because the sun will burn out in the next few thousand years anyway.

It is not quite as decisive as saying that the rapture will come in the next decade, but it is close.

Charles Siegel

Reply to Charles

“We cannot calculate the environmental cost of global warming and charge a tax that internalizes that cost, because of this problem with discounting. That works for financial costs and for short-term environmental impacts, but not for long-term environmental issues like global warming. It is the theoretical ideal, but it doesn't always work in practice”.

We agree that we cannot possibly know what the damages of climate change are thousands of years hence, but as a starting point, if one assumes a scenario of catastrophe, that is, infinite damages, discounting infinite damages at a positive discount rate still yields infinite damages, and suggests that we have to do something now.

Basically, Stern is using a low discount rate for the reason that it is not ethically proper for a present generation to project its time preference (discount rate) on to unborn future generations. As a result, he gets a result that suggests we should take drastic action now. And I agree with that.

If one assumes a zero discount rate, you get the same conclusion – take drastic action now.

Now “drastic” is actually not so drastic – if we were to raise the price of gasoline 5% a year in real terms for 20 years (as was proposed in the 1970's), we would have doubled the real price of gasoline, and that is plenty of time for adjustments in all sectors. It would move us strongly in the right direction.

"True enough for young assistant professors, somewhat so for associate professors, but not at all true for folks like Nordhaus, Stern and Weitzman."

“Here, we may disagree. I think it is rare to get to the position of Nordhaus, Stern, and Weitzman unless you applied the standard methodology when you were young and internalized it so completely that you ignore its limits”.

All of us academics understand that we have to use the reigning paradigms early in our careers. But most of us also come the recognize the shortcomings of these, and with tenure can challenge reigning paradigms, and do so technically and competently. That is what Weitzman does. The link is http://www.economicsclimatechange.com/2009/05/reactions-to-nordhaus-crit...

What he is saying is that the very foundation of Nordhaus’ computations is faulty – pretty damning. And it is getting attention in climate circles. See
http://www.realclimate.org/index.php/archives/2008/08/bridging-the-divides/
and
http://climateprogress.org/2009/01/29/martin-weitzman-climate-cost-benef...

“We cannot calculate the environmental cost of global warming and charge a tax that internalizes that cost, because of this problem with discounting. That works for financial costs and for short-term environmental impacts, but not for long-term environmental issues like global warming. It is the theoretical ideal, but it doesn't always work in practice.”

Using a tax on carbon is the same as cap and trade. That is, starting with the proposition that we cannot properly evaluate the future damages of climate change, a widely accepted view, then what we have to do is choose some physical target, such as no more that 2 C degrees warming, and use economic instruments to guide consumption and production choices about energy use (magnitude and type) that stay within that limit. We can model that, and do so conservatively.

Many economists argue, and I agree, that it would be easier to use a tax to achieve such a physical target. Cap and trade in principle can do the same, but the information requirements are too great. Monitoring and enforcement internationally probably is impossible. Taxes are readily observable, and they carry the advantage of a “double dividend” – they can be offset with reduced taxes on consumption, income and the return from capital. Many economists view this a “win win” proposition.

This would have big implications for urban form and land use. And of course big implications for the poor of the world. It would make clear that the world population is too large for its carrying capacity, not a new thought.

Of course, I am ignoring the politics of this, and the sobering thought that humans will not take action until there is indeed a catastrophe. Katrina and New Orleans is a case in point.

Pages

Prepare for the AICP Exam

Join the thousands of students who have utilized the Planetizen AICP* Exam Preparation Class to prepare for the American Planning Association's AICP* exam.
Starting at $199
Planetizen Courses image ad

Planetizen Courses

Advance your career with subscription-based online courses tailored to the urban planning professional.
Starting at $14.95 a month

Stay thirsty, urbanists

These sturdy water bottles are eco-friendly and perfect for urbanists on the go.
$19.00
Book cover of Contemporary Debates in Urban Planning

Contemporary Debates in Urban Planning

Featuring thought-provoking commentary and insights from some of the leading thinkers and practitioners in the field.
$18.95