Economics in Two Lessons: 21st century cars

My central claim, in writing Economics in Two Lessons, is that most economic policy issues can be understood in terms of opportunity costs and their relationship to prices. I was talking about 21st century (electric and self-driving) cars, and several of the issues that came up illustrated this point very neatly. Among the objections to 21st century cars are the following

  • Since 21st century cars don’t use petrol, governments will lose the revenue needed to fund the road network
  • Self-driving cars will cruise around cities to avoid paying for parking, thereby increasing congestion
  • Because of the limits of AI, self-driving cars will inevitably kill people

The answer to the first two questions is the same. These problems arise because prices don’t reflect opportunity costs. Opportunity costs arise from cars using the road network, reducing access to others, and from the initial construction of the network, consuming land and resources that could be used for other purposes.

Under current conditions, petrol consumption provides a rough proxy for general road use, while parking charges provide a rough proxy for road use in urban areas, shopping precincts and so on. That relationship breaks down with 21st century cars.

But, this is a self-resolving problem. The reason we used petrol taxes and parking charges was because charging for road use was too hard. With 21st century cars, it’s trivially easy. We can set prices exactly equal to opportunity costs, taking account of time-varying congestion and any other factors we want to.

The dangers of 21st century cars can also be understood in terms of opportunity costs. The question isn’t whether they are perfectly safe, but whether they are safer than the next best alternative – the current mix of human drivers, including the large proportion of incompetents, drunk and drugged drivers.

A side issue that has just occurred to me: is it possible to steal a self-driving car with no manual override? It seems a bit like stealing a train.

74 thoughts on “Economics in Two Lessons: 21st century cars

  1. Unless you are willing to jack a self driving car off its wheels and carry it away in a Faraday cage, they can’t really be stolen if they don’t have manual controls. And even then you’d have to expect it to start shouting, “Help! I’m being stolen!” so you might need a sound proof Faraday cage.

    It’s very hard to steal a car these days without the keys unless it’s pretty old. Tesla Model 3 cars have a camera built above the rear view mirror. It’s going to be pretty difficult to get away with stealing one of them. (Once the software for it is ready — which it isn’t.)

  2. Slightly OT, but better here than on the general message board. A reputable Indian newspaper teports that the Indian government is seriously considering banning the sale of non-electric two-wheelers from 2025 and, astonishingly, of non-electric three-wheelers from 2023.(*******/ If they are doing this, it means there is no serious price penalty, which would create massive pollitical blowback.

    The rise of the e-tuk is an advertisement for laisser-faire, as the sector enjoys trivial policy support. The very low fuel costs for such light vehicles, and high reliability, are a big selling-point for their pretty poor owners. India already has 1.5 million etuks. A very lucky break.

    On AV safety. The irrational but real overweighting of personal control in rating risks argues for a much higher safety standard, comparable to those for planes and buses. I guess that AVs will need to be 100 times as safe as human-driven vehicles.

    Traffic deaths in the USA today are 35,000 a year IIRC, apparently a socially acceptable rate. That would mean that on my standard AVs could kill 350 Americans a year, a number in the same area as deaths on commercial planes, buses and trains. If you disagree with 100x, and think 10x will do (as it should in any utilitarian calculus), tell me: do you think that Tesla and Nissan etc could get away with 3,500 deaths a year attributable to the failure if their automatic systems?

  3. Surely though the first step ought to be to eliminate direct subsidies before taxing indirect ones? We could reduce the foreign car company subsidy budget (ie the state and federal metro road budget) to nothing and eliminate other subsidies in zoning law like single family zoning for free with only positive upside. More or less nobody would be worse off and of course this would also free up perhaps 10bn in QLD that could be spent on transport or on rural roads, while reducing racial segregation, solve the housing crisis, massively reduce carbon emissions and so on.

  4. Why is “the next best alternative” what we have now, rather than buildings & transit that allow more people to live without cars?

  5. Life in Queens, we can and should do as you suggest. I say that as a commuter cyclist and public transport user who has never driven a car. However, even in the best scenario that we can realistically imagine, there would still be an irreducible minimum of journeys that people would need to take by car

  6. “I guess that AVs will need to be 100 times as safe as human-driven vehicles.”

    I made exactly the same guess in a comments thread at Crooked Timber

  7. “A side issue that has just occurred to me: is it possible to steal a self-driving car with no manual override?”

    I agree with Ronald, not really. But any device that can jam the mobile frequency range can easily and effectively disable the car, without requiring a Faraday cage.

    In fact – walking on to the street and standing in front of the car is enough to disable it. That’s a much bigger conceptual challenge to grapple with. Car jackings on secluded roads become infinitely easier. Pedestrians stop bothering to wait for green walk signals etc.

  8. James: “do you think that Tesla and Nissan etc could get away with 3,500 deaths a year attributable to the failure if their automatic systems?”

    Not, but it has very little to do with “irrationality”. The reality is they would be sued out of existence.

  9. Opportunity and missed opportunity …

    “Australians could have saved $1.3 billion in fuel if these standards were introduced ”

    “Vehicle CO2 emissions legislation in Australia – brief history in international context

    “The available evidence suggests that legislative action regarding vehicle CO2 emissions is 1) overdue in Australia, and 2) needs urgent attention by the Federal Government to ensure total CO2 emissions from road transport are in fact reduced.

    “One final remark – introduction of mandatory vehicle fuel efficiency and/or CO2 emission standards in Australia should ideally be considered in the light of other (supplementary) policy measures such as fleet measures (e.g. zero emission vehicle policy in California, EV promotion), information campaigns, fuel/mileage taxes, and so forth.

    “Basically, a ‘whole system’ approach to ensure cost-effective reduction of total CO2 emissions from the on road fleet. ”

    Click to access d0bd25_0e5b82c440c7482a8e0d645f2d931f57.pdf

  10. Levying congestion charges will get rid of the first two problems you mention. Road accident costs seem to be approximately proportional to distance traveled and are often external costs in the sense that about 70% of such accidents involve a second vehicle. Such externalities are large and can easily be captured again using pricing.

    These are nice features. But overall the big gains are that we can commute about our cities with socially-efficient levels of congestion. Travel times will be reduced, quick emergency trips can be obtained by paying a road charge that you might not be prepared to pay to meet your friend in a bar and the variance of travel times can be reduced giving greater efficiency in the scheduling of our lives.

    Finally, using efficient pricing we can also make efficient road supply decisions because we will no longer be trying to meet excess demands for travel at a zero price. Profit signals on individual roads and across road networks can be used to drive road expansion decisions – much better than politicians making expensive promises at election time in marginal electorates.

  11. Two questions regarding congestion pricing:
    1. How is congestion pricing meaningful on Australia’s vast rural and outback areas? (Last time I travelled via the Pilliga to Coonamble I saw 4 cars before entering Coonamble.)
    2. How is congestion pricing (and for that matter ‘opportunity cost’) related to the rather unequal income distribution within urban areas and between urban and rural areas?

  12. Add to / alter Ernestine’s question; “2. How is congestion pricing (and for that matter ‘opportunity cost’) related to the rather unequal income distribution within [ society & geography & demography ] urban areas and between urban and rural areas?”

    Brave / foolish of me! Feel free to correct my bias or comprehention Ernestine / commenters.

  13. Stealing an autonomous car can be done several ways, only one of which is the Australian “I took this, it’s mine now” brute force version. Increasingly with modern electronic keying the tendency is to burgle the house or less often mug the owner, only taking the vehicle once thieves have the keys. Much less common are technological attacks, and even those are normally dumb radio repeaters rather than hacking (ie, using a radio booster/repeater to convince the car that they key is inside it rather than in the nearby house).
    But increasingly cars can be hacked, and it seems extremely unlikely that cars will be less hackable than other smart devices, and for much the same reason: security costs both money and convenience, neither of which users are willing to sacrifice. As we see with airlines, given the choice between carefully segregating the easily compromised bits from the mission critical bits or saving a few dollars, manufacturers and customers will strongly prefer the latter. One problem here is that compromises are systematic rather than specific – if someone can hack one Tesla 3 chances are they can hack all of them.

  14. Ernestine and KT2,

    If there is no congestion there is no need for congestion pricing. The issues of minimal supply between nodes that carry little traffic can be thought of as a CSO – the need to link up the community. Indivisibilities mean that a road 1mm wide will not work.

    The arguments against pricing on distributional grounds are uniformly raised across all types of externalities. The standard response is to evoke the Second Theorem of Welfare Economics – achieve efficiency first then fiddle with distribution. The use of user charges might be regressive because the rich have a higher value of time but these charges also mean that poor people can make emergency or high-valued trips more easily. You could make discriminatory compensations – provide more public goods or better public transport in poorer areas if you wanted to get fancy.

    Its not really much of an issue n the sense that current user charges (rego, insurance etc) are fairly (not entirely) regressive anyway.

  15. KT2, I have no problem with your amendment. I prefer income distribution measures to take into account location (geography) and some life cycle categories (demography). Regarding the latter, aggregating across all ages of people considered to be in the labour force does not do justice to anything, except perhaps if the income distribution is rather narrow across any particular location (region, country), say $1000 to $2500 per week all income included. Usually and for some plausible reasons, most young people (18-28) earn less than middle-aged people (35-55) or thereabouts.

  16. Harry,

    1. Well, I did figure out that the congestion price is zero if there is no congestion. But how are the roads financed in those non-congested regions? And what measure is being used to empirically designate some areas being congested but not others.

    2. “The arguments against pricing on distributional grounds are uniformly raised across all types of externalities.”

    Not all externalities, only the negative externalities. (Positive externalities tend to be captured in profits but not always.)

    It may well be that pricing of negative externalities is often objected to on distributional grounds and, I would say rightly so, if there is a flat price for all. I have linked my question to opportunity cost. To be explicit, there is not one opportunity cost but many.

    3. I surely do know about the second fundamental welfare theorem.
    Regarding: “The standard response is to evoke the Second Theorem of Welfare Economics – achieve efficiency first then fiddle with distribution.”

    No. The fundamental second welfare theorem defines ‘efficiency’ in terms of individuals’ preferences, subject to aggregate resource constraints and technological possibilities. The idea of the theorem is to choose a price system (all relative prices) and a wealth distribution such that the efficient allocation is implemented.

    So, no fiddling with the distribution afterwards – it is too late.

    To devise a ‘mechanism’ to implement this idea in anything larger than a very small and isolated society, characterised by everybody knows the circumstances of everybody else as a proxy for preferences, is mighty difficult. I would say, impossible.

    4. “The use of user charges might be regressive because the rich have a higher value of time but these charges also mean that poor people can make emergency or high-valued trips more easily.”

    Well, the above contradicts your point about the second welfare theorem. Furthermore, why should ‘the rich’ have a higher value of time than others? I don’t agree on elementary humanitarian considerations that rich people’s sleep should be valued higher than that of anybody else.

  17. Ernestine, Most of your points are wrong or misunderstandings.

    4. Rich people have a higher value of time in the sense that they have a higher willingness to pay to avoid delays. They will pay the tolls and be “tolled on”. The poor may be “tolled off’. I am talking about how individuals value their own time not making social judgements.

    3. Your interpretation of the Second Theorem is non-standard. but all I am saying is that welfare economics generally says maximise the value of the pie and then worry about dividing it. Don’t differentiate prices to effect distribution.

    Of course the impracticalities of doing this – of making lump-sum transfers – are well known and widely discussed. The results here are then approximations that reflect distortionary taxes and transfers. But the intuition easy; Be productive on the basis of efficient prices before being concerned with splitting the pie

    2. See 2. Your error here is that you don’t seem to fully understand the implications of the Second Theorem. You don’t charge different people different prices as that would be Pareto inefficient. Otherwise people could trade their allocations to make welfare gains for some and losses to none.

    1. I did explain this. With low volumes of traffic you get no congestion on roads that must be of a minimal scale because of indivisibilities. Optimally you need to trade off congestion against capital costs but on low traffic roads it is necessary to build at some minimum scale – say 2 lanes. Hence these roads are built at minimum scale to meet the CSO (community service obligation) to keep remote areas connected. On such roads there will be no congestion so they will be provided free as a pure public good.


  18. +100 Ernestine … “Furthermore, why should ‘the rich’ have a higher value of time than others? I don’t agree on elementary humanitarian considerations that rich people’s sleep should be valued higher than that of anybody else.”

  19. Harry, Please provide clarify and detail so we may understand better your reply to Ernestine at
    MAY 31, 2019 AT 8:02 PM above.

    1. why are the roads say in Sydney not 20 lanes wide by now, therefore my drving / sleep be valued at the same as everybody else? Or as you say “On such roads there will be no congestion so they will be provided free as a pure public good.” Couldn’t we have public good by now in a city after 200+ years? Is there an exclusivity externality theorem you know of? Perhaps it is not politics / social judgememt / private property, just lack of planning and equality of distribution?

    “4. Rich people have a higher value of time …
    [Q1; time has no value – explain in cosmic or economic theorems please ]
    …” in the sense that they have a higher willingness to pay” [ Q2: explain “higher willingness” as opportunity cost vs production with a theorem ]
    …” to avoid delays”. [ Q3; we had footmen and now phones. Explain delays relative to a theorem juxtaposing a word you’ve not mentioned vs poor which you did mention ]
    ” They will pay the tolls and be “tolled on”. The poor may be “tolled off’.”” [ enlighten me as to who “they are” please? And “tolled on and off” ??? as you easily “evoke the Second Theorem of Welfare Economics” I assume you have a theorem to explain and clarify “tolled on and off” to Ernestine & I please. ] 
    “I am talking about how individuals value their own time not making social judgements.” [ Q philisophical; explain why you are not making social judgememts please? Just because you wrote the words? As in your words HC; “public transport in poorer areas if you wanted to get fancy” ]

    If you answer these questions Harry, Ernestine and I are about to get the best ever economics lesson. Ever.

    I submit to you wielding the big “Whew!” [ please use only one exclamation mark in 10,000 words ]

    As I am ignorant of your reply to Ernestine, and in the spirit of egalitarian debating Harry, to answer Q philosophy above, put your phrase “poorer areas if you wanted to get fancy” into a search engine.

    I hope you answer my questions of your reply to Ernestine. When you do it will help you clarify your reply to Ernestine, and enlighten us all. Whew… whew almost spells when backwards!

  20. Harry,

    I don’t agree.

    1. May I suggest that a user pays approach in ‘congested’ urban areas and a pure public goods approach in regional and outback areas requires a theoretical approach other than what you offer, if you wish to avoid conflict within a society on economic grounds.

    2. Rest assured I do understand very well that, according to the second fundamental welfare theorem there is one price for every state contingent commodity (which of course would include congested and non-congested areas, each one of them, if you like, being refined by time interval of day, etc, etc.). The difference between your statements and mine is that I know why and under which conditions a Pareto efficient allocation can be decentralised via a price system. So, one first defines a Pareto efficient allocation (preferences, consumption and production possibilities and total resources) and then finds (conditions on the system) a price system such that these prices implement the Pareto efficient allocation.

    (You seem to mix up the first with the second welfare theorems. Note even the first welfare theorem has a strong condition on the wealth distribution, which is clearly violated by homeless people!)

    3. Second fundamental welfare theorem. My source is Debreu, Theory of Value, 1959, chapter 6, although it is not the only source.

    What is your reference for what you call ‘standard’ ?
    You write: “But the intuition easy; Be productive on the basis of efficient prices before being concerned with splitting the pie.”

    4. Are you practising an interpretation of revealed preferences? What if the relative prices are all wrong?

    What is wrong with quantity rationing of congested public roads?

  21. “The standard response is to evoke the Second Theorem of Welfare Economics – achieve efficiency first then fiddle with distribution.” That’s backwards. The second theorem says that any Pareto optimal outcome can be derived as a competitive equilbrium given the correct distribution of property rights. That is, distribution first, efficiency second.

    The prescription for going the other way comes from Kaldor and is logically incoherent – Scitovsky reversal problem and so on. That doesn’t stop One (or 1.5) Lesson economists from adopting it.

  22. The “standard interpretation” I agree is ambiguous. It’s the interpretation given in books that teach useable public economics – the book by Laffont Chapter 1 for example.

    The general idea is to get prices right, internalising externalities where necessary and then using the tax transfer mechanism to achieve equity goals.

    1. The problems of doing this have been subject to numerous complaints but I think the approach is better than subsidising road use for the poor.

    The standard intuition for this is discussed in John’s new book. The poor may not want to drive cars so you can never leave them worse off by giving them income equal to the value of the road use subsidy they would otherwise get.

    2. Quantity rationing of roads has been attempted -odd and even number plates travelling on alternative days for example – and it does not work well. The main problem is that latent demands for travel are released.

  23. Tesla have done some impressive stuff with their autopilot mode, and I admire them for trying to do it all with cameras and a single radar.

    But they’ve never quite been able to crack basic street light and sign recognition. Watch this one stopped at the lights in broad daylight not knowing what’s going on, and then deciding the next red light is green, then totally missing the set of lights after that, then only recognising the lights after that a second or two before it drives through a pedestrian crossing.

    As I said a few months ago, autonomous vehicles are currently significantly more dangerous than L-plate drivers.

    John, imho, it’s not regulation that’s standing in the way of their progress. The tech has leaps and bounds to go before regulation becomes an issue.

  24. I didn’t realise the clip would appear in the comments, but watch from 4:00 onwards.

  25. My son is a software engineer, designing, programming and testing firmware, albeit not autonomous hardware and firmware. Nevertheless, he has a good grasp of the sector and has researched it and Tesla’s recent work extensively. He is of the opinion that Tesla is close to a breakthrough. Being a bit of a disciple of Nassim Nicholas Taleb, he is about ready to put some skin in the autonomous vehicle game. He already has a track record of high percentage annual gains from picking tech winners on the stock market so it seems he does know something or else he has been very lucky to date.

  26. I was about to say that, while Tesla has done research in the area, most of their statements about autonomous driving are flimflam and calling their current driver assist featres “Autopilot” is like calling a 7 year old with a first aid manual a surgeon. (Sure, the 7 year old could save your life, but you’re not going to let them remove your appendix if you have the option of having an actual surgeon do it.)

    But that now seems kind of rainy on paradey.

  27. As a footnote to my above post. What’s the best way to raise a capitalist son? Be a sad, old, broken down armchair socialist! 😉

    My son has deduced (I think) from my example and from the current system that;

    (a) It’s only worth working until one has amassed an adequate stake for the capitalist game.
    (b) Workers get screwed all the way down the line so only a fool stays a worker for too long.
    (c) Capitalists can legally get all sorts of advantages, incentives and tax breaks.
    (d) It’s not hard to beat all the idiots in the stock market when you are a maths and tech graduate.

    In summary, the whole game is skewed towards the owners of capital and the possessors of particular skills suited to that game are advantaged. Hence, my son has made a rational decision to transition to being a capitalist. I can’t disagree with that decision since I see now that;

    (a) capitalism is endogenously undefeatable;
    (b) capitalism is exogenously doomed.

    We are beyond the point of saving the world. It’s now a rational decision to simply save yourself, if you can, for as long as you can.

  28. JQ: I gladly cede priority on the 100x guess. It’s entirely possible that I got the idea from your CT comment, and entirely possible that I got it elsewhere. Ideas are like fish viruses in seawater.

    On AV problems. It strikes me as odd that colossal effort is going into getting machines to navigate a road environment designed, sort of, for humans. It might be cheaper to adapt the environment, with low-power dumb radio beacons and transponders everywhere, in road signs, traffic lights, other vehicles, and so on. Circuitry is cheap.

  29. If robo-cars are going to be used as robo-taxis then I think they are likely to be required to be safer than using sober, unimpaired human taxi drivers. But looking at what Waymo is doing that looks like something can be done now. This is not to say Waymo vehicles are ready right now to act as robo-taxis without a human backup driver, You probably wouldn’t be very impressed with a human driver who was safer than average but who pulled over to the side of the road when ever things got too confusing.

    Currently when a taxi is involved in an accident and is at fault the operator has to pay. In practice the operator’s insurance pays, but the operator pays for the insurance, so they effectively pay a smoothed out version of the cost. (And the insurance company takes a cut for smoothing it out.)

    If a taxi operator can pay less for insurance because they are using a robo-taxi rather than a human operated one they are going to have an incentive to use robo-taxis. A 10% cut in insurance costs will be an incentive. It doesn’t need to be a 90% or 99% cut for them to like it.

    Throw in that the first robo-taxis outside of trials in small sleepy towns will be used 24 hours a day except for charging, maintenance, and cleaning and they will save perhaps $100,000 a year in wages which is also an incentive.

  30. RE: Congestion pricing, Intuition , Internalising (negative) externalities

    “Quantity rationing of roads has been attempted -odd and even number plates travelling on alternative days for example – and it does not work well. The main problem is that latent demands for travel are released.” [Source: Anonymous @ 31/5/2019, 10:35pm]

    There are limits to intuition based on some observations. Some analytics is helpful too.

    To the best of my knowledge quantity rationing by means of ódd and even number plate cars travelling on alternative days is a policy measure that has been used in various European large cities to combat air pollution from petrol or diesel cars, particularly when some weather conditions prevail.

    Air pollution from petrol or diesel car exhausts is one type of negative externality.
    Air pollution from electric cars (and petrol or diesel cars) due to fine particles released when the rubber hits the road. is also a negative externality.

    I did not suggest solving air pollution via quantity rationing. I suggested quantity rationing is a solution to congestion.

    Air pollution affects non-participants in road traffic as well as participants. In this case a price on air pollution, caused by the producer, constitutes internalising the negative externality (the polluter pays). To be precise: the producer of air pollution due to driving a car reduces the set of possible consumption of non-participants. The polluter should compensate those who involuntarily are the recipients of the pollution.

    By contrast, congestion affects only all traffic participants (everybody on the road is slowed down). To be more precise, the traffic participants mutually restrict their individual set of possible consumption. Hence everybody pays a non-monetary price in terms of time lost for alternative activities. All humans have a finite amount of time before they die, not necessarily the same number of years. The assumption of ‘non-satiation in consumption’ (important also in the second fundamental welfare theorem) is expressing the human desire to live another day and another one….. What exactly is wrong with valuing each person’s life and hence his or her time equally? Absolutely nothing in my opinion. Your approach of congestion pricing gives priority to rich people, where ‘rich’ is defined in money valued wealth. It is a very strong statement of preferences regarding institutions. It is not justified on humanitarian grounds or biological grounds. Your approach would treat an individual who is ‘very rich’ due to criminal activities to be given priority over to a ‘poor’ nurse.

    So, the quantity rationing I have in mind does not require any policy measure. It is self-enforcing. If public transport is available then the rich and the poor have the choice to avoid road congestion. If they choose road transport then both pay the same price in terms of their time being used up sitting in expensive and less expensive cars respectively. (I wouldn’t worry about the little bit of extra space used up by the more expensive cars – but this is only being pragmatic in an applied context.)

    Now, the self-driving electric cars which keep on going (until the battery is empty) to avoid parking fees could be expected to speed up the self-enforcing quantity rationing …. if there are only self-driving electric cars.

    A polluter pays type congestion problem would arise if there would be a mixed fleet of human driven cars that are parked at a fee and self-driving cars that keep on going until the battery is empty. In this case the self-driving cars do create a polluter pays type negative externality, the internalisation of this ‘nuisance’ externality would require a price.

  31. Ernestine, This type of scheme is widely used to control congestion not only pollution:

    The difficulty that the wiki identifies is that the rich buy 2 cars with different number plates. IMO the bigger problem is “latent demands” for travel. People who leave their cars in the garage because of congestion bring them out on the roads when congestion is temporarily cut with the rationing. This is discussed (in what is IMHO the best book on traffic congestion ever written) by Downs. It is the reason for his insistence that the only solution to congestion is pricing. Rationing schemes, minimum occupancy rules and of course new unpriced roads don’t generally much. They get new cars onto the road but equilibrium congestion is as before). These measures can help in the very short-run.

    You still don’t get the bit about valuing lives – I am not assigning social valuations – just looking at who will pay tolls – but I agree that pricing schemes do permit wealthy criminals to get to their destination with less congestion. You can compensate for this by making public good transfers – providing better public transport options funded by the tolls, parks in poor areas etc.

  32. OR, one could run a scientifically planned command economy, which given modern information processing powers, would collect data, collate, process and decision-make faster and more accurately about real quantity management than market signals do. Scientific planning with computer assistance can and will prove more effective than price signal and market “planning” if we can overcome our ideological preference for the already near-obsolete social institutions of money and markets.

    Speaking definitionally, a real plan is a model for action in the real world. A scientific model for planning requires the direct linking of the real to the formal by scientific measures. These measurements are combined and related in the acts of scaling and simplifying implicit in model making. A functional model for use in real world planning implies scientifically homomorphic quantising connections (symmetries) between the model and the real world. The plan, among other things, must be defined, derived and modifiable via objective and scientific measurements undertaken in the real world. An economic model without these homomorphic connections, real to formal and formal to real, cannot be used to properly manage exogenous real system outcomes as opposed to merely juggling its endogenous economic parameters; over-rewarding some groups, impoverishing others and managing negative externalities by intricate Rube Goldberg pricing systems with many imprecise, indirect and time-delayed linkages. The importing of real world measuring into the economic model via markets and money involves the non-sequitur of using the nominal (money) to measure the real.

    So, I think everyone here arguing for pricing systems to manage real quantities, be they real natural quantities like CO2 or manufactured and real “congesting” units like cars, is really arguing for the notional to manage the real. This is an absurdity which people cannot see because they are still so acclimatized and enculturated to the current system. Money is notional of course and it cannot manage real quantities properly effectively, nor can it equate them in any way that makes scientific or real system (eco-sphere / biospehere) sense. Money and markets had their historical uses but these uses are coming to an end as technological progress itself is now acting to obsolete money and markets. This process will likely take another 50 years or so and we may not survive it, especially if we attempt to cling on to money and market systems. The harder we cling on to managing in the current manner the more likely we are to drive our system to ecological and civilizational collapse.

  33. James, self driving cars have pretty much got to be in one package — which is likely to be the car. I got internet that can handle video less than one and a half years ago. My mother got reliable internet about a month ago. I hate to think how long it would take us to get “drive-net” installed here.

    Will we have a drive-net for each autonomous vehicle manufacturer? Or will there be one drive-net all can use? If everyone can use it, who will pay to upgrade it? If there is a single drive-net will there be charges to use this public good? How will they be calculated and charged? Will the drive-net corporation have enough middle management? If it only has a moderate amount of bloat, how can we fit more in until it’s ridiculously bloated?

    Maybe places like Singapore or New Zealand could pull it off, but I don’t have much confidence in the typical English speaking country being able to make a good job of it.

    We probably will end up with some kind of “drive-net” but it will be done the other way around. Level 4 & 5 autonomous cars first, and then increasing use of non-vehicle mounted sensor nets.

  34. Harry, it is a bit rich from you to tell me that I still don’t get an idea. What if I have theoretical and empirical reasons to reject your opinion (eg on standard second welfare theorem or have you conveniently overlooked JQ’s post? )..

    As for your cited wiki article, it contains the statement: “… the road rationing has as a main goal the reduction of air pollution,” – my point exactly.

    Well, if Downs is the bible for you, so be it. I had a look at the article by Downs you have linked to. It deals explicitly with the USA. It is well known that the USA has neglected public transport in many cities. Moreover, Downs’ article incorporates the USA institutional and social norm of ‘money making’ being very important. Let me say right away, I am not saying ‘money making’ is irrelevant in Australia or in Europe or elsewhere. I am saying there are marked differences in social norms among countries or regions and, if one wishes to address a problem, one does not have to take on board a lot of other problems by copying what has been done somewhere else. There is no harm known to me in allowing people a little bit of original thought.

    I am now quoting you by saying “you still don’t get the idea” that self-enforcing rationing (via congestion) is not the same as those rationing schemes imposed by a government. (Your argument is kind of odd, given you also talk about an ‘equilibrium congestion’ )

    Well, I am glad you revealed Downs as your source because I didn’t believe it could have been the late French economist J-J. Lafont.

    PS: If you want to have an example on how one can internalise a negative externality, transport noise, measured in units of time of the duration of activity disturbances, leaving the valuation of the duration of activity disturbances up to the social norms (belief system on what is ‘right’ and what is ‘wrong’), you can look up my paper on this topic, presented at the Econometric Society Conference in 2004. That is, one could value the duration of activity disturbances either by the monetary opportunity cost of individuals (the capitalistic valuation) or one could say a person’s time is independent of the institutional arrangements in a particular society, suggesting an equal valuation. Or one could represent a social norm where only the first born male’s time is valued with a positive number and everybody else gets zero. In my paper I considered only two valuation methods. I can’t see a need to be so dogmatic about one specific valuation method.

  35. Ernestine, I was referring to Downs book Stuck in Traffic. It is a classic treatment of the economics of congestion.

    When I say wealthy people have a high value of time I mean they will pay more to avoid delays. I am not saying that rich people’s time is more valuable than poor people’s.

    Congestion does impact on the demand for travel and creates latent demands for travel. It is an inefficient way of dealing with congestion because people with high values of travel time are treated in the same way as people with low values. An exchange could be made by pitching a price between the two valuations and redistributing the proceeds in a way that makes both parties better off.

    The idea of equilibrium congestion reflects the fact that when capital is costly there will always be a trade off between making a road bigger and addressing congestion. The equilibrium congestion level reflects this trade off. It is never optimal to pursue freely glowing traffic if capital is costly,


    Generally environmental economics is concerned with addressing such inefficiencies,

  36. The last two lines belonged stagger penultimate para. Using an iPhone. HC

  37. Ronald, regarding Tesla, I’m not sure. I don’t want to sound too rain paradey either, and I have to say this is as good or better than anything I’ve seen in that field:

    As I understand it, the advantage of using mainly cameras, is lidar-based systems perform poorly in anything much heavier than light rain. Which is one of the reasons Musk made the decision early on to go with the camera-based approach.

    But for mine there’s still a gulf between successfully tracking objects, and making the right decisions in a crisis situation in the space of a few hundred milliseconds. You know the old saw about how we only use 10% of our brains, and if we could just figure out how to use the rest we’d all be super-geniuses? Our brains need that headroom to be able to deal with fight-or-flight type situations. When the adrenaline kicks in and our brains have to rapidly accelerate to 10x their normal processing speed.

    I’m guessing the image sensors and AI processors used in these cars are pretty much running flat chat all the time to get the results we see in the videos above. When there’s enough movement in the frame, you can see the image sensors start to overload and drop frames because they can’t process the extra data quickly enough, The object tracking becomes flickery and inconsistent. To me that suggests, there’s very little headroom available for shifting up gears in a crisis. That’s one of the reasons I think they have a long way to go.

    The videos above are from the same guys who produced the first video I linked to. That’s the channel you want to keep an eye on to see what kind of improvements Tesla are making from generation to generation. For Waymo cars, a guy called Shawn Metz posts regular videos of his rides on Youtube. That’s also worth following. I haven’t watched many myself, but I’ve read enough recent user accounts to be fairly certain they’re not performing any better than the Teslas.

  38. ikonoclast,
    A command planned economy is possible. But a SCIENTIFIC planned economy is not possible. I suppose one could cheat on how one defines scientific. No matter what “scientific” command planners are going to have to make SUBJECTIVE value judgements about which economic goals get prioritized over others. By my definition that is not scientific. That is artisitic. There is no way in hell that you can not end up with lots of dissapointed customers at least part of the time.
    Of course the better educated that the customers are the better they will understand the difficulties in balancing all of the different important agendas. These customers, who are the residents of a country,
    would also have a better idea of whether or not the leaders are actually trying to do a good job for everyone or are just treating the population like sheep to be sheared (shorn?).

  39. John. The Henry tax review reached similar conclusions but even more dramatic. Get rid of fuel excise, rego etc and introduce user charges. For cars congestion tolls and for trucking charges based on weight, location and distance travelled. This is all feasible these days using telematics. HC

  40. Just as no particular engineering solution follows from physics (it’s always what material, for what application, in what environment, over what time…) so no particular policy prescription follows from any abstract economic postulate. In this case, it is pertinent to observe that money and time are not equivalents (hint: if you save an hour on the morning commute you do not get a raise). Nor does a preference expressed in notional dollars translate to cash in hand.

  41. Nick, I certainly hope Tesla are a lot further along than I think. But processing need and speed is why I don’t believe existing cars will be able to become self driving with a software update even if they have all the sensors they need in place. Tesla has gotten in trouble a number of times for making claims they could not meet in reality and have got off very lightly in a lawsuit where they partially reimbursed people who paid for their Autopilot 2.0.

  42. Harry,

    We obviously have different perspectives on Economics.

    “Downs book Stuck in Traffic. It is a classic treatment of the economics of congestion.”.

    I would say the book may be a classic treatment of congestion of “AN” economy but not THE economy. (The institutional environment is not a natural law but rather a variable from an analytical perspective and historically the institutional environment seems to depend on the philosophical ideas of a particular society.)

    “When I say wealthy people have a high value of time I mean they will pay more to avoid delays. I am not saying that rich people’s time is more valuable than poor people’s.”

    Of course ‘the wealthy’ can pay more (than ‘the poor’) and therefore can buy themselves travel time saves (in contrast to public transport). But this means that you are using the current income and wealth distribution as the theoretically “just” and “fair” distribution. I would go along with this as long as the wealth distribution is not too unequal such that everybody can buy themselves some travel time saved, some a little more so than others. But this is empirically not true. “The poor” are priced out of this travel time saving market. They are excluded. [Isn’t it easy to drift into a social class system while upholding the mantra of market economy?]

    “The idea of equilibrium congestion reflects the fact that when capital is costly there will always be a trade off between making a road bigger and addressing congestion.”

    This may well be an equilibrium concept that is intuitively obvious for corporate finance decision making. But it would not be consistent at all with the second welfare theorem in principal because it is not the ‘cost of capital’ that matters but rather the preferences of individuals. It is also not an equilibrium concept which is consistent with that of a competitive private ownership economy because again investment and production decisions are sub-ordinate to individual’s preferences, subject to technological possibilities and resource feasibility. [Isn’t it easy to drift into corporatism while upholding the notion of ‘market economics?]

    It seems to me we have exhausted the topic. Hope you have a pleasant week-end.

  43. The blanket consensus by many here is that pricing solutions are the only solutions to excess automobile numbers, road congestion and CO2 emissions. This “conditioned fact” is true only because our entire system has been “command-constructed” to promote cars and roads for most personal transport rather than use other solutions like mass transit which could have been implemented and still could be.

    When I use the term “conditioned fact”, I mean it is a fact only brought into existence by conditions created by earlier decisions. It is these earlier decisions we need to re-visit (like the decisions to opt for more automobiles and less mass transit) rather than making ad hoc adjustments to the current conditioned reality by mere price jigging. The very fact that our political economy now only permits and facilitates price signals (in the main) to command many crucial outcomes is itself a conditioned fact. We have taken earlier decisions to only permit pricing mechanisms to make decisions in many major areas of the political economy. It is these decisions that we need to revisit rather than quibble about pricing levels to manage the negative outcomes of previous bad decisions.

    If we are arguing about using pricing to deal with a negative externality problem, this is a sign that we failed to investigate, plan and regulate properly in the first place (or that knowledge was unavoidably inadequate at that time). The reason asbestos is no longer available for sale is not because it has been priced off the market. It has been banned as representing a serious danger. Any production / consumption habits which bear unacceptable negative externality costs for humans, ecosystems and biosphere systems should be phased out and banned as soon as practicably possible by direct regulation. Fiddling with price signals is the failed approach of neoliberal collapsonomics. It’s clear that fiddling with price signals is too slow and ineffective to deal with the imminent eco-collapse crises we face.

  44. Postscript to my above post. I did not clarify my term “command-constructed”. Whether a command for the use of a major tranche of capital for the creation of a piece of significant infrastructure comes from a government cabinet or a corporate boardroom, it is still a command. The infrastructure is still “command-constructed”, meaning constructed by command, and the system is still a command system. Arguing over how distributed the command system is, is a moot point. If the majority of the voting public support a government command decision then this command has a more distributed base in democratic terms. Support for corporate decisions is limited to privileged oligarchic sub-groups (boards and major individual shareholders).

  45. Peter T,
    “In this case, it is pertinent to observe that money and time are not equivalents.” Exactly.

    In the context of HC’s and my discussion (the second welfare theorem bit) ‘preferences’ of individual i is an i-specific ordering of quantities of ‘commodities’ and a ‘commodity’ is described by its physical characteristics, time of availability, location of availability and conditions (‘state of nature’) conditional upon which it is made available. For example, transport mode A delivering something within 0.5 hr is a different commodity from transport mode B delivering something within 1.0 hr with the distance held constant, Individuals i and j may have identical or different preferences (for whatever reasons), but what they will be able to choose will depend on what they can afford. Apologies for not having made clear that preferences are not defined on monetary values in this context..

  46. Peter T, Transport economists conventionally assume that urban travel is mostly a means to an end. It provides no consumption benefits other than, perhaps, getting the opportunity to listen to your favorite Lady Gaga CD – you are mainly interested in getting to your destnation. Thus the time spent is costly since you would prefer to be doing something else. As an ad hoc approximation the value of this time is often set at 2/3 the value of your real wage. Its true that you typically won’t get more money if you arrive early at work but the assumption is that you value your time at the opportunity cost of your leisure which labour market theory suggest is your real wage. You work up to the point where the marginal value of an extra hour’s leisure equals your wage. Why 2/3 not 1? Well its the Lady Gaga explanation. Perhaps you get some limited utility from the journey.

  47. Curt,

    Certainly, subjective value judgements are unavoidably made about what actions to take. However, these judgements can be science informed and science implemented (to some degree) or they can be completely uninformed by science. I didn’t mean that the subjective value decisions can be made somehow fully scientific in themselves.

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