Prices and Blizzards

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In the days
immediately following the blizzard which swept through the Denver
area last week, Denver's politicians and bureaucrats were out in
full-force assuring residents that the city and the state had done
everything in their power to mitigate the effects of the blizzard
on city and state roads. Recognizing that residents could blame
the city and the state for their lack of preparation and their gross
incompetence at plowing the streets and highways, Denver's politicians
and bureaucrats spouted the same self-immunizing platitude we've
all heard bureaucrats and politicians recite from time to time:
"What more could we have done? We just need more tax money
for maintenance equipment."

Most people
in Denver seem to accept this infuriatingly tired defense for governmental
failure and incompetence, despite the fact that the very same defense
is used every single time a blizzard hits. No matter how
many blizzards we have in Denver, and no matter how many times the
city and state governments fail to adequately maintain the roads,
Coloradoans refuse to believe that anything could have been done
differently to keep the roads safe and passable — except to have
the city and the state commandeer ever more money in the form of
taxes to buy still more equipment for road maintenance.

This series
of events which follows every blizzard in Denver (i.e., government
failure to maintain roads, leading to bureaucratic calls for more
taxes, leading to bigger maintenance budgets, which inevitably fail
to result in better services in the next blizzard, which starts
the cycle over again) offers a superb illustration of the absolute
logical impossibility of socialism. This is true, as Ludwig von
Mises long ago pointed, because there is absolutely no way
for the city and state governments in Colorado to know whether they
are spending the right amount on road maintenance. In the hope of
putting to end this Sisyphusian cycle, I would like to suggest to
Coloradoans that the solution to this cycle of governmental failure
lies in the total privatization of Colorado's roads, rather than
allocating even more tax money to socialized-road maintenance.

In order to
see why this is the case, first consider the amount of tax money
allocated by the City of Denver to plowing streets in this blizzard
alone: $700,000. How could we tell whether or not the sum of $700,000
is too high, too low, or just right, as judged by the consumers
of this service? The first crucial thing to notice is that it's
impossible to tell whether the residents of Denver (i.e., the supposed
consumers) even consider road-plowing during a blizzard a service
at all! Because the residents of Denver are forced to pay
for the service whether they want to or not (in the form of involuntary
taxation), we are in no position to say whether they really want
this service or whether it is being forcefully supplied to them.
Unless consumers voluntarily pay for a good or service, we
simply cannot simply assume that they want it.

In order to
see why this is true, consider the following hypothetical example.
Suppose you go on vacation, and while you are away I break into
your house and steal your gold watch. Suppose further, however,
that I feel guilty about taking your watch, and I decide to compensate
you for the watch by washing all the windows in your house before
you get back. In this hypothetical example I can't simply assume
that you were willing to exchange your watch for my window washing
services, because the exchange was not made voluntarily. The same
is true of any so-called "service" provided by tax dollars:
because the "exchange" is not made voluntarily, we cannot
say whether the taxpayer really wants it or whether he is being
completely ripped off like the watch-owner above. If you think my
example is outlandish with respect to the plowing of the roads in
Denver, think about the numerous owners of Hummers in the city of
Denver who don't need to have the roads plowed in order to drive
on them. Can we simply assume that they would have voluntarily
paid for this so-called "service"? Of course not.

Even if we
assume (contrary to fact) that services funded with tax dollars
are truly voluntarily demanded, there still remains the problem
of determining how much to spend on them. This is where the problem
of socialism becomes logically insoluble. This is true, (again,
as Ludwig von Mises brilliantly pointed out), because there are
no prices with which to determine whether the city and state governments
are spending too much on road maintenance, too little on maintenance,
or the right amount. Take the sum of $700,000 given above. Is this
the right amount of money to spend on road maintenance in Denver
during a blizzard? How do we know that $750,000 or $500,000 would
not be preferable from the point of view of the consumers? How do
we know that residents and business owners in Denver wouldn't be
willing to spend $3,000,000+ on road-plowing — especially considering
that this blizzard hit less than a week before Christmas, at the
peak of the holiday shopping season? The simple fact is that it
is totally impossible to tell whether the amount is sufficient,
insufficient or adequate. The city and state governments simply
allocate a totally arbitrary budget for road maintenance
out of tax dollars, which has absolutely no relationship to consumer
preferences.

To see how
serious this problem is, recall that the production of goods and
services is always for the satisfaction of consumer desires. This
is the goal of all economic production. In order to calculate
whether consumers are in fact being satisfied by a certain amount
of production of a certain good or service, we need to have some
mechanism for the transmission of consumer preferences to producers.
In other words, in order to calculate whether resources are being
used efficiently from the point of view of consumers, consumers
need to pay market prices for those services. In the case
of road maintenance in Denver, however, the self-appointed producers
of the "service" have no way of determining how much consumers
would be willing to shell out for those services. Because the provision
of road maintenance is socialized, the pricing mechanism
has been completely abolished, and the rational economic calculation
for which pricing is necessary has also been thrown out the window.
In other words, the provision of road maintenance "services"
in Denver is completely unrelated to the desires of the consumers,
for whom the production of this service was intended in the first
place. The $700,000 figure given above is absolutely and unmistakable
arbitrary — and so would any other figure the city and the
state would pull out of thin air.

The solution
to this unnecessary quandary is simple: privatize the roads in Denver
so that the market pricing mechanism can be allowed to indicate
to producers whether they are spending the proper amount on road
maintenance from the point of view of their own consumers. If the
roads were privatized, producers would be able to tell simply by
looking at their profit and losses whether they were spending the
proper amount on road maintenance. Profits and expanding business
would indicate (as it does in any free market industry) that the
producer was doing a good job satisfying his customers, and that
he was using his resources efficiently from the point of view of
his consumers. Economic losses and loss of customer base would indicate
to the producer that he was doing a poor job satisfying his consumers,
or that he was allocating his resources wrongly from the point of
view of his consumers.

The fact is,
moreover, that the people in Denver do not demand road plowing services
(or any other good or service, for that matter) in the same amount.
Some people don't care a whit whether their roads are plowed, and
they would not be willing to pay anything to plow them (my brother
is one of these people). Other people actually own plows on their
own private trucks. These people certainly would be unlikely to
pay huge amounts for this service, since they can almost effortlessly
do it for themselves. Businesses, on the other hand, are very likely
to have an extremely high demand for road plowing services, because
having clear roads is essential for their patrons to be able to
get to their shops. Given this unequal demand for road services,
it is surely unfair for people who have very little demand for road
plowing to be forced to subsidize those who have a high demand for
road plowing.

As I write,
another large snowstorm is making its way toward Denver. Many of
Denver's roads are likely to be shut down once again. Many businesses
are likely to suffer even more economic losses as a result of the
city and state governments' ineptitude at plowing. More people will
likely be killed or injured while driving on roads which are dangerously
under-plowed. Coloradoans should prepare themselves for another
onslaught of pleas from Denver's bureaucrats and politicians for
more tax money for road maintenance, and the whole cycle will begin
anew.

December
28, 2006

Mark R.
Crovelli [send him mail]
is a graduate student in the department of political science at
the University of Colorado, Boulder.

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