Prices and Blizzards


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