Eugene Fama: Who Would Build the Roads? Certainly Not an Efficient Market
Brad DeLong is as cranky about not winning the Nobel as I am, and kicks sand in Fama’s face by bringing up an article the new Nobelist wrote in 2009 criticizing “stimulus.” What jumped out at me was the following passage from Fama’s essay:
Government infrastructure investments benefit the economy if they are more productive than the private projects they displace. Some government investments are in principle productive. The government is the natural candidate to undertake investments that have widespread positive spillovers (what economists call externalities). For example, a good national road system increases the efficiency of almost all business and consumption activities. Because all the benefits of a good road system are difficult for a private entity to capture without creating inefficiencies (toll or EZ Pay booths on every corner), the government is the natural entity to make decisions about road building and other investments that have widespread spillovers.
Does anybody know: Is Fama just trying to clarify that he’s not an anarchist? In other words, if I’m sitting down having a beer with him, is he really going to say that he thinks the inefficiencies of toll collection outweigh all of the Public Choice problems in allowing government to maintain the roads?
In closing, I must relay my favorite line from Tom Woods of all time (not to be confused with The Best Tom Woods Story Ever):
“Who will build the roads?” is the question that belongs at the top of every libertarian drinking game. If we didn’t have forced labor, the argument runs, there would be no roads. There’d be a Sears store over there, and your house over here, and everyone involved would just be standing there scratching their heads.
(Yes yes, Tom is blowing up a particularly naive version of the issue–which is not a strawman, incidentally–but we can match the pro-government-road crowd argument for argument if they want to up the ante as Fama has done.)
Not a strawman?:
“If we didn’t have forced labor, the argument runs, there would be no roads”
That says it all. Job offers by government or government funded private companies acting as contractors — which the unemployed are free to accept or reject — are morphed into “forced labor”, as if modern states are running Stalinist gulags to build our roads and bridges.
You have a good point, and I agree that construction workers are free to reject government contracts. However, if you pay taxes, this amounts to partial slavery. As Robert Nozick argued, since you are forced, by the government, to pay a portion of your income in taxes. The time you spent earning this portion is time you spend involuntarily working (aka slavery). Therefore, most government, and by extension the government highway system, is funded through slavery.
No, the government never forced you to work.
Actually government does force citizens to work, by putting taxes on land, water, fuel, and other physical items that people need to use.
For example, in Australia you can use the government sewage system if you pay a hefty fee for that, or alternatively you can have a private system fully looked after by yourself, but then you will be charged government fees anyway just to own the system. Since these fees must be paid for in government issued currency, you are forced to work.
Dude, okay, grocery stores enslave people by forcing people to earn money to buy food so that they can survive.
That isn’t the same thing, and it is interesting that you missed the flaw in this reasoning.
A private property owner requesting payment in exchange for his own services is not the same thing as one private property owner threatening all other private property owners over a given geographical territory with force in order to coerve them into paying a fee anytime any of those private property owners exchange amongst themselves.
The latter is a weak form of slavery, because no matter what anyone did meaning they must remain alive, their natural need to produce goods makes any taxation of those goods a treatment of enslavement.
You can know this by the only response given by social democracy slavery supporters: “Move somewhere else.”
Oh, I suppose another land by a government? What if there was a world government, that collected taxes from all land no matter where other people lived? Would that clue you in to the argument that taxation is a form of slavery, the way it is set up now?
“Actually government does force citizens to work, by putting taxes on land, water, fuel, and other physical items that people need to use.”
Well, duh, the government provides a vast range of services and public goods in exchange for its taxes levied.
I expect Tell lives a hermit’s life and has never used public roads, highways, bridges, harbours, trains, municipal or city parking zones, the services of police, fire brigades and so on.
Presumably he expects all these government goods to be free, and screams he’s being worked like a slave when he discovers the government levies taxes to pat for them.
“For example, in Australia you can use the government sewage system if you pay a hefty fee”
How stunning! You have pay taxes for a public good. Tell deserves the nobel prize.
Publicly planned sewage systems are amongst the most important and vital public goods in urban areas. They are better and more efficient then private systems.
Aaaand LK conflates wanting to avoid coercive extractions of wealth and crumbs left over to give the appearance of “exchanges”, with wanting to avoid human society altogether.
“They are better and more efficient then private systems.”
No they’re not. Competitive solutions always generate better and more efficient solutions than monopoly solutions.
This is proven by the fact that coercion is necessary to force people to behave a certain way concomitant with the monopoly’s desires.
If the monopoly solution were really more efficient, then no coercion would be necessary.
You’re living in a pipe dream LK.
“Well, duh, the government provides a vast range of services and public goods in exchange for its taxes levied”
A slave master “gives his slave” food and water.
According to your logic, since the slave master gives something to the slave, it’s not actually slavery at all.
Or, you could actually address Tel’s argument instead of trying to brainwash him into believing that should any service be offered by a slave master, he’s allegedly no longer a slave master, and thus government is just another exchange partner in society.
Jon, this is disappointing from you. The fact of life is what forces (most of) us to work, in order secure the resources necessary for survival.
Where government forces me to work is in that, in order to provide for myself and my family for one calendar year, I must work for the government for 5 or 6 months.
Personally, I cannot survive without work. Perhaps you are luckier than me in that respect. Given that I must work, and that government must appropriate some portion of my labor, can you understand how I might feel that “government forces me to work”?
You forced to allocate a portion of time working for the government, even if you work zero hours. If you work zero hours, and the tax rate is 20%, then 20% of your portion would be zero. However, the fact that the 20% still exists means you are still 20% a slave.
Kinda reminds me of the public school argument. THye say ifyou do not like it, don’t like it, don’t come. There are 2 problems with this line.
First, you already confiscated taxes from me, therefore I have no more money to go somewhere else.
Second, there is nowhere else because 2 reasons. Your monopoly has nearly destroyed the private education market and Federal taxation blankets all 50 States.
SO now you are telling me to pay for my own education 2 or 3 times and you are telling me to go to a Country other than the 1 I was born and currently live.
Who would agree to these terms?
The above argument is why I will always vehemently disagree with Rothbard regarding vouchers. A voucher would simply allow me to homeschool my child with money that is rightfully mine. I suppose a non tax payer would not have the same standing as me but I pay education taxes and would prefer to have spending flexibility only a voucher can provide absent a free market.
A voucher is a bit of a compromise.
It guarantees parents don’t spend their money on crack, and so something gets spent on the kids. Nanny State lite rather than going the Full Nanny.
I’ll take whatever advantage I can get, I’m not seriously intending to fix the world, and I generally keep away from people who try.
I hate to admit this, but if the road construction is funded through say a simple sales tax on gasoline/diesel, I kinda would be Ok with it. Of course, these construction projects always go to favored cronies and campaign donors, which makes them less efficient by definition, so a market based solution is always preferable. But of all the things the government does, this seems to be one of the lesser evils.
Income taxes on labor amount to (partial) slavery, totally in agreement on that.
And to the comment “tolls and EZ Pay booths on every corner”, I’d say welcome to NYC, statist capital of Amerika, land of the not so free.
LK, cmon, we’ve been through this already.
And as for public choice, it requires the absurd fairy tale of rational expectations, the very theory that you recently say you — as an Austrian — reject.
Public choice theory doesn’t require the theory of “rational expectations”.
Public choice theory is just a collection of arguments based on the assumption that economic tools can be used to understand political activity.
There is no requirement of rational expectations specifically. We can assume no rational expectations, and use economic theory to understand politics.
LK I’m pretty sure Tom is talking about taxes, and Public Choice doesn’t require rational expectations to show the problems with government-run enterprises. Are you having an off day?
“LK I’m pretty sure Tom is talking about taxes”
In which case, he’s has expressed himself so poorly it’s no wonder most non-libertarians would just click off any such blogs or sites after reading this, convinced the person making the argument is unhinged. I suppose this is how you expect to win converts?
“Public Choice doesn’t require rational expectations to show the problems with government-run enterprises.
That’s a rather shabby evasion: public choice does use rational expectations, and I am surprised you’d deny it.
Clearly, Tom Woods is making a huge mistake in not mimicking your highly persuasive style.
Why can’t Fama believe in public goods arguments?
To clarify, even Buchanan, the father of public choice, thought that government spending is necessary under certain conditions. I’m not saying he’s right, but the two positions aren’t contradictory (they have to be considered together).
I will give government roads if they stop doing everything else.
I think the toll collection problem is one very legitimate weakness in Capitalism and not just for roads either. Most of the head banging over Intellectual Property laws comes down to the difficulty of identifying who owns what and who uses what. It gets doubly worse when you look at Patent laws.
I disagree with most of what Coase had to say, but I’ll agree with him that toll collection is an example of transaction costs that make all trade more difficult and thus less efficient. What Coase tended to do was dump every possible thing and the kitchen sink into the category of “transaction costs” because that was his thing. I don’t want to make that mistake, but toll collection is a real problem.
Having said that, government has its own transaction cost problem… collecting tax is massively inefficient and imposes a huge paperwork burden on both individuals and governments. Also, modern communications and electronics is helping to reduce the toll collection problem (at least in the case of roads and rail it is).
By the way, it’s worth studying the Turnpike Trusts of the Industrial Revolution era. Most people have forgotten about them, but they did produce a huge number of roads.
The bad side of the turnpikes was that the Sovereign of the day offered unlimited duration of the property right to collect tolls. This meant that 100 years later people were pissed off at the idea they should be paying tolls while the Turnpike Trust did very little work and just slurped up the money. Modern government offer “Public / Private Partnerships” which are nothing more than Turnpike Trusts with a time limit imposed (generally 30 years). These work very nicely.