Government intervention USA

What is the economic case for government intervention to restrict or discourage road transport? There is no better symbol of a liberal democracy than the private automobile. Freedom of movement is one of the bedrock principles that all Western countries espouse, and the role of the car in facilitating this has made freedom of movement almost synonymous with the right to own a car. For many years, governments did their best to encourage car ownership, seeing it as a positive sign of economic growth, and went to considerable lengths to build a transport infrastructure capable of supporting the car.

Equally, such was public approval of private road vehicles that governments could no afford to appear anti-motorist. However, by the 1990's the negative environmental and social impacts of road transport were becoming impossible to ignore, and with greater understanding of these problems came greater understanding of the economic costs of road transport. The economic case for attempting to reduce road transport arises primarily from the environmental problems associated with it.

These emerge in the form of externalities – costs to society of the consumption of a particular good or service that are not reflected in the price paid by consumers. In a situation where the externalities of consuming a particular good/service are negative, marginal private benefit will be equal to social benefit, and will be defined by the demand curve, because consumers equate the value of the marginal utility of the last unit to price. Normally, the competitive equilibrium will occur at point E, where marginal private cost is equal to marginal private benefit.

However, if there is a negative externality, then beyond a certain consumption level, the marginal social cost will exceed the marginal private cost, and thus, marginal social cost will be equal to marginal social benefit at point E', which occurs at a higher price and lower quantity than E. Thus, more of the good/service will be consumed than is socially optimal, and there will be an excess cost to society equal to the are of the triangle E'FE. In the case of road transport, there are five principle externalities:-

(A) Congestion. The presence of a greater number of cars on the roads than the road network can handle reduces the average speed of all cars on the road, and can lead to gridlock. The results from this are wasted time, wasted fuel, and additional wear on vehicles, all of which have a financial cost, to say nothing of the affect on driver's moods – road rage has an economic cost, even if it is only in the form of increased expenditure on prosecuting people who let their anger get the better of them.

It has been calculated that the total economic cost of congestion could be in the order of i?? 10 Billion a year. This is a clear example of a good/service being consumed at a level that is not socially optimal. (B) Air pollution. In the past, exhaust emissions were directly harmful to humans – emissions of lead, carbon monoxide, sulphur dioxide, particulate emissions have caused enormous health problems over the years, especially in urban environments.

The air in Los Angeles used to be so polluted that there was a permanent haze of smog over the city, which has been blamed for the health problems of a whole generation of children. The Great Smog that affected London in the 1950's is a good example of the effects of unconstrained air pollution, though that particular experience cannot be attributed to transport. Though this problem is less pressing now, the issue of greenhouse gas emissions has assumed exceptional importance.

The potential negative social and economic effects of global warming are enormous. However, this is more due to the use if fossil fuels than to road transport itself. (C) Noise and light pollution. There is little to say here. Anyone who has ever lived near a busy road will be well acquainted with the negative effects of noise or light when you are trying to sleep. (D) Accidents. Private road transport results in an enormous number of accidents every year.

Thousands of drivers and pedestrians are killed by cars every year, and many more are injured, requiring extensive hospitalisation. In a sense, this is already partially covered by the costs of car insurance. However, insurance does not cover the value of a human life. (E) Infrastructure. Roads are large, and they are ugly. Britain is not a large country, and covering increasingly large swathes of the countryside with tarmac is not a desirable proposition.

What is the effect on the rural population and wildlife of building a massive motorway through the middle of an area of great natural beauty, or scientific importance? In all of these cases, there are negative costs to society emerging from the utilisation of road transport that are not reflected in its private cost, which necessarily leads to consumption beyond the socially optimal level. In the case of congestion, accidents and air pollution directly harmful to human health, these costs can be quantified, and they are enormous.

The economic costs of environmental damage are harder to quantify, but, if anything, they are even larger – the costs of Global Warming are widely reckoned to run into the tens of trillions. Clearly, where the use of private road transport imposes considerable economic costs on society that are not met directly by the users of private vehicles, the government has a strong incentive, either to constrain the number of vehicles on the roads, or to impose financial penalties on road users that reflect the true cost of road use.