In his reflections on the debate we had last week, Charles Marohn’s main comment is that he found my ideas “utterly impractical.” What were those ideas? Privatizing local streets. Privatizing utilities. Privatizing other common goods.
Just how impractical are these ideas? Most utilities in this country are, after all private. Many streets are private–I live on one. St. Louis has privatized some of its streets.
During the debate, Marohn called himself a libertarian, but his response reveals him to be a progressive. Progressives believe that commonly owned resources are a good thing because they value the tragedy of the commons. Without the tragedy, there is no need for government intervention. Without a need for government intervention, the role of progressives is greatly diminished.
Marohn claims we can’t have private streets, utilities, and other services because of high transaction costs. “Transaction costs are an overwhelming problem,” he claims. “Are you going to build a house worth hundreds of thousands of dollars if you have to negotiate to use the sewage lift station two miles up the street? The endless number of transactions one would have to overcome to do anything of substance just makes this silly.”
Funny; the transaction costs of running supermarkets and other retail outlets that offer tens of thousands of products for sale must be enormous. Yet these businesses offer their products at modest prices (especially when compared with a few decades ago). Yet to Marohn, something as simple as private roads, water, or sewer services seems practically unutterable.
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Moron’s love of government led him to grossly misunderstand many of my statements. “We shouldn’t plan, but we should plan for driverless cars,” he paraphrased me as saying. What I’ve always said is that we can’t plan for driverless cars because no one can predict what effect they will have, so instead we should cost-effectively respond to the problems we have today and not try to impose our ideas on the future.
“We shouldn’t be running the city by focusing on the city’s revenues, but we should run the city like a business,” was another of his paraphrases. I don’t think I ever used the phrase “run the city like a business”; as I explained recently here, that never ends well. I did say that, whenever possible (which includes transportation and utilities), cities should fund themselves out of user fees rather than taxes. The key is not “running cities like a business” but getting the incentives right.
“We should respect individual liberty and not be coercive unless it is him on his road and then it was okay for him to coerce his own neighbors into paying to fix it,” was his third paraphrase. I told the story of how my homeowner association assessed all homeowners a fee to repave our road. But I added that I favored paying for all roads with a mileage based user fee. That’s no more coercive than asking people to pay for the food they eat or the clothing they wear; if they don’t want to pay for the road, just don’t drive on it.
Marohn thinks he won the debate. I’m not naive enough to think either of us changed anyone’s minds. I do think that his ideas about city finance are dangerous because they provide excuses for city leaders to engage in autocratic behavior that is not in the best interests of their constituents.
Now that we have both had a chance to reflect on the last debate, our differences have become more crystal clear. If Marohn would ever like to continue the debate in another forum, I am willing to do so.
“If Marohn would ever like to continue the debate in another forum, I am willing to do so.”
If that marohn is just going to strawman you, don’t bother.
Or for Mr. O’Toole it’s impractically unutterable. Two negatives make a positive, right?
It’s too bad the City of Phoenix officials didn’t listen to you on self-driving cars. They just used a trick whereby 8% of the eligible voters committed the city to a $30 billion “transportation plan.” It’s shining bauble is an extension of the light rail to other places where it won’t be used (sounds like Portland, eh?). They plan to add more bus service (good). But the *only* spending on roads is for things that will reduce traffic carrying capacity – such as bike lanes.
This will all look really dumb when autonomous vehicles finally start working on urban streets (it will be awhile – the AI problems are huge).
“(it will be awhile – the AI problems are huge).”
Predictions regarding technology are fun!
“I confess that in 1901, I said to my brother Orville that man would not fly for fifty years. . . . Ever since, I have distrusted myself and avoided all predictions.” — Wilbur Wright, in a speech to the Aero Club of France, 5 November 1908.
Maroh’s claim to be a libertarian is telling of how little he understands and thought through his claims. If he looked around and found commonly agreed to definitions of it, he should understand that he’s far from being one. We should be extra skeptical of the claims of anyone who spends more time vocalizing their claims than they’ve spent thinking them through.
“If he looked around and found commonly agreed to definitions of it”
Except that’s the thing. It’s really hard to find a common definition, and there are as many flavors of libertarianism as ice cream at Baskin Robbins.
It took me a year or two of research to figure that out on my own and decide what kind of libertarian I am. That’s why Marohn’s claim is dubious at best and disingenuous at worst.
You’re missing the point of his transaction cost argument.
A supermarket indeed faces huge transaction costs. But it solves that through…hierarchical authority. There is fiat inside the firm. This is precisely why firms exist: overcome transaction costs through fiat, instead of undertaking every transaction through a market. The boss tells you to do something, and you do it. The boss doesn’t need to negotiate with you inside the firm.
So if your argument against the transaction cost argument is that “businesses do it”, then you’re in essence describing an “authoritarian” system. This is what firms are.
Now there are indeed many things which may be done in a market, as opposed to having government authority. There are many things where the public good argument does not apply. But local public streets aren’t one of them. A supermarket has clear boundaries and can exclude others from those boundaries. City streets can’t.
That’s not to say you couldn’t devise a system where you could, but the question is what would you gain? The transaction costs would indeed be…higher…than the current system. And whatever gains you might envision, would be overwhelmed by the transaction costs.
You might want to read up on Williamson. This is precisely the problem he describes (albeit about the boundaries of a firm, but the concept can apply to any activity).
So not only did you miss his point, but your counter-argument serves to support his point. centralized authority is what overcomes transaction costs in firms. This is the problem with hardcore libertarians who think they can privatize everything under the sun. First, what is to be gained? Second, how do you overcome the problem of transaction costs, hold ups, small numbers bargaining, specific investment etc.
These are not trivial issues. These are the MAIN reasons why centralized authorities exist. If you’re building a home, whoever is going to build your pipes and deliver your electricity etc is making a…specific investment. I.e. an investment that is specific only to you. There’s a small numbers bargaining problem there: they can hold you hostage, or you can hold them hostage. And a long-term relationship would need to be maintained, so that at every step the bragging problem re-appears and opens up both sides to a hostage situation. This is what drives up transaction costs, and would ultimately either prevent the investment from happening or would require a very steep cost in transacting.
This is solved in 2 ways: either huge tracks of private development, where one large and powerful owner can transact for the services and thus balance out the bargaining problem, or a centralized government authority which eliminates the bargaining problem through fiat. Both, of course, happen in the US, and both are similar to the supermarket example.
You can’t ignore economic reality.
A supermarket indeed faces huge transaction costs. But it solves that through…hierarchical authority. There is fiat inside the firm. This is precisely why firms exist: overcome transaction costs through fiat,
What transaction costs does a supermarket face?
A supermarket has clear boundaries and can exclude others from those boundaries. City streets can’t.
Can’t or won’t?
That’s not to say you couldn’t devise a system where you could, but the question is what would you gain? The transaction costs would indeed be…higher…than the current system.
There is no reason to believe that this is, a priori, true.
So not only did you miss his point, but your counter-argument serves to support his point. centralized authority is what overcomes transaction costs in firms.
No, it doesn’t. Some centralized authority will always exist, the question is whether it emerges through voluntary or coercive means. The former describes the behavior of private firms, the latter describes the kind ‘centralized authority’ favored by the Strong Towns crowd.
This is the problem with hardcore libertarians who think they can privatize everything under the sun. First, what is to be gained?
Avoidance of x-inefficiency, rent-seeking, and other problems that plague the provision of local roads and other infrastructure, needlessly raising costs.
Second, how do you overcome the problem of transaction costs, hold ups, small numbers bargaining, specific investment etc.
Take a look at the history of the US. For at least the first century or more, nearly all infrastructure was provided privately. There are countless other more recent examples, including many from outside the US.
If you’re building a home, whoever is going to build your pipes and deliver your electricity etc is making a…specific investment. I.e. an investment that is specific only to you. There’s a small numbers bargaining problem there: they can hold you hostage, or you can hold them hostage.
That makes no sense. The supplier has something it can withhold, namely a connection for service, in the event that you decide not to pay them. The converse is not really true.
During the debate, Marohn called himself a libertarian
Yes, and Rachel Dolezal considers herself black. And I claim to be the leader of the Socialist Workers’ Party. Making things up is fun.
“What transaction costs does a supermarket face?”
It doesn’t because it internalizes the transactions; i.e. carries them out inside a centralized authority of a firm. Imagine trying to undertake all the relationships of a supermarket at arms-length. Wouldn’t happen.
“Can’t or won’t?”
What do you hope to accomplish by creating boundaries and excluding people from city streets?
“There is no reason to believe that this is, a priori, true.”
There’s every reason to believe it to be true. There’s a mountain of economic theory and evidence for it.
“No, it doesn’t. Some centralized authority will always exist, the question is whether it emerges through voluntary or coercive means. The former describes the behavior of private firms, the latter describes the kind ‘centralized authority’ favored by the Strong Towns crowd.”
Nope. The government authority also emerged through voluntary means. You’re only observing the end result of hundreds of years of it, which led to the development of cities and urban areas as a result of carrying out these transactions through the fiat of a central authority. The question is, once you remove that authority by fiat in these transactions, can they continue to happen?
Everything points to no.
“Avoidance of x-inefficiency, rent-seeking, and other problems that plague the provision of local roads and other infrastructure, needlessly raising costs.”
And if transaction costs raise to the point of making any such transaction impossible in the first place, what is to be gained?
There is always inefficiency that is produced. Inside the firm, for example, hierarchies produce inefficiency (bureaucracy costs). But they are still less than the alternative transaction costs under the alternative governance scheme. Hence, you’re not gaining anything.
“Take a look at the history of the US. For at least the first century or more, nearly all infrastructure was provided privately. There are countless other more recent examples, including many from outside the US.”
Nearly all infrastructure was NOT provided privately. Infrastructure of the sort which were not public goods, like railroads, mass transit etc, were provided privately. Most of this is still privately owned in the US.
City streets, however, are not the same type of good. There is nothing to be gained by trying to privatize city streets, and there’s a lot to be lost.
“That makes no sense. The supplier has something it can withhold, namely a connection for service, in the event that you decide not to pay them. The converse is not really true.”
The supplier has to invest in building the infrastructure. If you don’t pay them, they lose out on the investment. This is a small numbers bargaining game with high asset specificity. It’s a clear cut textbook example of when transaction costs are high and do not happen in a market relationship, unless the power between the two players is balanced. Which it never is unless you’re dealing with either large private developers, or government authorities.
Again, what is to be gained here? Pointing out bureaucratic costs of authorities is not a sufficient argument, if you ignore the transaction cost reducing reasons those authorities exist in the first place.
You’re trading off transaction costs for bureaucracy costs. So far, hardcore libertarians have in no way shape or form demonstrated a system where the trade-off is worth making, or even possible.
We’re not talking about trains and buses here. Those are not public goods. Highways are somewhat intermediate; they usually wouldn’t be build without a centralized authority, but they can be operated privately. But city streets are certainly neither.
I agree with much of the libertarian philosophy but there are practical times when the transaction costs are much higher than the government inefficiencies and can avoid some of the worst tail end abuses. Most cities are now doing many services by contract (trash, plowing, paving, etc.) that used to be civil service jobs, so that has been a real world meshing of government-private incentives. Even those can go wrong, as the red-light and speed camera schemes are terribly unjust with bad incentives.
American society has a strange idea of “the profit motive” right now. People happily use a system of pure voluntary “tax” in restaurants to ensure power over their servers and get good service and change car insurance companies so fast they need a phone app, but there is a large segment of people who think it is evil for a school or drug company to make a profit.
“but there is a large segment of people who think it is evil for a school or drug company to make a profit.”
How many of those people do you suppose there are, who refuse to cash the paychecks they get from their employers? Profit is evil, indeed.