Saturday, February 07, 2009

DANG (19) - Roads and Highways

Some people believe that we need the government to build roads and highways.

We tend to forget that most new streets in a city are built by property developers, as they open up new subdivisions. These new streets are handed over to the care of local government. The new streets are generally well built, but the quality of maintenance by city councils is variable.

Most new roads and highways are built by private contractors. The government maintains roads that have been built by others. Roads are often not maintained as well as they were built, so this does not inspire confidence in government.

Some argue that we need to government to pay for roads. The problems with government funded roading are evident in every large city. Whenever the price of a good or service is set to zero, demand escalates. People have to queue to get the good or service. In the Soviet Union the price of bread was set too low, so there was not enough bread available to supply needs. Queues for bread were common.

In most large cities, the price for travelling on many highways has been set to zero. The result is that many people are queuing to use the highway. We call this traffic congestion, but it is really just a queue for a government-provided service for which the price has been set to low. The economic phenomenon is no different to the bread queue in the Soviet Union.

Highways can be built for by private companies and paid for by tolls. Private companies have to build the roads that will be used, before they can collect any tolls. Governments collect the money before they build any roads and then often do not build them at all. Paying for a service before it is delivered is not a good practice.

No comments: