Sunday, October 31, 2010

On traffic lights and economics

Suppose you are sitting behind a long line of cars at a traffic light, and the light turns green. Despite the light turning green, the car in front of you does not move for half a minute. Finally, you are free to drive, yet you are hardly able to move forward before the light is red once more. The light changes again, and you go through the same cycle. By now you'll be late for your appointment. You want to scream at all the cars who were in front of you and wouldn't move.

You think to yourself, "Why is it that when the light turns green, we don't move?" You decide that it would be much more logical if as soon as the light turned green, everyone at the light started moving simultaneously. This would make getting cars through the light much more efficient. Then you wouldn't be late. Driving would be so much better if everyone followed this simple rule that you are convinced they should pass a law requiring it. After all, it would help everyone, in the long run.

Of course the result of this law would be more accidents, and so far from helping everyone, it would make everything worse. Occasionally it might get more cars through the light. But suppose you are nine cars behind the first car in front of the light, and you can't see that in fact he intends to turn left, which he has every right to do. Turning left (or even right) always takes a bit longer than simply driving through the intersection, but the cars behind will not be able to sufficiently account for this loss of speed. Eventually there will be a crash.

And besides, how would this law ever be enforced? Could you really hand out tickets for waiting a few seconds too long to start moving? That would be draconian at best. It is also absurd to expect everyone to have exactly the same reaction time--fractions of seconds can have a huge impact when doing something precarious as driving.

It is easy to see after a moment's reflection why thinking this way about traffic is absurd and even dangerous. Yet this is exactly the way we often think about economics. If only everyone bought a certain type of health insurance and visited their doctors regularly as recommended. Surely we'd all be better off. It sounds so plausible that we forget about all our experience with unintended consequences. We are unable to foresee all the perfectly lawful things that people might do which will throw a wrench in our design.

When we consider that driving on the freeway is nothing less than flying a three to five ton mass of steel down a narrow path at 65 mph or more, it is almost absurd that we are not completely terrified of the prospect. Yet we know that, despite whatever risks are involved, it is safe enough to do every day. The only thing that makes it so is that we can trust drivers to concerned enough with their own safety and the safety of their passengers that their driving will, on average, be skillful enough to be safe. There will always be a few instances of exceptionally (and intentionally) bad driving, and we have law enforcement for that. But on the whole, even those we consider bad drivers are not so uninterested in themselves that they will fling their cars around completely oblivious to the potential consequences.

This is the very same principle on which a free market economy is based. We can expect people to be concerned with their own interests. This does not mean their selfish interests. We can expect husbands to buy things for their wives. We can expect parents to buy food for their children. We can expect the religiously devout to give money to religious organizations. We can expect idealists and do-gooders to give money to various charities and activists. I do not say that everyone knows how to spend their own money wisely, just as I do not say that everyone is as good a driver as you, dear reader, surely are. I only mean that people are at least conscious enough of what is valuable to them that their economic activities will generally be pretty good for society as a whole. There will always be exceptions, and that is why we have laws and law enforcement.

Designing laws, much like designing intersections, is a very honorable profession. It takes skill and thoughtful planning. We don't want an intersection where the most likely outcome is a crash. Just the same, we don't want laws which will probably cause economic disaster. Laws, just like intersections, should be constructed not with a specific end in mind, but with the goal of creating a system flexible enough for many people to use toward various ends with little difficulty. To design laws with particular economic outcomes in mind is just as dangerous as making traffic laws designed to get everyone through the intersection as fast as possible.

In our day, we believe that laws ought to achieve specific ends. The health care bill which the Democrats passed is one example. The Republicans have their own pet projects, as well, such as expanding the military. (The argument that military spending increases technological progress is every bit as fallacious, if not more so, as the argument that socialized medicine improves everyone's health.) All politicians, it seems to me, want Social Security to be the government's leash around America's neck, which forever keeps the whole society dependent on its oversight.

All of these laws are passed in the name of our collective responsibility. It is not just individuals, but the society as a whole which has a responsibility to take care of certain aspects of our life together. I agree with this, yet I will add that if we have a collective responsibility for one another then we also have a responsibility to determine how we as a collective best operate. To think that laws passed by Congress can unite us in a collective action toward a predetermined economic outcome is a presumption so enormous I cannot fathom how it fits inside the halls of the capitol building.

Yet this presumption begins with the same frustration as of a man stuck at a traffic light. We are prone to thinking our problems can be solved through politics, because we are prone to thinking our ideas are so good that their benefit cannot be denied. This is not how a free society solves problems. Free people solve problems through voluntary mechanisms--through free exchange, through voluntary association with those who share our ideals, and through our natural ties to people such as our relatives. These exchanges and associations happen not by any government ordinance, but by ordinary people with ordinary loves. America is great insofar as we remember to appreciate these ordinary loves and do not trample on them with our brilliant plans. It is not a question of how popular a given plan, such as Obama's health care, is. Even if the majority desires something, that still does not make it consistent with freedom.

Indeed, we should desire not a plan, but a principle. And that principle is freedom.


  1. Whatever. People who piddle around for 30 seconds before starting through a green light should be shot without trial. :P

  2. I think, in a way, you fell right into the trap of that example. The reason the car in front of you doesn't move for 30 seconds is not because they're not paying attention, but rather because each car has to wait for the car immediately in front to start moving. Thus if you're behind, say, 10 cars, and the first car is trying to turn, it may easily take you 30 seconds to get going. It's only because you can't see what's going on in front that you feel like the people in front of you are idiots.

    Just the same with economics.

  3. I know its not your point, but when I think about free markets and cars, it just reminds me how un-free marketey we Americans are with everything related to cars. First road subsidies. Then, the fact that zoning ordinances all across America set minimum parking requirements and with them the scourge of free parking. Then there are all the setback requirements, minimum yard sizes, and other undense biases in city building rules that promote driving. This is before you even get into pollution, safety, and public health externalities. Price the roads!!! Price the parking!!!

  4. I agree, we're not very "free marketey" when it comes to cars, and unfortunately it would be very difficult to move in that direction. At least people are now starting to worry about the environmental impact of giving driving a privileged place in our economy.


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