Pricing Benefiting Everyone

October 28th, 2014
ideas, money
Parking, traffic, CO2: there's not enough street parking in our cities, not enough room on our roads, and too much carbon in our air. Economists have a simple solution: charge for it! Instead of free street parking, or $40 permits issued to any resident, count the spaces and auction them off. Instead of allowing so many people onto the highway that it clogs up and stops moving, put in tolls and keep raising the price until traffic flows freely. Instead of letting anyone burn as much as they want, charge a tax high enough to cover the full cost the polluters impose on everyone else.

No more traffic jams, no more circling the block to find parking, even no more global warming if we can get the rest of the world to sign on; sounds great! So why don't we do this? A big concern is often that these charges hurt poor people more. For example, if I'm a rich gentrifier I could afford the permit to park my car at home and the tolls to drive it to work, while if I'm a poorer long-time resident this change might make my current driving commute expensive enough that I can't keep my job. What happens to our society when we put things up for sale to the highest bidder?

The thing is, all of these raise money. If they get up to unaffordable levels, they raise a lot of money. What do we do with this money? What if we distribute the money back to residents? We can give it preferentially to poor people [1] or just distribute it equally: just as taking $10 from everyone hurts poor people more, giving $10 to everyone helps them more. The important thing is to include the money distribution in the same law as the money collection, to make sure you do have both halves of this.

Does this get these market-based changes to where most people would support them?


[1] The downside of adding another means tested program is high effective marginal tax rates, which can form a "poverty trap" which keeps poor people poor.

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