Freeman

ARTICLE

The Seen vs. A Modern Example

AUGUST 01, 1981 by JOHN SEMMENS

Mr. Semmens is an economist for the Arizona Department of Transportation.

Across the country, state after state is chafing under the imposition of the 55-mile-per- hour speed limit. Self-appointed critics of the wisdom of the American public shake their heads knowingly, remonstrating against this “typically shortsighted return to pre-crisis energy profligacy.” The Federal Highway Administration weighs in with its own threat to withhold Federal aid to those states not abiding by the 55-mph edict.

The intent, of course, is to force us to conserve precious resources. What isn’t realized is that the 55-mph speed limit does not conserve resources. A strictly enforced 55-mph speed limit would result in a substantial increase in the resources consumed in order to produce the same output of goods and services. Even more ironic, though, is that the original enactment of the reduced speed limit set in motion a chain of events which has led directly to the accelerated deterioration of the highway system.

It is a classic case of the seen vs. the unseen that was first portrayed by Frederic Bastiat in the early 19th century. On the surface, it is plain to see that vehicles driven at 55 mph will generally consume less fuel than vehicles driven at faster speeds. Less obvious is the fact that reducing the speed limit from 70 mph to 55 mph decreases efficiency through increased travel times of up to 25 per cent.

In the bosom of the bureaucracy, time may have little or no value. However, in the real world “time is money.” People ordinarily must be offered an inducement to get them to spend their time. If we are to make a valid analysis of the advantages and disadvantages of lower speed limits, we need to consider the element of time consumed or saved, as well as the amount of fuel used.

If the 55-mph speed limit were enforced to achieve 100 per cent compliance, the maximum fuel saving would amount to only 18 per cent. Matched against the time loss of 25 per cent, this does not seem a very good trade-off. When we pursue the analysis further to take into account the relative prices of fuel vs. time, the consequences of this public policy appear even worse. In terms of the value of human time consumed in the trip alone, for every $1.00 of fuel saved $1.50 in time is lost.

The above analysis does not even begin to go into the question of the consequences of reduced transportation capacity. On the one hand, the reduced transportation efficiency will raise the cost of transporting goods more than would have occurred if greater speeds were allowed and more fuel burned. In addition, less efficient transportation would increase the incidence of business inventory “stockouts,” unless inventories are enlarged to compensate for increased transportation delay. Financing enlarged inventories in today’s expensive credit markets puts even more upward pressure on interest rates.

Another answer to the problem of reduced transportation capacity under the 55-mph speed limit is to increase the size or number of long haul trucks. Increasing the number of trucks requires major capital investment to produce power units and trailers. Even so, the manufacture of more trucks does little, if anything, to lower the per trip operating costs. Therefore, it should not be surprising to discover that the option most attractive to the long haul trucking industry was to increase the size of the vehicles.

Fueling their case with fumes of the energy crisis, the trucking industry persuaded Congress to increase the allowable limits on vehicle size and weight. In January of 1975 Congress raised the weight limit to 80,000 pounds. This enabled the heaviest long haul trucks to increase their operating efficiency potential by nearly 10 per cent. Everybody went home happy.

Little noticed in this valiant effort to reduce energy consumption and improve motor carrier operating efficiency was the potential impact on the highway system. At the same time that the increased vehicle size was producing a 10 per cent efficiency gain for truck operators, it was also producing a 40 per cent increase in pavement wear and tear caused by heavy vehicles.

Now, eight years after the decrease in highway speed limits and six years after the increase in allowable vehicle weights, we discover that the roadways are deteriorating at a faster pace than was anticipated when they were designed. The consequence is that these roadways will require heavier maintenance outlays and many will have to be rebuilt at a cost of multiple millions of dollars per mile.

The whole episode is a classic demonstration of what can go wrong when government seeks to resolve “crises” by overruling market-based decisions. The time honored market solution to shortages is a rising price. The rising price serves the twofold purpose of dampening demand while stimulating supply. Yet, this most efficient equilibrating mechanism was rejected and upset by the government’s determination to find a “better” solution, one that would be less costly to the society than letting fuel prices rise.

Of course, there is no “less costly” solution than a free market for meeting the material needs of a society. This fact has become painfully apparent over the last eight years. Fortunately, many of the emergency energy rules have been dismantled or abandoned. Unfortunately, some of them, including the 55-mph speed limit, are stubbornly still in place.

Perhaps, though, there is a silver lining in the whole sorry episode. The legacy of prematurely deteriorated highways can serve as a poignant reminder of the folly of tampering with the allocation functions of the market. Making use of this lesson will not be easy. Current discussion of the accelerated roadway deterioration problem conveys the impression that it is something that “just happened,” or worse, that it is merely a result of inadequate taxing and spending.

But, the causal chain, lengthy and complex though it may be, is there. It can be traced and documented. The accelerated wear and tear on the nation’s highways is an end-product of a chain reaction set into motion by the government’s attempt to suppress the energy resource allocation mechanisms of the market. It is a high price to pay, but it won’t be a total loss if the experience serves to keep us from making the same mistakes in the future.

ASSOCIATED ISSUE

August 1981

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