Thursday, July 05, 2007

Indigestion Pricing

There's a fascinating piece in yesterday's NY Times business section that focuses on the pricing dynamics of E-Z Pass systems. As the story tells us, "As a result of E-Z Pass and its ilk, even many adults don't notice the cost of a toll at all...Which raises an interesting question: If you don't know how much you're paying for something, will you notice when the price goes up? Or has E-Z Pass, for all of its benefits, also made it easier for toll collectors to take your money?"

The answer, unfortunately, is a definite yes. As the Times story tells us, a young economist pulled decades of toll records and did a comparative study that found a clear pattern: "After an electronic system is put in place, tolls start rising sharply." In similar situations, tolls with an electronic system in place soon become about 30% more expensive than the tolls collected manually.

In an electronic economy, with E-Z Pass style paying rapidly becoming the norm, "it's much easier to be carefree." That is until you get the bill. The beauty of cash payments comes from the fact that you're always aware of the expense. Milton Friedman's comments about the withholding tax concept that he pioneered many years ago is germane to this discussion: ""'It never occurred to me at the time...that I was helping to develop machinery that would make possible a government that I would come to criticize severely as too large, too intrusive, too destructive of freedom.'"

Which brings us to the mayor's plan to tax commuters using electronic technology. Now we've already seen how our friends in London have rapidly doubled the initial fee. And we've commented on just how little the truck charge will relieve congestion-and will really be used exclusively to raise revenues. What we're facing than, is a very easy and convenient way to continue to hike commuter charges with the least amount of resistance.

It is, however, even worse than that. What NYC commuters are facing is the creation of an elaborate collection behemoth-another public authority that is unaccountable to the citizens- whose technology is questionable, but whose collection methods-much like the city's PVB-will be unassailable. The mistakes will be legion, but the remediation of these errors will be nonexistent. As Ray Keating wrote recently in Newsday; "Just what we need-another unaccountable public authority so politicians can borrow and spend more money without having to get approval from all of those pesky voters."

It would be an expensive weapon against the city's business and working classes, a weapon that is much too dangerous to be left in the hands of city bureaucrats. Alternate methods of raising money for mass transit need to be explored and this elaborate and exploitative scheme needs to be permanently shelved.