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How many of you took an economics class in high school or college? Economics traditionally focuses on reducing costs and increasings sales, in order to increase profits. But how does the calculation change when profit is no longer the driving force?
In the “Economic Case for Free Bridges and Roads” Alex Marshall presents the public economics piece that is often forgotten in our public finance discourse. Private companies seek to maximize profit, but public investments should maximize usage – that way the public get the most return on their investment.
Usage is our Return on Investment. We need to focus our economic return on the usage and not the profitability of a bridge, a school, or other public investment. The value of a bridge comes from its benefit to the community. The cost of a bridge will be the same whether 50 people or 50,000 people use it each day. The return on investment is greater if 50,000 people use the bridge. Fees required to cross the bridge will reduce the usage – and lessen the return on investment. I would also add that not only the quantity of the usage, but the quality of the use. For example, a bridge to connect a hospital to a neighborhood (saving valuable minutes in an emergency) has a high quality, even if use is limited.
Capacity Marshall points out that capacity issues (such as on busses and subways) can warrant fees-for-service, but only to address capacity issues and not in an attempt to cover the full cost of these services. The fees will drive down usage, reducing the public good done by that service.
The common complaint from taxpayers is ‘I don’t ride the bus, why should I pay for it?’ There are a few good reasons. First, public transportation reduces traffic congestion, pollution, and parking hassles for others – so everyone does benefit. If we believe public transit serves the public good, everyone should pay their fair share to cover the costs. Second, about 50% of highway spending in America comes from general revenue sources – and not the gas tax or user fees (tolls). People that don’t drive pay for roads that others use. Public investments improve the community – not just a select few.
Ohioans Love Libraries. Many Ohioans never set foot in a library, but still appreciate the asset to the community. If there were check-out fees, the usage of our public libraries would dramatically drop. We don’t want this to happen, because libraries serve a public interest. We invest in the public libraries and keep the service free to benefit everyone. (late fees address are used to deter people pushing the capacity of the library by not returning materials on time. Nobody would want late fees to be a primary funding source for our libraries!) We want more people using them, to maximize our return on the investment. Our roads, schools, public transportation, and social services are needed just like our libraries and we should finance them as such.
