Knowledge And Decisions

The rush-hour traffic congestion caused by thousands of people going to work separately in individual automobiles has been denounced by social critics as “irrational” and explained by some mysterious psychological attraction of Americans to automobiles. It is, however, a perfectly rational response to the incentives and constraints conveyed. The actual costs and benefits of automobile-sharing are forcibly prevented from being conveyed by prices. As in other areas, claims of public irrationality are a prelude to arguments for a government-imposed rational “solution” to the “problem.” Also as in other areas, it is precisely the government’s use of force to prevent the accurate transmission of knowledge through prices that leads to the suboptimal systemic results which are articulated as irrational intentional results of a personified “society.”

Private force is used to prevent price transmission of knowledge of the availability of drivers. Many unemployed people are perfectly capable of driving, but are prevented from competing for such work, either as employees or as owner-operators of vehicles. Labor unions are the private force. This is not metaphorical force, though it may be infrequently exercised force (as in armed robberies), because both sides understand the situation. If any unemployed worker receives X dollars as unemployment compensation but would rather work at 2X, he will be prevented from doing so if the union wage is 3X.

It is not enough that the union have a contract for 3X with a given employer, such as a bus company or taxi fleet. The unemployed individual could work for 2X for himself or for a nonunion firm — if this were not prevented by union threats and/or government force applied directly to make these other options illegal.

Unions do not simply set the wages paid on a predestined number of jobs. The wage rate charged determines how a certain task will be performed — that is, how many “jobs” it will involve. In the case of municipal transit, high wage rates for bus drivers create incentives for large buses — the substitution of capital for labor in transporting a given number of passengers. A leading transportation economist estimates that about eight passengers per vehicle would be optimal in a system where prices were allowed to convey accurate costs of vehicles, drivers, and roads²⁰ — in contrast to the usual forty- to fifty-passenger buses actually used. If only one fifth as many passengers were carried per bus, there would be five times as many small buses, meaning five times as many jobs for drivers and only one-fifth the waiting time between buses for passengers. It would also be possible to have a far greater variety of bus routes, as the jitneys had, rather than clogging a few main thoroughfares during rush hours and letting passengers off farther from their destinations than necessary, as at present. Under these conditions buses would also be a far more attractive alternative to private automobiles for many people.

Disastrous as the effects of political decision making have been in municipal transportation, it is by no means irrational politically. Indeed, the same set of policies have emerged in so many different cities across the country, and reappeared again and again in national transportation policy regarding passenger railroads and airline routes that it is clearly a consistent effect, reflecting consistent causes rather than anything as random as “irrationality.” Central to the decision making in this area has been the maintenance of incumbent transportation entities, which often implies the maintenance of incumbent technologies — i.e., subsidized obsolescence²¹ — resisting the phasing out of existing modes of operation, as competing modes arise. On the contrary, competing modes with technological or organizational advantages are either penalized or prohibited (as in the case of the jitneys), to preserve incumbent organizations and technology. It is not even a pro-industry position but a pro-incumbent position, since there might well be a far more profitable industry (consisting of new firms), as well as one better serving the public, in the absence of such regulation. To be pro-industry would be an ideological position; to be pro-incumbent is a practical political position, since the incumbents are either organized or easily organizable into effective special interest groups. The same incumbent bias applies to labor — i.e., to unions of existing employees, at the expense of other workers whose job opportunities are sacrificed. For example the federal mass transit subsidy program requires labor union approval of any major expenditure²² thereby assuring that no changes will be made that adversely affect the incumbent union members.