Transportation, Mobility And Economic Growth

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Donald Trump appears to be moving forward on a big increase in infrastructure spending. But — in typical Washington fashion — the spending debate may soon overshadow the original purpose of that spending: making it easy for Americans to get from point A to point B, and thus to make a better living.

Surprisingly, the most effective, economical solution isn’t always more roads (and the short-term economic bounce they bring). It’s the unpopular, yet highly effective, variable toll system.

Economic Growth

Politicians, including Trump, often tout the job-creating aspects of transportation infrastructure spending. While it is certainly true that building a highway or a bridge generates construction and engineering jobs in the short-term, the long-term benefit of transportation infrastructure investment can be attributed to the greater mobility the highways and bridges provide.

Greater mobility results in better job matches, lower business costs and faster product deliveries to customers. This increases productivity, an essential driver of business expansion and economic growth. Greater mobility allows workers to cast a broader job-search net. Workers are no longer constrained to look for jobs near their residence. Not only do they have more jobs to choose from, but employers have a larger pool of prospective employees to pick from. The result is better job matches.

Better job matches lead to more productive employees, resulting in higher wages, greater employee job satisfaction, and more profitable businesses. More productive job matches promote business expansion and faster economic growth. Furthermore, since many jobs have moved from the central city to suburbs, increased mobility makes it easier for residents in the inner city to find jobs, expanding opportunities for lower-income residents.

Higher levels of mobility can also improve business profitability by reducing the need to maintain high levels of inventories. Businesses hold inventories so that they can meet unexpected increases in customer demand. However, funds tied up in inventories have alternative uses that could earn a positive return. Greater mobility allows firms to take advantage of just-in-time deliveries. Firms save money by maintaining lower inventories yet are still able to satisfy customer demand, raising profitability. In addition, greater mobility reduces the time and dollar costs of getting final products to retailers. Consumers benefit from the increase in available product variety.

In urban areas, congestion is often the biggest impediment to maintaining transportation mobility. Adding more lanes to congested highways is the most common policy directed at this problem. Unfortunately, while new investment expands the capacity of the system, it may fail to keep a lid on congestion as more drivers use the highway over time.

Another problem with the costly building approach is that decision-making is highly political, so funds are often spent in areas where the return is low, rather than directing funds to the fastest-growing communities. Every state wants its share, whether it makes sense or not.

The only way to control congestion and maintain mobility is to change the way we price highways and bridges. While unpopular, variable tolls have proven to be effective. These can be charged during peak usage times, providing an incentive to shift less essential car trips to off-peak hours, car pools or mass transit. To appease voters who do not want yet another tax, variable tolls can be substituted for fuel taxes, which take a significant (and often unnoticed) bite out of commuters’ budgets.

In order to achieve widespread use of tolls, federal regulations need to be modified to allow tolling on all highways. This means, in order to begin making use of the superior highway technology at our disposal, Congress would need to remove all remaining restrictions on tolling federally funded highways and bridges.

The real value of transportation systems is in promoting mobility and, therefore, economic activity. There is a proven, cost-effective way to do this, but it requires political willpower and an ability to sell people on ideas that may not initially be popular.

Article by Robert Krol, Inside Sources

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