The Upward Society: Laying the Foundations for a Post-Oil Age Economy

October 6, 2009

The “Double Dip” Recesion, Foreign Oil, and the National Rail Network

By Jake Huneycutt

The Energy Crisis

Economist Nouriel Roubini recently advanced the proposition that higher oil prices, rising government debt, and a lack of job growth will throw us right back into recession once we finally start to escape from the current one. Roubini labeled this potential phenomenon a “double-dip recession.” In essence, it’s a giant “Catch-22” — we can’t have continued prosperity without cheap oil and we can’t have cheap oil without a bum economy. This unfavorable scenario presents itself to us precisely because American policymakers over the past few decades have ignored our nation’s most pressing concern: the energy crisis.

Undoubtedly, we’re all aware of America’s massive reliance on foreign oil. Instinctively, we all realize this is most likely a detrimental thing. Yet, very few people have ever laid out much in the way of a comprehensive plan to deal with the crisis. There have been some attempts, however.

In 2009, oil magnate T. Boone Pickens unveiled his “Pickens Plan,” which called for the US to develop its wind power and natural gas capacity and increase the usage of more fuel efficient automobiles. It was a noble package and I do believe that American needs to increase usage of cleaner energy sources such as wind and natural gas, but we also need to address some of the underlying infrastructural problems with the American economy.

If we want true energy independence, we have to disentangle the American economy from foreign oil. There is no easy cure that will solve our problems over night. There is, however, a major way to reduce our reliance our dependency on oil while improving America’s infrastructure by increasing the availability of rail transportation and expanding public transit systems. What we truly need is an integrated National Rail Network.

The Eisenhower Interstate System: An American Success Story

Before touching upon a national transit network, however, we should examine one of America’s greatest success stories over the past century: the Eisenhower Interstate System. In a piece about lessening our dependence on oil, you might find it odd that I would bring up the Interstate Highway System. Yet, there’s an important reason to look at the system in order to understand our current dilemma.

Ike and the Interstate Highway System

Ike and the Interstate Highway System

The Eisenhower Interstate Highway System was one of the greatest public policy successes in American history and the largest public works project in history. It stands alongside the Roman aqueducts and the Great Wall of China in the pantheon of public works triumphs. It is precisely because of America’s well-developed road system that Americans have become so mobile. The system has also been one of the major factors driving America’s commercial prowess over the past five decades.

The Interstate Highway System was originally conceived as a defense network. President Eisenhower remembered travelling over America’s disjointed and confusing road network as a young man and became a great admirer of the German Autobahn. He wanted the United States to have a similar functioning road system to the Germans. In the five decades since Eisenhower’s presidency, America has never been invaded by a foreign power, but the Interstate Highway System has become a vital link in promoting commerce.

The great beauty of the American road network is that if you live in New York, you can hop on the Interstate and be in Virginia within a number of hours. All you have to do is own a car and gas up. Gassing up, as it turns out, was an important foundation behind the system. Instead of funding the Interstate Highway System through general income tax revenues or through a series of tolls, policymakers implemented a gasoline tax that would theoretically pay for the system. While the link was technically indirect, the heaviest users would, for the most part, pay the most while the lightest users would pay the least.

Why the Road System Works

The secret behind the success of the Eisenhower Interstate Highway System and indeed, the entire American road system, is that it has become a highly integrated network that can be used to travel nearly anywhere in the nation without incurring heavy expense.

Early American road

Early American road

This might seem like common sense, but the reasons why the road networks work are often taken for granted. Envision an alternate America where instead of the highly integrated, mostly toll-free road network we have, we instead had to rely on a disjointed, confusing, and not-always-connected series of roads.

Imagine if on a particular trip, you had to (1) get on a free local highway for 30 miles, (2) transfer to a dirt road for 20 miles, (3) get onto a out-of-the-way toll road for 20 miles, (4) take another out-of-way free highway for another 25 miles, (5) get on a local road for about 10 miles, (6) take a toll highway for 10 miles, (7) travel on another dirt road for 10 miles, (8) etc, (9) etc, (10) etc.

The reason why Americans travel the Interstate system in droves is because the ease, connectivity, and inexpensive nature of the system.

If Americans had to endure the scenario presented above in order to get to point A to point B, many Americans might not even bother owning a car. Yet, the alternate reality I presented was more typical of the early American road network. The only reason the automobile has become a way of life in America is because of policymakers’ dedication to expanding, upgrading, and integrating the road network.

A Distortive Funding System

Rather than the energy crisis being a result of the failure of the American road network, in a sense, it is a product of the system being too successful. As a result, policymakers have neglected other forms of transportation in favor of constantly expanding the road network. However, there are several problems with this approach:

(1) The system has become so “overdeveloped” that expansion is more of a hindrance than a benefit
(2) The functioning of the road network is completely dependent upon the availability of cheap oil
(3) The system’s original financing design has been undermined.

Issue #1 is debatable, but it’s difficult to make a case contrary to #2 and #3. While the Interstate Highway System was originally designed to be fully supported by gasoline taxes and a few tolls, in reality, the system has drifted into a different state as policymakers have refused to increase gasoline taxes to match highway expenditures.

At this point in time, roughly 70% of the funding for the highway system comes from gas taxes and tolls, while the remaining 30% comes from public debt, property taxes, sales taxes, and general income taxes. On the Federal level, about 93% of the funding comes from gasoline taxes, but on the state level, things are more skewed, as only 60% of the funding comes from gas taxes. The reason I bring these statistics up is to make a point: the road network that Americans use so frequently is now subsidized heavily via general taxes.

This is an important stat because it displays that the system might very well be distortive, forcing users to favor driving, when they’d much prefer to use alternate means of transportation. Indeed, public transit usage hit a 5-decade high last year as the market (i.e. the collection of American consumers) seems to be screaming out “WE WANT MORE MASS TRANSIT!” Meanwhile, despite record ridership, public transit agencies across the country are being forced to cut routes. The Washington Metro system is one of the best examples, being forced to make nearly $170 million in cuts.

Rail, Public Transit, and the Missed Opportunity

While statistics show rapidly increasing usage of public transit and road transportation systems becoming increasingly congested, it might make sense that policymakers would consider shifting funding towards public transit and away from road building. However, not only has this not occurred, it seems to be almost the complete reverse.

Earlier this year, President Obama and the Congressional Democrats led the charge to pass a $788 billion stimulus package. For months, this package had been premised on the idea that it would both (a) give a boost to the American economy and (b) achieve much needed infrastructure development. Unfortunately, as it turned out, only about 17% of the package was truly dedicated to infrastructure building activities. A sizable chunk of the infrastructure portion went to more highway building activities. A paltry $14.9 billion went to public transit. While this is better than nothing, we can do a lot better.

Ironically, the DC Metro system, which utilizes both rail and bus transportation, is one of the most severely underfunded systems in the nation and has been forced to make deep cuts at a time when there is record ridership. The system barely scraps by every year as lawmakers never dedicate much resources to it, expecting it to “break even” while competing on grossly unequal terms with the auto system. Yet, very little has been done by the Feds or the Maryland or Virginia state governments to improve the system.

Subway car in San Francisco

Subway car in San Francisco

Congress could have thrown a lot money at various public transit projects around the nation in the stimulus package and I personally believe that this would have been a much more productive infrastructure investment than the one we received; I’d rather see more comprehensive reform in our transportation system. Just like Eisenhower saw the need for the Interstate Highway system, it’s time for policymakers to realize the need for a National Rail Network

The Benefits of a National Rail Network

Transportation is one of only a handful of areas that the public sector is better suited to handle than the private sector. Transportation systems need centralized planning and design to function properly and they also need gobs and gobs of land to work. It is unlikely that a private actor will ever have the capability of building an efficient transportation system, unfortunately.
All the same, a nation’s transportation system is its livelihood. Without such a system, commerce would be primitive and practically non-existent.

Much of America’s prosperity of the past century would not be possible without our strong transportation systems, but we need to prepare for the future. Oil is becoming increasing expensive to extract. This trend is not going to reverse any time soon, especially as China and India continue their marches towards becoming world powers.

What happens to our current system when gas creeps over $5 per gallon permanently? It will still be there, of course, but it will increase the costs of everything we do and everything we buy. Moreover, the system has become so overburdened at this point, that it’s safe to say that more and more opportunity costs are being incurred each year due to lost time. Our goal should be to minimize costs.

The Eisenhower Interstate System has been a great boon to America, but a National Rail Network would also be a boon to commerce. It would increase the availability of transportation to all Americans. It would increase economic efficiency by taking more cars off the roads. It would also save many families considerable money, as they would need fewer automobiles to sustain their livelihood. Certainly, the fact that rail transportation is much more environmentally cleaner is a positive, as well, but from a sheer economic perspective, it makes sense. What’s more — the entire system can be funded without costing the American taxpayer all that much if it’s implemented properly.

A Funding Model for a National Rail Network

The initial idea behind the Eisenhower Interstate System is that it would be self-sustaining/self-funding via the gasoline tax. Unfortunately, that assumption has been undermined as politicians have refused to increase the taxes to match the level of road and highway spending. This has created an issue where our road system is substantially subsidized by general taxes.

One benefit that the National Rail Network (NRN) might have over the highway system is that it can be run more like a business. Indeed, for anyone who frequently rides one of the nation’s many public transit systems that should be obvious. Unlike the highway system where customers pay their “dues” in an indirect fashion (via gasoline taxes), public transportation largely operates via user fees. In this sense, public transit system are much more accountable and sustainable systems because there are managers and executives who have to decide what fees are necessary to fund their operations.

Just like the Eisenhower Interstate System, a National Rail Network could be self-funded via usage fees. Unlike the Interstate System, there shouldn’t be quite as large issues with the “self-funding” requirement being significantly undermined. For this very reason, a National Rail Network is not only achievable, but economically feasible. In the short-run, it will require up-front costs. In the long-run, a properly-designed NRN should not significantly contribute to national or state debt. In fact, by creating greater economic efficiencies, it might bring a greater return on capital since greater wealth will raise tax revenues.

The Formulation of a National Rail Network

The Eisenhower Interstate System, in a sense, didn’t originate in the 1950’s. It originated much sooner, as road and highway systems were built across America in the decades preceding the Eisenhower Administration. Eisenhower took the pieces already in place, built some more pieces, and integrated everything into one network. Once the network was in place, Federal and state legislators became dedicated to it and viewed it as a vital link for the promotion of commerce.

Here in America, we already have many public transit systems, particularly in the larger cities. The biggest hurdle to creating a National Rail Network is the need to build a high-speed rail network across the United States. Just as the Interstate System was not built overnight, this high-speed rail system would probably have to be slowly pieced together and integrated with existing public transit systems.

To a limited extent, we have an integrated rail system, but it does not function very well. The design of it is flawed, the technology is poor, the resources dedicated to it are meager, and Amtrak simply does not work very well as it is currently modeled. At the same time, Amtrak is experiencing record ridership even in spite of a terribly flawed model which exposes the need for greater passenger rail in the United States.

The primary elements that are needed for a true, well-functioning National Rail Network are:

(1) High-speed rail for inter-city travel

High-speed rail is absolutely vital to making a National Rail Network a reality. Without it, our rail system is effectively a series of isolated entities. A national high-speed rail network would not only create a new transportation for Americans, but it would also connect our disjointed public transit systems throughout the nation into one grand network, comparable to the Interstate Highway System. Our rail system would immediately become more competitive with the auto system and air travel and the labor costs of operating the trains would decline on a per mile basis.

High speed rail train

High speed rail train

(2) An Integrated design

In order to achieve this goal of a National Rail Network that serves as a viable transportation option, integration is absolutely vital! The reason many people preferred passenger rail to automobile transportation in the early part of the 20th Century was precisely because the road and highway infrastructure was so thoroughly disjointed, as to make its usefulness limited.

Automobile travel expanded in the 1920’s, 30’s, and 40’s, but it was only after Eisenhower integrated the system in the 1950’s that automobile transportation became the dominant form of transportation in the United States for both short trips and long trips. Passenger rail will only succeed when it becomes similarly integrated and convenient for the American consumer.

(3) Expanded public transportation in major metropolitan areas

Outside of New York City, the public transportation infrastructure in most major American metropolitan areas is relatively bare bones. This is particularly true with rail transportation. Even the Metro system, the public transit network in the nation’s capital, does poor job of providing coverage for the metropolitan area it services. I hope to explore this topic further in future articles.

(4) A dedicated system

Part of the problem with public transit in America is that the systems were put together almost as an afterthought. Political support has been weak and the systems function in a half-ass way. On the other hand, the highway system is a very dedicated system.

We need to become dedicated to developing (or perhaps I should say “re-developing”) public transit systems in America. Amtrak, as it is currently modeled has numerous flaws which I hope to explore more in-depth in future articles. For this article, however, I will mention the two most notable flaws are the lack of high-speed rail and the fact that Amtrak trains are required to share the same rail lines as freight trains. Both of these flaws make Amtrak a much slower transportation option than it should be and drive up costs (particularly labor-related costs, which is one of the major reasons why air travel is only slightly more expensive than Amtrak.

Until we begin to view passenger rail as a primary form of transportation, with resources dedicated exclusively to it, the system will suffer. It’s absolutely paramount that if we want a NRN, we build a rail system that is exclusively dedicated to that purpose, rather than throwing passenger rail on the exact same lines as freight trains.

(5) Reasonable pricing

Finally, the last hurdle comes in the form of “reasonable pricing.” Rail transit suffers from the fact that pricing on many systems is too high. Alternatively, one could argue that rail transit suffers because the pricing on competing systems is too low; that is to say, state subsidies of the highway/road system and air travel cause those forms of transportation to appear less expensive than they truly are to American taxpayers. Hence, it might be time to reformulate our transportation funding model and find a way to create a system more in tune with market realities. In such a system, the price of rail transit would be more reasonable than in the current system.


The National Rail Network and Staying Competitive

Perhaps the saddest thing is that over the past few years, the United States has wasted potentially hundreds of billions of dollars on bailouts, corporate subsidies (e.g. “cash for clunkers”), and a massive stimulus bill that consisted of a lot of pet projects rather than something that would improve the lives of Americans over the long run and create more jobs. A National Rail Network could have done just that and at a fraction of the cost. It is my firm belief that this is the most valuable investment we could have made during the Great Recession. Despite these missed opportunities, I still believe a National Rail Network will prove vital and be a net benefit to taxpayers in the long-run.

Just like the Eisenhower Interstate System, a National Rail Network will help facilitate commerce. It will create greater economic efficiencies by helping to de-clog the highways, lowering oil consumption, and decreasing the costs of transportation. The NRN will also create many infrastructure-related jobs and help lower the amount of pollutants released into the environment. If designed properly, the system should be predominantly self-funded over time.

The most important thing the NRN would provide America with is a safety valve. The American commercial system is largely dependent on highway and road transportation. This in turn creates a huge dependence on foreign oil, which leaves the American economy highly susceptible to increasing oil prices. If gasoline prices drift upwards of $4 – $5 per gallon once again, American industry will be hurt and economic growth will be severely limited. The NRN will allow the United States to limit its exposure to rising gasoline prices and prosper economically in spite of oil prices. For this reason, building a National Rail Network should be considered a much higher priority amongst policymakers.

July 14, 2009

Laying the Foundations for a Post-Oil Age Economy

By Jake Huneycutt

For years, Americans allowed themselves to be convinced by mistruths parroted by politicians and the National Association of Realtors that an economy based on home building and sprawl could thrive permanently.  Just like the deluded investors in the Roaring Twenties who convinced themselves that stocks could go up forever, people became convinced that home values could see dramatic appreciations in value for the rest of time, with no negative side effects.  However, the myth of American economic infallibility has been destroyed over the past two years.  Now, Americans suddenly find themselves reexamining the situation.  In truth, this might only be the beginning of America’s economic decline as this nation is not built to thrive in a resource constrained world.

You may believe I’m another doom and gloom prophet.  Maybe I am in one sense as I believe the American economy is poorly equipped to deal with the challenges of the 21st Century.  At the same time, I do believe there are solutions to our economic malaise and the longer we fail to deal with the underlying problems in our economic structure, the more we’ll fall behind the rest of the world.  It’s just a matter of convincing people to change the way things work; which if history is any indication, is always difficult, but never impossible.

In 1776, Adam Smith wrote The Wealth of Nations, an economic treatise arguing in favor of “free market” principles and in opposition to the mercantilistic views that were dominant at the time.  Smith’s work has been quoted, misquoted, cited, and distorted numerous times in the 233 years since its publication.  I have no intention of discussing the nuances of Smith’s views or providing detailed thoughts on his analysis in this piece; rather, I simply point to the one guiding principle behind Smith’s work: increasing economic efficiency.  That should be the ultimate goal, since greater economic efficiencies will result in greater wealth for the most people.  While we have numerous economic problems right now, we have almost completely ignored one of the greatest inefficiencies in our society: sprawl.

The Sprawlipolitan Nightmare

If you’ve ever taken a look at maps from some of Europe’s greatest cities in the 18th and 19th Centuries, you’ll notice the very thorough urban planning almost immediately.  The great European cities that were at the center of world power were not haphazardly put together; nor were the early American cities.  Baltimore, one of the thriving American cities from the late 18th Century all the way into the mid 20th Century, is a great example of an American city were one can still see a planned out design and structure.

New York City, 18th Century

New York City, 18th Century

However, the nature of American metropolitan planning changed dramatically after the 1950s.  Suburbs began to sprawl dozens of miles outwards from major city cores with little coherence or thought-out design, eventually dramatically reducing American efficiency.  The reasoning as to how sprawl creates inefficiencies is quite simple: greater distances between housing centers and work centers results in a greater use of resources.  Greater uses of resources create economic inefficiency.

Due to our development patterns, we use more oil to travel to work, the grocery store, friends’ houses, and go out to the movies.  We use more energy to power the infrastructure to build and sustain the sprawled out suburbs.  In fact, the average American uses nearly twice as much energy as the average European.

However, if you believe it stops there, you’d be dead wrong.  Sprawl raises our costs of living in many other ways that we don’t often think about.  Sprawl means we have to pay more taxes to construct and maintain the road and highway system needed to service these suburbs.  We pay more taxes for emergency services that are spread out over a larger area.  We pay higher prices for goods as an indirect result of higher energy costs that drive prices upwards.  We may not notice these things on a day-to-day basis, but it stands to reason that sprawl imposes significant costs on a societal-wide scale that hinders America’s ability to compete with the rest of the world.

If that were not enough, sprawl has helped destroyed one of the things that previously defined America: a sense of community.  Sprawled our suburbs isolate us and make it more difficult for us to develop close friendships with many people.  It makes it more difficult to sustain major cultural institutions. It leaves us alienated from the world around us.  If sprawl imposes very real economic costs on our society, it also creates significant quality-of-life issues and creates considerable constraints on the liveliness of our own culture, which was envied by everyone around us.

America’s Advantages

Fortunately, despite these major issues, America’s advantages have helped us overcome our disadvantages over the past half century.  There are very few societies on Earth as free and open as ours and, undoubtedly, that has helped foster a spirit of creativity and ingenuity that has made the American economy the strongest in the world and has lured countless number of dreamers from foreign lands onto our shores.

We originated a system of public financial reporting (via the SEC Acts of 1933 and ’34) that has helped decrease the level of uncertainty for investors and has helped drive costs of capital down.  It made America the safest country in the world to invest in and a haven for capital in the latter part of the 21st Century.

The merits of that system should become clear when we see scandals involving highly secretive, private investment firms such as the one run by Bernie Madoff.  Madoff was able to perpetrate his Ponzi scheme for decades largely because there was no significant public oversight.  In a sense, our public reporting system is like an accounting version of “open source” software, and while there will be bugs in it occasionally, so long as it’s out in the open, people will find it, inform others, and try to correct the situation.

We are also a nation blessed with diverse and plentiful resources and we have a highly educated population.  With the exception of China, there are not too many nations that could sustain themselves even in a worst-case scenario where all imports were cut off.  We have agriculture, we have minerals, we have manufacturing, and just about anything else we could possibly need in a jam.

Despite these advantages, the rest of the world is catching up to us quickly.  As tends to be the case throughout history, when one society has success, others try to mimic it.  Inevitably many succeed.  It’s no surprise that people in certain parts of the globe, notably Eastern Europe and China have admired America and have sought to learn from us.  If we want to maintain our position in the world, it will be necessary to orient our economy towards the future and evidence suggests we are heading towards a resource-constrained world with higher and higher extraction costs.  Minimizing energy usage, waste, and maximizing efficiency will be the keys to improving the quality of life.

Minimizing Energy and Resource Usage

If the problem is limited resources and increasingly higher costs of extraction, then the logical solution is to find ways to minimize usage of those resources.  America’s great dilemma is that over the past 60 or 70 years, we have built our infrastructure based on the flawed assumption that cheap oil would be plentiful for the foreseeable future.  That myth was briefly shattered in the 1970s, before America seemed to have revived the tall tale of eternally cheap oil once again in the ‘90s and ‘00s.

In the late ‘90s, motorists were able to find gasoline as cheap as 80 cents per gallon at one point.  Even the greatest demand destruction event in most of our lifetimes was only able to beat the price back down to about $1.50 per gallon at the height of the market collapse in November ’08.  Given this, it’s probably safe to say we won’t be revisiting the heyday of the late ‘90s any time soon.  At $50 – $60 per barrel, most of us believe that oil is relatively cheap.  When you consider that oil can manage to stay that high despite extremely suppressed demand levels, it becomes clear just how costly our heavy usage of this fossil fuel has become and it’s only going to get worse as emerging economies such as China and India continue to increase their oil consumption.

At this point in time, the American economy might be facing a giant Catch-22.  It can only thrive over the long-run with inexpensive oil.  Yet, oil is only inexpensive when demand is suppressed in a depressionary or severe recessionary environment.  The only real solution is to free ourselves from this paradigm and decrease our energy consumption.  The question is, how do we best achieve that?

There are several areas where I believe the nation can begin to promote more efficient energy usage and my goal with this blog will largely be to explore many of these areas.  My primary targets are:

(1) Expansion of public transportation and high-speed rail systems

(2) Transportation policies that reward the most efficient users

(3) Economic policies that promote upward, urban development

There are certainly other areas where we can decrease energy consumption and alternative energy technologies can allow us to reduce dependence on foreign oil, but I want to focus on the areas that I believe provide the most significant advantages that are often overlooked.  In fact, many of the issues I wish to highlight deal with things that are simply taken for granted.  With that, let’s explore some of these issues.

Smart Infrastructure Building and Public Transit

In 1956, the Interstate Highway System was proposed under the Eisenhower Administration.  It was one of the greatest infrastructure projects in American history and it was, in many ways, a huge success.  The American government provided the up-front capital, but the system was to be paid for and maintained via the gasoline tax.  While there were some flaws with this system, it largely worked up till the point that the Federal government decided to stop aligning the gas tax with the expenditures needed to maintain the system.  At some point, the system became dramatically underfunded as legislators wanted to have their cake and eat it, too.  Policymakers continue to aggressively fund highway and road projects, but did not raise the gas taxes to meet the necessary funding levels.

While we can lament the recent failings of American highway policy, the important take-away from the Eisenhower Interstate System is the same message that was repeated a gazillion times in that stupid Field of Dreams movie:  “if you build it they will come.” That is to say, people use the highway system because it’s (mostly) free, well-connected, reasonably maintained, and can take them anywhere.  If instead, the highway system where a disjointed series of high toll roads with huge gaps, requiring users to exit onto crowded city streets at various points, before re-entry, it would not be nearly as heavily utilized as it is today.  In essence, the reason the highway system works is because policymakers dedicated themselves to it and made it an attractive proposition to American consumers.

We’ve never seen the same dedication to public transit outside of New York and maybe a small number of college towns.  Instead, policymakers have constantly asked for the systems to “break even” immediately despite competing against a heavily subsidized auto/road system.

The fact of the matter is that consumers are smart.  It’s not that they love cars and hate public transportation or vice-versa.  It’s that, in general, people will gravitate towards the method of transportation that is (a) most cost-efficient, (b) reliable, (c) convenient, and (d) inter-connected.  One problem I’ve found with some transit systems is that it can often take two hours and three transfers to move five miles.  One could walk or bicycle the distance much more efficiently in that case.  Outside of NYC, the public transit system is a hodgepodge; if these systems were more integrated, more thorough, and more convenient, they’d also be more heavily utilized.

MARTA

MARTA train in Atlanta, GA

The benefits of public transit should be obvious.  Greater use of public transit means lesser energy usage, less taxpayer funds needed to expand highways further and further, less congestion on the roads, and greater economic efficiency.  Yet, due to the heavy lobbyist influence of the auto industry at various points in our nation’s history, public transit has been shunned despite its superiority in major urban areas.

Transportation Policies and Cost Distortions

One of the biggest reasons that public transit and high speed rail will never “break even” goes back to policymakers’ preferences.  American policymakers have consistently favored the road/auto system over other alternatives.  I use the term “road/auto system” because it’s an inter-connected network that requires various functioning parts in order to be useful to American citizens.  Politicians have dedicated themselves fully to this system, which is why it has worked so well.

Unfortunately, policymakers’ preferences have also had the negative effect of distorting the market and making it appear as if driving is more inexpensive than it is in reality.  While we have a gas tax to fund the Federal highway system, the tax has been frozen since 1993 and the highway system has faced massive shortfalls as a result.  In essence, the system has been funded by US debt and general income taxes, rather than meeting its original design.

President Obama’s stimulus package was originally supposed to be an infrastructure-building bill; so much for that!  Only about 17% of the package went to infrastructure building and more than 20% of that went directly to the underfunded highway system.  In essence, it was more of a highway system “bailout” than anything else.

It’s not that I oppose the highway system.  It’s rather than I oppose policymakers’ unequal treatment of it.  In a time when energy efficiency should be one of our top priorities, we still continue building highways as if our oil-guzzling Gods will be around to transport us forever.  In fact, we’ve created an even new problem: now that cars are more fuel efficient, there are even less funds to sustain the highway system.  While the gas tax was somewhat useful in funding the system, it’s not completely tied to usage.  Rather, you use the system for free and the gas tax is supposed to reasonably compensate for your usage; but it doesn’t.

Perhaps even more distortive than the continued highway/road funding sources is policymaker’s dedication to building it.  Just as a successful business enterprise calls for up-front investment that is unlikely to breed a return in the short-term, so too, do transportation networks.  In fact, a dedication to building the road/auto system is the primary reason why it has become so popular for Americans.  As I alluded to earlier, if the road system were nothing more than a sporadic and disjointed series of toll roads, very few people would utilize it.

The big question becomes, why do we treat public transit as if it should be a sporadic, disjointed system that should “fund itself” while treating the highway/road system as a dynamic, interconnected system that will eventually pay for itself via the promotion of greater transportation and commerce?  There’s a double standard with policymakers and we need to make the transportation system reflect reality, as those who put the most strain on the system should pay the most, while those who put the least strain on it should pay the least.  That’s the only way to end the distortive effects of American transportation policy.

Promoting Upward, Urban Development

Public transportation is the low-hanging fruit for the promotion of energy efficiency.  It would be easy to build and expand public transit networks and decrease our energy consumption.  Our transportation policies are a bit higher up the tree, but we could shift our agenda to promote more energy efficiency and transfer costs to those who use the most energy.  Shifting gears on both of these issues  would be beneficial to Americans, but I think there’s even more energy savings to be found if we regain our ambition and embark upon a policy of promoting upward, urban development.

Why have Americans favored sprawl over the past five decades?  There are several reasons, but the most notable are:

(1) Transportation policies that favor sprawled development by hiding true costs

(2) The deceiving cheapness of oil

(3) High city taxation coupled with a high cost of property ownership in cities

I’ve already touched up the first two issues.  The last one is particularly important to me, however, because I believe people often ignore it.  Taxation tends to be significantly higher in city cores.  Yet, dense urban development creates greater efficiencies and reduces societal hidden costs (e.g. more city services, taxes to fund highway/road building, etc.).  So why do we continue to punish those who chose to live the most efficient lifestyles?

High city taxes come in a lot of forms.  The City of Philadelphia imposes a wage tax that is roughly 3% of one’s income.  Meanwhile, the surrounding suburbs do not impose a wage tax at all.  If you are a professional and you earn $70,000 per year, would you rather live in the city or two blocks outside of it, other things being equal?

Then, there are property taxes.  I’m going to make a somewhat controversial assertion and state that property taxes in the American political system are nonsensical.  Why, you ask?  Land is taxed based on “value” rather than usage:

MemphisOldTimeSm

Memphis, early 20th Century

(1) The people who pay the most are the ones who build valuable, upward urban properties that also happen to be the most energy efficient.

(2) All property is taxed even if the land is best suited for wilding.  If we want to promote a clean environment, why should we punish people who chose to leave their land wild, particularly out in rural areas?  No one is ever going to choose to leave their land wild, when a developer will come by and relieve them of their tax duty and provide them with mucho dinero.

(3) Upward building lowers the costs of government services and creates greater wealth for a greater number of people.  Meanwhile, sprawled out development increases government costs and passes those costs on to the general taxpayers.  Yet, urbanites are punished the most, while the deepest suburbs offer the lowest tax burden.  This is, in essence, one of the biggest market distortions in our system.

19th Century writer, Ralph Waldo Emerson, once stated that “the test of civilization is the power of drawing the most benefit out of its cities.”  Over the past 60 years, the United States and its various governments have embarked upon policies that have unintentionally drained all the life out of our once-great cities.  If we want America to be truly great again, we have to tap into the power of these cities once again. American needs to begin promoting upward, urban development.  The only way to achieve that is to examine the root causes of our urban decay and correct them.  That is my major intention with the launch of this blog.

The Beginning

This is only the beginning.  My primary goal here will be to challenge the predominant thinking in American energy and urban development policy and to push us towards ideas that can help restore us to the economic greatness we once knew.  I have 100% faith in the ingenuity, creativity, and determination of the American people.  The problem is our governmental system does not bring out the best in us.  We need to change that.

I am no ideologue.  I believe in rational discussion about America’s problems.  My goal, first and foremost, is to encourage that and get people thinking about issues that may otherwise get pushed to the backburner.  For anyone who wishes to join me, I will certainly consider posting articles from similar-minded individuals.  For those who wish to participate by commenting and contributing your ideas, I welcome you as well.  We can’t rebuild America alone and it’s time to start sharing ideas again to find realistic solutions to the issues facing us all.

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