Ryan Avent has had some back and forth with Tyler Cowen and Will Wilkinson over roads and rail. Tyler and Will acknowledge that, yes, our reliance on roads rather than rail has been influenced by long-standing government subsidies. But by now we have sunk so much into roads, and have built up so much road infrastructure, that the marginal cost of adding to our road network is much lower than creating a viable rail network from scratch. In other words, our past investments have had a lock-in effect, and there's no wishing it away.
Ryan responds that Tyler and Will are committing the "sunk costs" fallacy, but I'm not sure that's right. Past investments matter a lot because they have generated network externalities. One million dollars spent extending an already extensive network is often worth more than one million sunk to build a network from scratch.
But Ryan is right that past investments in suburban infrastructure do not require us continue throwing up barriers to denser developments:
In practice, the US is far from done building. Tens of millions of new homes will be built in the coming decades. Hundreds of billions of dollars will be spent on transportation infrastructure. The current built environment has, as a result of decades of government policy, taken on a rather suburban, auto-centric tilt. So what? No one is suggesting that we tear down all of that and replace it with something entirely new. I, and others, are suggesting that making it easier (or, you know, legal) to build in a denser, more walkable fashion would be advantageous. Similarly, given the burden of maintaining such a large and costly road infrastructure, it might be wise to devote a larger share of dollars for new construction to substitute technologies.
And bear in mind that a technology's lock on the market is not always as secure as it seems. A small initial advantage allowed VHS to dominate the videotape market, all but squeezing out Betamax. But it did not save VHS from the DVD, even though a vast infrastructure had been created to support VHS: video players, Blockbuster, video cameras and a complete library of titles. All wiped out by a superior technology.
Now imagine the government had subsidized VHS to help it fend off insurgencies from new technologies. At best, many of us would still be stuck with an inferior technology. At worst, there would be no DVD. The government should let these things work themselves out in the marketplace; that's the true libertarian position.
All of this means that the government should let denser development happen. Stop the subsidies and tax policies -- including subsidies to new highways -- that encourage shifts to the suburbs. There are perfectly sound economic arguments for investing in rail lines in some situations; make those investments. Many home buyers, probably most, will continue to settle in the 'burbs. But we can't anticipate shifts in technology. Nor shifts in preferences or energy costs. We think we can. But we really, really can't. If the housing market would continue down today's path anyway, fine, but the government shouldn't lead it by the nose.
