“Privatize The Roads!” Says PhD Economist

Death, taxes and government ownership of roads: all inevitabilities, right? Well, not according to Dr. Walter Block, professor of economics at Loyola University in New Orleans and senior fellow at the free-market Mises Institute. Dr. Block, whose most famous work, Defending the Undefendable, not only made a case for drug legalization but also argued that black-market drug dealers are “heroic,” will be publishing a new book later this year dedicated entirely to the privatization of streets and roads.

Milton Friedman: “Road Socialist”

Block was converted from socialism to laissez-faire capitalism by a personal acquaintance with none other than Ayn Rand. Later, he met the “anarcho-capitalist” libertarian philosopher and Austrian economist extraordinaire Murray Rothbard, who converted Block from Rand’s preference for an ultra-limited government to “Rothbardian” hard-line individualist anarchism. But this conversion to an unpopular faith didn’t stop Block from becoming widely recognized as a great free-market economist. To the contrary, Block’s prolific work won the respect of his peers, and in fact, the forward to Defending the Undefendable was written by Nobel Laureate Friedrich von Hayek.

Roads have long been a pet issue for Block. Years ago, in a debate with the legendary Milton Friedman, Block called Friedman a “road socialist.” Friedman, who like Hayek was a Nobel prize winner in economics, resented the remark at first—and then he admitted it was true—he was a road socialist.

When even Milton Friedman, a heralded defender of the free market, considers socialization of a good or service to be wise, then that must be the case, right? Other supposed laissez-faire capitalists, such as George Mason University professor of Law and Economics Gordon Tullock and Cato Institute adjunct scholar Richard Epstein, also oppose the privatization of roads. But Block stands by his support for a free market in transportation because, in his view, it’s a matter of life and death.

1.2 Million: The Thirty-Year Government-Road Death Toll

Walter Block says that 40,000 people die each year on U.S. government roads, and that death rate has remained relatively stable since the 1970s. If roads were privately owned and operated, Block estimates that the annual death toll would be more like 10,000. Over a thirty year period, as many as 900,000 lives could be saved.

But why would privately owned roads be so much safer? There are a variety of reasons. For one, the government’s monopoly on roads leaves consumers with few alternatives. If roads were privately owned and operated by numerous road entrepreneurs, consumers would choose the safest ones. What’s more, private road owners could be held legally accountable for deaths on their watch—the government is immune from such liability.

“Pass the Socialist Salt”

The needless deaths caused by government roads are the strongest moral argument for road privatization but by no means the only one. Lew Rockwell—proprietor of the Internet’s most widely read libertarian Web site, LewRockwell.com, and founder of the Mises Institute—says that salt poured on roads to deal with ice causes millions of dollars in damages to cars. In extremely rare instances, according to Rockwell, government salt spreading has even killed people when the bottoms of their cars gave out due to corrosion caused by the “socialist salt.”

Walter Block points out that salt might in fact be the best way to deal with ice. Or maybe sand is better. A third and more costly—but not necessarily less cost-effective—method for dealing with ice is burying underground heating elements to melt it away. Block says he’s not a road entrepreneur, so he doesn’t know the best way of dealing with ice. But as an economist, Block says he does know that “competition brings about a better product.” Various private road companies competing for business would discover the best solution.

Answering the Objections

Walter Block presents answers for every possible argument against privatizing roads. Private roads would have to be built without eminent domain (government land seizure for public use), which to Block, an ardent defender of private-property rights, is not an obstacle but yet another element of their appeal. Still, he says this presents no real problem.

“What if a person or company owns ‘all’ of the land between here and Boston?”

That could never realistically happen. And even if it did, why would they not want to make money by leasing or selling some of their land to the road company, perhaps for a share of the profit?

“What if a crazy hold-out just won’t sell?”

No problem. Private roads can go around any hold outs. Or, if necessary, they could go over or under. And besides—there are plenty of roads that have already been built. There’s no sound argument against privatizing existing roads.

Walter Block knows a thing or two about government inefficiency—and he would even if he weren’t one of the foremost scholars of Austrian economics. After all, he is a resident of New Orleans, and like everyone from the Big Easy, he saw government mismanagement firsthand with Hurricane Katrina.

The proponents of “road socialism” should consider the following: the same people who run FEMA are also in charge of America’s roads. Is it a surprise that 40,000 people a year die on those roads? Would the free market really do worse? It seems unlikely.

Why Businesses Are Hiring Even During a Recession

One of the surest signs that we’re in a recession is the abundance of “We’re Hiring” signs at low-end service-sector places of employment. You’ve probably seen them around your town: fast food restaurants, video stores, retailers looking for new managers, etc.

How can this be? In a recession, shouldn’t businesses be laying people off?

On first glance, you might think that Burger King, for example, is hiring because people who formerly patronized restaurants like Bennigan’s and Steak & Ale – both of which have gone bankrupt in this tight economy – are now eating more fast food to save money. There’s some truth to this, but what about the people who were eating at BK and Mickey D’s all along? They’re foregoing the luxury of eating out altogether, so the net result for fast-food chains is a loss. That’s why on August 11, UBS cut McDonald’s stock rating from a “buy” to “neutral,” sending shares plummeting.

Similarly, perhaps the local video store is getting more business from some customers who are foregoing weekly trips to the cineplex. But they’re losing just as much (if not more) business as their traditional customers cut back on their discretionary spending.

This is all part of a “spending shift” in which people take a half-step down the socioeconomic ladder. The places where the middle class once shopped are now patronized by the affluent; where the poor once shopped are patronized by the middle class; and the poor, etc. The net effect is still a loss, though, as everyone cuts back and tightens their belts. Some businesses fail altogether, which leads to the more important shift: the employment shift.

When higher-end businesses lay people off or close down, waves of highly skilled and educated workers become free agents within the labor force. This gives companies like McDonald’s, Burger King, and Blockbuster a chance to upgrade their personnel.

In a tight labor market, low-end businesses have to take what they can get – often workers with bad attitudes and no ambition. But, as the supply of workers begins to greatly exceed the supply of jobs, these employers can be choosier, and they can replace their worst workers with people who have solid work histories and are desperate for work.

Now this employment shift can only happen after we’ve been in recession for a while – which we have, so the laid-off workers have given up hope of finding “good jobs” – and if the recession is expected to continue for quite some time. After all, replacing even a poor worker is costly, and oftentimes low-end employers don’t want to hire “overqualified” workers for fears that they’ll find more suitable employment after the employer has invested time and money in training them. That so many service-sector businesses are looking for “managers” does not bode well for the near future of the U.S. economy.

Supreme Court Paves Way for a New Era of Price Fixing

In 1911, Dr. Miles Medical Co, a maker of relaxants and other medicines, sued a distributor, John D. Park & Sons Co., for selling at cut rate prices. The company lost the case when the Supreme Court held that it was trading too close to cartel-like trading. The judgment in the case Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911) became a precedent in antitrust law and came to be known as Dr. Mile Rule. Under that rule minimum prices manufacturers set on what dealers can charge customers for their products are deemed as illegal per se under the Sherman Act, no matter what evidence might be presented.

This precedent has now been revered by the Supreme Court in Leegin Creative Leather Prods. v. PSKS, Inc., 127 S. Ct. 2705 (2007). The Supreme Court in a 5-4 decision held that minimum pricing pacts between manufacturers and retailers could benefit customers under certain circumstances and should be considered on a pact by pact basis. The pact could foster competition by giving retailers enough profit to promote a brand or offer better services. The Supreme Court upheld the manufacturer’s right to enforce minimum prices on its own products.

Before this judgment, a manufacturer would be violating the antitrust law by punishing or discriminating against a retailer who sells at cut rate prices. This judgment gives the manufacturers new powers and can change the face of discount retailing in the United States. Manufacturers can now require retailers to abide by minimum pricing pacts or have their supplies cut off.

This ruling has in effect allowed price fixing to make a comeback. It undermines the free market by limiting the consumer’s power to decide for himself whether to buy at rock bottom prices from a no frills retailer or pay the full price at a retailer offering better services and other benefits. From a consumer’s point of view, it is very difficult to prove that such minimum price fixing pacts are anti-competitive.

The judgment has failed to consider one important aspect of retail trade – competitive environment. A uniform price might not work for all retailers.

This judgment will most probably result in many manufacturers fixing the minimum price at which the retailers must sell their products. This could feed inflation. Among the dissenting judges, one judge estimated that legalizing price setting could add $300 billion to consumer costs every year.

Manufacturers have welcomed this decision. Many manufacturers look upon discounts as tarnishing their image. Many have used this decision to get price fixing allegations against them dismissed. Cendant Corporation, the owners of Avis and Budget rent-a-cars, was facing price fixing allegations in a case filed in the U.S. District Court in Anchorage, AK, filed by one of its franchisees. The very next day after the Supreme Court’s ruling, Cendant asked the court to dismiss the allegations. The court dismissed the allegations citing the Supreme Court judgment.

Welcome to the new era of legalized price fixing.