Did I miss something, or have you gone nuts? The London demand-based pricing for traffic is indeed a market-based system. You state that there’s no trade involved, but that’s not true. They’re trading money for time. For those who place a high value on being within the restricted area during high demand hours, they can pay more and get in. In this instance, supply is fixed. You can’t instantly build roads; only a certain number of cars can get into the area over a certain period of time. Traffic jams are a result of inequalibrium (is that a word?) between supply and demand. But supply can’t be adjusted quickly (how fast can a government build a road), so demand is adjusted by increasing the price.
The price when demand is low is free. The price when demand is high is whatever London has set.
The trade here is time, based on need. If I want to visit in the district, but can adjust my schedule to an off-peak time, I can do so with an economic benefit. If I have an important meeting, I cough up the fee and away I go.
How is this any different from the so-called “Lexus lanes” being advocated for in the US?
What am I missing?
Dear Jonah,
I have been a regular reader of your column for years. In general, I have agreed with and like your opinions. However, in regard to your view of the new London traffic fees I must disagree. Livingston’s effort is a perfectly reasonable and economic solution to the problem of gridlock.
Traffic jams are the result of a surplus of cars for a given amount of roadway. Seeing as a massive buildout of London roads (suppy) is unfeasible, one must curtail demand. To do this any economic-minded person should respond, “Raise the price.” Prior to these measures, London traffic jams exacted a tremendous price upon drivers: time. The fees allow people to freely exchange what would have been lost time for a few pounds. A London banker will happily pay the $8 and save himself an hour of commute, while the homemaker will avoid peak hours, pay no fee and wait until noon to run her errands. The market at work – beautiful!