Market Urbanism

Liberalizing cities | From the bottom up

“Market Urbanism” refers to the synthesis of classical liberal economics and ethics (market), with an appreciation of the urban way of life and its benefits to society (urbanism). We advocate for the emergence of bottom up solutions to urban issues, as opposed to ones imposed from the top down.

Mixed Incentives and the True Costs of Driving

By

From the Freakonomic Blog – Mixed Messages on Auto Use:

We wrote not long ago about the various negative externalities produced by driving — congestion, pollution, accident risk, etc. — and how pay-as-you-drive insurance might help impose the true cost of driving on each driver.
…

And here’s another case of mixed messages on auto use, or at least mixed incentives: The U.S. Department of Transportation has issued a press release saying that Americans have started to drive considerably fewer miles than before.
And here’s another case of mixed messages on auto use, or at least mixed incentives: The U.S. Department of Transportation has issued a press release saying that Americans have started to drive considerably fewer miles than before.

This post and the comments made me think about how little people actually think about the full costs of driving. People don’t typically think about the wear and tear on their car or the depreciation as they put on miles. The IRS’ mileage rates are intended to reflect these costs on top of the costs of gas, but

many people think they are getting reimbursed extra for their mileage. Sure, if you are driving an older, fuel-efficient car, you’ll make money on your business travel…

What if drivers were to pay the full costs of the roads they use? Would they start to look at the full cost of driving choices?

Comments

  1. This is a particularly destructive tax deduction. Since it’s a fixed per-mile rate, it may not directly encourage inefficient vehicles but it most definitely encourages inefficient driving habits. The federal government should be working to make sure that drivers actually pay the full cost of their activity, not helping defray the small portion of the true cost that they already have to pay. This is completely the wrong direction.

  2. This is a particularly destructive tax deduction. Since it’s a fixed per-mile rate, it may not directly encourage inefficient vehicles but it most definitely encourages inefficient driving habits. The federal government should be working to make sure that drivers actually pay the full cost of their activity, not helping defray the small portion of the true cost that they already have to pay. This is completely the wrong direction.

  3. The cheapest Toyota Highlander is $27,500 (according to Edmunds)

    The cheapest Toyota Highlander Hybrid is $34,200.

    What do you get for your extra $6700?

    Roughly 20 vs. 26 mpg.

    At 12000 miles per year, and $4/gallon, the annual fuel costs are $2400 vs. $1850.

    At a fuel savings of $550/year, the hybrid ought to pay for itself in about 12 years.

    Assuming, of course, you oil price predictions are correct. And that you will actually keep this vehicle for 12 years.

    And yet, people buy hybrids. Talk about not knowing the true costs of driving!

    Then again, they buy extended warranties, too.

    I think that it would make more sense to instead buy $6700 worth of oil futures as a hedge against rising prices.

    Con artists (and especially government con artists) have a pretty easy time of fleecing people like this. Unfortunately, we get fleeced as well. Maybe the inumerate people are better off, as they aren’t even aware of what is happening.

  4. The cheapest Toyota Highlander is $27,500 (according to Edmunds)

    The cheapest Toyota Highlander Hybrid is $34,200.

    What do you get for your extra $6700?

    Roughly 20 vs. 26 mpg.

    At 12000 miles per year, and $4/gallon, the annual fuel costs are $2400 vs. $1850.

    At a fuel savings of $550/year, the hybrid ought to pay for itself in about 12 years.

    Assuming, of course, you oil price predictions are correct. And that you will actually keep this vehicle for 12 years.

    And yet, people buy hybrids. Talk about not knowing the true costs of driving!

    Then again, they buy extended warranties, too.

    I think that it would make more sense to instead buy $6700 worth of oil futures as a hedge against rising prices.

    Con artists (and especially government con artists) have a pretty easy time of fleecing people like this. Unfortunately, we get fleeced as well. Maybe the inumerate people are better off, as they aren’t even aware of what is happening.

  5. Good point. Maybe there is a healthy market to tap for gas price hedges. SUV drivers might gobble those up.

    For those who drive more, the marginal cost/mile converges and might be worth it the initial investment.

    At the same time, if you are like me and only drive occasionally, it makes better economic sense to buy a cheaper, older car. That might be the better environmental choice too. People rarely consider the effects the manufacture of their new hybrid has on the environment.

    Regardless, drivers should be responsible for the full costs of their driving and use of roads…

  6. Good point. Maybe there is a healthy market to tap for gas price hedges. SUV drivers might gobble those up.

    For those who drive more, the marginal cost/mile converges and might be worth it the initial investment.

    At the same time, if you are like me and only drive occasionally, it makes better economic sense to buy a cheaper, older car. That might be the better environmental choice too. People rarely consider the effects the manufacture of their new hybrid has on the environment.

    Regardless, drivers should be responsible for the full costs of their driving and use of roads…

  7. Now that I think about it, gas hedges wouldn’t work very well because the govt will punish you with capital-gains taxes applied to your “profit”. So, you risk losing it all without a compensating benefit.

    Feel free to lose money (and feel free to pay gobs of taxes), but don’t get all uppity and try to make money!

  8. Now that I think about it, gas hedges wouldn’t work very well because the govt will punish you with capital-gains taxes applied to your “profit”. So, you risk losing it all without a compensating benefit.

    Feel free to lose money (and feel free to pay gobs of taxes), but don’t get all uppity and try to make money!

  9. You make a great case to end the capital gains tax. I wonder if there is a way around it. Say oil companies offered an annual contract to buy x gallons at y price for one year. They could do the hedging for you….

    I asked an accountant in the office what happens with our interest rate hedges. He thinks we don’t pay gains on the unrealized gains of a hedge, but I’ll try to find out more.

  10. You make a great case to end the capital gains tax. I wonder if there is a way around it. Say oil companies offered an annual contract to buy x gallons at y price for one year. They could do the hedging for you….

    I asked an accountant in the office what happens with our interest rate hedges. He thinks we don’t pay gains on the unrealized gains of a hedge, but I’ll try to find out more.

Trackbacks

Meta