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Chronos comments on Hayekian Prediction Markets? - Less Wrong
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As a separate sidebar regarding logistics, it's interesting to note that Wal-mart's shipping component is effectively being subsidized by the federal government, by way of the U.S. Interstate system.
While I'm not so much of a libertarian that I think the Interstate system was a bad idea, it is important to note that the Interstate system created an entire category of business (shipping via truck) that directly harmed two existing industries (shipping via boat, shipping via train) and stunted the growth of a third (shipping via plane). This would be all fine and dandy if shipping via truck were more efficient after considering all externalities. But firstly you have the environmental cost of burning gasoline/diesel, including a not-insubstantial impact on the global climate. And secondly you have the more direct economic cost of road wear.
Road wear is a funny thing. The rule of thumb is that road damage accumulates with the fourth power of the weight per axle. A single car with passengers has perhaps 2,000 pounds spread evenly over two axles, for a road wear of O(10^12) times a tiny constant per mile driven. A large truck, of the kind used by Wal-mart, has perhaps 50,000 pounds spread evenly over eight axles (18 wheels, minus two for the cab weight, divided by two to convert to axles). That's a road wear of O(10^15) times constant per mile driven, or 1,000 times greater than a passenger car.
On rural interstates, trucks form between 10% and 50% of traffic.
Thus almost all highway repair dollars are artificially propping up the trucking industry, creating phony profits for the trucking companies by siphoning tax dollars from citizens.
Shout it from the rooftops! Similar lines of thought apply for employers and schools.
I've been challenged by people who find out I'm a libertarian with arguments like "WELL WHAT ABOUT ROADS HUH? The Interstates are something government does well! How could we keep up highways without government?"
I have to patiently explain "I'm not against government. Or public roads. I do think, however, that companies that make their profits off roads have an interest in their upkeep, and it would be more efficient if that interest was at least partially privatized."
For me, the problem regarding roads is not "who will build them?" or "who will pay for them?" That part's easy: 1) construction workers, and 2) those use use the roads, or, in cases of low-density roads where it's infeasible to collect or calculate tolls, the local HOA/merchant association.
The hard part is: what happens to the rights of people today? It's extremely unfair to say, "hey, you have to start paying for this road now, which you previously had the unlimited right to use". So, the issue of weighing historical rights vs. egress/passthrough rights vs. road owners' rights is where the real difficulty lies.
Wholly agree. However, it's easy to imagine fair ways to phase in changes - e.g. announce that in 20 years we're going to start charging for this road (or selling rights to it, or whatever). We'll pay you subsidies that decrease each year for the next 10 years after that. We would have had to re-do the road with your tax dollars by then anyway, so you're not worse off.
Right. Another way would be to take the toll revenues and from them, give each person enough to afford "average driving" so that you would only lose on net from driving more than usual. Etc.
I agree that the problem is tractable, it's just that this is the most difficult part, and those that address it give it the least attention.
Are you Kevin Carson in disguise? ;-)
I've never understood the "IHS subsidizes Wal-Mart" argument. It would only be a subsidy if WM got access to it on preferential terms to the rest of us. But they don't. Whatever use of the IHS they make, everyone else had the same opportunity. It's not like WM stupidly built up their whole infrastructure and then one day said, "Oh crap! This will be an utter failure unless there's a free interstate highway system! Quick! Government! Build it with other people's money!"
You calculation holds for anyone that uses large trucks, not just Wal-mart.
Finally, though you may be able to show that trucks do not pay their share of upkeep, I still think the existing IHS management is a net burden to WM. If it were privately run, you could buy higher priority for your trucks. As it stands now, a truck has the same right to a chunk of the road as a random mouth-breather (or set of them taking the same space). In a privately run system, WM could pay for privileged access at critical times, eliminating significant uncertainty from their distribution network, and thus allowing them to operate even more efficiently.
It's not at all clear that the unborne cost exceeds this potential benefit.
That doesn't pass the laugh test.
It's not a subsidy specific to WM, no, but a structural subsidy to certain ways of doing business. Your argument is like saying corn subsidies don't subsidize corn farmers because anyone can choose to farm corn.
Of course. The subsidy is implicit in the system, rather than explicit. It'd be quite the rare Wal-mart executive who could even have the conscious thought even flit across his mind. But a subsidy doesn't cease to become a subsidy merely because no one is lobbying (either for it or against it). While lobbying and subsidy correlate, neither is the exclusive cause of the other.
But the fact remains that Wal-mart's business model relies on the fact that it can consume the highway system as a good, and do so in vast disproportion to the actual price paid for that good. If they had to pay in proportion to their actual consumption, they would not be profitable under their current model. (There may well be another model where they would be profitable, in a counterfactual world where highway use were metered. But, if counterfactual bets made coherent sense, I would bet money that Wal-mart's model in that world would include much greater use of rail.)
It is immaterial whether or not Wal-mart's executives consciously recognize the premises underlying their model: namely, that shipping via truck excludes the cost of the highway. It is immaterial whether or not Congressional representatives consciously recognized that funding the Interstate system without metering would invent the trucking industry. The fact is, Congress did fund the Interstate system, they did invent the trucking industry, and Wal-mart does rely on the trucking industry axiomatically.
This is one of those situations where evolutionary interdependencies and stare decisis (rather, the legislative counterpart thereof) conspire to create a lose-lose situation. Horn one: start charging for the highway system and thus destroy one industry, harm a bunch of others, and cause prices to spike for a decade or more. But maybe, twenty years from now, the infrastructure will be in place such that the economy is more efficient than it would have been otherwise. Horn two: continue paying for the highway system with federal taxes and thus penalize individuals for the benefit of a handful of large corporations, encourage people to own cars and avoid public transit, and destroy the viability of long-distance passenger rail even though it's far more cost- and energy-efficient in the long run. But at least nobody loses their job in the meantime.
As I showed before, this is far from certain. Actually being able to buy road usage on a private market, launched from the current infrastructure, would also bestow enormous benefits on WM in terms of being able to better plan. And while some of their costs are borne by others, a lot of their taxes going to roads are also wasted. They gain in shifting cost to others, but lose in having the money that would have gone to road fees, go to useless pork road projects instead.
Which effect is greater? I don't know, which is why I don't assume one of them is.
And it's not that I deny the literal truth of the subsidy; I'm just saying it's a vacuous claim in this context. People bring up subsidies to show one side having an unfair advantage over another, while that doesn't follow here -- WM had to enter the market on equal terms to everyone else, and prices for goods had already adjusted to reflect the impact of the IHS -- they just made a better use of it. Had there been no IHS, the fouders of WM would have used their brains to work with whatever was there instead.
So I don't see how this is an indictment of WM -- the harm lies in the shift of the structure of production to a less efficient one, not in a transfer of wealth to the Waltons.
This doesn't make sense, because dollars are fungible. If WM reaps a greater monetary value from the highway system than it spends on the highway system via taxes, WM comes out ahead.
Then we're in violent agreement. I didn't intend the highway bit to be an indictment of WM, but a rebuttal of taw's comment:
"And yet, in spite of the genuine diseconomies of scale which you mention, economies of scale for Wall-Mart seem ever larger, as it successfully competes in open market"
I was attempting to convey the idea that that Wal-mart's current (but quite likely ephemeral) success is due to political accidents moreso than "economies of scale". The only "economy of scale" operating at Wal-mart is logistics and trucking, which doesn't scale very much: the planning scales somewhat, the trucking has already scaled as far as it can, and the trucking is on more precarious footing than it looks.
Labor doesn't scale: making a Wal-mart store twice as big requires twice as many workers to keep the shelves full.
Sales don't scale: selling twice as many goods provides economies of scale to the manufacturers, not to Wal-mart itself. If manufacturing economies of scale were at play, all retail prices would fall to equal those of Wal-mart: with their new infrastructure paid for, the manufacturers can turn around and sell their cheaper products to Wal-mart's competitors just as easily as they can sell to Wal-mart.
The oligopsony price bullying (i.e. the Vlasic example) is not a proper "economy of scale" in this sense. If Wal-mart had a competitor of equal size, but Wal-mart's size remained unchanged, Wal-mart's economies of scale would be unchanged but its power to bully costs down would weaken. An economy of scale depends on size, not on market power.
No, because they could be getting even more value by spending the same money that they now spend on taxes, but have that money spent specifically for their benefit, rather than have it be thrown at whatever's politically popular. Yes, they get below cost road usage today, but road costs (due to government management) are also higher.
So it could be that they pay $0.70 to get government to spend $1.00 for 1 unit of road usage, but without government involved in roads, they could buy that same unit of road usage for $0.60. It could go either way.
(Glad to hear we're in agreement on the sense in which the IHS as such is a subsidy.)
But the alternative(s?) to trucking are even more scale-dependent. What if they shipped goods by rail? That's more dependent on finding huge loads to ship at once. Air? Same thing.