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The current system might cause the entire economy to spend more on transportation overall. A 2 times as heavy truck might be able to transport 3 times as much a

by est31 4y ago

The current system might cause the entire economy to spend more on transportation overall. A 2 times as heavy truck might be able to transport 3 times as much as a "baseline" truck (these numbers are off, but it usually scales sublinearly), but it causes 16 times the wear of one trip. That means that switching to that heavier truck model causes 5.333 times of the wear on your country's roads. Now if you let everyone pay a mostly flat tax, it means that there is no motivation for logistics companies to have a larger number of trucks, because it means they have to pay for more drivers, etc. Say that all logistics companies switch to the bigger trucks and now only pay half of their costs, so e.g. 3 billion instead of 6 billion per year. Now assume that road maintenance used to cost 1 billion annually. With the new system it will cost 5.33 billion. So you have savings by the logistics companies of 3 billion per year contrasted by additional maintenance expenses of 4.33 billion per year. So your economy now spends 1.33 billion more per annum on transport, if it's through a higher base rate on your car's license or through more income taxes being redirected for road maintenance instead of building schools or whatever. These numbers are totally made up for me, and were only meant to demonstrate that not internalizing externalities can lead to inefficiencies. It's true that if you increase taxes for heavy trucks, customers will notice it via grocery store price increases. That's maybe the problem why it's not being done, because voters notice it way less that a road repair is more expensive and thus a school can't be renovated or something.

Ajedi32 4y ago
Correct, and this is something people often fail to understand about the free market. The market is making optimizations like the one you just suggested above (using smaller trucks over larger ones) constantly, innovating to reduce costs in thousands of ingenious little ways no single person could possibly come up with on their own. And those optimizations aren't just confined to first order effects, they cascade across the entire market. A small change to the cost of transportation by truck will, over time, result in the entire economy making millions of small adjustments to optimize for that cost. But the market can't optimize for a cost it doesn't know about. If you're just funding road construction and maintenance with income taxes and people aren't paying those costs in proportion to usage, then there's zero reason for the market to do anything to try to reduce those costs.

by est31 4y ago

Ajedi32 4y ago

Correct, and this is something people often fail to understand about the free market. The market is making optimizations like the one you just suggested above (using smaller trucks over larger ones) constantly, innovating to reduce costs in thousands of ingenious little ways no single person could possibly come up with on their own. And those optimizations aren't just confined to first order effects, they cascade across the entire market. A small change to the cost of transportation by truck will, over time, result in the entire economy making millions of small adjustments to optimize for that cost. But the market can't optimize for a cost it doesn't know about. If you're just funding road construction and maintenance with income taxes and people aren't paying those costs in proportion to usage, then there's zero reason for the market to do anything to try to reduce those costs.