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May 17, 2011

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Keith

I don't think price signals are a small truth. Part of the reason for the fall of the USSR and Stalinism was the unwillingness of Socialist movements and thinkers to appreciate the difficulty of allocating economic assets without prices moving in response to supply and demand. So this is a big truth not a small one. This has led right wing people to act as if all problems both economic and social can be solved by some kind of price or charging device. An idea can be true and important yet you can only push a method so far. Other methods may be more effective in this example and so should be explored as well. a regional policy that reduced concentrations of people in high demand areas would cut demand for all services or redirect it. More working from home could reduce congestion. More flexible working times? More light rail going all the way to the suburbs and back? You still need to finance that and congestion charging is one way to raise revenue. Or a local income Tax or property rate; but I suppose that does not sound right wing enough!

Morten

Surely, even in England, you have other modes of transport than your own car? Carpooling, walking, cycling, bus, train? All become a little more attractive if driving your own car becomes a little more expensive. Even if your boss is not of the sympatetic persuasion.

Chris E

You ignore the possibility that they are simply ideologues.

William

There are always other means of transport apart from the car. It just needs our willing to make some changes in our habits-

Mr Art

The long run elasticities are (as usual) higher than the short run ones. For example, your hypothetical worker might ask about flexible working during her next job interview when she's in a stronger position.

Ralph Musgrave

I think most employers would at least listen to requests by employees to arrange work hours to minimise congestion payments. Flexible working hours are quite common, aren’t they?

Leigh Caldwell

As Mr Art says, demand tends to be short-run inelastic and long-run elastic.

Perhaps therein lies the problem: the level of price hikes that would be required to achieve the desired long-run behaviour change are too high for people to accept the short-run increase in cost.

The same thing seems to apply in the carbon market: to achieve a useful cut in short run demand for fossil fuels would require a huge, politically infeasible tax rise; a smaller tax rise might work in the long run, but would still be large enough to act in the short run as an immense tax rise. It would be very risky (and probably regressive) for government to cut income taxes to the corresponding degree, and would result in a very disruptive cross-sectoral shift.

Therefore we have small adjustments in taxes and subsidies which the government hopes (without much evidence) will lead to long-run behaviour change. Maybe they are right and the long-run elasticity is bigger than it looks. Or maybe they need to credibly promise a higher carbon price in the future. But how could they do so?

PPS

Assuming you mean retail workers then you are referring to workers who are working for around the minimum wage. Employers would have to adjust wages because it just would not be worth workers paying that extra to get to work. Of course, they may not actually bear these higher costs anyway as they are more likely to use public transport in the first place.

Also, don't forget that if workers are affected by this incidence then so are customers.

Finally there are other road users that currently use the roads at peak congestion times. One example is retired OAP's. I understand that it's busy and it doesn't make sense for them to use the road at peak times but they, generally, seem to have more time and patience. They may be willing to suffer the traffic but be sensitive to the higher charges.

Another set of users are the school runners. Peak charging may, finally, result in a secure school bus service being arranged or schools may start to adjust their open hours or parents may start to send their kids to the local school in order to avoid traffic altogether and walk.

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