On elasticity optimism

In the Times (£) Simon Wolfson advocates road pricing, claiming:

Behaviour would quickly adapt and this, in itself, would reduce congestion at the busiest times of the day.

Although I’m sympathetic to his argument, I’m not sure about this. A big reason why roads are congested is not that everyone freely chooses to drive in the same place at the same time, but rather that they have to do so in order to get to work. Would a worker at Next really get a sympathetic response if she told her boss: “I’ll in an hour later tomorrow to save money on congestion pricing”? This limits the extent to which behaviour can adapt to road pricing*.
I suspect Wolfson is exemplifying here a particular type of thought common on the right - a form of elasticity optimism, which says that price signals have large and quick behavioural effects. It’s the same idea we see in the claim that abolishing the minimum wage will significantly reduce unemployment, or that higher taxes will lead to large reductions in labour supply.
All these are examples of what I’ve called the “small truths, big errors”; a germ of truth is blown out of proportion.
What puzzles me, though, is why the right does this. It‘s not as if there is overwhelming empirical evidence to support such optimism.
In the case of taxes, I suspect the motive is simple self-interest - the desire to wish that our own interest, low tax, happens to coincide with the public interest. The right is, of course, not alone in doing this; public sector workers who believe in the virtues of big government do the same thing.
I suspect, though, that something else is going on.
One thing is that if price signals do have large effects, then behaviour can be regulated by the market alone and so there’s less need for state intervention.  Efficiency and liberty then go hand-in-hand, so a potentially nasty trade-off is averted.
Also, and relatedly, there’s a blindness to failures in the private sector. Wolfson fails to see that bosses’ power to demand that workers be in a particular place at a particular time will prevent workers responding to congestion pricing. Likewise, opponents of the minimum wage fail to see that there can still be mass unemployment even in a free labour market.
In both respects, the right seems to be guilty of the sort of utopian thinking that the left used to be accused of**. 
* I’m ignoring the issue of incidence here. If workers demand wage rises to compensate them for congestion prices, employers might become more flexible in an effort to reduce their costs. How likely is this?
** I say "used to be" because the left has to a large extent stopped having ideas for social or economic improvement, and become a mere oppositional force.

Comments

[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.