Monday, August 2, 2010

Transportation Delays Will Increase To Offset Carbon Fuel Tax

A comment I posted on The Bellows:
Transportation is usually an intermediate and not an end product in itself (although one can enjoy a Sunday drive and it can be a leisure activity by itself). It is mostly an input.

Alternatives, such as buses and trains, follow fixed routes which often increase the time to go from point a to b, especially if one is required to go into a central hub (a nearby town or city) and then depart from the hub to reach the final destination. Additionally, there is the waiting time until the next scheduled bus or train. Other modes of transportation that require human power, such as walking and biking will also increase the time of travel.

Costs equal the actual cost plus the opportunity cost caused by the travel time. Transportation time from delays, schedules, routes, etc. will expand until the two costs are equal. The marginal cost of fuel with a tax, and the marginal cost of alternative transportation with the opportunity cost of the extra travel time will equal each other.

Since travelling and waiting are inefficient and not productive activities, productivity will decline. One has to remember that most European countries have lower productivity measures than the US.

To offset the loss and increase productivity, additional people with the higher opportunity costs will move closer to work locations, often major cities, increasing real estate costs and expanding the area of expensive real estate around cities and other central work areas. It will push those with lower opportunity costs (usually non-professionals and lower wage earners) further away from central work locations.

Additionally, increasing transportation costs will increase 'just-in-time' business costs. Business will increase inventories and supplies until the marginal cost of storage equals the marginal cost of transportation. Additional inventories will require expanding storage facilities at businesses to hold the extra inventory and supplies, which will also add to costs.

Increased transportation costs will also have a major impact on agricultural and food production. Large-scale food manufacturing and packaging plants will break up into smaller units closer to end consumers to lower transportation costs. Major distribution centers for the major retailers such as Gap, etc., will downsize and more, smaller distribution warehouses will move closer to end consumers.

The costs of final goods and services will increase to absorb the extra business costs caused by the fuel tax.

Substitution will occur but not always in the most obvious ways. For example, more households may eat at home instead of going to a restaurant or choosing a closer restaurant. Of course, less expensive goods and services will be substituted for more expensive where possible. Where cheaper alternatives are unavailable, consumption will decline.

Furthermore, fewer restaurants will offer delivery services. One of the surprises and delights that many European have about the US is the availability of delivery and pick up services, for food, cleaners, etc. The Europeans that I have met and worked with who live in the US for a while like the benefits that come from lower fuel costs and miss it when they go back to Europe.

Most auto repair shops, including dealer repair shops, depend on frequent parts deliveries, sometimes more than once a day. As repair costs increase, there will be some decrease in car repairs, which in and of itself has negative consequences on safety and pollution. If dealers hold more inventories, it will also increase repair costs.

Shoppers will bundle their shopping for goods and services to decrease its cost and they will shop less frequently. Retail stores will change size and available inventory to offset the less frequent shopping.

There will be attempts to increase travel time efficiencies, in addition to shortening travel time, by creating more passenger space to allow computer, cell phone and other work related uses, which will decrease available passenger carrying capacity and increase transportation costs directly, through government subsidies with increased taxes, or through delays.

And of course, there will be many unexpected consequences.

Increasing fuel costs through a tax may reduce fuel consumption, but it is likely to negatively impact US productivity, increase consumer product costs, and decrease consumer product and service choices.

In effect, we will create a European economy.

No comments:

Post a Comment