Free market economics can be thought of as a dark, windowless room containing a spot-lit house of cards and, in the shadowy background, several large elephants. The economists gallantly ignore the beasts and argue over which number card goes where. But reality inevitably and regularly flattens the whole pack and tramples it into the muck, and the economists say ‘well I’ll be…we didn’t see that coming’.
One of the many elephants in the economists’ room, for example, is the presumption that knowledge is perfect and everyone knows everything they need in order to make well informed purchasing decisions. Another is that investors make rational individual choices, uninfluenced by crowd mentality. Another is that all economic activity – Gross Domestic Product – is beneficial by definition, so wars, car crashes and long-term illnesses requiring daily drugs are all very good news.
One of the biggest ignored elephants is the fact that any economic activity, be it by an individual citizen or a company, has a knock-on impact on the wider world. This can be a benefit – your cattle grazing keeps the common land in good order – or a cost – your cattle block the road for an hour a day on the way to and from the common.
The key to both examples is that neither the benefit nor the cost are really felt by you, the owner of the cattle – in economics terms they are ‘external’ to you and do not influence your decision as to where and when you take your cattle to graze. And free-market economics freaks out when it comes to externalities. It can’t cope with them. If externalites in any given market are significant it means that the optimum, rational solution for the individuals involved can lead to a completely sub-optimal, even disastrous, result for the wider society.
Which brings us, of course, to automobiles, and more specifically to a recent study published by the University of Dresden on the ‘The True Costs of Automobility: External Costs of Car Use in EU-27‘, which says:
“Transport externalities refer to a situation in which a transport user either does not pay for the full costs (e.g. including the environmental, congestion or accident costs) of his/her transport activity or does not receive the full benefits from it.”
The report quickly goes on to say that in the case of cars almost no external benefits can be identified – they don’t keep down the grass on the common – however, on the other side of the balance sheet,:
“The volume of external costs from transport is considerable. Today’s transport users are not covering large parts of the costs of noise emissions, pollutants emissions, greenhouse gas emissions and other cost factors. Costs of accidents are covered in part (mostly through the mechanism of insurances), but still some part of accident costs are paid for by society”
“External costs in this report are stated for passenger cars on roads in the following six cost categories:
- Air pollution
- Upstream and downstream effects (covering all effects before and after the utilization phase)
- Smaller other effects (land use, separational effects etc.)
- Climate Change”
“infrastructure costs are generally not included in external cost calculations since they do not occur as an unintended and unwanted by-product of transport activities. They might rather be classified as service for the public or subsidy to the transport user” (The report also ignores the political and military costs of oil dependency).
‘Externalities’ is a remarkably appropriate term in this case. The driver typically sits inside their metal cage blissfully unaware of the impact their passage is having on the world around them. The fact they often find reason to be frustrated and angry with fellow drivers does nothing to puncture this bubble mentality.
The report contains a number of charts that analyse some of the externalities and give us a sense of the range of negative effects that cars have as they pass through society:
There is a whole chapter on calculating the cost of climate change alone.
But then, for me at least, this well thought out report rather misses the point by doing the usual economists’ trick of jumping straight to the money. So, for example, there is no data relating to the numbers of people suffering these one-off and chronic impacts.
That said, the conclusions are still powerful:
“cars used within the EU-27 externalize about 373 billion euro per year on to other people, other regions and other generations. This is a considerable sum [1,600 euro per car, per year], and it leads to a level of car use that is inefficient from the perspective of society. Because “others” pay for large parts of the costs of transport, Europeans travel by car too much to enable an efficient situation. This in part also explains why there is a high level of congestion in parts of the EU.”
- and, -
“it must be stated that car traffic in the EU is highly subsidized by other people and other regions and will be by future generations: residents along an arterial road; taxpayers; elderly people who do not own cars; neighbouring countries; and children, grandchildren and all future generations subsidize today’s traffic.”
“These findings suggest that political action is urgently needed.”