TODAY
The system of roads and highways we have today in pretty much any country in the world, are the direct descendants of the political decisions taken between 1600’s and 1800’s. Let’s point this out again: political decisions.
As politicians are vote maximize, their objective is not rationality or common or economic sense, but getting re-elected. As such, roads represent this goal. What was originally a clear need (i.e. to transport goods and services) has been transmogrified in a horrendous Hydra of thousand heads. Roads are now used for “economic development”, “human rights”, “break isolation barriers”, “modernize a country”, “build a country”, “unite a country”, “improve lives” and a myriad other grossly vague and fuzzy pseudo-justifications. This is, of course, ox manure in the typical grand scale that only governments are capable of generating.
Roads, they all look good until one gets a tax rise or higher inflation to pay for them. Unfortunately, by then, politicians already got re-elected. Government building of roads is simply re-election eye candy whose price was passed on to unsuspecting citizens. A very recent example is the massive highway construction scheme that was undertaken by Slovenia as a requirement to enter the European Union. Slovenia already had perfectly usable highways that are now relegated to secondary use and will, in most likelihood, be suffering from deficient maintenance. In contrast the new mega highways came with a price tag of more than one billion Euros… in loans… which nobody can now repay!
Once political considerations took over, economic considerations were placed aside. As such, what was once a sustainable process of road building has become a gigantic nightmare of useless roads with a maintenance price tag that nobody can afford. And so, the inevitable takes place: the decay of all roads and highways in particular.
WE TAKE EXCEPTION
One of the most common arguments used by statists is that roads need to be built for “economic development” reasons. Their point is simple. An inaccessible region somewhere in the country is full of riches. These riches cannot be exploited unless they can be accessed. As roads accessing those locations are usually lengthy, no private investment can afford to build them leaving therefore only the government to do so.
It seems like a sound argument… until ones does the economic calculation.
Resources
It goes more or less like this. There are riches to be exploited in a remote location. As it stands today, their exploitation is not economically viable due to the need to build extensive roads. No company in their right mind would do so, taking the risk that riches may not be so profitable, and carrying a gigantic debt well into the next decade.
Therefore, we need to use other-peoples-money to build the road. In short, companies are transferring a gigantic debt and considerable risk to people that will probably never benefit from the development. Companies are externalizing to the other people to lower the true investment cost. But the overall accounting exercise does not change.
Supposed that the expected profit is 100 million SEK (Swedish Krona) but the road costs 150 million SEK. From a company’s perspective this would produce a 50 million SEK loss. Not viable. If they shift those 150 million SEK to the government, they are looking at a profit of 100 million SEK. Even when they consider taxes (and their inevitable “development” deductions) they will still be making gigantic profits. The difference is that now the government has spent 150 million SEK plus ongoing maintenance costs. And what did the government get in return? Maybe 10 million SEK in taxes (10%).
Net company profit: 90 million SEK
Net government (you, us and everybody else): 140 million SEK
Does this sound like common sense? Or more like a scam?
Snowball effect
Ahh… the statists say. Your calculation is off. Economic development breeds economic development. As soon as those resources begin to develop, other companies will provide goods and services to the developing company. Food, equipment, human resources, shelter, etc. All these companies will now be providing jobs, benefits and profits to citizens that did not have them before. Fair enough, this much is true. However, the economic calculation still does not close.
So far, all these new jobs, benefits and profits still do very little to nothing (taking extra tax income into consideration) to diminish the 140 million SEK that the government has spent! Not to mention ongoing maintenance costs. Furthermore, chances are excellent that none of these jobs, benefits and profits will reach most of the countries’ population. Only selected people will benefit, not you, us or everybody else. In the meantime, the rise in taxes and/or inflation necessary to pay for the 140 million SEK will, with 100% certainty, hit you and everybody else in the country.
Risk
What happens if those riches do not materialize? Then the government is stuck with an extremely expensive road to nowhere which will now be forced to maintain forever. Doe this seem reasonable to you? How come statists never mention this possibility?
Again, this is not some ivory tower academic exercise. The world is full of such endeavors (for a very long list, just Goolge “abandoned roads” or “unused highway” followed by your preferred country). Many of these roads and highways were built by political decisions and eventually abandoned when the local economy (which was unsustainable to begin with) collapsed. Some of them were abandoned because of technical issues. However, the critical information that governments usually hide is which roads or highways have become financially unsustainable (but politically untouchable). If we take a look at statistics (when they exist and are public), the only numbers we get are aggregated (this is mixed-up) and hence useless. Again, cui bono? (who benefits?). Most certainly not us.
THE LONG ARM OF THE GOVERNMENT
Another small “detail” that statists always forget to mention is the confiscation of land to build roads and highways. Whatever the excuse du-jour may be, properties are being taken away from their legitimate owners. Of course, this is all OK because it is “legal” and it follows “due process” (whatever that may mean).
This is all due to one of the most bizarre legal excuses ever devised. It is called “Eminent Domain”. According to this doctrine, your property is not really yours and the government (representing all the people, including you) has the right to take your property away for their (and yours) benefit. Does this make any sense?
Basically, you are benefiting by having your property taken away, but that’s OK because other people will benefit from it.
The governments are allowed to do this, because you don’t actually own your property, you are only renting it from the government. This is correct and taxes are the rent you pay to the government. As such, the government has the right to re-possess “their” property from the renter whenever they feel like doing so (for details see our lesson You Don’t Own The Government The Government Owns You).
Note: please see the Glossary if you are unfamiliar with certain words.
Continue to Planes, trains and automobiles - Part 3
