Why the United States is like Greece

Two years ago this month, the government of Greece passed austerity measures to reign in a debt that had become a threat to world markets. While outsiders cautiously welcomed the move, the cuts sparked nationwide demonstrations, some peaceful, others violent.

As the Greeks saw it, they were being unfairly targeted by outside forces, particularly the Germans, meddling in their domestic politics. Subsequent austerity measures and tax increases, passed at the behest of Greece’s Euro-zone partners and private creditors, have stirred up continued outrage. In the meantime, world markets are hopeful that the Euro zone is reaching some measure of stability.

Michael Lewis wrote a magnificent essay detailing the cultural factors that contributed to the Greek catastrophe. In short, Greece got where it is because during the boom years, no one was required to pay for the lavish public pensions or vast social programs so beloved by the people. (By no one, I really mean no one. According to interviews that Lewis conducted with tax collectors, tax evasion and bribery were widely accepted social norms). Of course, once the market tanked, Greece’s profligate ways were exposed to the newly-developed scrutiny of the financiers, leading to the current crisis.

Here, half a world away, Americans are starting to get really angry about the price of gasoline. Newt Gingrich has even famously made $2.50-per-gallon gas a campaign pledge, an idea that has been roundly criticized by every economist not in Mr. Gingrich’s employ.

In reality, the US alone has very little power over the prices we pay at the pump. Notice the “very little” – there are possibly some things that could alleviate the pain to the tune of a couple of dimes or so, but by and large oil prices are dictated on a world market in which the US is only one player.

In June of 1956, president Eisenhower signed into law the Federal-Aid Highway Act of 1956, which created the interstate highway system. Ever since, we have relied on “free”, high capacity, grade-separated roads to whisk us around efficiently. Notice the “free” in quotes. Even though you and I don’t pay directly to drive on most highways (and indeed nearly every road we take), roads are massively expensive.

Why does this distinction matter? For virtually the entire existence of automobiles on American roads, our culture of free roads and cheap driving has molded the physical form of our cities. We have heavily subsidized and incentivized a lifestyle that requires most people to drive everywhere they go and actively discouraged other, more energy-efficient forms of transportation in the process.

Americans have lived through an era of relatively cheap oil which now appears to be waning thanks to a host of worldwide factors, most of which are entirely out of our control. Likewise, a long period of economic growth allowed us to build bridges and roads without adequate regard for the future cost to maintain them but the downturn has exposed the cracks in the foundation.

Like the Greeks, we’ve created a culture where no one is expected to pay into the system (the gas tax doesn’t even come close to covering highway costs, let alone expenses for local roads) and where until recently, there was always enough money to keep up the ruse.

These are two fundamental flaws in the way the United States has conceived its transportation system. First, we have built out our infrastructure beyond our capability to adequately maintain it. Second, we have placed virtually all our eggs in the basket marked “cars”, guaranteeing that as gas prices inevitably rise, more and more of us will feel the pinch without an alternative. Like the Greeks, Americans who must now pay the piper are understandably angry.

This isn’t a call to kill the automobile. On the contrary, cars have done truly amazing things for the well-being of people throughout the world. However, as any good economist will tell you, markets are most efficient when pricing is intrinsically tied to the good in question.

Unlike the Greeks, thankfully, there are still ways to address the issue without resorting to the radical measures implemented there. A few suggestions:

  • Raise the gas tax and peg it to inflation. In real terms, the gas tax has been declining since it was last raised in 1993.
  • Allow for tolls to be collected on all federally-funded highways.
  • Continue to invest in intercity passenger rail improvements (sometimes erroneously called “high-speed rail”).
  • Boost funding to programs such as Safe Routes to School, New Starts, and discretionary grants. These invest in infrastructure improvements for modes of transportation other than cars – something that will become increasingly important as gas gets more expensive.
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