Economists have known for 200 years that markets are a powerful mechanism for achieving social goals. Despite many attempts in different countries with different cultures, no one has discovered a more efficient mechanism for changing behavior and resolving social problems. Yet markets have been suppressed or outlawed in key areas of our economy, with important environmental side effects. These areas include road use, water and garbage disposal.

Case Study: Roads. In virtually every large city in the United States, major thoroughfares are crowded and congested – especially at rush hours. In a normal market, when a good is scarce we expect its price to rise – which has the social benefit of encouraging people to consume less of it. Yet despite the fact that roads and highways are expensive to build and maintain, we pay no price at the time we use them. Except for the gasoline tax, there is virtually no relationship between our use of road space and the individual cost we bear; and even the gasoline tax is unrelated to whether we use fuel on crowded or uncrowded roads.

Instead of rationing road space with market prices, we ration by congestion – with important environmental side effects. If the average speed 'is reduced from fifty to five miles per hour, the running time of automobiles is increased tenfold, contributing to urban air pollution and adding to tile accumulation of greenhouse gasses. [218]

A toll road from the North Dallas suburbs to downtown Dallas is using new technology with the promise of revolutionary change. Cars with "toll tags" pass monitors that "read" them and bill the auto owner's account for the toll automatically. Although drivers are supposed to slow to ten miles per hour as they pass through the toll booths, the monitors can read a toll tag number on vehicles travelling at 50 mph or faster.

In principle, the toll tag system could be extended to all roads and highways. Drivers could be charged on the basis of their road use, making it possible to reduce other taxes now used to finance roads. Congestion could be eliminated or greatly reduced by charging high prices for travel on major arteries during peak periods. In the face of higher prices, people would have a self-interest in finding cheaper alternatives. Studies show that half the traffic in the morning rush and two-thirds of the traffic in the afternoon rush is driving other than home-to-work or work-to-home. [219] For regular commuters, car pooling would become a more attractive option. Currently, the average car contains 1.3 people. If this average could be raised to 2.0 people, the number of cars on the highways would drop by one-third. [220]

An efficient system of market prices for road use would make a major dent in urban air pollution – far greater than the most optimistic goals of the current regulatory approach. Even better results could be obtained if we combined toll tag monitors with the emissions monitors described earlier in this report. Drivers could be charged both for road use and for the pollutants their cars emit.

Case Study: Water. "Whiskey is for drinkin' and water is for fightin'," wrote Mark Twain. And because there is no market for water, we can be assured the fighting will continue. In most cities, household use of water is either "free" or the price charged is well below the real cost of delivering it. Industrial users and farmers also usually have access to government-subsidized water. In fact, by one estimate the 150,000 farms which benefit from federal water projects cost taxpayers in excess of $100,000 for a single, 160-acre farm. [221] Since users will consume water until the value of the last amount used is equal to the price they have to pay, overuse and waste are virtually guaranteed. On the supply side, people cannot generally own water and buy and sell it in a free market. As a result, suppliers of water have weak incentives to conserve and maintain a valuable resource.

Consider the problems facing California. Droughts over the last several years have exacerbated water shortages in Southern California, where city officials plead with residents to curtail wateruse. But since the of water to residents is zero, each household has a self-interest in consuming water until the last amount used was zero. The cost of water to California cities is nowhere near zero, however. They currently pay $200 an acre-foot and that cost will soar to $500 for any new storage facilities. [222]

An obvious source of additional water is the water now being supplied to San Joaquin Valley farmers at government-subsidized prices as low as $5 an acre-foot. If the farmers could sell some of their water rights to city dwellers, they would quite likely turn to conservation and recycling alternatives, with costs ranging from $10 an acre-foot for recycling tail water to $175 for using drip sprinkler systems. These alternatives would be profitable if the farmers could sell their water rights for $200. [223]

Unfortunately, federal policy discourages such transactions. Farmers cannot sell their water without consent of the Bureau of Reclamation, which provides it. The Bureau has funded massive water projects that supply 35 percent of the West's delivered water — most of it sold to irrigators who pay only about 15 percent of the actual cost. [224]

By forbidding markets and encouraging the wasteful use of water in farming, the Bureau of Reclamation has caused even more environmental harm: [225]

  • Trace elements, such as selenium, have been leached from the soil and carried in drainage water.

  • One consequence is demonstrated at Kesterson Wildlife Refuge, where the pollution has killed largemouth and striped bass, catfish and carp, and has caused newly hatched water birds to develop crippling deformities.

  • Over the years Kesterson has been transformed from a fish and wildlife sanctuary into an environmental disaster.

If there were a market for water, if people paid the full cost of the water they used, and if water rights could be freely bought and sold – none of these tragedies would have occurred.

Case Study: Garbage. As we have seen, there has been a fairly steady decrease in the amount of energy used per person in the United States since the 1970s. Because of competition, pressures to reduce costs and the incentives of the price system, we are producing more output with fewer resources.

At the other end of the production-consumption stream, however, the reverse has occurred. Since 1960, the amount of garbage disposed of per person has increased from 2.7 pounds of trash per day to 3.5 pounds – a 30 percent increase. [226] Why the difference? One reason is that we use capitalism to produce things and socialism to dispose of them.

For example, most consumers in most cities are not charged prices that reflect the social cost of disposing of the garbage they produce: [227]

  • A survey of 246 cities with populations ranging from 5,000 to 1.75 million showed that 39 percent of the cities did not charge any user fee for garbage collection.

  • Of those that did, about half charged a flat fee, regardless of the amount or weight of the garbage collected.

  • Thus, in more than two-thirds of the cities surveyed, households have no financial incentive to reduce the amount of garbage they produce.

In general, we get what we subsidize; and since we subsidize solid waste disposal, we are getting more solid waste.

Government interference does not end there. Although there was considerable privatization of solid waste collection in the 1980s, a large number of cities still operate government-owned garbage collection services. They also operate their own landfills and solid waste incinerators. As every student of public finance knows, most cities have no idea what their real production costs are when they operate government enterprises and, perhaps for that reason, they are notoriously slow to take advantage of cost-reducing alternatives.

Even when private contractors are involved, they often operate under rules and regulations that make cost-reducing innovations impossible. For example, New Jersey regulates the solid waste disposal industry as a public utility – discouraging investments in new facilities, including landfills. As a result, New Jersey cities must now haul their garbage out of state at a cost of more than $130 per ton, compared to a nationwide average of just over $20 per ton.

Rather than use market approaches to solve the problems of solid waste disposal, most cities and states are using the techniques Of command economies: [228]

  • In 1989, 38 states and the District of Columbia enacted more than 125 laws on recycling.

  • Laws that require comprehensive recycling as a component of state, regional or local waste management plans are present in 26 states and the District of Columbia.

  • And more than 1,500 cities and towns have initiated curbside recycling collection.

In principle, most waste products can be recycled into some other product: iron and steel, aluminum, glass, oil, paper and even tires, plastic and polystyrene. But does it make economic sense to recycle all of these products and is it good for the environment to do so? Without a price system in which each price reflects real social costs, who could possibly know?

The lesson coming from the Soviet Union and Eastern Europe is that central planners cannot manage complex economies. Bureaucrats and comput­ers are no substitute for market prices in economizing on information and giving people incentives to change behavior. So far, that lesson has been largely ignored in the market for solid waste.