Government and Externalities

Government is supposed to police private entities, but who controls government cost-externalization?

I’ve mentioned in passing that the Insta-wife’s health issues have flared up a bit. Last week I took her to a consult at Vanderbilt in Nashville. It was fine, but then we went to Chattanooga to spend the night, and have brunch with an old student who’s now a good friend to both of us. (Knoxville, Nashville, and Chattanooga form a triangle, with the Knoxville/Nashville trip the hypotenuse, more or less.)

Brunch was delightful, but then it was time to go home. The five-mile drive from downtown Chattanooga to Interstate 75 north of the interchange took us about two hours, which is somehat longer than the whole drive back to Knoxville should take. This was not because of traffic, exactly, or an accident. It was because the in-progress construction narrowed four lanes of traffic on I-24 connecting to I-75 into one.

Now, when I say “in-progress construction,” I don’t mean that there was actually any construction in progress. There were signs that there had been, and would be construction. There were machines and piles of gravel and other supplies along the sides of the road. But there weren’t any actual workers doing any actual work that day.

It seems to me that when you’re going to do things that back up traffic that much, you should want to get them over with as fast as possible. But apparently the state highway department and its contractors don’t share that view. It was a Saturday, and having people work then would require them to pay overtime.

To the state, having people work weekends and nights to get the job done faster is just an expense. Not doing the work then, resulting in more traffic backups, is an expense, too, of course: Time is money, and tens of thousands of people a day were being delayed by as much as two hours. This includes both individuals and commercial freight — which, despite claims of a slowdown in trucking, seemed to be moving (or not-moving, as the case may be) in dramatic volumes.

No shortage of trucks here.

But those expenses aren’t borne by the state. They’re borne by the individuals and companies who are affected by the delays. In effect, the state is shedding some of its costs onto the people it inconveniences, rather than bearing them itself. How much? I asked Grok for a rough, conservative estimate. At 110,000 vehicles per day (the available estimate for usage of that interchange) and assuming a two hour delay for each vehicle, costing minimum wage plus 20%, Grok gave a figure of $1,914,000 per day due to lost time.

Which is funny, because one of the justifications for government is that without government regulation and supervision, private entities would shed their costs onto the public. This is called “externalizing costs” in the literature. A classic example is a factory that produces widgets and makes a profit, but that releases pollution into the community. The profits are internalized, being kept by the company, but the pollution costs are externalized, being borne by someone else, the people breating the polluted air or drinking the polluted water or whatever.

But the government externalizes costs all the time. When you file your taxes, the government gets its money. But when you do your taxes and mail in a check, the government externalizes the cost of calculating them, and of collecting them, onto you. (Or, when they’re withheld from your paycheck, onto a mixture of you and your employer).

When government officials enjoy sovereign immunity for law-breaking or for torts, as they sometimes do because they’re government officials, the damage done is borne by their victims, not by the government. It’s externalized. When public schools turn out ignorant students but support unionized teachers, the costs of supporting a government constituency are externalized. Likewise when corn farmers are subsidized via ethanol subsidies, leaving ordinary people to purchase (inferior) gasohol. Etc., etc.

Many years ago — before I started blogging — I wrote a column for the local alt-weekly where I made this same point in connection with highway construction then going on in Knoxville. I got lots of supportive email from across the political spectrum, but a nasty note from someone at the state highway department, who said it would cost a lot more money to do construction at night and on weekends. Well, more money coming out of their pocket, but less coming out of highway users’, perhaps. I doubt it would cost the state nearly two million dollars a day in overtime to get the highway open sooner, but whatever it does cost comes out of the state’s pocket. The delays come out of yours and mine. And we don’t count.

This kind of thing explains some of the inefficiencies that DOGE is finding in the federal government — though many of the “inefficiencies” there are turning out to look like outright fraud and theft, not just cost-externalization — and it’s a classic case of collective action problems. The state knows what its interest is. Drivers are a diverse, random group. They may complain about the traffic, but they’re poorly positioned to form a coalition to make the state change its ways.

I’m tempted to rent a billboard on that stretch of I-24 with the governor’s phone number, encouraging angry motorists to call and demand a swift fix.

I also note that with license plate readers already all over, it would be no particular new burden to privacy to have the state send you a check whenever you’re unreasonably delayed on the highway, something that would be easy to calculate. (Some states already do this, more or less, to collect tolls.) Then the incentives would line up more evenly.

Any thoughts on other responses that might help? You guys have fertile brains.