Market Overview

Obama Economy Leading to Declining Traffic Congestion

If it is true that every cloud has a silver lining, then there must be one for the weak US economy, right? USA Today's Larry Copeland may have found one.

On May 21, 2012, Copeland reported that "higher gas prices and a spotty economy recovery" are responsible for the drop in traffic congestion in the US. According to a study from INRIX, a Washington state firm that tracks and studies traffic flows, "[t]raffic congestion dropped 30% last year from 2010 in the the USA's 100 largest metropolitan areas." From the article: "INRIX collects traffic information from more than 4 million vehicles equipped with GPS devices and from other sources for its annual scorecard." Interestingly, "Of the 100 most populous metro areas, 70 saw declines in traffic congestion while just 30 had increases."

According to INRIX's Jim Bak, "We're experiencing a stop-and-go economy right now. The data indicate the country may be experiencing the jobless recovery economists warned of during the recession." Bak also said that "the data show that the reduction in gridlock on the nation's roads stems from rising fuel prices; lackluster gains in employment and modest increases in highway capacity because of construction projects completed under the federal stimulus program."

Per the INRIX study, there would appear to be a connection between job growth and increased traffic congestion on roadways. From the article: "Cities that outpaced the national average of 1.5% growth in employment experienced some of the biggest increases in traffic congestion: Miami, 2.3% employment growth; Tampa, up 3%, and Houston, up 3.2%." Likewise, the article discussed that cities with substantial drops in traffic congestion were those with less road construction and gas prices above the national average. According to Bak, "So much of the roadwork and construction that was a result of the stimulus is now completed. Construction work in general is down, as governments are reining in spending."

In terms of fuel prices, Bak commented that "[c]ities that consistently had gas prices equal to or lower than the national average, and that experienced modest job growth, were the cities that tended to have increases in congestion." From the article: "Atlanta, which had a 2011 average gas price 20 cents less than the national average and a 1.2% growth in employment, saw the fourth-biggest jump in congestion." The INRIX study also discussed that "[t]he busiest morning and afternoon commute times were 8 am Tuesday and 5:30 pm Friday."

The connection between economic growth and traffic congestion is an interesting topic for economists. In some ways, the roadways mirror the flow of financial capital in a society. Whereas the flow of money is more or less an abstract phenomenon in the economy based on faith, the flow of individuals and firms on the roadways presents a physically-perceivable dimension to an economy. One could argue that the flow of traffic itself is akin to economic activity. The website Reality Sculptors has expanded on this notion in discussing traffic in terms of game theory. In this way, the "money" of driving on the highway is space; the more space you have between you and the car in front of you, the more "money" you have in the game: "Save it up, and spend it wisely." Per the website, using such tactics on highways can effectively be used to "bust up" traffic jams.

What is the connection between the quality of an economy and traffic congestion? Might "freer" roads in "freer" markets lead to better economic growth? Does a free market lead to less traffic congestion? We may be able to get a glimpse of the connection between a free market and traffic congestion from China. Some may remember the infamous 2010 traffic jam in China that stretched 60 miles. The Wall Street Journal's Shai Oster discussed in August 2010 that traffic had been "snarled along the outskirts of Beijing and [stretched] toward the border of Inner Mongolia ever since roadwork started on the Beijing-Tibet highway [on August 13, 2010]." At that time, it was believed that the traffic jam would last for weeks until the road construction was completed. From the article: "Villagers along Highway 110 took advantage of the jam, selling drivers packets of instant noodles from roadside stands and, when traffic was at a standstill, moving between trucks and cars to hawk their wares. Truck drivers, when they weren't complaining about the vendors overcharging for their food, kept busy playing card games."

Whereas I have been in some fairly uncomfortable traffic jams in my day, I cannot say that I have ever seen vendors by the side of the highway selling goods to drivers stuck in the jam. Interestingly, Oster noted that a then-recent "study by IBM suggested some of the worst commutes are in Moscow, where drivers reported 2 1/2-hour delays, on average." Oster: "[Beijing] greatly expanded its bus lines and subway in preparation for the 2008 Summer Olympics, and work continues to open even more stations. But public transport remains crowded and many who can afford it prefer to drive cars. Longer term, city planners are pinning their hopes on expanded mass transit, adding subway, light rail and [more] dedicated bus lanes."

There may be something to the idea that a freer economy with a free market leads to less traffic congestion. As with financial markets, the market for traffic could effectively adjust itself to deal with imbalances. For instance, in a given city, one would imagine that if the government were to mandate that citizens take a certain route to work (where there are multiple routes to various destinations), such a program would lead to substantial traffic congestion. Surpluses and shortages in terms of traffic space. In contrast, were the government to step back and let the market for traffic correct itself naturally, individuals could find more efficient routes to destinations.

In other words, between two countries where for (1) one the government mandates that 50% of the country must take back roads when they drive for one half of the year, the other 50% of the country must take highways when they drive for one half of the year, and then in the middle of the year the drivers switch places and where for (2) another country the government does not get involved in drivers' choices for traffic routes, one would surmise that (2) the country with less government traffic intervention would have less traffic congestion owing to natural market forces.

In terms of traffic congestion and a weak US economy, another dimension to be taken into account is that of young drivers on American roadways. Financial Times' Shannon Bond and Jason Abbruzzese reported on April 18, 2012 that young Americans are turning away from driving. Financial Times: "Young Americans are eschewing cars for alternative transport, leaving carmakers to wonder if this is a recession-induced trend or a permanent shift in habits." Interestingly, the authors discussed that "in the the age of Facebook and iPhones, young adults are getting fewer drivers' licences, driving less frequently and moving to cities where cars are more luxury than necessity." According to car research website's vice-chairman Jeremy Anwyl, "We need to give due weight to the economic realities that these folks have been growing up in. How do you react to high rates of unemployment and limited economic opportunity? People live at home a little longer, where they have access to the parental fleet."

In light of youth unemployment and high gas prices, the fact that there are less young drivers on the road should come as no surprise. That being said, even if the Obama economy is leading to less traffic congestion, yes, there may be subtle benefits to there being less cars on the road, but at what cost? As with the phenomenon of deflation, where the general price level of goods decreases, even though advantages to less traffic congestion may be perceivable to consumers, one must also take into account the declining economic conditions that are bringing about those perceived advantages. In taking into account the explanation of why there are less cars on American roadways, one can see that less traffic congestion on roadways is not necessarily a good thing.

Posted-In: Financial TimesWall Street Journal Psychology Topics Economics Media Reviews General Best of Benzinga


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