Imagine a country where the government had a program to give people coffee on their way to work in the morning. The coffee costs $0, and the government also runs a much smaller program in select metro areas to partially defray the cost of orange juice. Would we be surprised to learn that this led to coffee shortages? To long lines for coffee? Of course not. Every once in a while Ben & Jerry’s does a “free ice cream cone day” and everyone understands that this, too, leads to long lines.
Meanwhile, here’s a New York Times article about the possible economic benefits of advanced data mining technologies:
But the biggest single consumer benefit, the study says, is going to come from time and fuel savings from location-based services — tapping into real-time traffic and weather data — that help drivers avoid congestion and suggest alternative routes. The location tracking, McKinsey says, will work either from drivers’ mobile phones or GPS systems in cars.
I wish everyone good luck with this. By the fundamental cause of traffic congestion is not mysterious. No highway is congested at 3 AM. That’s because very few people want to be on any highway at 3 AM. Something like 8:45 AM is different. There are lots of highways in America such that lots of people would like to be on them at 8:45 AM. At the same time, people also like to have money. If you charge people money for the right to occupy space on an in-demand highway, then there is some price such that the number of people who want to pay the price is low enough as to be consistent with a free flow of traffic. This will generate consumer surplus for fee-payers, and generate a substantial revenue stream for the government.