The Pace of Change in Transportation

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Why are we still stuck driving to work and school everyday? In my lifetime, we've had enormous change in so many aspects of our lives, but I still get where I'm going in the same way I did 20 years ago.

In many ways, the slow pace of change in transportation has been a disappointment for many of us. If you think about it, very little has changed since the 1950s. Yes, we have more and larger interstates, and nicer and faster and cheaper (in real terms) cars. But all of these changes have been incremental. Our world is incredibly different than it was 50 years ago, but our transportation systems are little changed. We are still driving our own gasoline powered cars whereever we want to go.

Economists have an explanation for why change has been slow. Transportation has a lot of what are known as "network effects." Network effects occur when the value of a good is dependent on how many others use that good. Facebook is a classic example - the value of a Facebook account increases as more people use it, because you now have more friends to connect with. The network effects in transportation are slightly less obvious, but they are still important. In our case, the more drivers we have, the more incentive we have to build more roads. The more (and better) roads there are, the higher the value of the automobile. By using taxpayer money to build roads, the government has been increasing the value of cars and trucks.

Likewise, the more gas stations there are, the easier it is to find 2012 Chevy Impalaone, the easier it is to drive a car around. While this might seem like a trivial example, it is a problem that is preventing a wider adoption of electric cars. If there are few re-charging stations for electric cars, then few people want to buy one. But if few people buy electric cars, then there is no market incentive to invest in re-charging stations. So the network effect prevents the adoption of electric cars. Economists describe this as "lock-in" - we are locked in to gasoline powered cars. That is why the "hybrid" is so successful, it doesn't require any new network to power it.

Economists also study network effects to understand public transportation. Some in Indianapolis suggest that we should invest in better public transportation, including a light rail system between downtown and suburban areas. However, it is unlikely that this will be successful. The reason is that we will never overcome the network problem. The network problem is that you can't afford to invest in a great light rail system until many people are willing to use it, but many people won't be willing to use it until you have a great system. Since we have already invested in roads and cars, it is too costly to have the significant investment required to create a light rail system. You need a system in which public transportation is popular and extensive (New York) or in which you rely on cars (Indianapolis). We can't afford both, and once one is in place, it is hard to replace it with the other.

We are "locked in" to our current system. As a result, we see a transportation system that hasn't changed in 50 years. And efforts to massively overhaul it are likely to fail.

However, I see radical change coming (relatively) soon. The reason that this time is different is because the radical change won't have to overcome the network effects in transportation. And, I won't have to drive myself to work everyday.

Next blog post, I'll expand on how I think the system will change.