The Market As Plan

December 29th, 2011  |  Published in Cities, Political Economy, Socialism  |  13 Comments

There’s a good article in LA Magazine about UCLA parking theorist Donald Shoup. Shoup has made a name for himself (among urban planning nerds) by showing how urban land use practices systematically over-produce free and cheap parking, leading to all sorts of undesirable consequences for everyday life.

As Matt Yglesias says, Shoup’s views on parking can be reduced to two themes. First, “that governments should not force real estate developers, store owners, and other businessmen to build more parking than their own calculation of what the market balance of supply and demand is.” This is just the straightforward point that the state shouldn’t force the creation of things that have negative externalities and disproportionately benefit the already well-off. More interesting is the second theme, “that governments shouldn’t underprice street parking in a way that leads to Soviet-style shortages of available spaces and elaborate rationing rules about how long you’re allowed to stay in a given spot.” Yglesias, and Shoup, portray their position as a free-market alternative to the evils of central planning, surely a canny move for liberal audiences. But there’s something else going on here; consider this experiment in LA, as described in the LA Magazine article:

This spring the DOT plans to introduce an $18.5 million smart wireless meter system based on Shoup’s theories. Called ExpressPark, the 6,000-meter array will be installed on downtown streets and lots, along with sensors buried in the pavement of every parking spot to detect the presence of cars and price accordingly, from as little as 50 cents an hour to $6. Street parking, like pork bellies, will be open to market forces. As blocks fill, prices will rise; when occupancy drops, so will rates. In an area like downtown, ideal for Shoup’s progressive pricing, people will park based on how much they’re willing to pay versus how far they are willing to walk to a destination.

There are two points I want to make about the two bolded phrases, one directed to my left and one to my right. (See? I’m an even-handed centrist.) To Leftists, this talk of subjecting parking to “market forces” sounds like the usual neo-liberal claptrap, in which public services are thrown open to private avarice. And it’s understandable that we’re all wary of talk of the market, which has become a kind of universal solvent for putative reformers looking to batter down the welfare state; as Tom Frank remarks, faith in the market has a utopian fervor on the right, as the free play of capitalism is presented as the magical solution to all problems.

But rather than accept the ideological representation of The Market as all that is competitive and efficient and bounteous and true about capitalism, it’s worth reflecting on just what the Leftist objections to the market traditionally were, and whether they fit the case described here. There are two that I think are most important. The first is a narrowly economic argument, to the effect that under the “anarchy” of capitalist competition, the pursuit of private profit leads to unjust and irrational results: luxury goods are produced while the poor starve, inventories pile up that no-one can afford to buy, factories lie idle while thousands are looking for work, the environment is despoiled, and so on. In Trotsky’s Transitional Program, there are repeated references to this kind of market anarchy, which will inevitably be superseded by a superior form of rational, conscious, worker-controlled planning. Indeed, says Trotsky, “The necessity of ‘controlling’ economy, of placing state ‘guidance’ over industry and of ‘planning’ is today recognized – at least in words – by almost all current bourgeois and petty bourgeois tendencies, from fascist to Social Democratic.”

But is someone like Donald Shoup trying to introduce the anarchy of the market, or suppress it? Consider:

Parking had never crossed Shoup’s mind when he left Yale for L.A. in 1968—his focus was public finance and land-value theory. In 1975, he stumbled onto a master’s thesis by two USC students who had worked their way through school parking cars for a man named Rex Link. “Link,” says Shoup, “was annoyed that county workers were offered free parking downtown when federal workers had to pay. ” Link’s student employees proposed a study. “They found that 72 percent of county workers drove to work alone,” says Shoup, “but 60 percent of federal employees carpooled, took public transportation, or even walked. These were workers in the same professions, driving to the same location.” When forced to pay a practical value for their parking, drivers were twice as likely to carpool—traffic congestion was halved, carbon emissions were halved. “The more I thought of that,” says Shoup, “the more I thought there was a perfect storm here. No one can tell you why parking prices are set as they are. But when people pay comparatively little for something that’s expensive to produce, the result is collective irrational behavior.”

The Market has been so mystified by its apologists that we no longer recognize a planned economy when we see it. It’s true that that last sentence is, in some ways, redolent of old pro-market critiques of Soviet planning: when prices are arbitrarily decreed by the state rather than equilibrated in competitive markets, irrational and suboptimal outcomes are the result. But Shoup’s alternative is not merely to unleash the anarchy of the market, in which private firms somehow compete to offer parking at the lowest price. The ExpressPark experiment, as described in the first quote, is an exemplary case of central planning. The city begins by decreeing a production target, which in this case is maintaining one empty parking space on each street. The complex system of sensors and pricing algorithms is then used to create price signals that will meet the target. The key point here is that the capitalist market’s causal arrow has been reversed: rather than market price fluctuations leading to an unpredictable level of production, it is the production target that comes first, and the prices are dictated by the quota. What this reminds me of, more than anything, is some of the abortive experiments in economic planning that happened in the USSR under Kruschev, as fictionalized in Francis Spufford’s Red Plenty. Mathematicians and economists, including the Nobel prize winner Leonid Kantorovich, attempted to use the mechanism of prices, not to restore capitalism, but to make central planning work better. Consider this exchange, which Spufford invents between Kantorovich and his academic critics:

‘But what about the evident similarity between your “valuations” and the market prices of a capitalist economy?’ asked Boyarskii, who was sounding rather strained.

‘It’s true that there is a formal resemblance,’ said Leonid Vitalevich. ‘But they have a completely different origin, and therefore a completely different meaning. Whereas market prices are formed spontaneously, objective valuations – shadow prices – must be computed on the basis of an optimal plan. As the plan targets change, the valuations change. They are subordinate to the very different production relationships of a socialist society. Yet, yet, the scope for their use is actually bigger under socialism. The capitalists actually agree with you, Dr Boyarskii, that the mathematical methods we’re talking about should only be applied on the small scale, on the level of the individual firm. They have no choice: there is no larger structure, in the economy of West Germany or the United States, in which they can be set to work. They have had some success, I believe. I’m sorry to say that, since George Danzig and Tjalling Koopmans made their discoveries of “linear programming” in America during the war, the techniques have been adopted there far more eagerly, far more quickly, than in the Soviet Union. Linear programmers in the USA calculate routes for airlines, and devise the investment policies of Wall Street corporations. But we still have an opportunity before us which is closed to the capitalists. Capitalism cannot calculate an optimum for a whole economy at once. We can. There is a fundamental harmony between optimal planning and the nature of socialist society.

This seems much closer to what Donald Shoup is doing than the traditional liberal conception of the free market. The same might be said of various “market based” solutions to climate change, which begin by setting price on carbon or a limit on total carbon emissions and then allow the rights to emit to be traded. Once again, the plan targets come first and the prices come second.

There is a second line of argument against markets, however; that they are not merely anarchic and inefficient, but also induce ideological mystifications that perpetuate capitalism and exploitation. Bertell Ollman puts the point as follows in his criticism of market socialism:

One major virtue of centrally planned societies, then, even undemocratic ones, even ones that don’t work very well, is that it is easy to see who is responsible for what goes wrong. It is those who made the plan. The same cannot be said of market economies which have as one of their main functions to befuddle the understanding of those who live in them. This is essential if people are to misdirect whatever frustration and anger they feel about the social and economic inequality, unemployment, idle machines and factories, ecological destruction, widespread corruption and exaggerated forms of greed that are the inevitable byproducts of market economies. But to the extent this is so, only a critique of market mystification will enable us to put the blame where it belongs, which is to say—on the capitalist market as such and the class that rules over it, in order to open people up to the need for creating a new way of organizing the production and distribution of social wealth.

This attack, too, fails to land a blow against the LA parking experiment. Despite the presence of price signals, and a market, it is no mystery who is responsible for the new regime of fluctuating meter prices: the city of Los Angeles, urged on by its academic homunculus Donald Shoup. Indeed, it is the very visibility of the planners that makes projects like this so controversial among those who take their right to free parking for granted, and who oppose policies like congestion pricing that would mitigate traffic by charging drivers for entering busy areas. This is also part of what makes cap-and-trade climate policy vulnerable to right-wing attack; whatever its “market based” costume, everyone knows that the policy begins with government lawmakers and bureaucrats.

Which is not to say that all opposition to these schemes is unfounded. There’s a blind spot that characterizes many proponents of things like the re-pricing of parking, particularly those who we learned to call “left neo-liberals” this summer. It’s captured in the second phrase I bolded in that first passage: “people will park based on how much they’re willing to pay versus how far they are willing to walk to a destination.” In just three words, “willing to pay”, we have swept away the inequality of wealth and power that any attempt to turn market mechanisms toward planned ends must confront. Willingness to pay, of course, is also a function of ability to pay, and a market mechanism implicitly attributes worth to a person’s desires in proportion to the money they have to spend.

Thoughtful neoclassical economists know this, but they usually choose to ignore it, presumably because the consequences of confronting it would be too politically uncomfortable. Their own theories tell them that, due to the decreasing marginal utility of money, an extra dollar is worth more to the poor than to the rich. It follows that asking an extra dollar for parking hurts the well-being of the poor far more than the rich, and systematically privileges those who don’t need to think twice about paying six dollars for a parking space. To which a good left neo-liberal would no doubt reply that the issues of rational pricing and wealth redistribution are logically distinct and should be thought separately. But politically, this means that redistribution is the lonely last instance that never comes.

All of which is enough to make a good progressive recoil from such a thing as “the market price for street parking”. But this position is not nearly audacious enough. Rather than a rejection of market relations, this is merely a rejection of a novel form of planning, in favor of the older, more obscure, more unfair and more inefficient methods of planning the use of public space. We could say instead that what’s needed is a direct assault on the inequalities of wealth and income that subvert the functioning of prices, and thereby impede the realization of the plan.

Responses

  1. Ralph Haygood says:

    December 29th, 2011 at 1:37 pm (#)

    “Willingness to pay, of course, is also a function of ability to pay, and a market mechanism implicitly attributes worth to a person’s desires in proportion to the money they have to spend.” Indeed. During my recent reading of an introductory economics textbook, the treatment of all spending as discretionary stood out to me as one of several dubious assumptions.

  2. chrismealy says:

    December 29th, 2011 at 5:33 pm (#)

    Do you know the Herbert Simon story about green areas and red lines?

    A mythical visitor from Mars, not having been apprised of the centrality of markets and contracts, might find the new institutional economics rather astonishing. Suppose that it (the visitor I’ll avoid the question of its sex) approaches the Earth from space, equipped with a telescope that reveals social structures. The firms reveal themselves, say, as solid green areas with faint interior contours marking out divisions and departments. Market transactions show as red lines connecting firms, forming a network in the spaces between them. Within firms (and perhaps even between them) the approaching visitor also sees pale blue lines, the lines of authority connecting bosses with various levels of workers. As our visitor looked more carefully at the scene beneath, it might see one of the green masses divide, as a firm divested itself of one of its divisions. Or it might see one green object gobble up another. At this distance, the departing golden parachutes would probably not be visible. No matter whether our visitor approached the United States or the Soviet Union, urban China or the European Community, the greater part of the space below it would be within the green areas, for almost all of the inhabitants would be employees, hence inside the firm boundaries. Organizations would be the dominant feature of the landscape. A message sent back home, describing the scene, would speak of “large green areas interconnected by red lines.” It would not likely speak of “a network of red lines connecting green spots.”

    http://www.unisa.it/uploads/3800/simon.pdf

  3. Cosma Shalizi says:

    December 30th, 2011 at 8:38 am (#)

    May I offer a friendly, if admittedly pedantic, correction? I think you are conflating Kantorovich’s ideas with those of Oskar Lange.

    The shadow prices in Kantorovich-style optimization are just mathematical expressions of how tightly different constraints “bite”. (To be exact, the shadow price associated with a constraint is the rate at which the objective function improves when the constraint is relaxed marginally.) Kantorovich’s planning would take, say, the number of parking spaces in LA as a constraint, maximize an objective function in which parking was an input, and decide what the optimal allocation of parking spaces to different specific uses was. Comparing the shadow price for parking spaces to (e.g.) that for hours lost to commuting might tell the planners where investments would be more productive, but there’d be no need for any money to change hands or any market transactions. The downside, of course, is that the plan needs insanely detailed information to even be formulated.

    Lange’s approach, on the other hand, involves real prices and market transactions [i, ii]. The idea is exactly like the parking scheme: the planners set aggregate goals for certain quantitative variables, and adjust prices until market transactions at those prices fulfill the plan. The planners never have to explicitly allocate anything, or set targets on any quantities other than the ones they want to control — you can control parking utilization without having to allocate particular parking slots to particular people, or setting targets for every other related quantity as well.

    So far as I know (I’d be happy to be corrected), Kantorovich never advocated using markets and market prices for socialist purposes; my impression is that this would have been politically extremely dangerous. (On top of all the obvious reasons, the idea that “The plan is checked and, to a considerable degree, realized through the market” was advocated by — Trotsky.) Lange himself seems to have never tried to implement his ideas after he returned to Poland following the Soviet takeover; I have the impression that he had some disciples who did, and got purged in the ’50s as revisionists, but can’t confirm that just now.

  4. admin says:

    December 30th, 2011 at 11:50 am (#)

    Cosma, I’ll defer to your superior knowledge on this topic, at least until I have time to do more reading. I think you’re right, and I should have made the distinction between a truly market-socialist approach like Lange’s and what Kantorovich was doing, which as I understand it entailed using “prices” of some sort (still a controversial thing to do) but not markets per se.

  5. Revisiting pricing out the poor | MattBruenig | Politics says:

    December 30th, 2011 at 3:34 pm (#)

    […] Frase had an excellent piece on Thursday discussing the nature of left neoliberal pricing schemes. I wrote about some of the problems with these pricing schemes a little while ago, and I want to […]

  6. Anonymous says:

    December 30th, 2011 at 3:55 pm (#)

    Thank you for writing this. I began to wonder why nobody in the lefty policy blog community ever pointed out some of the pretty clear pitfalls of market pricing to achieve policy goals. I especially think the point about pricing hurting the poor is important given the ideological commitments of the left on that front.

    Hopefully not to spam here, but I put up a rejoinder if you will on the inequality point alone in line with what I have blogged in the past about it: http://mattbruenig.com/2011/12/30/revisiting-pricing-out-the-poor/

  7. A 2×2 Grid to Understanding Some of the Ideological Concerns of Privatization, Especially as it Pertains to Parking | Rortybomb says:

    January 2nd, 2012 at 7:42 am (#)

    […] pricing and allocation of parking spaces.  Matt Yglesias summarizes Shoup’s approach, and Peter Frase has sharp, additional comments about pricing parking for the left and left neoliberals to […]

  8. M12 says:

    January 2nd, 2012 at 10:47 pm (#)

    How much do we really worry about the inequality factor here? We are not talking oodles and oodles of money with respect to parking spaces. As a progressive with some interest in “left-neoliberalism,” and as an urban planner familiar with these kinds of pricing mechanisms, I say we needn’t worry much.

    How likely is it that a person is poor, but not poor enough to still be able to afford a car and all that it entails, but still too poor to afford a few more dollars for a couple hours worth of parking, IF they want/need the prime spots? The point about the marginal utility of money is a fair one, but it doesn’t have much practical application to this situation, in my opinion.

  9. Anonymous says:

    January 3rd, 2012 at 3:11 am (#)

    The thing is, the number of public parking spaces is pretty much fixed for the immediate future. Adding more is extremely expensive, and removing any is politically impossible. So it’s not much of a criticism to say that the plan targets come first and the prices come second (you can argue whether the target should be 85% or 90%, but given a fixed number of spaces there’s no reason to choose something much different). In the future, I can imagine that the prices of the spaces will be one of the bigger factors in determining whether or not to build a parking lot or an underground garage, or to change a parking lane to a traffic lane (or cafe seating, or pedestrian space, etc.). Since the decision to build a parking lot will in many cases be a private one, it’ll be closer to a free market.

    As for people’s willingness and ability to pay– right now most places have a lot of parking spaces. It’s not a situation where you have hundreds of people who are bidding up a scant few items– there are generally hundreds of acceptable spaces for any given place, and the price won’t be any higher than what that three-hundredth person is willing to pay.

    On the other hand, in the few locations where there really are far more people than parking spaces, where it really is expensive, the poor aren’t likely to be driving anyway– they’ll be using mass transit. And the revenues from the expensive parking spots are ideal for subsidizing it. The more expensive they get, the more money is available to improve service–which can offer more transportation benefit to more people than the hard-to-find free parking spots that have been lost: not just to the people who were priced out but to the many people who were already taking transit.

  10. Andrew Fisher says:

    January 3rd, 2012 at 4:52 am (#)

    For all that you call the market an ‘anarchy’, it is surely clear to everyone that the market in everything is created, shaped and sustained by the state so all markets are a form of ‘planning’. And typically hurting the well-being of the poor is a feature, not a bug.

  11. M12 says:

    January 3rd, 2012 at 10:25 am (#)

    Baklazhan, exactly right on your last paragraph. Part of the background for planners trying to implement congestion pricing is that it helps public transportation – free parking in valuable space subsidizes private transportation.

    As a minor quibble – the decision to build parking lots is usually not private. The amount of parking for a building is usually based on zoning codes that require X number of spots for Y number of Z-type users.

    As a side note, these parking pricing schemes are just like express toll lanes, where you can pay a toll that varies according to the amount of traffic already on the road. Some people call these “Lexus Lanes,” but as it turns out, they are used pretty much by everyone, and they improve traffic for both the toll lanes and the non-toll by distributing cars more evenly.

  12. jonst says:

    January 4th, 2012 at 2:32 pm (#)

    Why do i have this vague sense of an on rushing clusterfuck of a plan/s that in the end will hurt people and help the rentiers? I must be jaded, right?

    “Nothing succeeds as planned” Heller, in Good as Gold.

  13. Parking Today says:

    January 4th, 2012 at 3:44 pm (#)

    […] go back to school a bit to try and understand the economic theory that is being espoused  here and here. The links were send by Don Shoup to the Cities of LA and SF (Parking Departments) and copied to me […]

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