As a $1.6 billion project to widen Interstate 405 in Southern California ends, it is becoming evident that this infrastructure program is not improving the flow of traffic for the typical resident. Some observers even are suggesting that congestion now may be worse than before. True or not, that impression is a case study for why there is so much discontent in Western democracies.
Note that longtime residents are undervaluing two aspects of the recent construction. First, without the widening, traffic probably would be worse yet. Second, the widening helps more people undertake the same rotten commute.
Consistent with those points, I would say the road widening is wonderful for boosting throughput -- that is, it gets more people and cars onto the road. Yet it's mediocre or worse for improving the quality of life of the typical resident. An economist, engineer or technocrat typically believes that boosting throughput is important, but voters usually are less impressed.
Western democracies are encountering more problems that have this logical structure and bring an analogous clash of values.
Consider the debates over low-skilled immigration. It can do wonders for those who migrate to a richer or freer country, but the benefits for current residents are murkier. Some services will be cheaper, some wages of natives will be a bit lower, and while I view the net change for residents as a positive, public opinion seems to be tilting against immigrants. Boosting the number of individuals who pass through American (or Western European) society just isn’t valued that much by citizens and voters, even if it should be.
Or consider the deregulation of construction in the priciest U.S. cities. There is plenty of evidence that building restrictions in places such as Manhattan and San Francisco damage lower-income groups and limit upward mobility. It’s no longer easy to move into Manhattan, look for a flophouse and try to work your way up, as was once a version of the American dream.
But let’s say we did deregulate building in those cities. We’d boost total output, put more individuals to work in the construction sector, attract more new residents and elevate more lower-income people. Those are forms of throughput. Yet renting might not end up as cheaper for current residents, in part because those cities would become more dynamic and attract all the more economic activity. Many rents could rise and the average resident might therefore judge deregulation to be a failure, just as Los Angeles residents are not thrilled with the new 405 freeway.
Many of the top universities have not much increased their throughput (Yale at least is starting to change this). Their entering undergraduate class sizes have increased only modestly, even though the available pool of qualified applicants is much larger, with many more women and foreign students and a much larger domestic population all adding to the mix. (For Harvard there were about 1,200 undergraduate attendees for the class starting in 1962, compared to about 2,000 today, which means a much tougher admissions process.) Alumni seem happy to maintain the club as so exclusive, though arguably these schools are failing society more broadly.
It’s no accident that so many of the gains available today involve throughput. If you widen a road, more people will drive on it. If you open up a border, more foreigners will come. If you build more in a well-to-do city, new residents will pour in and make it more crowded. These days there is always someone knocking at the gates because of all of the global talent that has been mobilized.
And that is part of the logic that elected Donald Trump and drove Britons to vote to leave the European Union. It’s well known in economics that when prices and opportunities change, it is the elastic factors of production (those that can change their plans readily) that gain the most, and the inelastic factors that are most likely to bear losses. Insiders and long-term residents are so often the inelastic ones while outsiders and newcomers have the greater willingness or ability to adjust.
The result is that it has become harder for insiders to capture the gains from building more, opening up or liberalizing systems. And so they are closing off opportunities and limiting potential gains for everyone.