0:33 Intro. [Recording date: October 3, 2013.] Russ: We're going to talk today about an article you've written for the Journal of Economic Literature on the transportation system in the United States. And we're going to put a link up to the paper itself and a video that Brookings has put together summarizing some of the points. Transportation is a pretty big part of our economy, right? Guest: Yeah, a lot bigger than people realize. If you think about it, it should be a lot. But no one typically sort of thinks of the annual expenditures on transportation. But, when you sum these things up in terms of what consumers spend in terms of getting to work, various pleasure trips and non-work trips, and then you look at what shippers spend on shipping freight and so on and so forth, and then what the government spends building infrastructure, we're talking shares of GDP (Gross Domestic Product) that approach the amount that we are spending on health care. But people obviously don't seem to pay as much transportation as they do about health. And that's just out of pocket expenditures. It doesn't include the time expenditures, which it turns out are about as large as the monetary expenditures. Russ: So, you look at a whole range of policy issues related to transportation, including some of the history. I want to start with the history. How has the role of government in the transportation sector evolved in the history of the United States? Because it would surprise me--I probably knew this but I'd forgotten--how recent some of the government involvement has been. Of course some of it goes back a long way. So, give us a quick thumbnail sketch of the sector and government's role. Guest: Sure. Actually, the interesting thing about transportation is how, although certainly pervasive government involvement now, how virtually all components of transportation, whether they be the modes or the infrastructure were initially started by the private sector, not the government. That is, the first roads in America actually were built by private toll or road companies. The first airports in America were private airport companies. Even air traffic control, which you think has got to be a government function, was actually set up by a private consortium so to speak. So, basically, the system started out in its infancy if you will with the private sector. And gradually government got involved in roads, for example, regulating the roads. And then we get a familiar story. As any part of the system experienced financial distress, and that's certainly was going to happen, then government tended to come in. So that was sort of it's entrée into the road system. Certainly by the early 1900s. And then other things happened. During the Depression we had airports that were private but that had serious financial problems; again, government came in and wound up taking them over; subsequently set up an air traffic control system. In the 1950s, by the time it was the 1950s, there were public transit companies--as the auto came in, it was competing with transit and causing it to have financial distress, and the then-private companies collapsed. Again, there were regulatory issues that may have contributed to this. And again government took over the mode. So you have sort of a familiar pattern that things started out private. There tended to be some sort of crisis. People debate to this day whether the private entities could have pulled through with government assistance. In any case, that was not forthcoming. Government wound up getting involved and taking over the operations. Those things it didn't take over, mainly on the inner-city side--railroads, airlines, trucks--it stepped in and regulated them. And then we saw the withdrawal of economic regulation in the late 1970s as we generally started moving away from government intervention. Russ: Now, you don't talk about it--I don't think you do--in the paper, but one area that government got involved in, in an unusual way, would be the taxicab market. So in many cities it's highly regulated, but it's still run and owned. It's fascinating to me that we are living in a time now where private competitors are starting to bite into that government-run cartel, or whatever you want to call it--sometimes, it depends on the city obviously, but companies like Uber and others are offering private taxicab--I think. Correct me if I'm wrong. Guest: Some areas of transportation are known [?] a lot more than others. Taxis I just briefly mention because there isn't as much knowledge as we'd like. Generally, the stories vary from city to city. Some cities, taxicabs are largely deregulated. Others, they are highly regulated. And certainly the hallmarks of the highly regulated taxi areas are no new people can get in. And then you hear these stories, like New York City, where taxicab medallions are worth millions of dollars. Now, Uber offers a technology that enables a user with an application to get access to some form of what we would call a taxi service. There's nothing preventing somebody from getting a traditional taxi. But in terms of getting new entry, other forms of car service are also trying to be hooked up on Uber. This is the thing that the incumbent taxis want to fight. They don't want this kind of competition. And we're seeing how this is playing out in certain cities, with this kind of entry experiment through a new technology, and we'll just see what it does. Russ: Yeah; I'm sorry. I think the distinction--I didn't make it clear. Taxis are allowed to cruise the streets and look for customers. Car services, you have to call and make a reservation. What Uber does essentially turns a car service into more of a cruising opportunity for pickup of a random passenger. Guest: Yeah, a real-time type of service that's very responsive. Which obviously is something that you can do with Uber at the same time, compensate for cases when it's really just difficult to get a taxi. And you let somebody know you want service, and somebody watching this kind of thing can provide it.

7:55 Russ: Let's start, though, with airports. Airports are kind of mysterious to most of us. We don't spend a lot of time talking about it, and we don't really understand what's going on. Airports typically now, I think almost all major airports in major cities, are run by the city or the county that they are in. But that, you say, wasn't the case. When did that change, roughly, and what were the consequences of that? Guest: Well, roughly it was during the Great Depression. The airports were private as air service began. And during the tremendous drop in air travel--which never was very big at that time, as it was just getting going--airports had problems. And governments mostly came in. For the most part, municipalities have taken them over. And they are the ones that now are providing the infrastructure. And, to a certain extent, it appeared to be a successful way of doing things, in the same way that public highways seemed to be a successful way of doing things. Because it really wasn't congested. The system wasn't really falling apart from excessive use. And so on and so forth. And so we thought, okay, this is a very reasonable way to do things. But as expenses have grown, as delays and congestion has gotten worse, and as airports--as well as highways--are not terribly responsive in dealing with this, we are beginning to see lots of problems with public ownership. Russ: One of the ones that fascinates me is access to the gates. You'd think, well, if I want to offer a flight between Washington, D.C., and Chicago, I'll just go fly my plane, fly my airline to one of those places and land my plane; pick up some people; take them to the other city. And it seems pretty straightforward. But the gates problem is a very severe constraint. Correct? Guest: Correct. One thing that is part of the story is yes, the airports were owned and operated by the municipalities, but, for expansion to the airport terminals and the like, runways and the like, they needed somebody to guarantee the investment that they were going to make. And that came from bond purchases or bond holdings by the airline. So the airlines actually had a very, very important relationship to the public owners of the airports--they were basically funding a fair amount of the capital improvements and enhancements, if you will. But in return, they had say on the types of investments that could be made and effectively were able to block entry to people, who weren't going be able to get gates. The airports certainly weren't going to give them to people and if you wanted gates, in some cases you would have to have a whole new wing built. So, with gates sort of locked up, in certain places that made it very difficult for new airlines to enter. Russ: And they weren't all being used. Right? Guest: They were not all being used. And there were different classifications of gates. There were what we call exclusively used gates where certain airlines had the right to use these things. And then there were things where you did have some flexibility but oftentimes the new airline couldn't get the use of the gate at the preferred time , and these kind of things. So it has become a form of entry barrier. That is, ideally you might want to serve an airport, but if the gate space isn't there for you and you are not going to shell out the money to go out and build additional terminal capacity, you can be out of luck. And of course restrictions on competition are reflected in higher prices. And that's what the evidence has indicated. Russ: How would that work in a private system, though? A private system, say, a consortium of airlines that currently serve a city that own an airport, they are not going to like entry, either. Guest: Well, they are going to have, obviously, a very different financial situation in that they are not going to be beholden on any particular airlines as dating back from when the airports were built, when regulation was set up. Which, by the way, was kind of a convenient situation in restricting entry, because that was done under regulation. So the question about getting gate space never came up during regulation because virtually all their airlines had trouble entering routes anyway. It was only deregulation where the problems started to arise. But in any case, private airports, where in many cities throughout this country competition seems quite feasible, right here, obviously--Reagan National, Baltimore Washington International (BWI)--could compete. The owner is presumably going to try to get entrants who are willing to pay the cost of the services. They are not going to immediately say, You're out of luck, you can't come in. They are going to try to work with the airlines and if they can find ways that they are going to cover their costs, they'll accommodate them. And if demand is growing they'll say, okay, we're going to build new terminals and handle new traffic and we're expecting you to pay for it. But we're not going to call on other airlines to bankroll these investments. We'll do it--because we're going to be able to cover the cost by charging you. So there's obviously going to be a lot more interaction between both the airports and the users of the airport, which is one of the problems we have now. You have customers that use airports but their relationship--the landlords, so to speak--is virtually nonexistent. Russ: I'm just trying to think, imagine, what the owner of a private airport, what kind of entity it might be. So, for example, if I wanted to acquire--I'm thinking back to a city I lived in that had a little more vacant land near it, St. Louis--if I wanted to acquire a large plot of land near the city of St. Louis, maybe in Illinois across the river, and build a private airport and just offer the opportunity for airplanes to fly there, that can't happen right now. Correct? And as a result, if I'm Southwest Airlines and wanted to go into St. Louis, it had to go to the St. Louis airport and build its own terminal. Which is nuts. Unless the other part of the airport is totally full; and I suspect it wasn't. So what is strange about the current world is how difficult entry is and who controls it. Right? Guest: Right. The difficulty--again, let me be clear. We do not need many, if any, new airports really being built. In other words, when I envision privatization, all the existing airports will be sold off. Which I might add will do quite a bit to help a lot of cities' financial situations. They are going to sell off these assets, and infrastructure firms are going to buy them. For budgetary purposes that could be helpful--assuming away what's done with the money. Russ: Good point, but who do you think-- Guest: Most of these things will be sold off, and there will be the existing airports. But then there's also something else, part of this: there are thousands of smaller airports that could be used--for commercial service--but they are not being used now. Russ: Why not? Guest: Basically, these are not airports that are going to get public money. So, to the extent they want to compete they are going to be at a disadvantage. Russ: There's no mechanism for them to use private money right now. Guest: Not right now. Not for that purpose. So, it could be very, very different from what we've got now.

16:45 Russ: Let's think creatively for a minute. So, if every city in America either out of financial desperation or economic wisdom decided to auction off its airport to the highest bidder, how would you imagine that situation settling down after a couple of years? Would there be sufficient competition among airports to prevent them from extracting large sums of money out of customers and airlines to have access to them? Would you let them freely buy the airport and do whatever they want with it? Guest: Well, okay. First of all, I would allow for one requirement. And we've actually learned this from an experiment in London, which, by the way, has privatized its airport. So we're behind the curve here. Interestingly the leader of capitalism in the free world tends to be really slow on the uptake in terms of privatization. Many places have actually been exploring privatization of the airports. But in any case, London made a mistake and initially sold of their airports to one infrastructure company, a foreign one. And subsequently realized that was not the right way to do it. And forced that company to effectively sell two of the airports. Russ: What should they have done. Guest: They should have sold them to independent buyers. So, that's the approach we should take in the United States--at least initially say, yes, we are going to sell off airports but we are not going to have the same company buy all three of them, at least in this area, and give them an outright monopoly to start. We would like independent firms to purchase these things. And so then they will go head to head. And like any fundamental institutional change, like deregulation, there's obviously going to be enormous learning. And I can envision, on the one hand we will reveal inefficiencies that we had no idea existed in terms of operations that could be vastly improved, in terms of interactions amongst airlines and airports that say, look, we could provide better service if you let us do this and get rid of crazy things like tarmac rules. At the same time, there will be shocks, as there have been following deregulations. And undoubtedly financial crises where it will be difficult for certain airports that may have much less traffic. I don't want to oversell how smooth a ride privatization will be. If people thought deregulation was tough, privatization is going to be even worse--it's now going to have people who have no experience for the operating of the private sector. But I think when all is said and done, it will be clear this is a much more efficient way to do things. That, airports--who are already competing already, let's not kid ourselves--public sector airports do try to get passengers and do implicitly compete with each other. We're just going to try to make this explicit. And I think the results could be quite positive. Russ: Yeah. They do a little innovation. Here in the D.C. area there are parking garages that tell you how many spaces are available on each floor and which rows even have available spaces. I find that a very pleasant experience in parking life. But they are not so good at minimizing the distance from where you park your car to where you get on the plane. Dulles in particular I find frustrating. It used to be you had to ride a special bus. Now you've just got to ride a special internal metro system that seems to be designed to go up and down a lot of escalators as much as possible. So it would be interesting to see how much more pleasant that would be if someone was actually trying to make more money off of it. Guest: Yeah. Absolutely. And again, start exploring ways in which passengers, who aren't happy, could be made more happy. What is it that you want at your airport? Right now, the public airports just don't have that big an incentive, since they are getting their funds and are protected from competition. At the same time as we are now seeing in a lot of public transportation services as well as other services, they are starting to run deficits, and that's raising problems with trying to improve services and even trying to maintain current operations.

21:35 Russ: Let's talk about commuting, some commuting issues. I was interested to see in your paper that, despite the passion for public transportation that has engulfed many American cities--the excitement of light rail, the remaining bus systems that are still in place--commuting by car remains not only the dominant form of commuting, but it's grown steadily over the last 40 years. 1. Why do you think that's happened; and 2. What do you think of the claims that we need more public transportation to reduce dependence on the car? Guest: Well, people always look to Europe, high density areas, and say how great their transit systems are. And what they fail to realize is the dynamic of the urban and suburban area. A lot of these older communities, people who have been there for many hundreds of years, and the density is established. America is still a place on the move. And when I came to D.C., no doubt you were--there wasn't the expansion of Tyson's Corner, and out to suburban Virginia and Maryland and so on and so forth. And now, just over the last 10, 20 years, there's been a huge change in this area. Well, if you have a metro system that stops at Vienna and is not going to be able to cater to those people, they are not going to ride it. What are they going to do? They are going to use cars. Well, you multiply that by many experiences throughout the country and you are talking about the inability of transit to keep up with fundamental changes in demographics in our sort of dynamic metro areas. So, that's a big problem, physical problem, with urban rail. Bus, you'd think, well, they are like cars; they ought to be more flexible. Yes, and they run into problems, one big problem--regulations. Trying to establish a new bus route, or changing an existing one, can be quite difficult, time-consuming, the usual kinds of regulatory problems. And bus just isn't all that good at responding quickly. And again, what's the incentive? They are still getting their subsidy. So, I think what you have with transit--and I've been hinting at this all along--is again, no real fundamental connection between the suppliers of the service and the customers, trying to respond to the changes in the customers' needs and preferences, trying to respond to just exogenous changes in society, what have you. You have a system that is in place; it gets subsidies; things are good; why change? And the public, who don't really know how things could be so much better, seems to go along with it. And then also shares what I would call this engineering mentality. What I mean by engineering mentality, that all the solutions to transportation are thought of in terms of more spending. If we could just put more money into rail and expand its network. If we could just put more money into a new rail system, where we don't have any--all this would solve our problems. But it wouldn't, because it's not dealing with the fundamental problem of being able to respond effectively to consumer preferences. These are very expensive solutions. And of course they are not dealing again with the fundamental problems with autos about mispricing congestion and the like. So the real tragedy in transportation is it seems to be more dominated by engineering than economics, where in fact so many of the solutions really involve just basic improvement in pricing investment.

25:49 Russ: So do you think we spend enough on infrastructure? We've had an interesting debate with Robert Frank on this topic, centering around this claim you often hear that we don't spend nearly enough; our infrastructure is crumbling; it's dangerous. How would you respond to that argument, given the point you just made? Guest: Okay. So, this is just a basic economic point that's obviously very simple for economists. But non-economists often don't recognize this. Before you make an investment decision, one, whether you should do it or not or make an overall assessment are we doing enough of it or too little of it, you've got to first ask the question: Is the facility properly priced? Forget about transportation. Just think of any commodity. Talking about oranges: and if oranges were priced at, oh, a nickel, and we are constantly running out of oranges, then the instinct of most people is, well, we need to increase production of oranges and build more orange factories or groves or what have you. Whereas in fact someone else might say, en economist, hopefully: Wait a minute--you know, oranges are greatly underpriced. Russ: Underpriced--when you say underpriced, you mean legally there is some constraint on them. That someone has set the price artificially low. Guest: Yeah. There was an artificially low price; this is not a market price. And you say, look, let's get market pricing here. And prices go up, and all of a sudden you realize supply is equal to demand, and the market is clearing and we really don't need to make any investments in the production of oranges. Well, that's the same idea with roads. Roads have an artificially low price. Cars are not charged for congestion, so they put pressure on peak capacity. Trucks are not charged efficiently for the damage they do to roads; they pay a gas tax when they really need to pay an explicit charge that reflects the damages they do to roads. This underpricing causes road capacity to fill up, causes the roads to wear out a lot sooner. And it generates a demand for: We need more spending and our infrastructure is underfunded. I say, let's get the prices right. Now, the same thing is true for airports, same kind of thing; even ports. Same thing. My guess would be after getting the efficient prices, yeah, there probably is room for some efficient--and I mean efficient that would satisfy cost-benefit criteria--investments in highways in some high density areas. Certainly additional runways in high density airports. But not the trillions of dollars that people talk about and not nearly as much as people are led to believe. So, I think that the claims of the infrastructure crisis are grossly overstated, and what we really have is a pricing crisis. And if we can get the prices right, that will do an awful lot to improve the condition and service of our infrastructure. Russ: I want to come back to that in a second, but I want to make a general observation first. Which is: not only is transportation about the size of the health care industry, it's kind of structured the same way, where the customer doesn't do the real paying and the supplier doesn't receive the money from the customer. And that messes up the incentives. One view would be that it works surprisingly well given how badly designed it is. I get on my airplane; they are incredibly safe. I don't think that's due to government regulation, but they are incredibly safe. Similarly, I get in my car, they are incredibly safe. All these methods by the way are much safer than they were, and they were safer long before government got involved on safety; so the trends are basically unchanged for very long periods of time and it's mainly, I think, driven by our increasing wealth and desire for safety. But my point is that it works pretty well. I agree that the urban congestion thing, not so well. But the rest of it--I think we've built too many roads, we repair them too often--I assume that's because of the political power of contractors. Right? That creates lots of delays and wastes money. And it sucks money out of my pocket into their pocket more than is probably necessary. But you could argue it works pretty well. Guest: The parallel to health care is a nice one, because--yeah, I think most Americans think health care works pretty well. And when you think about it, there is a reason for it. We spend an awful lot of money. It should work well, given how much money we spend on it. But what also is interesting is people really have no idea. Like, most people will think that transit covers its costs. Without even cost being defined. Like, transit breaks even. Russ: Right, like, I get on the metro, I pay money-- Guest: The metro is full, people are on it, I'm in NYC, the subway, there are tons of people on it. No one is going to realize that these transit systems cover none of their capital costs, and generally a modest fraction at best of their operating costs. And the rest of this is coming from the public. Highways--it used to be that the systems were designed to break even and were paying out of a trust fund from a gas tax. So that's the way people pay. They just pay for gasoline; they don't realize that a chunk of this is going to the roads. But now we are running a deficit there. And in a sense it's been a deficit building for a long while, because there is deferred maintenance. So, what we have is we really have a multi-trillion dollar system in terms of the value of the assets. If you actually look at the value of highways, airports, our rail stock, ports, so on and so forth, these are in the trillions of dollars. We've just built this enormous system. So, yes, it should be pretty good given the money we've spent on it in this country. At the same time, I think the tragedy is the counterfactual--people just don't realize how much waste there is-- Russ: And compared to what? Guest: Compared to that we get a more efficient system. And I'm not even getting into yet the technology. So that, forget about also the waste, things could just be infinitely more efficient. Let me just give you one simple thing that I think anybody can relate to: You are driving home late at night, 12, 1 in the morning, and you hit a cross street, and it's got a light. And it's red. And you are waiting and you are waiting, it's green on the other direction, and no one is coming. And obviously people are often tempted to run the thing. Russ: Well, they used to run it, Cliff; the cameras now ruin that common-sense strategy. Guest: Right. But how about this, which technology could do: you have stoplights in these off-peak times that are timed to traffic flows? And if no one's there, boom, it's automatically green. Or, it merely switches to blinking red, so you don't have to wait. This is just a simple thing, but it's just an example, again in terms of operations and improving technology, how it could be done. So I think the bottom line is: We have this enormously expensive and valuable transportation system that's the envy of the world. There's no question it's better than other countries' systems when you look at the thing in toto. But there's an enormous amount of waste, enormous amount of inefficiencies in terms of operations, and for what we spend, we could have something that's even better, and in ways that people find hard to imagine.

34:36 Russ: I think a lot of people would disagree with your claim that it's the envy of the world, right? Guest: Well, I'm talking about the whole system. Russ: Europe has better trains. Their airports are nicer. Their roads--the Autobahn--they are in better shape. I agree with you; I think our system works pretty well; I love your point, yeah, at what price. But I don't know if we're doing so well relative to everybody else. Guest: Our rail freight system is the envy of the world. We have a really excellent rail freight system. Other countries go in passenger systems and if you think we're subsidized, wait till you see what theirs is. Extremely, extremely inefficient and very expensive. Our road systems tend to be better. Again, other people tend to have urban rail systems and so on and so forth, but those too, even with the density, tend to be very highly subsidized. Our air service tends to be much better, far more competitive. I mean, look how long it was before we'd get affordable air travel in Europe. So, I'm just saying, across the board, I think overall our system is better. Russ: Let me ask you a question about the efficiency issue. I agree with you that roads are underpriced. They are zero, the money price; so time is a way to ration the limited space in urban areas. And when we expand the roads it just takes them a while to fill up again because people move closer to the city until they find their commute unpleasant and then they move back--they move closer, back out, depending on the, as people adjust. But the question is, if you improve the efficiency of this system--and you could say this about a lot of different parts of the transportation system--who is going to capture those gains? If you put a tax on commuting, you are going to make drivers worse off. It's true they are going to save time. But to get them to save enough time, you can't save them enough time to make up for the money because then the tax is too low. You've got to, by definition, discourage people from driving on the roads. So those gains aren't going to go to drivers. So the political mechanisms for these kind of changes seem to me to be very low. Having said that, here in D.C. and elsewhere we are trying toll roads, for the first time. And I assume--I don't know the politics of it--it has partly to do with the fact that they just like the money. I don't think it's just--and maybe it's from the demand from some people who want to be able to get to work quicker and not spend so much time in their car. How do you respond to that challenge on efficiency grounds? Guest: Okay. So, the traditional argument against a lot of the calls for efficiency improvements has been that, yes, these things would improve efficiency but the distributional effects, and in particular, money going from consumers to the government, is what's driving the benefit. That, I would say, is the conventional view. And I think this is the beauty of economic research and greater understanding of technology--it's pretty much out of date. First of all, the major improvement that we've made in microeconomics research is dealing with heterogeneity. And what that basically means is that people are different. So, whereas before the conventional thinking was about the average user and so on and so forth, now we can analyze in more detail specific users who have different values of time. And also, users whose value of time may differ on different days. So, it may be the case that on any given day someone says, I've really got to get to work and I'm willing to pay more to do it, a lot more, and I want the option to do it. And I'm better off by doing this. Whereas other people would not feel that way. So, it's this heterogeneity and now the ability through technology to actually charge different [?] prices, that has opened people's eyes up to say: Wait a minute; you know, there can be sort of a better matching here, where yes, the prices are pretty high but people really have a high value of time, and it's not just rich people. So this kind of pricing thing, this could be a good thing, leaving those people who self-select to pay a lot, because they really value it, better off; and those who don't want to do it don't have to. And they obviously pay much less and get worse travel time. But it doesn't even end there. Now we are starting to realize: Once we start introducing these fundamental changes in pricing and we then realize that transportation interacts with an awful lot of economic activities. So, by putting in the pricing that we talked about, we realize, huh, there also might be, in the long run, changes in land use. Greater density. Russ: Absolutely. Guest: And so instead of having people spread out, things are closer. Well, that means government services are going to be less costly. You don't have to string wires from miles apart or whatever to provide some sort of public services. And now even, you know, modern research is talking about the benefits of economies of agglomeration. You hear from people to [?], get around, so on and so forth. Russ: Less carbon. Guest: Environmental effects. Now here's something else. People are realizing: I'm traveling during these congested conditions and I'm going out there and it's almost sort of a race to the top. I need a bigger car; I'm just around other cars and I don't like it, I'm uncomfortable in this kind of traffic and I want to be able to accelerate, so I'm going to drive a large car. Indeed, we have found, just as a stylized fact, that virtually all of the improvement in engine technology since the 1980s have been reflected in horsepower. Virtually none in fuel economy. Well, what might be at work since the 1980s? One thing is congestion. That just continues to go up and up and up. So it may very well be that a big part of our energy consumption is simply related to congestion. And if we smoothed out traffic flow and gave people less incentive to go out and buy big cars to try to feel more comfortable in traffic, you wouldn't have these what we call 'peer effects'--that could be another benefit of congestion pricing that falls on users. So, I think between heterogeneity--is the buzz word; people are different--and then thinking more broadly about how transportation interacts with so many other economic activities, slowly we are trying to build a case to say: Wait a minute; this is not simply a transfer of revenue from consumers to the government. This is something that could lead to fundamental changes that do benefit consumers. Russ: These are all excellent points. Although I do have to say that as someone who has recently spent a great deal of time commuting in the D.C. area, there are a lot of times I wanted a smaller car. Because traffic is moving so slowly, I'd feel perfectly safe in a very small car.

42:32 Russ: But I want to ask you a different question. We recently had Tyler Cowen on EconTalk, and we were talking about technology and how it might change our lives, smart machines, etc. And he mentioned the driverless car. I'm curious what you think is going to be the barrier to--obviously there are legal issues; there are going to be issues of insurance that are going to make it interesting. But is it imaginable? When I think about a driverless car, it opens up the possibility of going 80 or 90 miles an hour, basically being in the equivalent of a high-speed train that would not crash into other cars--because everyone is going 80-90 mph and you wouldn't have the issues of bumper tailgating that slow down, which are the major causes of traffic. And as a result, you'd be on the equivalent of a high-speed train, except when you got off you'd still have your car, if you wanted to go somewhere else that wasn't connected. So to me the potential is very high. Do you think we're going to allow them on regular roads? Or could we imagine a world where roads are going to be created that will just have driverless cars and no other cars? Guest: My view, and I think transportation illustrates this, is that there is always a sort of battle between the private and public sector to innovation and introduce technological change. I've already mentioned just one example about stoplights. People know: If the roads were private, I assure you that private owners of roads would have traffic lights that respond in real time to traffic flows. And I think what we often have is the private sector trying to find ways to innovate, despite constraints of the public sector. We learned this again in deregulation. Before we had deregulation we had private entrepreneurs trying to show, yes, we could get competition in airlines. We certainly could find ways that we could compete between rail and truck. That kind of thing. Well, I think this is a textbook case, that, here we have a highway system that basically hasn't changed since we started building roads in this country. No major innovations in performing. Russ: EasyPass. That's our biggest innovation, E-ZPass. I don't have to slow down. Guest: Which, at least around here, came from a private innovator. The regional owner of the Greenway I think rode--was the one who put that in. I seriously doubt that it was anybody in the public sector who was the first to do this. My point being the driverless car is effectively going to be able to leapfrog technology to get over the fact that roads have not seen any innovation, where there could have been countless areas where we could have innovated, from the mundane to improvements in asphalt design, resurfacing, lane width that's adjusted in real time to traffic flows. Even realizing that cars don't break down any more; why are we wasting a lane on a breakdown lane? All sorts of things that could have been changed. And even ones that are more technologically sophisticated than that. So, the driverless car is coming. And it's a way that the private sector--in this case, the automobile companies--have been trying in a sense to compensate for inefficiencies in the road system. So, technologically we are going to have it. And I think as people get new cars they'll realize: Wait, the technology that I have in my new car that I can see in this, you know, screen on your dashboard, what's behind me--that's the same kind of thing that they are using in a driverless car. There are just cameras everywhere and cars will effectively be able to communicate with each other. So, it's an exciting development, and in principle could obviously improve traffic flows. Driverless cars do not rubberneck when there are accidents. You are not going to have that problem. And countless other things. But you are right: the problem is that driverless cars are going to have to operate on the public infrastructure. What's one obvious problem? Potholes. If the roads are not properly maintained, your nice driverless car is going to start slowing up and probably even going to be sensitive to the roads. Russ: They'll figure that out. Guest: But it's going to be a problem, in the sense that you'll start getting stop-and-go traffic. Again, signaling. If you have signals that are not really responding to real time traffic flows, but just continue to go on this here's-red, here's-green, so on and so forth, again, that's going to sort of undercut what the driverless cars are trying to do. So I think the bottom line is, yes, we're going to be able to get driverless cars. I think it's unfortunate, though, that we'll probably still have to get them on public roads. It's again, it's sort of the same problem that airlines have, that airplanes have, operating on the publicly-managed air traffic control system. That's something that's at least more visible. People know or at least have heard that we are trying to build a new air traffic control system based on satellite technology instead of radar. But I think they've also heard the horror stories--wait, this thing is year behind in being implemented, it's having cost overruns, and who knows when we are going to get this. The same kind of thing. You have the private mode that's trying to operate on this public facility, and you have people in the public sector that basically have to manage new technology, and they are not up to doing it. Russ: You note in your paper that airplane travel, the delays, have gotten longer. I was struck by two things when I saw that. One is how small the increase has been. It has gotten longer, the ground time versus flying time. Ground time is longer. But it hasn't gotten a lot longer. Having said that, it seems to me that there's a lot more caution about traveling in bad weather and there's a lot of lengthy delays. Not just turnaround being slower, but the canceling and delaying of flights. Am I wrong on those two points? Guest: Well, in terms of technology, we've gotten better in some ways, in that planes can certainly see around wind shear--I wouldn't say 'see' but they can navigate around wind shear. Remember this is all consistent with our safety data, where it is now so, so rare, fortunately, that we don't experience airplane crashes any more. So I think we are certainly doing better there. But I think that's a lot of learning on the part of pilots, better training, and improvements in uses of technology. So I don't think that's our problem. Our problem is just there are a lot of planes in the sky, and interacting with weather you are continue to have congestion until you can change technology. Which is what the satellite-based system is going to do. In the same way that driverless cars effectively will increase more capacity--cars can be closer together--the new satellite-based system will increase capacity. Planes can be closer together. And that's really going to be a major solution to the delays.

50:20 Russ: I want to get into some big picture questions in a minute, but before I do, though, talk about what's going on in the parking world. I was surprised to see there's been some innovation, at least in some cities. I've never experienced personally, but the amount of time that people spend searching for parking is a big part of urban congestion you note in the paper. What's one of the technological things that's changing there? Guest: Well, again, you touched on this. You go to an airport, you have a sense where a parking space is. We have technology that can enable us to do that. You can embed sensors in parking spaces and have applications that say this one's available. You can then even set real-time prices. And various cities are exploring that, those kinds of innovations. Again, this is an example of trying to use improvements in information technology, interact them with transportation facilities, and make much more efficient use of the available capacity. And that could easily be done, in parking, as I said, in terms of reducing search so that people could know in real time what spaces are available. Obviously it would be more efficient to price the ones that are in the more congested areas or used in more congested times. But again, in the public sector these things are difficult. What I've been saying, we have no idea how much better the system could be, these are examples. The system could be so much better not so much because we could be building more roads or investing in more highways. It's because we could be introducing technological innovation and its advances much quicker than we've been doing so before. And again, if I can point to a parallel with deregulation, that was one of the lessons that we learned from deregulation, is how much innovation and technological advance have been held back because of regulation. Russ: What are some examples of that? So, you are talking about the late 1970s, when trucking and air travel-- Guest: railroads-- Russ: railroads, and trucking were all relatively deregulated, or at least regulated less. What were some of the innovations that happened in the subsequent period that might not have happened otherwise? Guest: People simply don't realize that using information technology has vastly improved railroads. If you wanted to know where a freight shipment was in any of the regulated periods, you'd call them up and they'd say: We have to check our camera. And you'd say, What? What would happen is railroads would bring their cars into a yard, and then there would be a camera taking pictures of the cars that came in. And they would look at those and say, There we go. That's where your shipment is. Or: that's how we know where it is. Now, we have real time identification and people know exactly where their shipment is. And people say, well, we could have done that during regulation. Sure. But what was the incentive? Where were innovations going to be generating more profit for these companies? They still face regulations and constraints. So what deregulation did was just open up the incentives and in some cases opportunities. Like, airlines could then dramatically change both their networks and their pricing algorithms, and again introduce new technologies to do yield management. So, these were sort of basic things, but they did greatly improve the provision and operations of inner city transportation. The potential in so much of the infrastructure to do these things and apply innovations in technology is even greater. And that's why my belief is the payoff will be even bigger.