A viral tweet called this a contradiction, but it's not. It's one of the most elegant ideas in economics, and it's hard to unsee it once you learn about it.
Make it even simpler: increased quantity of homes goes with lower prices. Lower price for driving (easier road lane access) goes with increased quantity of cars. They're both just a slide along the demand curve.
Getting students to see problems this way is so key to good economics. It isn't a contradiction, and here's why...
Once students stop saying economics cannot explain this vexing problem and start saying, why is this happening and searching for the right answers, I know I have them hooked. This is a great article to help them get there.
I have several students who took me for microeconomics last semester in my macroeconomics class this semester, and already in week 1, several of them are asking me tough questions. I love it. But I love it more when they stop asking tough questions and start offering up the tradeoffs.
I always get a kick out of teaching the examples that don't follow the normal "supply and demand" answer. When I taught labor, it was the backward-bending labor supply curve. I got to teach Urban for the first time a few semesters ago, and the fundamental law of road congestion was really interesting for them.
I love seeing students' faces when they realized they've learned something new.
But we'd be better off if we could get the wider public to understand economics (so that they don't embrace and vote for slopulist ideas or the awful populists who tout them). Though given how much most people are susceptible to propaganda and tribalism (overriding most everything, include a basic understanding of civics), I'm not too hopeful.
That's why I keep logging in every Sunday to write this newsletter. Thankfully, there are a lot of great economists out there spreading "the good word" of the economic way of thinking. Unfortunately, our work doesn't go viral as much as the people pushing doomerism.
I think it's worth pointing out that extra lanes can be good even if they don't reduce congestion. All of the extra people on the road are benefiting (otherwise they would have chosen a different path or mode of transport.) Of course, I don't mean that extra lanes are always (or even usually) net-beneficial, just that some people must be benefiting if the congestion remains the same.
(This probably aounds like I'm trying to argue with you, but I'm not really disagreeing with anything in the article at all.)
Thanks for the comment! It's absolutely beneficial for those drivers to get access, which would likely be better than their alternative (why else would they do it?), but then we get to think about the externalities they cause for other drivers. Do the collective benefits of the new drivers outweight the costs imposed on others?
What costs for the other drivers do you have in mind? Going from e.g. 3 lanes with X traffic to 4 lanes with X traffic seems to imply few costs for those already using the narrower road with 3 lanes and indeed only benefits for those filling up the 4th lane.
Most of the economic research on this is that the benefits of new lanes only last a couple of years before the congestion returns. It's that congestion represents a cost to "original drivers" from the "new drivers" who start driving after the new lane opens.
Congestion can be worse on a multi-lane highway since vehicle speeds can vary a lot between lanes and drivers frequently slow or change lanes due to slower or stopped vehicles. Drivers are also more likely to weave in and out of the traffic lanes at high speeds when there are several lanees available.
That is poor economic reasoning, however, along the lines of saying that one shouldn't buy a hungry guy a piece of pizza on account of the costs he incurs when he becomes hungry again later. The original drivers are no worse off than when they started, and indeed had a brief time of less congestion so come off ahead on net, while the new drivers benefit from a better route than they had before. The economic literature on the subject has always struck me as being rather strongly motivated in its reasoning.
I can see that there are difficulties with extremely large numbers of lanes and there is probably an optimal number of lanes for a given highway. However, vehicle speeds varying between lanes or slow/stopped vehicles should not be causing more congestion on wider highways. In what world is it better for congestion to have a car stopped blocking a lane on a one lane highway as opposed to a four lane highway?
Likewise, weaving through traffic at high speeds is foolish, but it happens as soon as there is more than one lane to weave between. The marginal difference is going to be nearly impossible to separate out from the mere larger number of idiot drivers that exist in larger cities that have larger highways.
Do extra lanes drive housing prices higher? People assume a new extra lane means an easier commute and thus want to live near that highway. Zoning and NIMBYism prevent the creation of new housing stock. Demand for houses goes up and supply remains the same.
I haven't looked into this, but I can imagine there are two competing issues here. If you're thinking single family homes, I don't believe demand increases whenever there is a new lane added. Most people aren't looking to live next to highways, especially as they get bigger. However, I can imagine that denser options like apartments or quadplexes may see an increase in demand. Unfortunately, zoning laws prohibit a lot of density options.
"The widest section of highway in the U.S. is the Katy Freeway in Houston, Texas, which reaches up to 26 total lanes at its widest point."
I live in Houston, and the Katy Freeway is part of US Route 10, the road that connects all of the Southern US states, and runs from Jacksonville, Florida to Los Angeles California. It is a major continental trucking route, but also, because of the design of the roads around Houston, it is the main east-west road connecting Houston suburbs along that axis, which, because of the barrier of the Gulf, host a concentration of business distribution points to the region.
The worst rush-hour traffic in Houston (and all of Texas) is the stretch of I-10 from the Katy Freeway down to West Loop 610, which is the distribution pathway from I-10 to the metropolitan area.
Thesis confirmed by evidence.
Also, it clarifies the negative effects of transportation policies that respond solely to inchoate demand, instead of using thoughtful responses to transportation issues. For example, there is no "Houston Bypass", routing transcontinental traffic around the metropolitan area, as there is, for example, around Lake Charles in Louisiana.
I love seeing how my GPS responds when I need to get off on an exit from the Katy Freeway. It never seems to have enough arrows to let me know the lane I need to be in.
You say that driving on a highway has no price, which is literally true, but the analogous “price” paid to drive somewhere is the time it takes. Adding a lane initially decreases the time it takes because there’s less traffic, but then traffic gets worse for the reasons you mentioned. I think the amount of traffic people are willing to deal with (as opposed to taking a different route) is a kind of equilibrium point, so after the new lane gets added, the traffic ends up the same, except there are more cars on the road, i.e. more people are able to travel at the same frustrating pace. So it’s a kind of equilibrium; I don’t see how that’s categorically different from the supply-demand relationship of housing. They both operate as supply-demand relationships, it’s just that the slopes are very different.
Thanks for the thoughtful comment! There's definitely an implicit price at play here, and maybe a future piece can talk more about implicit and explicit prices in markets. Your comment on the amount of traffic people are willing to deal with reminds me a lot of Marchetti's constant: https://bigthink.com/strange-maps/marchettis-constant/
The speed of the traffic stays the same but the volume increases. So there is a benefit. Becomes more obvious if you think about reducing lanes instead. Which shows that the relationship of lanes to “traffic” is not flat.
If more cars do not drive on the roads and the marginal gain in lanes is more than the marginal gain in road minutes for those cars already driving on the roads, more lanes do decrease traffic. Traffic is also not at all the only good that matters for a highway—more people driving is a big deal, regardless of travel time. Those trips matter! But we can return just to the individual experience of driving a car. If population declines instead of grows, those more lanes have an even greater effect. What is driving the increase in traffic, aside from latent demand in existing drivers, is population growth—correlated to but not entirely dependent on the quantity of lanes. Come to Detroit—we have plenty of lanes that make for the easiest driving you will ever experience.
This is a tired, nonsensical assertion that is plainly false. Supply and demand does not make an exception only for highway lanes. In some cases, trip times may stay static or in the long run even increase, but the causes here are myriad and not related solely to the quantity of lanes. I don’t want more lanes, I want fewer, but you need to stop lying to yourself and others. Same kind of illness that inspires all kinds of ideology and it should have no place in urban planning.
That's a fair point on Detroit, but the findings are usually connected to cases where cities are adding lanes in response to population growth. This is where latent demand would show up fastest. I'd call it poor urban planning if a city with a declining population is adding more lanes to reduce congestion.
If congestion's the real target, there's lots of evidence pointing toward more bike lanes, transit hubs, high-occupancy lanes, and denser development near amenities. Those approaches have been shown to ease traffic while also paying off in health, culture, and environmental terms.
I would suggest that congestion is not the real target, or at least not the only or the most meaningful target—expanding throughput is. That road lanes are not causally related to a growth in demand for roads is my point in mentioning Detroit. Lanes are on their own insufficient drivers of demand (cue the meme: a car has windows, and so does a house. But, a house does not move, while a car does. So it must be something other than the windows that causes the car to go…). It is only true under a specific set of circumstances, and when those circumstances are present, does it not make sense to talk of the other factors as being truly causal? Like, more cars are on the road because the population grew, rather than merely because there are more lanes? I would liken the error of induced demand as being akin to that of the labor theory of value, where it is mistaking a proxy that sometimes explains the quantity we care about for the actual cause of that quantity.
You can also generalize the concept of induced demand to the usage of all goods that are path-dependent upon some other relatively inelastic good. You could for example say that GPUs induced neural networks, but it’s not totally causally accurate. AI did not arise because we have GPU’s. It _did_ take the particular form it did because we have GPU’s. So too does demand to get from point A to point B take the particular form of a car when the highway is most convenient. If we are saying that induced demand is bad, then the fact that it generalizes just as well to trains seems condemnatory of trains, too.
If, however, the argument is that roads are over-subsidized and so over-used, leading to an inefficient allocation of capital à la Donald Shoup in the High Cost of Free Parking, and anyways they are not a very good use of space, that is something I can buy. Make the argument that actually motivates your reasoning. But from an economic perspective, roads are not special products to which supply and demand apply differently. That and the indirection are my real qualms.
Induced demand is an appalling, elitist canard. It’s exactly the reverse: it’s suppressed demand.
Suppressing demand of something that is thought immoral, travel (especially car travel) suits the ‘enlightened’ classes. And this is done by, on the one hand, forbidding new construction, and on the other by forbidding pricing.
Not one new lane. 20 new lanes. 100. More toll roads. More congestion pricing.
I hate the proles as much as anyone but this queasy moralizing is far too much for me, especially since it has been successfully obscured at just one level of inference. The proles won’t realize when they’re being oppressed, so it falls to us.
For a few years, yes, but the congestion always returns as people adjust. Here's a meta-analysis that includes a one-page summary of the findings: https://escholarship.org/uc/item/3q21f88p
If adding freeway lanes causes more people to drive and the congestion returning then taking them away should lead to fewer people driving and the congestion going away.
Make it even simpler: increased quantity of homes goes with lower prices. Lower price for driving (easier road lane access) goes with increased quantity of cars. They're both just a slide along the demand curve.
And both bring more density.
The intermediate version of this lesson is that I bring in corner solutions.
Getting students to see problems this way is so key to good economics. It isn't a contradiction, and here's why...
Once students stop saying economics cannot explain this vexing problem and start saying, why is this happening and searching for the right answers, I know I have them hooked. This is a great article to help them get there.
I have several students who took me for microeconomics last semester in my macroeconomics class this semester, and already in week 1, several of them are asking me tough questions. I love it. But I love it more when they stop asking tough questions and start offering up the tradeoffs.
I always get a kick out of teaching the examples that don't follow the normal "supply and demand" answer. When I taught labor, it was the backward-bending labor supply curve. I got to teach Urban for the first time a few semesters ago, and the fundamental law of road congestion was really interesting for them.
I love seeing students' faces when they realized they've learned something new.
But we'd be better off if we could get the wider public to understand economics (so that they don't embrace and vote for slopulist ideas or the awful populists who tout them). Though given how much most people are susceptible to propaganda and tribalism (overriding most everything, include a basic understanding of civics), I'm not too hopeful.
That's why I keep logging in every Sunday to write this newsletter. Thankfully, there are a lot of great economists out there spreading "the good word" of the economic way of thinking. Unfortunately, our work doesn't go viral as much as the people pushing doomerism.
I think it's worth pointing out that extra lanes can be good even if they don't reduce congestion. All of the extra people on the road are benefiting (otherwise they would have chosen a different path or mode of transport.) Of course, I don't mean that extra lanes are always (or even usually) net-beneficial, just that some people must be benefiting if the congestion remains the same.
(This probably aounds like I'm trying to argue with you, but I'm not really disagreeing with anything in the article at all.)
Thanks for the comment! It's absolutely beneficial for those drivers to get access, which would likely be better than their alternative (why else would they do it?), but then we get to think about the externalities they cause for other drivers. Do the collective benefits of the new drivers outweight the costs imposed on others?
That's where economics starts getting fun!
What costs for the other drivers do you have in mind? Going from e.g. 3 lanes with X traffic to 4 lanes with X traffic seems to imply few costs for those already using the narrower road with 3 lanes and indeed only benefits for those filling up the 4th lane.
Most of the economic research on this is that the benefits of new lanes only last a couple of years before the congestion returns. It's that congestion represents a cost to "original drivers" from the "new drivers" who start driving after the new lane opens.
Congestion can be worse on a multi-lane highway since vehicle speeds can vary a lot between lanes and drivers frequently slow or change lanes due to slower or stopped vehicles. Drivers are also more likely to weave in and out of the traffic lanes at high speeds when there are several lanees available.
That is poor economic reasoning, however, along the lines of saying that one shouldn't buy a hungry guy a piece of pizza on account of the costs he incurs when he becomes hungry again later. The original drivers are no worse off than when they started, and indeed had a brief time of less congestion so come off ahead on net, while the new drivers benefit from a better route than they had before. The economic literature on the subject has always struck me as being rather strongly motivated in its reasoning.
I can see that there are difficulties with extremely large numbers of lanes and there is probably an optimal number of lanes for a given highway. However, vehicle speeds varying between lanes or slow/stopped vehicles should not be causing more congestion on wider highways. In what world is it better for congestion to have a car stopped blocking a lane on a one lane highway as opposed to a four lane highway?
Likewise, weaving through traffic at high speeds is foolish, but it happens as soon as there is more than one lane to weave between. The marginal difference is going to be nearly impossible to separate out from the mere larger number of idiot drivers that exist in larger cities that have larger highways.
Do extra lanes drive housing prices higher? People assume a new extra lane means an easier commute and thus want to live near that highway. Zoning and NIMBYism prevent the creation of new housing stock. Demand for houses goes up and supply remains the same.
I haven't looked into this, but I can imagine there are two competing issues here. If you're thinking single family homes, I don't believe demand increases whenever there is a new lane added. Most people aren't looking to live next to highways, especially as they get bigger. However, I can imagine that denser options like apartments or quadplexes may see an increase in demand. Unfortunately, zoning laws prohibit a lot of density options.
More houses without more transportation infrastructure does mean a lot more traffic. I'm looking at you, Howard and Montgomery counties.
I see you list this article:
"The widest section of highway in the U.S. is the Katy Freeway in Houston, Texas, which reaches up to 26 total lanes at its widest point."
I live in Houston, and the Katy Freeway is part of US Route 10, the road that connects all of the Southern US states, and runs from Jacksonville, Florida to Los Angeles California. It is a major continental trucking route, but also, because of the design of the roads around Houston, it is the main east-west road connecting Houston suburbs along that axis, which, because of the barrier of the Gulf, host a concentration of business distribution points to the region.
The worst rush-hour traffic in Houston (and all of Texas) is the stretch of I-10 from the Katy Freeway down to West Loop 610, which is the distribution pathway from I-10 to the metropolitan area.
Thesis confirmed by evidence.
Also, it clarifies the negative effects of transportation policies that respond solely to inchoate demand, instead of using thoughtful responses to transportation issues. For example, there is no "Houston Bypass", routing transcontinental traffic around the metropolitan area, as there is, for example, around Lake Charles in Louisiana.
I love seeing how my GPS responds when I need to get off on an exit from the Katy Freeway. It never seems to have enough arrows to let me know the lane I need to be in.
You say that driving on a highway has no price, which is literally true, but the analogous “price” paid to drive somewhere is the time it takes. Adding a lane initially decreases the time it takes because there’s less traffic, but then traffic gets worse for the reasons you mentioned. I think the amount of traffic people are willing to deal with (as opposed to taking a different route) is a kind of equilibrium point, so after the new lane gets added, the traffic ends up the same, except there are more cars on the road, i.e. more people are able to travel at the same frustrating pace. So it’s a kind of equilibrium; I don’t see how that’s categorically different from the supply-demand relationship of housing. They both operate as supply-demand relationships, it’s just that the slopes are very different.
Thanks for the thoughtful comment! There's definitely an implicit price at play here, and maybe a future piece can talk more about implicit and explicit prices in markets. Your comment on the amount of traffic people are willing to deal with reminds me a lot of Marchetti's constant: https://bigthink.com/strange-maps/marchettis-constant/
Thanks for your reply, I enjoyed the article you shared here.
The speed of the traffic stays the same but the volume increases. So there is a benefit. Becomes more obvious if you think about reducing lanes instead. Which shows that the relationship of lanes to “traffic” is not flat.
If more cars do not drive on the roads and the marginal gain in lanes is more than the marginal gain in road minutes for those cars already driving on the roads, more lanes do decrease traffic. Traffic is also not at all the only good that matters for a highway—more people driving is a big deal, regardless of travel time. Those trips matter! But we can return just to the individual experience of driving a car. If population declines instead of grows, those more lanes have an even greater effect. What is driving the increase in traffic, aside from latent demand in existing drivers, is population growth—correlated to but not entirely dependent on the quantity of lanes. Come to Detroit—we have plenty of lanes that make for the easiest driving you will ever experience.
This is a tired, nonsensical assertion that is plainly false. Supply and demand does not make an exception only for highway lanes. In some cases, trip times may stay static or in the long run even increase, but the causes here are myriad and not related solely to the quantity of lanes. I don’t want more lanes, I want fewer, but you need to stop lying to yourself and others. Same kind of illness that inspires all kinds of ideology and it should have no place in urban planning.
That's a fair point on Detroit, but the findings are usually connected to cases where cities are adding lanes in response to population growth. This is where latent demand would show up fastest. I'd call it poor urban planning if a city with a declining population is adding more lanes to reduce congestion.
If congestion's the real target, there's lots of evidence pointing toward more bike lanes, transit hubs, high-occupancy lanes, and denser development near amenities. Those approaches have been shown to ease traffic while also paying off in health, culture, and environmental terms.
I would suggest that congestion is not the real target, or at least not the only or the most meaningful target—expanding throughput is. That road lanes are not causally related to a growth in demand for roads is my point in mentioning Detroit. Lanes are on their own insufficient drivers of demand (cue the meme: a car has windows, and so does a house. But, a house does not move, while a car does. So it must be something other than the windows that causes the car to go…). It is only true under a specific set of circumstances, and when those circumstances are present, does it not make sense to talk of the other factors as being truly causal? Like, more cars are on the road because the population grew, rather than merely because there are more lanes? I would liken the error of induced demand as being akin to that of the labor theory of value, where it is mistaking a proxy that sometimes explains the quantity we care about for the actual cause of that quantity.
You can also generalize the concept of induced demand to the usage of all goods that are path-dependent upon some other relatively inelastic good. You could for example say that GPUs induced neural networks, but it’s not totally causally accurate. AI did not arise because we have GPU’s. It _did_ take the particular form it did because we have GPU’s. So too does demand to get from point A to point B take the particular form of a car when the highway is most convenient. If we are saying that induced demand is bad, then the fact that it generalizes just as well to trains seems condemnatory of trains, too.
If, however, the argument is that roads are over-subsidized and so over-used, leading to an inefficient allocation of capital à la Donald Shoup in the High Cost of Free Parking, and anyways they are not a very good use of space, that is something I can buy. Make the argument that actually motivates your reasoning. But from an economic perspective, roads are not special products to which supply and demand apply differently. That and the indirection are my real qualms.
Induced demand is an appalling, elitist canard. It’s exactly the reverse: it’s suppressed demand.
Suppressing demand of something that is thought immoral, travel (especially car travel) suits the ‘enlightened’ classes. And this is done by, on the one hand, forbidding new construction, and on the other by forbidding pricing.
Not one new lane. 20 new lanes. 100. More toll roads. More congestion pricing.
I hate the proles as much as anyone but this queasy moralizing is far too much for me, especially since it has been successfully obscured at just one level of inference. The proles won’t realize when they’re being oppressed, so it falls to us.
Has anyone looked at induced demand on roads that aren't in major metro areas?
The DOT has a page on road diets for 4-lane undivided roads, which you would find more regularly outside major metro areas: https://highways.dot.gov/safety/other/road-diets/road-diet-informational-guide/2-why-consider-road-diet
That has nothing about induced demand in areas that aren't major metros. I don't see any stats at all, just theory
Except extra highway lanes does improve traffic.
And I'll give you Los Angeles. It does not.
Because you haven't added enough
For a few years, yes, but the congestion always returns as people adjust. Here's a meta-analysis that includes a one-page summary of the findings: https://escholarship.org/uc/item/3q21f88p
https://assets.publishing.service.gov.uk/media/5c0e5848e5274a0bf3cbe124/latest-evidence-on-induced-travel-demand-an-evidence-review.pdf No it doesn't
Depends on where. In areas where demand for some reason stays constant, sure. Not in areas where induced demand kicks in.
Here in Phoenix, SR-51 northbound has been reduced from 4 lanes to 2 for repaving work. People are still driving on it, leading to huge bottlenecks.
That's not the example being referred to, which is extra lanes being ADDED, not lanes being SUBTRACTED.
If adding freeway lanes causes more people to drive and the congestion returning then taking them away should lead to fewer people driving and the congestion going away.