Peter 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 highlight one of the arguments Frase and I both made.

Frase writes at the very end of his post:

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.

In the same vein, I wrote just a month ago:

Again, I am not saying that pricing schemes are necessarily bad. If our income distribution was very egalitarian (as I think it should be), pricing schemes would not even be a problem. But up against the reality of high inequality, discussions about these pricing schemes must take into consideration the sort of impact they will have on low-income people. Decongesting the road through a pricing scheme effectively decongests the road of poor people, something that only helps wealthy folks.

I bring this up not just to point out that Frase and I are on the same page, but because I think this point is extremely important and almost always lost in the debate. Using pricing mechanisms to impose scarcity for good public policy reasons makes sense, but only when income distribution is very egalitarian. If we have two people making identical incomes who are vying to use one parking spot, then giving it to the person who is willing to pay the most for the spot is a fine policy. Doing so ensures that the person who receives the most subjective value from the parking spot will generally get it.

But when inequality is introduced, the picture changes. If one of the two people mentioned in the above illustration has 100x the income of the other, imposing pricing schemes would result in an equilibrium where we would no longer be maximizing subjective utility. Using a pricing mechanism to make sure only one of the two would be willing to pay for the parking spot would invariably result in the very rich person getting the spot. But when the rich person pays $0.01 more than the poor person is willing to pay to get the spot, the rich person is not foregoing more utility to do so (as Frase writes, the diminishing marginal utility of money ensures this).

Pricing mechanisms in a very unequal society operate not by allocating resources to those who will get the most value from them, but by allocating them to those who have the most money. Left neoliberals will argue that this problem is one of inequality, not of pricing; but, unless inequality is dealt with first, it amounts to the same thing. In economically unequal societies, imposing pricing schemes on things like parking, congestion, and carbon emissions just puts greater burdens on poor people or prices them out of some goods altogether.

Not confronting this reality will make pricing schemes painful in practice and hurt progressive policy goals within the arena of public debate. For instance, when conservative commentators argue that using a Cap & Trade policy to reduce carbon emissions will increase energy pricing across the board — thus hurting lower income people more — they are right. Pricing schemes in an unequal society hurt the poor the most: there is no way around that. The best a left neoliberal can say in response is that the long-term benefits of the policy are worth any short-term pain the population (and the low-income particular) will have to go through. Good luck persuading people with a line like that.