My Innovative Failures in Economics WILLIAM S. VICKREY

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My Innovative Failures in Economics

WILLIAM S. VICKREY"

This manuscript represents a unique, personal account of the thoughts of Bill Vickrey. This

sometimes humorous account more importantly chronologically details the ebb and flow of

economic issues and thought over the past 25 years. Vickrey challenges economists to break

away from obsolete, habitual thinking and be open to new ideas. (JEL B14, N10, N70)

You are looking at an economist who has repeatedly failed in achieving his objective,

even though achieving considerable esteem among his fellows. Some say I am too

visionary, some that I am too far ahead of my time, and some that I am really way out

in left field. I will let you form your own opinion.

My first venture resulted from an attempt to solve the capital gains problem, under the

tutelage of Carl Shoup, in 1938. What emerged was based on the principle that it should

make no difference to the long-run burden on the taxpayer whether a sale was made in

one year rather than another. The solution was cumulative assessment, whereby a global

tax would be assessed on all income to date according to tables appropriate to the years

covered, and previous payments would be treated as interest-bearing installments against

the tax ultimately due. This would make dead letters of perhaps two-thirds of the internal

revenue code, except perhaps as applied to international jet setters and cases of revolving-

door marriage; it would allow hordes of tax techies to turn to more productive pursuits.

No luck, though the Canadian Carter Commission mentioned the scheme briefly only to

dismiss it as "too complicated!" Perhaps too many people derive pleasure and livelihood

from manipulating the intricacies of the existing law.

Next came a scheme for making the death duties independent of the channel of

devolution. I never really did expect anything from this, as it was indeed complicated both

in concept and execution, though some related features did get incorporated into a Puerto

Rican tax law.

A reasonable undistributed profits tax was an attempt to arrive at some rough equality,

in the absence of cumulative assessment, between the tax burden on corporate income

currently distributed as dividends and that held undistributed for various periods, on which

a rough interest charge would be levied for the deferral of the tax payment. This, too,

sank without a trace.

Then came my first venture into marginal cost pricing in the form of a scheme for

making the rate charged on parking meters vary according to the number of occupied

meters in a set, the idea being to make parking free or nearly so whenever there are plenty

"Columbia University. Presidential Address at the Thirty-Fourth Atlantic Economic Society Conference.

October 15-18, 1992, Plymouth, Massachusetts.

Full Employment and Price Stability 55

AEJ: MARCH 1993, VOL. 21, NO. 1

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of vacancies, and to vary the charge at other times to correspond to the cost to others of

baving to look further for a space. This was published with a gratuitous note by the editor

to the effect that of course I agreed that the real solution was off-street parking, which was

hardly true and certainly not warranted by anything I had written.

A later more serious venture was a study in 1951 of various subway fares for New

York City, which involved intuiting patterns of travel from very sketchy actual data in a

way that was described by a reviewer as making statistical bricks without straw. One

scheme considered was to collect fares only from those exiting the subway in a central

area in the morning and those entering in this central area in the evening, with suitable

graduation by time and location to avoid sharp differentials. This would have been very

economical in terms of collection costs, but had to be rejected as involving too much of

a financial burden on the city. The scheme actually recommended was to have passengers

put a quarter in the entrance turnstile, get a metal check with notches indicating the zone

of origin, to be inserted in an exit turnstile which would, through electro-mechanical

relays, deliver an appropriate number of nickels according to the origin and time of day.

The notion of varying the fare by distance and time of day was later implemented with

magnetic cards in the Washington D.C. subway, but the pattern has been kept closer to

past traditional practices than to what would be optimal for the new system. A high

minimum fare is excessive for a short trip to a favorite restaurant for lunch. The peak

surcharge is in most cases too small to do any good, especially as it is constant over such

a long period that passengers travelling at the height of the peak would have to shift their

trips by over an hour to get the lower fare. It may even be having more of an adverse

effect in diverting trips from subway to automobile than a favorable effect in shifting

subway travel away from the peak. The peak is defined by time of entry independent of

location, so that a passenger entering before the start of the peak period could be paying

a lower fare than a passenger boarding the same train later on for a shorter trip. Fares for

longer trips increase with distance in such a way as to encourage those driving cars to the

Metro to drive to or from a closer-in station for a lower fare rather than make their trip

efficiently by using a further-out station, often at no extra cost to the metro.

More blatantly inefficient is the practice of providing free transfers from subway to bus,

but not in the reverse direction. This provides incentives for the excessive use of duses

for very short segments, often over the most heavily loaded portion of the route, and also

for saving fare by transferring to a bus for the latter part of a trip that could be made

entirely by subway. It would be fairly easy to have machines in transfer stations issue one-

way and round-trip transfers at a suitable charge to the magnetic card. Aside from the

economics of the fare structure, there is much mechanical awkwardness about the

collection system.

As a side-line, a skip-stop scheme for increasing the number of trains that could be

operated through various bottlenecks was developed. If only half the trains stop at a

bottleneck station, the number of trains operated through the station can be increased from

toughly 30 trains per hour to 40 trains per hour, and the pattern can be arranged in such

a way that the trains do not get in each other's way and passengers can get from one

nation to another, though sometimes having to change trains at an intermediate station.

This is a different principle from the occasional practice of skipping low traffic stations