In this week’s Grumpy Economist Weekly Rant, John Cochrane examines why pricing scarce resources—roads, parking, electricity, and more—can improve efficiency and availability. Using everyday examples such as express lanes and dynamic parking, he shows how real-time prices signal demand, encourage people to adjust behavior, and help prevent congestion or shortages. When prices reflect scarcity, systems allocate access automatically rather than relying on rules or political decisions.
The real lesson is broader than transportation or utilities. Prices transmit information and create incentives, guiding choices about when and how resources are used. Attempts to suppress prices in the name of fairness often create shortages or inefficiencies instead. Rather than using prices to redistribute income, Cochrane argues that policy should allow prices to allocate resources while using transparent mechanisms—such as vouchers or transfers—if redistribution is needed. The economic principle is simple: let prices do the coordinating, and use policy separately to address equity.
Transcript
Hi, I’m John Cochrane, senior fellow at the Hoover Institution, and welcome to my weekly rant. Today, we’re going to rant about prices for everything.
I was driving around a while ago, stuck in a traffic jam, and there appeared before me the express lane. Yes, even here in California, there are lanes where you can pay to go past the traffic jam. And I, late for a meeting, was happy to do it, but it got me thinking: why aren’t all the lanes express lanes? Why don’t we pay a real-time toll on all of our roads so that the roads keep moving all the time?
People who can easily carpool or go some other time have the incentive to do it. People who are really in a hurry can get where they want to go. Now, if you have a meeting, even a meeting that’s worth a million dollars, there’s no way to pay money to your fellow citizens to get out of your way and let you get to the meeting.
And our cities and states are bankrupt, and think of all the money they’re leaving on the table. Parking’s the same way. Sometimes it’s really hard to park. Why isn’t every parking space a paid parking space, real-time, when there are not many parking spaces? It costs a lot. When there are lots of parking spaces, it’s free.
You could have a little app with a GPS locator that just constantly charges more or less so that there’s always a few parking spaces on every block, and you know how much it’s worth, and you can move the car if it’s not worth it to you.
Electricity works the same way. Solar panels and windmills famously produce a lot of cheap electricity, but only when the sun’s shining and when the wind is blowing. They’re intermittent, and so they require very expensive backup if they’re gonna provide constant power.
But why should they provide constant power? What if residential electricity customers saw a different price all the time? Again, with a little app that tells you how much it’s gonna cost for the next hour: really cheap when the solar panels and windmills are running, really expensive when they’re not. Then you’d have an incentive to run the heat and air conditioning only when it’s cheap, to recharge your electric car only when it’s cheap.
There’s a lot you can do to shift your energy usage around, even the famous data centers. It’s not obvious that they have to run 24 hours a day if it were cheap enough and if they felt the incentive.
It’s very strange that our political system doesn’t seem to allow this very often. While we’re perfectly happy with people paying quite a lot of money to get on an airplane first, I think that just messaging, people say, oh, it’s unfair. Only the rich will be able to do it, but let’s change that messaging.
How about we redistribute the results? So you have to pay, but everybody gets the money back. Better yet, let’s send everyone a voucher. Here’s $2,000 that you can use to pay for the parking and the road taxes. If you choose not to use them, you can sell them to somebody else and make some money.
Maybe now everybody would be really happy for this, because people would be making money who don’t have to use it, and people who really need to get somewhere could pay for it happily.
Prices are a signal wrapped in an incentive. Don’t mess with prices to transfer income, especially prices of things that are trivial parts of income. That’s a central lesson for economics. Very hard won for our politics.
Maybe we can make things a little better with prices. If you like this, click below to subscribe.
John H. Cochrane is the Rose-Marie and Jack Anderson Senior Fellow of the Hoover Institution at Stanford University. An economist specializing in financial economics and macroeconomics, he is the author of The Fiscal Theory of the Price Level. He also authors a popular Substack called The Grumpy Economist.
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