Another Example Of 3rd Parties Paying The Costs Of A For-Profit Business

SF Allows The Treasure Island Developers To Shift The Costs From Themselves To Everyone Else

By David Grace (www.DavidGraceAuthor.com)

There’s a political philosophy that everybody aught to be able to do anything they can get away with short of actual violence. The proponents justify that idea with the claim that if left to operate without rules, the world will always work out for the best.

Of course, the idea that problems will always fix themselves is utter nonsense because:

  • People usually operate in the short term and things that people think are good for them in the short term are often really bad in the long term, and
  • Things that are great for a few people with lots of power are often terrible for many people with little power.

Allowing the plantation owner today to do what makes him richer and a thousand peasants poorer is not necessarily good for the society or the country or the economy.

  • Point One: Letting powerful people do whatever they can get away with is often a bad thing for everybody else (Might does not automatically make right) and
  • Point Two: Transactions between two parties often impose collateral costs on third parties. If you don’t force the parties to add those costs into the price of the product, that product will be priced below its real cost and third parties will be forced to subsidize the transaction without their consent.

Shifting the cost of a transaction to third parties not only skews the price, it also skews the economy by misallocating costs to people who are not parties to the transaction.

Here is a case in point that illustrates both of those truths.

Massive Development On SF’s Treasure Island

Treasure Island/Yerba Buena Island lies between San Francisco and Oakland in the middle of the San Francisco Bay. You get there by taking the Treasure Island Exit from the Bay Bridge.

San Francisco is land poor, but there’s quite a bit of undeveloped land on Treasure Island so developers have been lusting after it for years. San Francisco is notoriously short of housing so some politicians, excited by the vast amounts of money that developers were ready to spend, were giddy about building new housing on Treasure Island.

The developers’ plan called for spending about $6 Billion. Phase I called for the construction of 2,100 rental units, 500 hotel rooms and 95 acres of parks. Eventually they plan to build 8,000 rental units, 100,000 square feet of new office space and 140,000 square feet of retail space.

Adding Tens Of Thousands Of Additional Cars To An Already Grid-Locked Bridge

Conservatively, that will probably add about 15,000–20,000 vehicle trips, twice per day, as the new residents travel to SF and Oakland to work and shop and then return, while people working in those shops, offices and hotels go to the island in the morning and go home at night.

The real number of additional daily vehicle trips to and from Treasure Island will probably be far higher than my 20,000 figure, twice per day.

But there’s a problem. A big one. The only way to get to Treasure Island is via the Bay Bridge which is already jammed, over-jammed, and one of the biggest bottlenecks in Bay Area traffic. It maxes out at 9,300 vehicles per hour per direction.

On a daily basis TODAY the rush-hour wait time for cars to just get through the Oakland toll plaza and onto the bridge can be an hour. An hour just parked on the highway waiting to get to the toll plaza before you can get on the bridge.

If you add 10,000 cars in the morning trying to get off the island and into SF and onto the island from SF and another 10,000 trying to get off the island and into Oakland or from Oakland onto the island, it could take the entire capacity of the Bay Bridge for an hour or more just to bring the new workers to the island and the new residents off the island each morning and each evening.

And just imagine the gridlock of thousands of cars from the island trying to merge into the massive traffic already on the bridge!

The bridge is already totally maxed-out with traffic going from Oakland to SF and from SF to Oakland. How are you going to add an additional 10,000 cars going to and from Oakland and 10,000 cars going to and from SF to that existing traffic nightmare twice a day?

You can’t.

The Solution: Increase The Costs For Workers And Residents

So, what’s the plan? The brilliant solution is to force everyone who wants to go to or from Treasure Island to take a bus by raising the auto toll in 2022 to $8 and in 2025 to $9. So, it will cost the new residents $9/day — about $270/month EACH — to make only one trip per day off and then back on the island. That’s over $500/month for a husband and wife.

If you commute to work on the island you will have to discount whatever salary your boss is paying you by over $3,200 per year for bridge tolls. If your employer reimburses those tolls then not only is that cost just being passed on to him, thus reducing the salary he can pay you, you will also have to include some or all of that $3,200 into your taxable income.

So, let’s review.

  • All the people who are already enduring a huge traffic jams to get over the Bay Bridge will have their commutes made massively worse.
  • People who will have moved to the island in search of more affordable housing will see their housing costs go up by $3,200 per year per person or about $6,400/year per year for a couple.
  • Workers who are already struggling to make ends meet will see their pay decreased by $3,200/year plus the hours they will lose sitting in traffic.

Why? So that the developers can make hundreds of millions of dollars in profits and shift their costs to everybody else.

The politicians’ scheme to justify approving the development was that they would raise bridge tolls and thus force people on the island to take a bus.

Is It Really Cheaper To Take A Bus?

Let’s think about that.

  • First residents would have to drive their car to some parking lot on the island, and pay for parking of course.
  • Then they’d have to wait for the bus, for which time they will not be compensated.
  • They’ll get on the bus, which they will have to pay for.
  • When they get to SF or Oakland they will have to wait for another bus to get to where they’re going. More uncompensated time.
  • Then they’ll have to pay for that second bus.
  • At the end of the day they’ll have to do it all again, paying in time and money at each step of the way.

When you add up the parking, the four daily bus rides and the hour or more lost each day in waiting for the four buses it will probably end up costing them more than it would have to have just paid the toll and driven their cars, not counting the cost of parking at their destination.

Bottom line, the bridge does not have the capacity to provide reasonable access to the new development.

Let’s repeat that: The bridge does not have the capacity to provide reasonable access to the new development.

But the developers don’t care because by the time the nightmare is truly apparent they will already have made their money. They will have already shifted these costs to commuters, home owners, renters and employers.

Their next ploy will be to get the taxpayers to pay for a new or expanded bridge.

That bears repeating: Their next ploy will be to get the taxpayers to pay for a new or expanded bridge.

Once again, the people with power will have gotten away with making life miserable for many innocent third parties by shifting their costs to others.

Once again, the developers will have succeeded in shifting the costs of their business onto tens of thousands of third parties.

What Should Have Happened

A rational government would have told the developers:

“We will not allow you to shift the costs of this development onto the public, the commuters, and, eventually, the taxpayers. This is an island and one of the costs of building on an island is providing transportation to and from the island at your expense. Providing transportation to and from your development is one of your costs of doing business.

“This development can only work if every resident and every worker going to and from the island takes the bus and to make that work the bus has to be free, so you will have to provide free bus service to every resident and every worker going to and from the island, forever.

“If the residents and workers can travel to and from the island for free on a bus but will have to pay a $9 toll to drive then most people most of the time will take the bus.”

If the developers had been forced to factor this transportation cost into their calculations it might have turned out that the development was not practical in the first place.

But no, the government gave them permission to pass those costs onto the commuters, the citizens and the new residents and businesses while keeping the profit for themselves.

What Happened Here?

The government only looked at the short term benefits, the increase in housing units, without acknowledging the inability of the infrastructure to support access to and from the island.

A rational government would have told the developers that they couldn’t build there at all unless and until, at their own expense, they provided free transportation — buses or ferries — to and from their development.

Instead, the government bowed to the power of money and short-term thinking.

Secondly, the developers were allowed to shift the costs of their project to other people, to make other people — motorists, home owners, renters, on-island businesses, and taxpayers — pay the costs of moving people to and from their new buildings.

This is a triumph of (1) short-term thinking, letting people do whatever they have the power to do, and (2) shifting the collateral costs of private enterprise onto third parties instead of forcing the sellers to pay those costs themselves and include them in the price of their product.

The Material Costs Of A Transaction Should Be Paid By The Parties To The Transaction

One of the roles of government is to prevent parties to a transaction from imposing material costs of their transaction on third parties, but rather to force the parties to a transaction to pay those costs of their own businesses themselves and thus forcing them to include those costs in the price they charge.

– David Grace (www.DavidGraceAuthor.com)

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David Grace

David Grace

3.3K Followers

Graduate of Stanford University & U.C. Berkeley Law School. Author of 16 novels and over 400 Medium columns on Economics, Politics, Law, Humor & Satire.