Traffic jams in Madrid, ants, and tax reforms

Imagine that you are stuck in a traffic jam (if you live in Madrid, this will not be hard, since you may even be in one as you read these lines) on a three-lane road, with drivers switching from one lane to another trying to reach their destinations as quickly as possible. Have you ever wondered how and why we choose the lane we switch into?  In our experience, we do not always choose the optimal lane, and we usually make the decision without any rational basis, either on intuition or because the lane we move into “seems” to be moving faster. At other times our decision is a little more rational, because we know there is an exit nearby and that lane always moves more slowly… but whatever we do, we usually end up with the same feeling: we have picked the slow lane, and the other cars keep overtaking us.

On his blog, Nobel Prize–winning economist Paul Krugman offers a simple explanation for this feeling, the ultimate moral of which is that whatever lane you are in, you will always spend more time watching others overtake you than overtaking them, so we will inevitably have the mistaken feeling of always being in the slowest lane. Add to this what Dietrich Braess set out in his study known as the Braess paradox, which shows mathematically that, on some occasions, when the number of lanes on a road is increased and its users choose their route selfishly (arriving as soon as possible regardless of everyone else), congestion may in some cases increase. This undermines both the individual and the collective goal of reaching our destinations as quickly as possible and makes the investment in additional lanes completely inefficient.

Ants, which are not rational beings, appear to have solved this problem in their movements within the colony and never have to endure traffic jams despite heavy and constant traffic. They are apparently able to use their travel time efficiently, because they never overtake one another and manage to maintain a constant speed which, moreover, appears to be the optimal speed on each of their roads. On the subject of optimal road speed, various studies state that each type of road has its own and can absorb more traffic if vehicles travel within that optimal speed range. Thus, for example, the M-30 appears to be more efficient at 90 km/h than at 100 or 120 km/h.

At this point you are probably thinking that all this is very interesting, but what on earth does it have to do with the current tax reform? I was asking myself exactly that last Friday on my way home, caught in my usual traffic jam, when I wondered whether what I am setting out here could apply to our tax system. I certainly believe that, ideally, we meet the basic premises of the scenario. We taxpayers are selfish: if we can avoid paying taxes, we do not pay them (in fact, that is our goal). On the other hand, we feel that we pay more taxes than anyone else because, drawing on Krugman’s example, we spend more time paying our own taxes than watching others pay theirs, which inexorably leads us, once again, to the mistaken feeling that we pay more than anyone else. The traffic speed (the tax burden?) and the construction of new additional lanes (new taxes?) are determined by the legislator, with the Ministry of Economy and Finance taking the place of the Ministry of Public Works. As for changing lanes, our equivalent might be tax residence, not only international but also domestic: if I pay a lot, I move somewhere else where I pay less (with the costs that the  move entails, not only personal but also collective; remember that, following the example of the ants, lane changes slow down the road, and however many new lanes/taxes we create, congestion may remain the same or even get worse).

In short, if the analogy of the anthill and the traffic jam holds, it seems that simply by keeping the rules of the game stable over time we would create a more efficient tax system. This logical conclusion, which can be reached without ants or traffic jams, seems not to have sunk in with, or been understood by, our leaders, since tax reforms have followed one after another without pause, laying down new rules with retroactive effect, temporary rules, and countless reversals. Businesses need to manage their projects under stable laws, and individuals need time for the rules to settle in and to become familiar with them. Therefore, for everyone’s benefit, I trust that this reform will be the definitive one, because we do not need big headlines or fine print; all we aspire to is stability and legal certainty.

I hope this fable/parallel can help our leaders understand what ants have internalized: the vital importance of stability and legal certainty within our tax system.