Senior Fellow Kevin A. Hassett

The plan would charge passenger cars $8 a day and commercial vehicles $21 a day for the right to drive in Manhattan below 86th Street.

While the proposal seems dead for now, the odds are it will be back in full glory before long. The reason is simple: Congestion pricing is widely acknowledged by economists to be a smart way for a municipality to raise revenue while reducing pollution and commuting time.

More importantly, experience around the world shows that congestion pricing works just as economic theory suggests it should. Economists can be wrong about things. But they have nailed this one.

The idea isn't new. One early paper, by University of Birmingham economist A. A. Walters in the leading journal Econometrica, was published back in 1961.

The logic is as follows: When individuals pull onto a highway, they increase the amount of traffic. At a certain point, the greater traffic imposes costs on everyone else, since congested roads increase travel time. If entry onto the road is free, then the motorist will ignore his impact on others when deciding where to drive.

Accidents Will Happen

Congestion has a number of additional negative effects. When there are more motorists on the road, accidents become more likely. Longer travel time increases the amount of pollution released by vehicles into the atmosphere. Again, if a motorist is not forced to internalize these costs, he will spend too much time on the road, and society as a whole will be worse off.

The solution isn't complicated: Planners can estimate the cost to society of a motorist driving onto a congested road and charge him accordingly. When congestion is heavy, the cost will be high; the reverse also will be true. That will prompt motorists to adjust their driving patterns where possible to avoid the costs, and roads will be less full.

Singapore adopted this economist's dream system early. In 1975, the government introduced a S$3-a-day ($2) tax on cars entering the business district. Other cities around the world, such as London and Stockholm, have followed suit. In each case, the systems have been found to be quite successful. In London, a £5 ($10) charge was imposed in 2003. This was increased to £8 in 2005.

$13 Billion Loss

A paper by Oxford economist Georgina Santos and Cambridge economist Gordon Fraser reviewed the evidence on the London program and found that it had numerous positive effects. The number of vehicles in the affected area dropped by about 18 percent, traffic speed increased by about 21 percent, and the number of passengers using buses during peak commuting hours increased by a whopping 37 percent.

In New York, commuters sorely need the kind of help such a charge can give. In a 2004 survey by the U.S. Census Bureau, the average travel time to work for New Yorkers was an exasperating 38 minutes, the nation's worst. The outer boroughs accounted for four of the five worst commuter counties in the country.

The mayor's office estimates the city loses $13 billion annually due to costs associated with traffic and congestion. Congestion pricing is about the only policy one can conceive of that would help with this problem.

Summer in the City

To be certain, there are a number of concerns.

First, an ideal system would change prices continuously depending on how congested roads are. If everybody in Manhattan is out of town some week in August, it ought to be cheap to drive around downtown.

Such a plan isn't hard to implement with today's technology. One pilot program in San Diego used time-varying congestion prices on I-15 all the way back in 1996. A study of that program found that drivers were willing to pay $30 an hour to avoid jams.

Second, congestion prices are much harder to pay for low-income individuals.

Some of the revenue from the taxes should clearly be used to make it easier for those who choose not to drive to gain access to public transportation. As such, Bloomberg's proposal promised significant funding for travel alternatives for those hurt by the tax, including the expansion of commuter rail and subway capacity, the creation of new express bus routes, a new East River ferry system, and the completion of his bicycle master plan.

The plan leaves some of the economic benefit on the table by failing to let prices vary as much as economists think they should. But it's much better than the status quo. President George W. Bush should give New York state more time to qualify for federal funds, and New York should get its economics straight and introduce congestion pricing as soon as possible.

Kevin A. Hassett is a senior fellow and director of economic policy studies at AEI.