The High Cost of Autonomy

When we think about the future of the autonomous automobile, there are a ton of implications for the economy that come to mind. Many articles have been written recently about the demise of truck driver, the Uber driver, the ship's captain, etc. A few authors have also contemplated the end of car ownership, and the possibility that urban drivers may simply subscribe to an autonomous vehicle service that dutifully sends them a shared car at the swipe of an app, and thus reduces the number of cars required to service a geographic area.

However, one effect that hasn't gotten much attention is law enforcement revenue, and more specifically the revenue generated by traffic violations. Today in America, between 25 and 50 million traffic citations are issued every year. The revenue from these violations is estimated to add 4 to 7 billion dollars to the coffers of state and local governments. And that is just the tip of the iceberg. Insurance companies often hike rates on drivers that incur violations, resulting in another 4 to 7 billion dollars in additional insurance premiums annually. Since it's probably a given that autonomous cars and trucks will not incur any traffic violations, all of this revenue will soon vanish, leaving governments with a large hole in their budgets and no immediate way to fill it.

There are also other legal groups that will be affected. In 2015, there were over 1.1 million DUI arrests in America. Each of those arrests ended up costing the violator between 13,000 and 17,000 dollars in fees to government, lawyers, traffic schools, and other administrators, according to BACTrack. And that was only if the DUI did not result in an accident or other collateral damage. That is another 16 billion in annual revenue that will be lost when autonomous cars become the most common form of transportation.

The single largest impact of the autonomous vehicle on the economy, however, is likely to be automobile insurance. It will not only suffer from lost revenues, it is likely to eventually become a thing of the past. After all, if there are no more drivers and no one "owns" a car, and the cars are much, much safer on the road, then there will no longer be a reason for most automobile related insurance. Today, the auto insurance industry directly adds about 250 billion (with a b) dollars per year to the US economy. The loss of that money would result in a shrinkage of almost 2 percent of GDP in America.

So the question we must ask is, how is the autonomous car economy going to replace this potential 275 billion dollars in cumulative lost incomes and revenues? There is no obvious answer. For governments, one option would be to reduce the number of traffic officers, but that may not work because almost no police personnel are dedicated solely to traffic enforcement. Another option would be a small surcharge on autonomous vehicle registrations. After all, there will potentially be over 250 million robot cars on the streets one day, so a fee of 20 dollars per car registration could easily bridge the government revenue gap.

The private sector losses however, are not so easily addressed. Autonomous cars do not of themselves create any new industries or market sectors. They are, after all, just smarter cars that, unlike human pilots, obey rules, pay attention to traffic, and are not distracted by text messages. One might argue that autonomous cars will be more sophisticated, and therefore more expensive, than today's automobile, but those price gains will likely be wiped out as the scale of that industry increases, and competition drives down price points. To cope with these potential losses in our economy, we must ask ourselves, what are the unique innovations that are enabled by the autonomous car and how do we monetize them?

There is one hidden gain for the economy that may be an outcome of the advent of robot cars, the passengers. The person inside the car will no longer have any responsibilities beyond requesting a destination. They will now be able to eat, work, play, and generally live during all of that commute time that they used to spend driving the car. Perhaps there will be some workplace productivity gains, or new consumer market segments, that come from the free time that is made available by the autonomous car. It is an interesting idea to contemplate, especially if we remember that between 1 and 2 hours per day are spent on the average commute. All of that free time must have some economic use. At least, that is, until the autonomous car society is obsoleted by the augmented reality economy. But that, as they say, is another story.