All this means is that capacity is so far behind demand that current spending doesn't come close to establishing a reasonable equilibrium. Which is what you'd expect after decades of major population growth, accompanied by infrastructure neglect.
I'd hesitate to specify that certain equilibria are reasonable while others are not. Building more roads to reduce congestion does not achieve that goal, in part because of the latent demand you describe (see [0] "Effect in transportation systems").
Ultimately, if your goal is to decrease time spent traveling, you will see more benefit from alternative policies. Such policies may include:
* increasing cost of using the roads (e.g. congestion pricing)
* constructing alternate, denser forms of public infrastructure (e.g. subways)
* increasing the density of passengers in vehicles (buses, carpooling, etc.)
* funding technological advances that increase the density of vehicles utilizing the road (e.g. self driving cars)
You could do this by decreasing the efficiency of the non-freeway roads, or increasing the cost of using the roads, which both only ‘solve’ the problem by reducing general quality of life (especially for poorer people, who might just get even poorer if they can’t commute affordably).
Or you can increase road capacity to keep up with population growth, and invest in alternative transport that people actually want to use. That means no cycle lanes or buses, because people really don’t want to use them (buses are only really efficient for short trips, if you have to change buses to get to work then it ends up taking so long you may as well just be inefficiently sitting in the comfort of your own car).
This doesn't work because in a city you'll eventually you end up with more roads and parking lots than buildings. US cities were built like this, and the more road capacity you build, the more sprawl you get (everything is further apart), which increases how much people have to drive which increases the traffic... It's an evil spiral of congestion.
The scaling doesn't work.
For another similar example, think of how much percentsge space you need in a 2 story building devoted to elevators (almost none) vs a 200 story building (a significant percentage of the middle core of the building is nothing but elevators). Take that and scale it even worse, and you have roughly the small town vs big city traffic issue.
The truth is that you can, in fact, build enough roads to reduce congestion. It may be too expensive. The road land use fraction may be too high. There may be political problems. All of these factors have to be taken into account before deciding to build more roads.
Nevertheless, it is physically possible to build enough roads, and anyone who doesn't acknowledge this basic reality isn't having a serious conversation.
Sure it's probably possible, but by the time we've built that many roads we'd need to cycle from the carpark to the building anyway.
If roads took up zero physical space, I'd agree with you, but the perverse thing is that as population density goes up, you not only have more people on the roads (requiring more road), but you also have more need for living space, stores, and office buildings (all which take up space, giving less room for roads).
As it is, comparing it to a small town is meaningless.