Tag Archives: economics

Nudge nudge, do you follow me?

Call me a stereotype of the scientist buried in his own irrelevant little world, but it occurred to me that I know far more about how to manipulate the behaviour of transformed cell lines than that of people. The War On The Motorist™ was, of course, part of the great evil Labour project to change some of our more anti-social and self-destructive behaviours. So I thought I should probably find out about how these government-led behavioural change projects work.

There are, of course, all sorts of different ways that governments can try to reduce destructive behaviour, from outlawing it to asking nicely, via making the bad options harder and making the good options easier:

(This table, incidentally, neatly describes where the chaps at Cycle Chat slipped up when claiming that the rise in domestic recycling rates demonstrates that we can achieve mass cycling without cycling facilities: mass domestic recycling required a change in the physical environment — kerbside recycling boxes — exactly equivalent to the changes to the physical environment that are required before we can expect most people to cycle.)

The current government has an ideological bias against some of these varieties of behavioural change, and in favour of others.* Regulation and taxation is, of course, off the agenda. Rather, the government says it wants to influence behaviour by making it easier for us to make the right choices. It will do this, it claims, without making the bad choices impossible or even more expensive, and without even requiring our conscious deliberation. In the fashionable pop-economics terminology, it’s going to “nudge” us in the right direction.

The pop-economics writers have some favourite examples of “nudges”. Changing the environment by putting the fruit bowl in plain view and easy reach, without banning the junk food option. Or reducing laundry loads by changing the hotel bathroom signs from “hang your towel on the rack if you are going to reuse it” to “most guests hang their towels up and reuse them”. The environment or the information nudges people into making the right choice, without actually taking choice from them.

It all sounds very nice, but I wonder what the evidence says about the government’s approach? Does it really work? Are they doing it right? And what does it mean for transport and The War On The Motorist?

Luckily, the House of Lords Sci & Tech select committee are ahead of me. I like select committees. So far as I can tell, their job is to closely and carefully scrutinise what the government is doing (or failing to do), point out when the evidence indicates that they’re messing things up, and then to be completely ignored by government, media, and the unfortunate oblivious electorate. The HoL Sci & Tech committee produced a report a couple of weeks ago looking at the present government’s approach to behaviour change programmes, and in particular, the extent to which they were informed by the evidence of what works and what is worthwhile. I’ve been scrolling through it and will probably dump a load of thoughts on the blog this week.

My initial concern was that, though it speaks of nudges and wanting to avoid limiting choice through regulation, it is not regulation that the government is really trying to avoid: it is spending money on doing a job properly. We’ll see if I’m at all reassured by the time I’ve finished digesting it and posting about it…

* Of course, the far end of the libertorian wing will object to any and all government-led behavioural change, but I will assume for now that we all understand why we need it, and why we need it done properly

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Setting ourselves up for economic collapse

In January last year, while shadow chancellor, George Osborne said that the lesson of the credit crunch is that “the economy must never again be allowed to become so structurally unbalanced and poorly prepared for a downturn.” He was referring to our national over-reliance on the banking sector, which had made a few too many dodgy investments in the United States. But the credit crunch reveals that there is something else that our economy is disastrously reliant upon, and the Royal Mail shows that we are only ever becoming more reliant upon it.

The banking crisis was caused by banks having lent too much money to too many people who couldn’t afford to pay it back. But why couldn’t they afford to pay it back? Because all through 2007 the price of oil climbed relentlessly, breaking US$130 in the summer of 2008, just as everything was starting to collapse. In the good times, Americans had bought a house and his-n-hers SUVs on cheap mortgages and loans. They made hay while the gas was $2/gallon. In 2007 it hung around $3/gallon, and in summer 2008 it broke $4/gallon. People found themselves paying twice what they had planned for transport, and suddenly they couldn’t pay their mortgages and loans.

But the recession was more than just the banking crisis. It didn’t help borrowers that the high fuel costs were pushing up inflation and interest rates. But it also didn’t help that the fuel costs were beginning to destroy businesses and put people out of work. Partly that was because, to keep their cars running, people were tightening their belts and not spending on the luxuries.  But partly it was because a lot of businesses, just able to scrap by in the good times, were built on cheap transport, and when transport turned out not to be a cheap as planned, those businesses collapsed.

The banking crisis was just a symptom of a recession caused by a global economy that is over-reliant on an unstable resource. The bankers failed to see the crisis coming (or saw it but saw no reason to do anything about it). But anybody who was looking at oil prices saw it. Recessions follow oil shocks like day follows night.

Our economy is dangerously unbalanced and poorly prepared for the inevitable oil shocks to come, shocks which are becoming ever more frequent as we pass peak production and head into decline. Too many businesses and too many jobs are built on a needlessly wasteful use of road transport. The short-sighted business world seems to think that the recurring cost of outsourcing tasks to companies who will drive stuff around is better business than making a one-off investment in the infrastructure that will allow them to do things themselves — the now routine practice of hotels outsourcing laundry being one of the more absurd results of artificially low road transport costs.

This week I was followed on twitter by @EdgarsCoolWater, who advised that anybody who wants water should check their website, where they could order a delivery. I boasted that I already have water, for my house features the ingenious invention plumbing. Edgar replied that some people in London and the South East aren’t so lucky. I can only conclude that some businesses would rather pay a weekly charge for water to be driven to them than the one-off investment in running water.

This is as much a bubble as the banking bubble. Some time soon the oil price will spike, the diesel price will jump again, and Edgar will have to pass on his costs to customers. Businesses that are already operating on the edge of profitability will cut jobs and go under.

What’s George Osborne doing about that? Anything?

DafT’s deeply regressive fantasy formula

Flicking through Google Reader, catching up, something caught my eye in George Monbiot’s latest:

Cost-benefit analysis is systematically rigged in favour of business. Take, for example, the decision-making process for transport infrastructure. The last government developed an appraisal method which almost guaranteed that new roads, railways and runways would be built, regardless of the damage they might do or the paltry benefits they might deliver(8). The method costs people’s time according to how much they earn, and uses this cost to create a value for the development. So, for example, it says the market price of an hour spent travelling in a taxi is £45, but the price of an hour spent travelling by bicycle is just £17, because cyclists tend to be poorer than taxi passengers(9).

I was vaguely aware that the government had complicated infrastructure cost-benefit formulae that included attempts to put value on people’s time, but I wasn’t aware that they had gone so far as to value the time of cyclists versus the time of taxi passengers.  So I followed the reference #9.  I’ve read some absurd documents in my time, but I wasn’t quite prepared for this.

When deciding whether a transport project — a road “improvement”, a high-speed railway, a bicycle path — is value for money, the Department for Transport consider the value of the time that users of the new infrastructure will save.  When deciding how much time to give each phase of the traffic lights, or whether a bicycle lane gets priority over road, transport agencies will consider the value of the time of the competing users.  In particular, DafT are interested in the value of the time that employers will save, because your time doesn’t matter, but the time you waste at work does.

How does DafT determine the value of an hour that an employee spends cycling for work, compared to one that the employee spends on a train or behind a steering wheel?  All it needs to know is the average hourly wage of employees using each mode.

It uses the 1999-2001 National Travel Survey.  Specifically, there is a dataset that counts all journeys made by mode and by income band, so we know whether the rich and the poor are more or less likely to drive, cycle, ride the bus, etc.  If a mode is over-represented amongst the rich and under-represented amongst the poor then DafT consider the time of users of that mode to be more valuable.

No, really.

If you can’t spot what’s wrong with this, and why I am cringing, I don’t know where to start.

Perhaps with the fact that we’re trying to derive the value of time “wasted” on travel-for-work from a dataset of travel modes that the rich and poor use outside of work?  A dataset, indeed, that includes students and the unemployed.

Or the fact that we’re specifying the average value of an hour of time to two decimal places, despite the vast range of values being averaged.

Or with the idea of specifying the value of one Great British hour, despite the massive variation in income and modal share between cities and regions?

Or the assumption that time spent travelling is always time wasted (my favourite office is a good long off-peak and under-crowded train ride with a netbook and an android), and that time “saved” by faster journeys is converted into economically productive time?  (Rather than, e.g., additional journeys.)

Maybe we should go back to the silly assumption that the work of the highest paid is the most economically important?

Or perhaps point out the critical fact that the demographics of users of a transport mode prior to investment do not necessarily reflect the demographics of users after investment, and that investment which enables modal-shift can “save” time too.

Or question what DafT are doing using inflation-adjusted figures derived from a decade-old version of the National Travel Survey when there is not one but eight more recent datasets?  In 1999-2001, the railways, the buses, and cycling were all at their very lowest ebb.  Were DafT to use the latest numbers, the value of an hour on a bicycle would be considerably higher.¹

The whole thing is absurd.  According to DafT, if I take a taxi to meet my client, there is more value in their giving me a faster taxi ride than in enabling me to get the meeting even quicker by bicycle.

This is cargo cult mathematics and cargo cult economics.  These numbers — given on the DafT website down to the exact pennies-per-hour — are pure fantasy.  I am actually embarrassed for the department that they are not only using these numbers, but are proudly publicising the pioneering way that they have been derived.  Were it not for the fact that transport policy and funding is such an unsexy topic, the press would be in gales of laughter at this nonsense.

And I would be gales in laughter were it not for the fact that, as I understand it, this crap is the foundation of a deeply regressive and damaging political programme.  When modelling the impact and benefits of investment in a transport intervention, the Department factors in this hypothetical “value of time” of users.

That is, because a taxi passenger is more likely to be very highly paid than a cyclist, when all other variables are equal the department should invest in schemes that favour taxis ahead of schemes that favour cyclists.  Aberdeen Cars is right: traffic light timings remind the economically-inactive cyclist that she does not matter.  Stabiliser can find some answers in this policy.

It becomes a positive feedback loop.  Invest in trains ahead of buses and the rich will use the trains while the poor ride the bus.

Imagine this happening at the Department for Health.²  Should we invest in cutting the waiting lists for lung cancer surgery or prostate cancer surgery?  Well, we value the time of the average prostate cancer patient more…

This is more than absurd.  This is a fraud.  This is a crude imitation of science and statistics being employed to disguise political decisions — to invest in transport for the rich and not for the poor — as pure objective economics.

1. Here  is the 2009 NTS.  The dataset we want is NTS0705.  Do the maths properly if you like, but even a glance at the journeys-by-mode-by-income table and it’s instantly obvious that cycling has flipped from being highly under-represented in the richer categories in 2001 to being very slightly over-represented in 2009.

2. I mean, imagine it happening this blatantly.  I would be surprised if there were not many many ways that state healthcare is subtly weighted in favour of the rich, whether designed and deliberate or not.

As usual, this is hastily bashed out heat-of-the-moment blog post, not a careful scholarly article.  The thesis I am certain of, but the details are always open to amusing malapropisms and embarrassing subtle errors in calculations.  If you are distracted by them, point them out and I will fix it.

“Britain pays more for fuel than anywhere else”

It’s another frequently raised fact in comment threads and pub agreements.  Everybody knows it’s true.  If it wasn’t true, why would everybody know it and repeat it all the time?  They can’t all be wrong.

You would think though that such a fact, with all of the resources of the tabloid media and interested industry lobbies behind it, would have some readily available evidence to support it.  You would think that all these petrolhead websites would be falling over themselves to present the data showing off our great national achievement scandal.

Here’s the data:

Retail petrol prices in the past few weeks in Euros: EU countries from AA Ireland, US from DoE converted to Euros/litre with Google converter.

There are six EU countries with more expensive petrol right now; two others that match us.  The rest clustering around.  In Norway petrol is 20p per litre more expensive than here.  In Spain it’s 20p per litre cheaper.

Obviously relative fuel prices between countries fluctuate according to international and national events, our various national tax schedules, and, where applicable, currency fluctuations.  The order of countries on the list changes all the time.  I’d quite like to assemble a timelapse of the graph for the past 20 years, to see whether there were any interesting trends — perhaps it was true for a while that the UK was paying a noticeable amount more?  But there are a lot of other things I’d quite like to do more, so I’m not going to.

The best source I can find for the claim is a uSwitch “survey” from 2008: PDF. As you can see, uSwitch take researching their “surveys” even more seriously than I take researching blog posts.  They put some keywords into Google, found various sources of data, and put them together in Excel.  I recommend going to page 5 to follow their quite fabulous method for calculating the annual national spend on petrol.  Apparently we don’t have the real data, so they had to make it up.  Only they forgot the Peter Snow “just a bit of fun” disclaimers when they prepared the press release and accidentally got their made up facts printed in every newspaper.

The “survey” did show that Britain was paying more per litre than other European countries in 2008 (when the pound was noticeably stronger against the Euro).  In many cases it was only by a hair’s breadth, and thus it was not a particularly interesting fact, but it was true nonetheless, according to the data given.   So a press release was prepared and the newspapers mangled some impressive sounding numbers out of the data, which have become part of the collective wisdom of the British people.  Interestingly, even though the “survey” itself pointed out that we do not pay the highest rate of tax, this didn’t prevent the Daily Mail declaring that it is so in their headline.

But enough of that.  The basic conclusion is that, currently, the claim is not true.  And when it was true, it probably wasn’t interestingly true.  And the other conclusion is that, for such a common claim, there doesn’t seem to be any good quality well presented and well publicised data on this.  I’d love to see such things as:

  • Price-per-litre trends over time for these countries, with and without taking into account inflation and currency fluctuations.
  • Amount and proportion of the price-per-litre that is tax, with trends over time.
  • Total national spend (not made up numbers), with population, number of cars, etc, for comparison.  (Because paying more for petrol is not the same as spending more on petrol, and the latter probably says far more interesting things.)

And probably more.  But I looked in the obvious places and found nothing, and I will obviously not be compiling the datasets myself from each individual data point.  Surely there must be databases for this sort of thing?  I’m a science guy.  This sort of basic data is what scientists have free and publicly accessible databases with powerful querying tools for.  I’m used to having silly ideas and being able to instantly try them against the vast databases of already collected data.  I want a database for this sort of thing.  Is there one?  If it exists, it’s well hidden. I know all of the data exists, it’s just not accessible and easy to use…

“Driving has never cost more”

End to the war on the motorists?  No, driving’s never cost more,” declares Mark King, Money Editor, in The Observer today.  To be fair to King, he doesn’t actually say anything as absurd as that driving has “never cost more” in his article — but newspaper headline writers have never let reality or the actual content of an article get in their way.

Why would a headline writer, having glanced at a boring but reasonable article about saving money, think to write “driving’s never cost more”?  Where did they get that idea from?

Are cars more expensive than ever?

You would guess not: the manufacturing process has become vastly more efficient over the decades.  But it was really difficult to find data on this.  By difficult, I mean Google, Google Scholar, Wikipedia and WolframAlpha all failed to find anything useful with my keywords (thanks perhaps to the hundreds of excellently search engine optimised spam sites), and I’m too lazy to do proper research.  Instead, I pulled out a quick and crude graph of the US consumer price index for new cars compared to that for all items, showing how the cost of purchasing a car has fallen compared to general inflation in the cost of living.  (Obviously there is a plethora of caveats with this data and the contributory factors to the cost of living over here are quite different to the US — if anybody can find a more appropriate data set, please let me know.  Data from the UK for 1997-2009 is given further down the page, and shows a massive fall in the price of a new car even over that short time.)

Is fuel more expensive than ever?

Mark King could have read his own newspaper to find out that, no, fuel is not more expensive than ever.  Fuel prices are high, and Motorists can’t hide from the fact that dwindling resources are ever more difficult and dangerous to harvest.  They’re at the top-end of the post-war range, but not outside of the range that we should be used to:

That must be because oil is getting cheaper, right?  Because everybody knows that fuel tax is always going up.  Actually, as Mark King’s own editor pointed out in October, thanks to repeated freezes in fuel tax to appease the tabloids and roads lobby fuel duty remained 11% down on 1999 rates when inflation was taken into account.

So the price-per-litre is high but not exceptional.  But during all that time, the amount of distance you can get for that litre has been rising as cars get more fuel efficient.  Wikipedia has a graph for average fuel efficiency of car models available in the US.  (Average fuel efficiency of cars on the road, in the UK at least, will be higher and may not follow exactly the same trend, because we purchase more cars at the high end of the fuel efficiency range.)  You may be paying a little bit more each time you fill up, but unless you are driving further, you should have found yourself filling up less frequently over the years.

What about the other costs?

Is it more expensive than ever to pay your “road tax“?  Only if you have a really absurd car.  You could pay £950 in the first year of owning a car that emits over 255 g/km CO2.  But only expensive SUVs and sports cars fall into that category — if you own such a car, you are already rich enough to not notice the tax.  Normal cars fall in the top three or four tax bands, where tax has fallen and owners will pay only a token amount of tax, if they pay anything at all.

I couldn’t find much information on maintenance and insurance costs — though I didn’t try very hard, since these are not a significant proportion of overall costs anyway.  If anybody can find good data, I’ll add these to the post.

One area where “costs” might be rising is in depreciation — the decline in resale value.  People aren’t buying second hand cars so much, for all sorts of reasons — because new cars are so cheap (especially during the scrappage scheme and with all the other government subsidies) to the fact that nobody who buys second hand cars wants an old inefficient SUV.

So driving is more expensive than ever?

Mark King (or his headline writer) could have read his own newspaper to see that the Department for Transport estimate that the cost of driving fell 9% between 1980 and 2007.  Alternatively they could have read the Economist last month, which estimated an even more dramatic fall in the cost of driving — especially compared to the rise in disposable income — even during Labour’s famous “War On The Motorist”:

A lot of things happened in the past 18 months, but it’s not plausible to suggest that this trend has completely reversed.

Why do so many people think driving is more expensive than ever?

I don’t think they do.  Most people who are complaining are trying their luck.  Some of it is recall bias — they just don’t accurately remember how expensive cars and fuel used to be.  Some of it is the fact that the costs which are falling — annual VED and upfront vehicle purchase — are one-off or rare payments that one forgets about, unlike the weekly payment at the petrol pump, even though for most people the cost of the vehicle still makes up the bulk of the cost of driving.  Some of it is the Daily Express, the Taxpayer’s Alliance, and the rest of the roads lobby talking bollocks about the poor hard done by Motorist.  But, really, most of the car users I know are complaining about the costs no more or less than they always have.

What is probably true is that motoring is a painful cost for many people.  But paradoxically, it’s the fall in the cost of motoring that has caused this problem.  During the good times of the 80s, 90s, and early 2000s, more and more people have built themselves into a car dependency.  Car ownership is higher than ever because the cost has been falling for so long.  And so, with everybody owning a car, our houses have moved further from our work places, our village shops and services have closed, and the bus service has been withdrawn.  This in turn pushes more people to buy and run a car, even if they can not really afford to do so and were quite happy living without one until the shops closed.  And when the good times turn bad — when wages are frozen, when office locations are merged, and when redundancies are handed out — you can not simply give up the car.  The world changed.

Driving is not more expensive than ever.  Fuel is not more expensive than ever.  Not even fuel tax is more expensive than ever.  Claims that they are don’t even come close to reflecting reality.  And for most people, the fall in the cost of vehicles is far more significant than the cost of fuel.

Rather, ever more people who can not really afford it have been conned by false promises of the aspirational and “liberating” car lifestyle or forced into car dependency against their will.  And the tabloid media and Motoring lobby want to capture the few who are left.  Our politicians and planners should be liberating poor and rural people from that expensive car dependency, not keeping them captive right on the threshold of what they can afford.

This is a hastily thrown together blog not a scholarly article — if you spot something not quite right, do let me know so that it can be corrected.

If you build it they will come

On the London Cyclist thread “is there anything super about the Cycle Superhighways?,” we hear Chinese whispers on the reason why TfL decided against making real superhighways and instead came up with the overpriced and failed PR exercise that are the blue lines on the side of the road:

“TfL said the routes are simply not being used frequently enough to warrant separation of traffic.”

and,

Boris, when asked why the Superhighways are not segregated, always says “There is just not room on London’s roads”.

Whether Boris used one or both of these excuses, he is wrong.  The reason he is wrong is Transport Economics 101 stuff — the sort of thing that even amateurs like us understand.  Simply, the demand for transport — and especially the demand for a specific mode of transport in an area with competing modes — is extremely flexible, and easily adjusts to supply.

People like to go places.  If you give them fast and affordable railways, they will jump on the train to the seaside.  If you give them fast and affordable roads, they will drive their car to work.  If you give them budget airlines, they will herd into planes to southern Europe.  A new transport mode releases latent demand: previously, though they would have liked to have gone somewhere, they chose not to because it was too difficult or expensive.  And it induces demand in other ways: a new road creates car journeys by allowing small local shops and services to be closed and merged into large centralised versions that people have little choice but to drive to, or by removing the incentive for efficient means of transporting goods, or by making it feasible to develop residential suburbs and new towns far from centres of employment, etc.

This is why in densely populated places like the UK, building a new road to solve one problem always creates another before long: the new road makes driving easier and cheaper, so more people drive and they drive further and more frequently, putting additional pressure on all the existing infrastructure surrounding the new road.  We could bulldoze corridors through the cities and pave the whole countryside, build ten times the road capacity that we currently have, and the road network would be just as overloaded as it is now.  This we already knew.

What is less well known is that the reverse is just as true.  Make it more difficult to drive somewhere and people will not drive there.  Make taxis sit in traffic jams instead of subsidising their industry by allowing them into bus lanes, and their fares will take the train instead.  Make it more expensive for goods vehicles to get into central London and the businesses and organisations that are based there will stop being so wasteful with goods.  Impose airport taxes on budget flights to the continent and people will realise that they can have an equally appalling stag night somewhere nearer home.

Take away a transport route and our remarkably robust network copes just fine.  A sudden emergency causes disruption because people aren’t expecting it; but sufficiently well publicised road works have a far more modest impact because people adjust their plans around them — take a different route, move their journey to an off-peak time, or do something else instead.  Permanently closing a whole road is even better tolerated still: such closures do not leave the surrounding roads gridlocked, at least, not in the long term.  People shift modes and shift behaviours; and eventually, all of the businesses and development patterns that had adjusted to a world in which everybody drove down that road will happily adjust back to one in which they don’t.

The amount of road space that we have now is essentially arbitrary: it could go up or down without making the slightest difference to the traffic jams its users moan about.

So it is not true that our streets are too small to accommodate dedicated cycling facilities.  Our streets are already too small, and will always be too small, to accommodate even a tenth of the potential for private motor-vehicle use, and we cope with that situation.  The road network copes with this situation because nine out of ten Londoners are quite aware of the fact that trying to drive a car through town is an absurd thing to do, and they don’t do it.  Taking away a little bit more will make a negligible difference because a few of the more stubborn Motorists will wake up to the fact and the volume of traffic will adjust accordingly.

And it’s not true that there is no demand for segregated facilities, and anybody who says there isn’t must be living in a fantasy land.  Pick a random non-cycling London commuter and ask them about cycling: more often than not they will tell you that would love to be able to replace their horrible bus journey with a bike ride.  But ninety-nine out of a hundred of them will tell you that they don’t do so because the roads aren’t safe, and there’s nothing to stop a truck driving into them.  Not because they’re afraid that they might get sweaty, or because it occasionally rains, or because they don’t know how to use a spanner, or because they’ve never heard of cycling before.  Entirely because there is no infrastructure that is perceived to be safe.  Cycling has a modal share at the lower end of single figures; it could plausibly account for a third or more of commutes.  Provide fast, capacious, sensible, joined-up and conspicuously safe infrastructure and you will unleash the vast latent demand for cycling.

If you build it they will come.  The only reason not to that Boris has left is to protect his credentials with the primarily non-London Motorist Tories who he will one day want to vote for him to be prime-minister.

–Joe