Space is expensive in cities, so why don’t we use it more efficiently?

Land is a scarce and expensive resource in Auckland, as the city’s strong economy and natural amenities (sunlight! beaches! bush!) mean that a lot of people want to live in a relatively small area. But we often insist upon acting like urban space is worth nothing – why else would we have so many underutilised parking lots around the place?

To an economist, this is perplexing. Econ 101 predicts that when one factor of production becomes expensive, firms and households will respond by substituting other inputs instead. This is easy and intuitive to grasp in practice. For example:

  • If your local fish and chip shop puts up the price of snapper fillets, some people will choose to buy terakihi instead.
  • If wages for checkout operators increase, supermarkets will consider installing self-checkout counters to save on staff costs.

We should expect the exact same thing to happen in the housing market. Broadly speaking, developers produce housing (H) using a mix of land (L) and capital (K), which we can loosely think of as the size of the building constructed on a site. So, for example, a ten-story apartment building will tend to have a quite high K/L ratio, while a detached house constructed on a large lot will have a low K/L ratio.

retrofitting suburbia density gradient

Gradient of low to high K/L ratios (Source: Retrofitting Suburbia)

Warning: Arithmetic ahead. Come back after three paragraphs if you don’t like that sort of thing.

If we assume (as economists so often do) that housing production follows a standard Cobb-Douglas production function, then total dwelling supply can be modelled as a function of land and capital inputs, where a is the input share of land:

Housing equation 1

We can use this equation (plus a little bit of simple calculus) to estimate the marginal rate of substitution between L and K. Or, in other words, the degree to which rising land prices will encourage us to build up to save on land. If we assume that PL is the price of land and PK is the price of capital, then the ratio of K to L is given by the following equation:

Housing equation 2

We can immediately observe a couple of crucial relationships from this equation. First, if the price of land increases (and the cost to build up doesn’t), we’d expect the K/L ratio to rise – in other words, we expect people to build taller buildings on more expensive land. Second, if the cost to build up decreases – for example, through a technological innovation such as steel-framed buildings or elevators – the K/L ratio should also rise. This explains the emergence of high-rise Manhattan in the early 20th century. Third, the relationship between changes to prices and changes in the K/L ratio will hold true in both low-density and high-density areas, although changes will occur at different rates.

Armed with this economic framework, we can start to make sense of the way that various cities look.

Here’s New York. It doesn’t look like this because it’s full of people who, unlike Aucklanders or Texans, have a mysterious preference for tall buildings. It looks like this because land is expensive and people have responded in a rational way.

Manhattan

Here’s an aerial photograph of a suburb in Atlanta, Georgia, one of the world’s true hellholes. Once again, it doesn’t look like this because Georgians have some oddly-shaped utility function. It looks this way because land is cheap in Atlanta (and motorways are large).

atlanta suburbs

And here’s a picture of a typical Paris boulevard that somebody has photoshopped an enormous woman into for unknown reasons. While I’m sure many Parisians would claim that they have a unique cultural preference for seven-story apartment blocks with cafes underneath, Paris actually looks this way because land is expensive and developers have responded accordingly.

paris street with giant woman

With that in mind, how does Auckland stack up in terms of efficiently using its expensive land? Well, as it turns out we’re doing some smart things and some blitheringly idiotic things. Here’s a brief tour.

The Northern Busway: Really smart. Adding two lanes for buses has enabled the capacity-constrained Auckland Harbour Bridge to carry many more commuters than it otherwise would have been able to do. Today, 40-45% of the people crossing the bridge during rush hour are on buses. It’s the most revolutionary transport investment to hit the Shore since the Harbour Bridge’s completion.

Northern Busway efficiency

Manukau Centre’s sea of carparks: Mind-bogglingly irrational. As the map shows, Manukau actually devotes more land to parking lots than to commercial uses. Whoever laid it out obviously hadn’t paid any attention to Auckland’s real estate prices.

mcc-coloured

City centre shared spaces: Bloody clever idea. Turning service lanes and carparks into spaces for businesses to expand and people to enjoy allows us to make much better use of space in the city.

Fort Lane Before and After

Spaghetti Junction: A tortured trade-off. Demolishing a tenth of the city’s housing stock and abandoning much of the city centre to urban blight was undoubtedly an audacious gamble. The motorways move a lot of people, but we’re never going to reclaim the valuable, centrally located land that they occupy.

Newton then and now

Vancouver’s Skytrain – a future option for Auckland? Now this is about as cunning as a fox who’s just been appointed Professor of Cunning at Oxford University. Vancouver built a space-efficient (and cost-effective) transport system that created an incentive to build more densely. A perfect example of the virtuous cycle in which better transport options encourage more efficient use of land.

Vancouver’s Skytrain also provides an impressive contrast to the effects of Spaghetti Junction on Auckland’s city centre, which raises the question – are we smart enough to start building like that, or are we going to carry on with the pretense that urban space is free?

Vancouver skytrain development

View the full video showing changes from 1985 to 2012.

Better cities mean a wealthier New Zealand

Last week I took a look at whether government policy to support regional economies could divert growth away from Auckland. Based on the historical evidence, the answer seems to be no – people want to live in Auckland and start businesses here, and it’s senseless to try and stop that.

Today, I want to look at this issue from a different angle, and ask: If we somehow succeeded in stifling Auckland’s growth, would we be better off as a result? Would New Zealand be richer if it cancelled the City Rail Link, banned any new dwelling construction in Auckland, and told newcomers to bugger off to Timaru (or, more likely, Melbourne)?

Once again, we don’t have to speculate, as we can examine the results of previous “natural experiments”. Paul Krugman suggests that we could learn from recent population growth in the United States. (In between gaining academic renown for his work in new trade theory and public notoriety as a harsh critic of the second Bush administration, Krugman helped develop the new economic geography literature, which explains why cities form and grow.) He takes a look at the rapid growth of the “sunbelt” states, including Arizona and Texas, and finds that it has probably reduced economic growth in the US:

It turns out, however, that wages in the places within the United States attracting the most migrants are typically lower than in the places those migrants come from, suggesting that the places Americans are leaving actually have higher productivity and more job opportunities than the places they’re going. The average job in greater Houston pays 12 percent less than the average job in greater New York; the average job in greater Atlanta pays 22 percent less.

So why are people moving to these relatively low-wage areas? Because living there is cheaper, basically because of housing. According to the Bureau of Economic Analysis, rents (including the equivalent rent involved in buying a house) in metropolitan New York are about 60 percent higher than in Houston, 70 percent higher than in Atlanta.

In other words, what the facts really suggest is that Americans are being pushed out of the Northeast (and, more recently, California) by high housing costs rather than pulled out by superior economic performance in the Sunbelt.

But why are housing prices in New York or California so high? Population density and geography are part of the answer. For example, Los Angeles, which pioneered the kind of sprawl now epitomized by Atlanta, has run out of room and become a surprisingly dense metropolis. However, as Harvard’s Edward Glaeser and others have emphasized, high housing prices in slow-growing states also owe a lot to policies that sharply limit construction. Limits on building height in the cities, zoning that blocks denser development in the suburbs and other policies constrict housing on both coasts; meanwhile, looser regulation in the South has kept the supply of housing elastic and the cost of living low.

In short, restrictions on population growth in productive places – i.e. large, relatively dense cities – force people to move to less productive places, and earn less. A recent working paper by American economists Chang-Tai Hsieh and Enrico Moretti put a figure on the economic cost of these restrictions: housing supply restrictions in high-productivity cities like New York and San Francisco over the last three decades has lowered the US’s GDP by an estimated 10-14%. That’s absolutely huge.

This is agglomeration at work – or rather, “deglomeration”. The economic literature has identified a strong relationship between the scale and density of cities and the productivity of firms that locate within them. But rather than recognising and taking advantage of this phenomenon – for example, by allowing more office space to be built in San Francisco for the expanding tech industry and more apartments to be built in Silicon Valley for urbanophile tech workers – some American cities have chosen to reject it.

So could the same thing happen in New Zealand? In a word, yes. It’s definitely a risk and one that we should be careful to avoid.

First, the facts. Firms based in Auckland are more productive than firms elsewhere in New Zealand, after controlling for industry and firm characteristics. And firms in the Auckland city centre are even more productive. The table below, compiled from data in Dave Mare’s great 2008 paper on the topic (“Labour productivity in Auckland firms”), shows that there is a substantial “productivity premium” in Auckland:

Area Employment density (2006 jobs/sq km) Value added per worker (2006) Productivity relative to non-Auckland
New Zealand excl. Auckland 6.7 $45,550 -
Auckland urbanised area 518 $68,435 +51%
Auckland city centre 13,584 $106,873 +139%

I just want to say a brief word about the “productivity premium” of the city centre. A lot of people say that New Zealand’s an agricultural exporter, earning its way off the sheep’s back (or, more recently, the cow’s teats), and that downtown jobs are just an unproductive drain on farm revenues. However, service exports from urban businesses play an underappreciated role in NZ’s international trade picture. The two companies I’ve worked for in the Auckland city centre are both exporters of professional services. I’ve personally exported to Hong Kong, Australia, Fiji, and Papua New Guinea; my colleagues have also worked in Indonesia, Uganda, Canada, Saudi Arabia, the UK, and a whole host of other places. If we want to grow our exports in a smarter way, we need to encourage this sort of thing rather than deny that it’s happening.

As a result of the urban productivity premium, policies that stifle the growth of Auckland are likely to put a drag on New Zealand’s economy. In the US, a reluctance to let productive cities grow caused people to move to lower-wage cities like Phoenix, Houston, and Atlanta. Down here, the results are likely to be even worse, as New Zealanders are much more internationally mobile than Americans. If we put a lid on Auckland’s growth, some people will go to Hamilton or Tauranga instead, but many others will head to Australia or the UK.

Fortunately, we’ve got a much better option: Improve New Zealand’s cities rather than trying to smother them. Moreover, we’ve got some great opportunities to do just that. In Auckland, that means:

  • Making cost-effective investments in more transport choices, including better walking and cycling
  • Building the City Rail Link to unlock access to the city centre and allow firms to grow and benefit from the knowledge spillovers floating around
  • Preserving and improving our parks and public spaces – Waterfront Auckland is a truly world-class waterfront development agency and we should build on its success
  • And, as Krugman and Glaeser point out, it’s absolutely vital that we allow dwellings to be built in the places where people want to live – which increasingly means building more in places like Ponsonby and Mount Eden that are close to jobs and amenities.

We shouldn’t limit our vision to Auckland, either. While Auckland’s larger and faster-growing than Christchurch or Wellington, those cities also support agglomeration economies and interesting urban lifestyles. Investments in better cities will pay off there as well. Some of the same policies can also make small cities more liveable – although Hamilton will probably never need a CRL, look at the difference that NZTA’s Model Cycling Communities programme has made to Hastings and New Plymouth.

Why don’t we get on with it then?

Airplane fares reveal the value of time… and the importance of choice

High airplane fares are in the media this week, as Air New Zealand is about to pay a special dividend after a 45% increase in profits. Some people have suggested that the airline should cut fares on regional routes instead. But how high are the fares, really?

The NZ Herald investigates the question of high fares in an article on airplane fares. As it turns out, their analysis is a quite good illustration of a central issue in transport evaluation – the value that people place on their travel time.

The Herald has compared the cost of Air New Zealand, Naked Bus and private car prices between North Island regional centres and Auckland or Wellington after Air NZ faced criticism this week for the price of its regional airfares. It found travellers could be paying more than 10 times more for the convenience of flying.

You’ll have to go read the article to see their summary table, but it looks as though airplane fares are generally competitive with the cost of driving – a bit higher on some routes, a bit lower on others. Intercity buses, on the other hand, can be up to ten times cheaper, but often take half a day to get to the destination.

The Herald finds that some people are willing to trade off time for money, but to my mind their examples don’t exactly prove that airfares are excessively high:

Massey University student Lauren Cornish is one of many who opt to drive because of what they see as unaffordable airfares.

The veterinary science student has been studying in Palmerston North city for six years but returns home to Auckland regularly.

In that time she has taken no more than five flights – instead opting for a seven-hour drive home more than 20 times.

“It is never economically viable to fly, ever,” she said. “If I get Grabaseat deals, they can be okay, but they are obviously very inflexible and it is still around $120.” Instead she pays $90 in petrol to drive one way.

Now, to me, spending $30 to save five hours in a car sounds like a fantastic deal! If I’m travelling on business, my time’s worth much more than that, so it’s highly economically viable to spend a bit more money on a plane ticket. However, there have been times when I’ve placed a lower value on my time – for example, when I was a student, I would go to great lengths to avoid spending my limited money. (Except on beer, for some reason.)

In short, comparing airfares to bus fares and the cost of driving doesn’t tell us much about whether Air New Zealand’s fares are too high, but it does nicely illustrate the way that different people may value travel time savings. For some people, it will make sense to spend more on airfares to save time; for other people with tighter budgets, cheap bus tickets are the way to go.

The important thing is that there are choices in the transport market. For intercity travel, different options are available to people who have different needs. But, oddly, we don’t offer a very good travel choices within our cities. In Auckland, it is easy to travel by car, which works well for people who prefer relatively fast, point-to-point travel and who can afford the up-front costs of owning a car. But much of Auckland is missing public transport, which is better for people who don’t want to (or can’t) pay the up-front costs of car ownership and don’t mind waiting for the bus. Similarly, we’ve made walking and cycling really hard, although walking is just about the only free travel option we’ve got.

In economese, the intercity travel market caters for heterogeneous preferences, but urban transport seems to have been planned on the assumption that we’ve all got the same preferences. So: what’s your value of time?

New Zealand can’t put the urban genie back in its bottle

Although the majority of New Zealanders have lived in towns and cities for almost a century, it sometimes seems like we’re in denial that we live in an urban nation. This unease came to the fore during the debate over the Auckland Plan and the Unitary Plan. As it turns out, some people are uneasy about Auckland’s emergence as a large and increasingly sophisticated city.

At that time, the NZ Herald published several articles calling for a “national population strategy” to forestall further growth in Auckland. Here’s one example from May 2013:

Redirecting people away from settling or living in Auckland would be a positive step. A good example is in Invercargill where students pay no fees. The fees at Auckland learning institutes should be increased and those elsewhere removed or reduced significantly.

[...]

As so much of the population increase is likely to come from an increase in births, a decrease is urgent. Incentives need to be provided such as free contraception, especially to those under 20 years of age. The provision of family benefits regardless of whether you have two or 10 children should be looked at.

Here’s another one from June 2013:

Short of putting contraceptives in the water supply we are unlikely to do much about our rate of natural increase – so realistically any policy needs to focus on migration patterns, particularly within New Zealand – the so-called “northward drift”.

Realistically we cannot talk about Auckland in isolation from the rest of New Zealand. We have no national population strategy – though some useful work has been done in the past. Neither do we have a regional development strategy, an essential mechanism for achieving a more equitable sharing of economic and population growth.

This is a seductive idea, but it won’t work. Developing policy to redistribute growth is bloody hard without spending massive amounts of money and tightly controlling economic activity. If we seriously tried to subsidise or regulate growth away from Auckland, we’d probably just end up misallocating resources and reduce our wellbeing. As urban economist Edward Glaeser is fond of pointing out, good policy should aim to help poor people rather than poor places.

Fortunately, we don’t have to speculate about the consequences of regional growth policies, as we have a real-world historical example to draw upon. From the 1930s to the 1980s, NZ tried a massive policy experiment – it invested heavily in regional development and used regulatory controls to spread investment and employment around the country.

Looking back on it, the reach of these regulations and investments is extraordinary. So, for example, you had:

  • Economically costly production and export subsidies for farmers were propping up uneconomic farms. By 1984, subsidies accounted for almost 40% of the average sheep and beef farmer’s income.
  • The Transport Licensing Act 1931, which banned trucks from moving goods more than 150 kilometres before its repeal in 1982. This imposed high costs to distance, encouraging small-scale local production rather than centralising plants.
  • Regulations that virtually prohibited the opening or closing of meatworks and other rural processing plants between the 1930s and 1980s. When the Patea meatworks closed in 1982, they were the first meatworks to close in half a century – which is bizarre when you realise how much cheaper refrigerated shipping got over this period.
  • A policy of distributing major industrial facilities around the country – an aluminium smelter for Bluff, a steelworks for Glenbrook, a pulp and paper mill for Kawerau, etc.
  • The use of the Railways Department and Forest Service as rural employment schemes.

So it’s worth asking whether these policies worked. We know that they were economically costly – but did they actually succeed in redistributing growth from Auckland to the regions?

The data suggests that the answer is no. Here’s a graph of population growth in New Zealand’s major cities from 1926 to 2006 from Grimes and Tarrant (2013). As it shows, Auckland’s population growth began diverging from Wellington and Christchurch early on – probably after World War II.

NZ city population growth 1926-2006

Furthermore, the almost total removal of rural subsidies during the 1980s doesn’t seem to have accelerated Auckland’s divergence. In fact, Auckland’s annual per capita growth rate seems to have fallen after deregulation, although growth slowed more in other places.

In short, we should accept the reality of urban growth: People want to live in Auckland and start businesses here for good reasons, and we can’t (and shouldn’t) try to stop them. The idea that we can put the urban genie back in its bottle is sheer fantasy. If we try, we’ll only make ourselves worse off.

Our only choice is whether we will have a good city – an interesting and prosperous place – or a crippled, unsuccessful city. Given that, our focus should be on making the best urban places we can. We need Auckland to be a dynamic and liveable city rather than an overgrown small town. And that means investing and planning in a city-like way: getting ambitious about rapid transit, celebrating our mixed-use public spaces, and accepting that density and amenity aren’t mutually exclusive.

Is this Auckland 2040?

Is this Auckland 2040?

 

The inflationary impact of road spend-ups

It’s time for a quick round of everyone’s favourite game, Ask An Economist. Today’s question is: What happens when the government decides to spend up large in a growing economy?

If you guessed that the answer is that it will drive up inflation and crowd out private sector spending, congratulations! You win a hug from the invisible hand. You’ve obviously either paid attention to the lessons of history or the words of latter-day popularisers of economic theory such as Bill English, who recently said that:

It was also important for the Government to run a counter-cyclical fiscal policy which, right now, meant running surpluses, paying down debt, and limiting future initiatives in spending and tax cuts to what would not push interest rates higher than they need be.

However, the government is acting as though the normal rules of prudent fiscal management don’t apply to the road budget. Instead of taking a conservative approach to transport spending, and focusing on the projects that offer the best long-term value at a relatively low cost, they’re pushing ahead with plans to build a number of expensive road projects. For example, the 2014 Budget announced another $800m in motorway projects in Auckland, paid for in part by borrowing, along with $212m in regional road projects paid for out asset sale proceeds.

As an economist, I’m nervous that the motorway spend-up will have perverse economic effects, driving up prices and crowding out other activity. When I went to look at the data, I found reasons to worry.

First, I looked at the data on New Zealand’s spending on roads (from OECD.Stat). The following graph shows investment in new or improved roads as a share of GDP. Essentially, New Zealand spent a fairly consistent amount on roads – and much less on public transport! – in the 1990s. In 2004, road spending started to increase rapidly, rising from about 0.3% of GDP to 0.7%. Unfortunately, the OECD’s data doesn’t cover the last few years, but NZTA’s data suggest that road infrastructure spending has risen further.

NZ road spending, 1995-2011

So the government has boosted spending on roads over the last decade. Has this had any impacts on inflation?

I used Statistics NZ data on inflation to examine the effects. The following graph compares the Capital Goods Price Index for civil construction, a measure of construction cost inflation, with the Consumer Price Index, which measures inflation in the general economy. (NZTA uses a slightly different composite measure of road construction prices, but I’ve chosen to look at civil construction prices as they provide a better indication of potential crowding-out effects on private construction.)

As you can see, the CGPI for civil construction tracked closely with CPI from 1995 to 2003, when road spending made up a relatively constant share of GDP. Between 2004, when the road spend-up started, and the Global Financial Crisis in 2008, civil construction prices rose much more rapidly than the CPI. Construction price inflation briefly cooled off in the aftermath of the GFC, due to falling private-sector demand for construction. But over the past two years it has again started rising faster than CPI, as a result of the economic recovery and spending on major road projects such as Waterview.

NZ civil construction inflation, 1995-2014

In short, spending an increasing amount of money building roads has coincided with a big increase in the cost to build roads. This is exactly what most economists, along with the current Finance Minister, would have predicted to happen.

Moreover, this is likely to have a significant negative effect on private construction. If you want to build an apartment building or a warehouse, you’ll have to compete with NZTA for bulldozers, cranes, and construction labour. Expect to pay higher prices as a result. If civil construction prices had continued to rise in line with CPI over the last decade, rather than being bid up by road spending, big construction projects would be almost 20% cheaper than they are now.

To be fair, other factors may have also played a role, such as the run-up in house prices in the 2000s and increased oil prices. But as Bill English says, government spending shouldn’t exacerbate the inflationary pressures that exist in a growing economy.

This is a tricky dilemma for any government. On the one hand, we do need to invest in a transport network that can accommodate future growth in Auckland. On the other hand, it would be better if the government’s spending didn’t create perverse outcomes for the private sector. If it wants to steer clear of the Scylla of underinvestment and the Charybdis of inflation, it would make sense to look at cheaper alternatives – e.g. the Congestion-Free Network.

CFN_4_SMALL

Guide to economic evaluation part 3: What is agglomeration?

Debates over major transport investments often get caught up in arguments over benefit-cost ratios, or BCRs. In recent years, projects such as the Transmission Gully and Puhoi to Warkworth motorways and the City Rail Link have been criticised for their low BCRs. These debates have often raised more questions than they resolve. So it’s necessary to ask: What is a BCR, how is it calculated, and what does it mean?

The good news is that there is a manual that explains it – New Zealand Transport Agency’s Economic Evaluation Manual (EEM). The bad news is that it’s tediously long and not written for a general audience. This series of posts aims to provide a guide for the perplexed:

In part three of this series we take a look at agglomeration, which is a potential benefit of transport projects that isn’t captured in traditional evaluation procedures.

So we’ve gotten through the most boring part of this series – the previous post on conventional transport benefits. To briefly recap:

  • Conventional transport appraisal focuses on monetary and non-monetary benefits for users – i.e. travel time savings and vehicle operating cost savings
  • However, there are also externalities associated with transport behaviours
  • Some of these externalities, such as health benefits and environmental externalities, are pretty simple to describe and analyse
  • However, other externalities which have an effect on economic activity – the so-called “wider economic impacts”, or WEIs – are a little bit more complicated.

As I said last time, NZTA has sought to incorporate transport-related externalities into their evaluation framework. As part of this work, in 2011 they commissioned a report to identify and quantify the WEIs. The report (pdf), which was written by economists Duncan Kernohan and Lars Rognlien, found evidence for three main types of WEIs: agglomeration externalities, imperfect competition benefits, and labour supply benefits. Each externality arises as a result of changes to transport costs, as follows:

Transport user benefit Externality Economic outcome
General transport time/cost reductions Agglomeration Effective density of employment increases; firms become more productive
Business travel time/cost savings Imperfect competition Firms pass on savings to customers, plus an additional amount to reflect price-cost margins
Commute time/cost savings Labour supply effects Easier commutes encourage some people to enter the labour force; they pay more income taxes as a result

If you want to understand the WEIs in more detail, I suggest you take a look at their paper, which is technical but not totally inaccessible. Here, I’d like to focus solely on agglomeration externalities – what they are, how they happen, and why we might want to include them in transport evaluation.

Agglomeration has been a hot topic in urban economics in recent years – although, technically speaking, the theory of agglomeration goes back to British economist Alfred Marshall, who identified the phenomenon in the late 1800s. Agglomeration refers to the idea that larger and/or denser places are more productive. In other words, businesses operating in large cities tend to produce more output per worker than similar businesses operating in small towns. This isn’t just a theoretical argument – it’s an observed fact.

Conceptually speaking, agglomeration externalities arise due to the existence of increasing returns to scale in an economy. Essentially, the more people work in an area, the higher the potential for knowledge spillovers between them, the lower the cost to buy and sell goods and services, and the better the matching of workers to jobs. There’s a deep economic literature describing how this process occurs and developing theories of agglomeration, but if you’re interested in a non-technical introduction to the topic, I highly recommend Edward Glaeser’s book The Triumph of the City.

As a result of these processes, larger cities and denser, more accessible places tend to be more productive. There’s a lot of empirical evidence demonstrating this relationship. In New Zealand, papers by Dave Maré (2008) and Daniel Graham and Maré (2009) found that:

  • In 2006, the Auckland urban area was 36% more productive than the rest of the country, after adjusting for industry composition. In other words, an Auckland business would be expected to produce much more output per worker than a similar business elsewhere.
  • In 2006, the Auckland city centre was one of the most productive places in the country. After adjusting for industry composition, the city centre was 72% more productive than the rest of the country.
  • There is a substantial positive relationship between density and firm productivity – firms located in areas that are twice as dense are 3.2-8.7% more productive on average, depending upon industry.

What does this “productivity premium” look like? My colleague Kent Lundberg came up with one way of visualising agglomeration by looking at land values in and around the city centre. His map shows a sharp differences between the value of city centre land and land in surrounding, less intensive environments, with a lower peak out in Newmarket. Essentially, firms see the benefit of locating in dense places, and they’re willing to pay more to do so:

A

Firms are willing to pay for proximity.

Graham and Maré’s 2009 paper was used to establish NZTA’s parameters for evaluating the agglomeration effects of transport projects. These parameters, or agglomeration elasticities, estimate the relationship between increases to the accessibility of jobs in an area and the productivity of that area. Agglomeration elasticities are highest in knowledge-intensive industries such as finance and business services, and lowest (or nonexistent) in resource-based industries like agriculture and forestry.

However, NZTA took Graham and Maré’s analysis of agglomeration one step further, arguing that what matters for firm productivity is not just physical proximity, but accessibility of jobs via transport. In other words, business productivity could potentially increase as a result of improvements to transport as well as increases in job density. There’s some empirical support for this idea –economists have tested a range of measures (pdf, technical) and found that both physical density and transport-weighted measures of density are associated with higher productivity.

That’s why agglomeration benefits are typically calculated for both public transport projects, which are expected to enable more intensive land use, and road projects, which tend to disperse economic activity throughout a greater area.

Is this what agglomeration looks like? (Source)

Is this what agglomeration looks like? (Source)

Is this a reasonable approach to project evaluation? I suppose my view would be: possibly. There are two reasons to be cautious about calculating agglomeration benefits for transport projects.

The first is that it’s conceptually difficult to define “density” really is. The economic literature presents a range of views about what measures matter most. Is it transport accessibility, even in relatively dispersed environments, as NZTA argues? Or is physical density, such as the number of jobs you can reach in a one-kilometre walk, as enthusiasts for urbanism suggest? Or is it something else entirely, such as the overall economic mass of an entire urban area regardless of whether it is compact or sprawling. Economists have studied this question from a number of angles, finding that various different measures of density and distance can predict productivity. (It’s also likely that agglomeration is nonlinear (pdf, technical), but let’s not get into that.)

The second and more serious reason for caution is that NZTA has assumed a causal relationship between effective density and productivity that might not exist in practice. Essentially, it’s not at all clear whether you can make a firm more productive by increasing the density or accessibility of the area where it operates. Do firms become more productive when they move into relatively dense areas, or do productive firms move into dense areas for other reasons?

The most likely answer is a bit of both. Research done in the UK by economists Patricia Melo, Daniel Graham and several co-authors (ungated pdf version) suggests that the causality between productivity and density runs in both directions. In other words, density breeds productivity, but productivity also breeds density. This makes logical sense, if you think about it. On the one hand, firms may be able to access knowledge spillovers and deeper labour markets in denser areas, which is likely to make them more productive. But on the other hand, more productive firms are also more likely to be successful firms. If you put a lot of successful firms in one place, that area will probably become denser as those firms hire more workers.

The upshot of this is that while there’s a good case to include agglomeration effects in transport evaluation, NZTA is using a method that probably overstates the benefits.

Next time: The dark art of demand forecasting.

Location affordability in New Zealand cities – is greenfield growth really affordable?

Several weeks ago I attended the annual New Zealand Association of Economists conference in Auckland. Geoff Cooper, Auckland Council’s Chief Economist, had organised several sessions on urban issues, and as a result there was a lot of excellent discussion of urban issues and Auckland’s housing market. You can see the full conference programme and some papers here.

At the conference, I presented some new research on housing and transport costs in New Zealand’s main urban areas. My working paper, enticingly entitled Location Affordability in New Zealand Cities: An Intra-Urban and Comparative Perspective, can be read in full here (pdf). Before I discuss the results, I’d like to thank my employer, MRCagney, for giving me the time and the data to write the paper, along with several of my colleagues for help with the analysis, and Geoff Cooper for suggesting the topic and providing helpful feedback along the way.

The aim of the paper was to provide broader and more meaningful estimates of location affordability that take into account all costs faced by households. In my view, widely-reported sources such as Massey University’s Home Affordability Report have too narrow a focus, looking only at house prices. However, a range of research has found that transport costs vary between different locations depending upon a range of factors such as urban form, availability of transport, and accessibility to jobs and services. And transport costs are pretty large for many households!

I used two methods to provide a more comprehensive estimate of location affordability in Auckland, Wellington, and Canterbury. First, I used Census 2013 data to estimate household housing, car ownership, and commute spending at a detailed area level within each of the three regions. This allowed me to estimate variations in affordability between areas within individual regions. Second, I used household budget survey data to get a sense of how New Zealand cities stack up against other New World cities.

My main findings were as follows:

  • First, rents (a proxy measure for housing costs) tended to fall with distance from the city centre. However, commute costs tended to rise with distance – meaning that outlying areas were less affordable for residents once all costs are included. This was consistent with previous work on location affordability in New Zealand and the United States.
  • Second, international comparisons suggest that Auckland and Wellington have relatively high housing costs and that this may be driving some of the affordability findings. While this finding lines up with previous research that’s focused on house prices alone, it’s important to note that the location affordability estimates suggest that a focus on greenfields growth alone may not save households money.
  • Third, while I didn’t identify any specific policy recommendations, I’d recommend that (a) policymakers should consider all location-related costs when attempting to address affordability for households and that (b) further research should focus on removing barriers to increasing the supply of dwellings in relatively accessible areas.

And now for some pictures.

These maps show two measures of location affordability within Auckland. The left-hand map shows estimated housing costs (i.e. rents) as a share of median household incomes at a detailed area level. Broadly speaking, this map shows that expected housing costs fall between 20% and 30% of household income in most of the city, although some areas are relatively less affordable.

The right-hand map, on the other hand, incorporates expected car ownership and commute costs. Overall location affordability is lower throughout the city. Expected housing and transport costs rise to 40-50% in areas of west and south Auckland, as well as the entire Whangaparoa Peninsula. The most affordable areas for their residents tend to be in Auckland’s inner isthmus suburbs.

Auckland map 1 Rent share Auckland map 2 HT share

(Click to enlarge)

I’ve also combined this data into a graph that presents location affordability by distance from Auckland’s city centre. The bottom (blue) line shows housing costs as a share of median household income, weighted across all area units within each 2-kilometre concentric circle radiating outwards from the city centre. It shows that, on average, households spend a similar share of their overall income on housing costs in both close-in and outlying suburbs.

The top (red) line shows that combined housing, car ownership, and commute costs increase as a share of household incomes with increasing distance from the city centre. On average, households that live further out of Auckland spend more on location-related costs, as lower lower rents are offset by added commute costs.

Auckland H_T distance chart

The results for Wellington and Christchurch were broadly similar – although with a few interesting differences related to their urban form and transport choices. However, as this is the Auckland Transport Blog, I’m going to suggest that you read the paper to see those results. It’s long, but it also presents a lot of new data on housing and transport costs in New Zealand.

Guide to economic evaluation, part 2: What are the benefits of transport projects?

Debates over major transport investments often get caught up in arguments over benefit-cost ratios, or BCRs. In recent years, projects such as the Transmission Gully and Puhoi to Warkworth motorways and the City Rail Link have been criticised for their low BCRs. These debates have often raised more questions than they resolve. So it’s necessary to ask: What is a BCR, how is it calculated, and what does it mean?

The good news is that there is a manual that explains it – New Zealand Transport Agency’s Economic Evaluation Manual (EEM). The bad news is that it’s tediously long and not written for a general audience. This series of posts aims to provide a guide for the perplexed:

In part two of this series we examine a tricky topic – the benefits of transport projects. As in the first post, I’m going to focus on explaining the conventional evaluation procedures, rather than presenting challenges to said procedures.

Transport infrastructure projects are often expensive. The Waterview Connection will cost an estimated $1.4 billion; the proposed Puhoi to Warkworth motorway an additional $800m or so; the City Rail Link an estimated $2.8 billion, although this figure includes inflation and costs to buy and run new trains over a 30-year period; and so on and so forth. For these costly projects to be worthwhile, the benefits of these projects – the “B” side of a BCR – need to be of a similar magnitude.

What does that mean in practice? If we say that the CRL will have several billion dollars in benefits for Auckland, what sort of benefits are we talking about? There are three key things to understand about the economic benefits estimated in transport evaluation.

First, the benefits of transport projects do not translate directly into increases in GDP. Benefits of transport projects are estimated by assigning monetary values to a range of outcomes. But just because the EEM assigns monetary values to benefits does not mean the benefits actually manifest as more “money”. For example, a project that saves people a small amount of time on their morning commute might mean that those people work longer hours. But it’s more likely that they will sleep in a bit longer or read the morning TransportBlog post instead. Naturally, this makes people better off – and hence is ascribed a value – but it doesn’t increase GDP.

Second, there are a number of different categories of benefits, and it’s a bit misleading to combine them all into a single measure. Broadly speaking, there are three main categories of benefits that are quantified in transport evaluations:

  • Transport user cost/time savings tend to be quantified for all transport projects and make up the central component of most transport evaluations
  • Health and environmental externalities are often included to some degree; however, some types of benefits that are harder to quantify tend to be excluded from many evaluations
  • Wider economic impacts such as agglomeration and increased labour supply are typically only calculated for major projects.

This post will cover the first two categories of benefits and, returning to our Ruritanian case study, present a worked example of how one might go about calculating these categories of benefits. I’ll leave the wider economic impacts to the next post, as they require a fuller explanation.

The third important fact about transport benefits is that travel time savings make up the majority of measured benefits. Under conventional evaluation procedures, the main benefit of new transport projects is almost always that they save time for travellers. Other benefits, including vehicle operating cost savings and emissions reductions, are minor by comparison. Moreover, as alluded to above, travel time savings cannot be equated to increased economic activity.

I’ll illustrate this using the Ruritanian case study, which shows that the principal benefit of introducing a new bus lane is likely to be travel time savings for users. But before doing so, I’ll briefly run through several categories of benefits.

Transport user benefits

The central component of most evaluations is an estimate of the effect that new transport infrastructure or services will have on the time and monetary cost of travelling. Over in boffin-land, all of these factors are combined together into a figure called “generalised cost” (GC).

GC is a composite measure that covers all of the monetary and non-monetary costs of travel. It can be thought of as the “utility cost” associated with a trip:

GC = Travel time + Vehicle operating costs + Tolls + Parking Costs + PT fares + user amenity.

This measure is that it allows monetary and non-monetary costs to be converted to equivalent measures and compared. So, for example, the EEM provides conversion factors that allow you to place a dollar figure on an hour spent travelling. These values are in the range of $15-25 per hour for most trip purposes. While the EEM used to ascribe a higher value of time for car users than PT users, NZTA decided to equalise the value of time for different modes.

“User amenity” is a quite broad category that attempts to cover all of the subjective factors that people take into account when using transport. So, for example, the EEM provides values that allow you to estimate the value that people place on (say) each minute spent contributing to a traffic jam, or having a real-time board at a bus stop, etc.

Panmure Station 1

Panmure Station was built to provide a better transport experience for passengers

With that in mind, the following table summarises the components of GC and describes whether or not they are monetary costs. It distinguishes between household travel and business travel, as workers’ time does have a monetary cost when they’re travelling on employer business. However, business travel only accounts for a small share of overall trips.

Generalised cost component Household travel (e.g. commutes, retail trips) Business travel (e.g. freight)
Travel time Non-monetary Monetary
Vehicle operating cost Monetary Monetary
Tolls, PT fares, and parking costs Monetary Monetary
Trip amenity Non-monetary Non-monetary

Health and environmental externalities

Contrary to popular belief, NZTA doesn’t simply ignore environmental and health outcomes in its evaluation procedures. Indeed, the agency has progressively been attempting to build additional health/environmental elements into its evaluation.

As a result of their work in this area, which has included the development of new modelling approaches and commissioning of reports on the benefits of walking and cycling activity, the EEM now contains recommendations on how to value:

  • The benefits of reduced CO2 emissions from transport behaviours
  • The benefits of reduced emissions, and reduced road noise, which have an effect on amenity and health within affected areas
  • The health benefits of walking and cycling travel.

In practice, it’s not yet standard to value all of these benefits for all projects. Conventional evaluations usually include benefits from reduced CO2 emissions, as they tend to be closely related to vehicle operating costs. NZTA recommends valuing carbon emissions at $40/tonne – a value that seems high relative to current Emissions Trading Scheme prices, but which is low relative to other transport benefits.

Other emissions and noise impacts do not tend to be valued for many road and PT projects, as they’re hard to robustly estimate. Their effects depend upon a whole range of factors, such as population density around roads, topography, weather patterns, and so on and so forth.

Most people aren't that keen on vehicle emissions. Emphasis on "most".

Most people aren’t that keen on vehicle emissions. Emphasis on “most”.

Likewise, health benefits of active transport only tend to be considered for walking and cycling projects. These benefits aren’t necessarily small in value – the EEM states that each kilometre spent walking generates $2.70 in social benefits, which can add up quite quickly. This is potentially a problematic exclusion for evaluation of public transport, as people tend to walk to access bus and train routes. For example, given the size of the average walk-up catchment, each bus user could be walking an additional kilometre or more each day.

Back to Ruritania: Calculating the benefits of a new bus route

In order to give a sense of how these values come together in an evaluation, we return to our Ruritanian example. If you recall, transport planners in Streslau, the capital city, are trying to evaluate a new bus line between two suburbs (A and B). The road between the suburbs is getting increasingly congested, as it’s limited in size and lacking in public transport alternatives. At this point, they’re seeking to determine whether putting in a dedicated bus lane would be a good idea.

While this is a hypothetical exercise, I’ve tried to make it as consistent as possible with New Zealand evaluation practices to give a sense of what an evaluation might look like.

The first step for Streslau’s transport planners is to determine which categories of benefits to measure. After a bit of discussion, they’ve decided to hew to the conventional evaluation procedures, and focus on quantifying reductions in generalised costs of travel and carbon emission reductions. They’re also going to consider whether there are likely to be any health benefits associated with walking to bus stops.

The table below summarises the values that Streslau’s transport planners are planning on using. As Ruritania’s also a developed country, its valuation parameters are pretty similar to those in the EEM.

Valuation parameters Value ($)
Value of time ($/hr) $15
Vehicle operating cost ($/km) $0.40
Greenhouse gas emissions ($/km) $0.02
Health benefits of walking ($/km) $3

The next step in the evaluation is to determine the level of demand for the new PT service. There are a number of approaches to doing so, including integrated transport modelling, surveys of potential users, or desktop analysis based on known factors and historical growth rates. I’m not going to cover demand forecasting right now – that’s a knotty topic for a future post!

For now, all you need to know is that Streslau’s transport planners have reached into their black box and estimated that roughly one-tenth of the existing trips between the two suburbs will switch modes after the introduction of a new bus line. Changes between the Do-Minimum (the current state) and the Option (the new bus line) are summarised in the following table.

Daily travel demand between A and B (in Y1) Do-Minimum Option
Car trips 50,000 45,000
PT trips N/A 5,000
Average walking distance to PT stop (m) N/A 500

Likewise, it’s necessary to forecast the effects of the change on transport speeds. The road between the two suburbs is roughly 5 kilometres long. At present (under the Do-Minimum) it’s quite congested – traffic flows at an average rate of 25 km/hr.

After further rummaging around in the black box, Streslau’s transport planners have determined that the introduction of the new bus line will result in travel time savings for all users. Drivers will have a bit less road space, but congestion will drop due to reduced vehicle traffic. The net effect is that car speeds are forecast to increase to 30 km/hr after the introduction of the new bus line – saving the average driver roughly two minutes per trip.

Buses will also be faster, but some of the effects will be offset by the need to stop and pick up passengers. As a result, average speeds for buses will increase to 27 km/hr, saving the average PT user almost one minute per trip. (In this simple analysis, I have ignored PT fares and PT user amenities such as real-time message boards, assuming that they approximately offset each other.)

Estimated travel distance and time Do-Minimum Option
Distance (km) 5 5
Average car speed (km/hr) 25 30
Average bus speed (km/hr) N/A 27
Change in TT for car users (min/trip) 2.0
Change in TT for new PT users (min/trip) 0.9

In short, the new bus line is expected to remove 5,000 cars from the road every day, while improving travel times for remaining users. This is expected to result in:

  • Cumulative daily travel time savings of roughly 1,500 driver hours and almost 100 bus user hours (remember, these travel time savings are valued at $15/hr)
  • A cumulative daily reduction of 25,000 vehicle kilometres, which is expected to reduce vehicle operating costs by $10,000 every day and reduce the social costs of carbon emissions by $500 each day

The total estimated benefits of the project are reported in the following table. For the sake of simplicity, we have assumed that benefits are experienced only during working days. As there are approximately 250 working days in a year, the total annual benefits of the new bus line are expected to be approximately $8.5 million.

Almost two-thirds of these benefits actually arise from travel time savings for car users. This is actually fairly common for public transport projects, as the removal of some cars from the road gives everyone else a much easier ride. For example, some of the biggest beneficiaries of the City Rail Link will be people commuting by car to the city centre or through Spaghetti Junction.

Estimated benefits from a new bus line Daily benefits ($) Annual benefits ($m)
Time savings for car users $22,500 $5.6
Time savings for new PT users $1,111 $0.3
Reduction in VOC $10,000 $2.5
Reduction in greenhouse gas emissions $500 $0.1
Total $34,111 $8.5

Finally, Streslau’s transport planners want to understand whether there are likely to be any significant health benefits. We’ve assumed that bus users walk an average of 500 metres to their stop. As we are expecting an estimated 5,000 bus trips per day, this means that bus users are walking a cumulative 2,500 kilometres every day.

Walking catchments to stations. (Source: Human Transit)

Walking catchments are larger when street grids are well-connected (Source: Human Transit)

That’s a surprisingly large number! At a value of $3 in health benefits per kilometre, it adds up to an additional $1.9 million in annual benefits. In other words, including these benefits raises our estimate of the benefits of Streslau’s newest bus line by 20%. That’s potentially a big category of benefits that’s being ignored in many PT evaluations.

Next time: But wait! What about these “agglomeration benefits” I keep hearing about?

How should we value the future?

Transport networks and urban planning can have extremely long-lived effects on society, the economy, and the environment. The government’s decision to invest in an electrified commuter rail network for Wellington in the 1930s led to an early form of transit-oriented development in the region. Wellington’s post-war urban growth has been concentrated in areas served by rail lines – providing the region with long-lasting benefits.

800px-WellingtonRailMap

Source: Wikipedia

In Auckland, of course, things were very different. After the role that rail played in Auckland’s early development, successive governments decided to:

And, of course, these years of refusal were coupled with a decision in the 1950s to invest heavily in a motorway network for the region. The Master Transportation Plan of the era contains some truly awe-inspiring concept designs, including an elevated Quay St motorway that would have doomed any chance of Auckland’s recent waterfront revival:

1950s Transportation Master Plan Quay St

Leaving aside a few extremely white elephants, many elements of the plan are quite familiar to modern Aucklanders. The Southern and Northwestern Motorways and the Harbour Bridge were built, kicking off development booms in Manukau, the North Shore, and West Auckland. In a 2010 Policy Quarterly article, Andrew Coleman assessed the effects of motorway development in Auckland and the US, concluding that:

transport infrastructure choices can have long-term and potentially irreversible effects on city form. A city that chooses to invest in roads rather than public transport infrastructure to improve its transport system is likely to reduce the efficiency of any subsequent public transport investments, by causing population and employment in the city to disperse widely over space. When making decisions to build roads, therefore, the city planners need to take into account the way roads affect the operation of subsequent transport infrastructure investment choices.

So it’s worth asking: Are we valuing future outcomes in the right way? In economese, this means asking about our “rate of time preference”, or the degree to which we value present-day outcomes over future outcomes.

A 2011 NZIER paper by Chris Parker provides a fairly accessible introduction to this topic. (Transportblog reviewed the paper when it originally came out.) Parker highlights how much of an effect different discount rates can have on our decisions about the future. As Figure 1 below shows, an 8% discount rate – recommended by the NZ Treasury – means that we place no weight on outcomes that occur 40 years in the future. (To put that in perspective, the average New Zealander lives twice as long as that. I certainly expect to be alive in 40 years!) A 3% discount rate, by comparison, means that we place a much higher value on outcomes that far in the future.

NZIER discount rate comparison

Last July, NZTA decided to lower its discount rate from 8% to 6%. This change means that transport evaluations now place a slightly greater weight on future outcomes than before. However, as NZTA’s documentation showed, we still discount the future to a much greater extent than countries like Germany (3% discount rate) and the UK (1% to 3.5%).

NZTA’s new discount rate might still be too high to properly account for the long-lived effect of infrastructure development on urban form. As we’ve seen, Auckland and Wellington are still benefitting from, or coping with, with the effects of investment decisions made 60 to 80 years in the past. Under current evaluation procedures, we wouldn’t have considered such long-lasting effects.

A new research paper by economists at the University of Chicago and New York University suggests that people place significant value on outcomes that occur dozens or even hundreds of years hence. The authors measure long-term discount rates using an innovative method that relies upon observing differences between the prices for freehold and leasehold houses in the UK and Singapore:

In Giglio, Maggiori and Stroebel (2014), we provide direct estimates of households’ discount rates for payments very far in the future, by studying the valuation of very long (but finite) assets. We exploit a unique feature of residential housing markets in the UK and Singapore, where property ownership takes the form of either very long-term leaseholds or freeholds. Leaseholds are temporary, pre-paid, and tradable ownership contracts with maturities ranging from 99 to 999 years, while freeholds are perpetual ownership contracts. The price discount for very long-term leaseholds relative to prices for otherwise similar properties that are traded as freeholds is informative about the implied discount rates of agents trading these housing assets. This allows us to gather information on discount rates much beyond the usual horizon of 20-30 years spanned by bond markets.

This analysis suggests that long-run discount rates are significantly lower than those we use for project evaluation – in the range of 2.6%. In other words, people making significant financial decisions today place some value on outcomes for future generations that they will never meet:

We use these estimated price discounts to back out the implied discount rate that households use to value cash flows to housing that arise more than 100 years from now. We find the discount rate for very long-run housing cash flows to be about 2.6% per year. Interestingly, we find similar implied discount rates in both the UK and in Singapore – two countries with very different institutional settings.

The authors suggest that their findings have implications for intergenerational fiscal policy and climate change policy. They’re also likely to have implications for the way we evaluate transport projects. Today’s planners should take care to preserve and improve transport options for future generations, rather than “locking in” a particular urban form.

Finally, with that in mind, it’s worth recalling the findings of the 2012 City Centre Future Access Study, which compared options for improving transport capacity to Auckland’s growing city centre. In Section 7 of the Technical Report, the authors found that when a longer evaluation period (60 years vs. 30 years) and a lower discount rate (5.7% vs. 8%) were used, the benefit-to-cost ratio of the City Rail Link almost doubled. In other words, the CRL looks even more valuable for Auckland if we take a longer-term view.

If our great-grandparents had decided to invest in Auckland’s rail system in the 1930s, we’d still be thanking them for it. Because they didn’t, though, we’re just getting around to electrifying Auckland’s rail network and still debating whether to build the CRL to unlock greater frequencies across the entire network. It is essential that we take a longer-term view on transport investments than we have previously done.

So, what’s your discount rate?

City centre parking rates: economic literacy versus special pleading

This weekend the NZ Herald’s motoring correspondent Matt Greenop published an article denouncing the “insult” of parking fees. Now, at Transportblog we’re always up for a good debate over the merits of different parking policies, but this doesn’t add much to the conversation:

Parking used to be a doddle. Now it’s just another cost of car ownership that makes us feel we’ve committed a heinous crime against humanity by daring to buy and use our own vehicle.

Every little bit that gets added on to the cost of driving a car in the city is an insult — and the next insult we’re facing is another hike in parking fees.

From an economic perspective, this is a totally absurd statement. It completely ignores the supply and demand dynamics at play in urban areas. Parking takes up space, and as anyone who’s been downtown in the last decade has noticed, there’s a limited amount of space in the city centre. Demand for commercial and residential space in the city centre is increasing. The residential population tripled from 10,200 to 31,300 between the 2001 and 2013 Censuses; over the same time period, employment in the city centre rose by a quarter, from 81,000 to 100,100.

Using prices to manage demand for scarce resources is an efficient and sensible response. This is basic Econ 101 material, and we accept it in most areas of life. City centre office space is priced, and priced highly, due to the fact that a lot of people want to locate there.

It would be ridiculous if companies leasing space in the city centre to complain that a rent increase was an “insult”. And if they insisted on paying no rent at all, we’d recognise it as special pleading for a market-distorting subsidy.

It’s the exact same thing with parking. Essentially, the Herald’s using emotive language to demand a costly, distortionary subsidy for a small number of people.

If the Herald wants to avoid printing such embarrassing nonsense in the future, I strongly recommend that they run their articles by an economist first.