Links of interest
Here are some links that I suggest people go and give a read if you haven’t already – they are all things I wanted to post about, but have decided to link without comment 😉
Costs and (or lack of) benefits of transport projects
Auckland Transport Blog have put up a post today discussing the costs and benefits of the planned transport projects in Auckland that the government is backing. I’ll discuss that in a second, but first there is something I want to get off my back regarding the assessment of transport projects.
BCR ratios (aka CBA by another name)
One thing that has always intrigued me when I hear about transport projects is that rather than talking about the “net benefits” from a “cost benefit analysis” (CBA), they talk about “benefit cost ratios” (BCR). Now the BCR is just the calculated benefits divided the costs (B/C). The surprising thing to an economist is that the BCRs are often < 1.
This means one of two things:
- The projects are money hole and shouldn’t be built (we get less benefits than we put in)
- There are significant non-quantifiable (or difficult to measure) benefits, and bureaucrats have made the judgement call that the non-quantifiable benefits are enough to tip the balance to give a true BCR>1. So there is some objective analysis, and some “gut feel”, but this can’t be avoided.
Lies, damn lies, and statistics
Last week David Grimmond wrote (here and here):
However, despite the great informational power of statistics, bear in mind that sample based statistics are still always measured with error.
How often do we hear news items that note something like: ‘according to the latest political poll, the support for the Haveigotadealforyou Party has increased from 9% to 9.5%” etc, but then just before closing the item they state that the survey has a 2% margin of error.
If you are awake to this point you suddenly realise that you have just been totally misled.
With an error margin of 2 percentage points, you cannot make any inference about anything within a 2 percentage point margin.
After discussing this point he states:
One can react to this article in (at least) two ways: one could become a bit more relaxed about the significance of changes reported in statistics or one could seek improvements to the accuracy of statistical collection.
In what areas do you think the first option is appropriate, and in what ways would it be worthwhile to increase spending to improve accuracy?
The importance of evidence for policy
Good paper by the Prime Minister’s Chief Science advisor on policy – focused strongly on transparent evidence based policy. I can’t disagree with this as a framework!
1) identifying problems; 2) measuring their magnitude and seriousness; 3) reviewing policy options; 4) systematically assessing likely consequences of options; and 5) evaluating results of policy interventions.
When the Chief Scientist discusses evidence “nudging” policy, he is prescribing a Bayesian view of how we update our priors based on evidence. This is all cash.
However, I don’t feel that the first stage is ever covered off particularly well … by anyone really. Read more
How exactly should the West “rethink”
I’m not quite sure how to take these comments by Gareth Morgan – once they’ve written up some more details of their experience they will likely point out that they are talking about the individuals and communities in North Korea. In this way they will be talking about the amazing way these people are trying to work through hardship – something that doesn’t get enough play in the West. And I appreciate that.
However, what they’ve decided to say in this brief post was one of the clearest example of beating on the West because it is fashionable – there is a line between showing a respect for those who are struggling, and trying to switch the blame away from a corrupt regime and onto everyone else:
What they found surprised them – a people who were poor, yes, but wonderfully engaged, well-dressed, fully employed and well informed. In Gareth’s view, what North Korea has achieved economically despite its lack of access to international money has been magnificent.
Excitement over broken windows
Oliver Hartwich of the NZ Initiative revisits the broken window fallacy:
“Natural disasters and wars never generate prosperity. They always destroy it, by definition.”
He is absolutely right. It’s good to see this revisited. Even though the “seen benefits, unseen costs” principle was articulated by Bastiat in an 1850 essay. Wikipedia article on the broken window parable here.
The Canterbury earthquakes led some to say it will be good for economic growth. In truth there has been limited impact on the national economy. Production shifted elsewhere and insurance money helped offset the wealth shock for many. Much more so than I expected. But there have been real economic costs for those who have lost jobs and their housing costs have surged.