250 years earlier, on August 10 1519, the first circumnavigation of the world began when Magellan and 270 others left Seville with five ships (the Victoria, Trinidad, Santiago, Concepcion, and San Antonio). The fleet departed the coast of Spain on September 20, and three years later 18 survivors led by Elcano returned in the sole remaining ship, the Victoria. Elcano is one of many people you could imagine being more famous – being the first person to sail around the world is no mean achievement. Magellan, of course, was victim of that well known Sicilian adage “Never get involved in a land war in Asia,” if being killed on an island in the Philippines counts.

Elcano died in an attempt to be the first person to circumnavigate twice, an honour that belongs to von Aachen, a member of the same voyage who was captured by the Portuguese near the Mollucas and repatriated to Europe as a prisoner several years later. In fact, it was 60 years before there was another successful circumnavigation of the world, in the sense that it started and ended on the same ship, led by the same captain, Sir Francis Drake.  

Twenty-five trips around the world in 250 years is slow progress. Long sea trips were expensive, difficult and dangerous. In many ways it is a similar explanation for why so few manned trips to the moon have occurred since the first landing fifty years ago. Some things just don’t seem necessary to do again and again until technology improves and substantially reduces the cost.

The reasons for why it was so expensive and dangerous were wonderfully described in Alfred Crosby’s brilliant book “Ecological Imperialism: The biological expansion of Europe, 900-1900 ” (1986). This book was the original “Guns, Germs, and Steel“, but better; and since Crosby spent some time in New Zealand there is even a chapter dedicated to the colonial experience of this country.

One of the real gems of the book is its explanation of the difficulties European sailors faced crossing the Atlantic and the Pacific oceans in the face of prevailing winds that blew against them. I never understood the primary technological reason for pirates in the Caribbean until reading this chapter: Spanish galleons had to sail north past Cuba to find the winds that would enable them to sail home. Nor did I understand the reasons for the rise and decline of Dunedin and Hobart.

Dunedin’s headwind is … falling demand for wind?

Any visitors to Dunedin and Hobart will notice a lot of similarities: splendid harbours, beautiful old stone buildings, especially in the warehouse district; magnificent old residential houses; and some of the best students and university staff in either country.

Oh, yes, both have fairly stagnant economies, which explains why mutton-headed developers didn’t spend the 1960s, 1970s, and 1980s replacing the wonderful stone buildings with the architectural marvels that we celebrate in other New Zealand cities with such awe and wonder.

One of the reasons for the decline is the changing importance of wind power. In the 1860s and 1870s, ships from Britain sailed round South Africa and then south of Australia to take advantage of the “roaring-forties” (the winds that still plague Wellington today). Hobart and Dunedin were the first ports of call after a long voyage, and developed vibrant merchant communities.

In Dunedin you can see evidence of this if you visit Olveston House, owned by a prosperous merchant, the Bell Tea company building, or some of the buildings owned by the formerly sizeable Lebanese community. But the steamship, the Suez Canal, and later the Panama Canal put an end to all of that. Auckland was now closer to the rest of the world and, given some climatic advantages, it rapidly developed into the preeminent merchant town.

These advantages have not ceased and in fact Auckland’s advantages in the wholesaling sector are still increasing. If you delve into the census (no, not that one, the last accurate one) it shows that between 1996 and 2013 Auckland gained 4300 new jobs in the wholesale sector, whereas employment in this sector in the rest of the country declined by 1600.

Economic geography is a fascinating subject. It is the perfect mix of history, math, geography and economics, with some all-purpose complexity theory thrown in.  One of its findings is that the world can become more uniform on a wide scale as transport costs fall, but it also can become more locally concentrated.

Cheap international travel means technology, political power and disease become global, with all the benefits and troubles that entails, but at the same time economic activity becomes concentrated into a smaller number of increasing large cities. And that, in a nutshell, is a history of New Zealand in the 250 years since Cook sailed into Tūranganui-ā-Kiwa. 

The app is currently illegal in New Zealand

Just because the law hasn’t kept up with technological innovation doesn’t make Uber a bad thing. Now the real fear mongering comes when he talks about Uber’s “surge pricing”

The metering system isn’t authorised and they don’t want to change it because they want to be able to bring in surge pricing. For those people who complain about the cost of taxi fares, you ain’t seen nothing yet.

It’s our job to educate the drivers and the public that this is sugar-coated poison.

What is surge pricing? I’ll let Uber themselves explain it:

Without a surge pricing mechanism, there is no way to clear the market. Fixed or capped pricing, and you have the taxi problem on NYE—no taxis available with people waiting hours to get a ride or left to stagger home through the streets on a long night out. By *raising* the price you *increase* the number of cars on the road and maximize the number of safe convenient rides. Nobody is required to take an Uber, but having a reliable option is what we’re shooting for

So yes, surge pricing means Uber is really expensive when there is a large demand for car rides. You might pay more $ than you would for normal taxi at the same time, but this ignores the non financial cost you might incur waiting for a normal taxi. So we incur the opportunity cost today when we are trying to find a cab on Saturday night. Surge pricing gives you the option to pay a premium to avoid that. In total it may not be more “expensive” depending on how you value your time. Is that a bad thing? You still have the option of catching a normal cab….I can think of a few nights where surge pricing would have come in mighty handy.

Update: by pure coincidence Jesse Mulligan just tweeted the following from LA…turns out Uber can be cheaper than taxis too, no wonder the taxi industry is scared!

Taxi LAX to Venice $49. @uber Venice to LAX $13.

— Jesse Mulligan (@JesseMulligan) July 30, 2014

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:

1. The projects are money hole and shouldn’t be built (we get less benefits than we put in)
2. 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.

Hopefully not many fall into the 1 category, but given the scope for politicians and bureaucrats to drive these decisions, I wouldn’t be surprised. Even for the category 2 projects, it’s quite possible we are going to get bad decisions made, as the decision is ultimately going to be subjective. Many projects depend on who wins an election, which I think illustrates the problems here quite nicely.

There is also another, frightening alternative which I will now discuss in the context of Auckland

Auckland’s transport package

The crux of the ATB post is some quotes by Brownlee in question time about the costs of the various projects and a table of the benefits (I’m assuming both are “gross” and not “net”) They correctly note that the benefit figures are in net present value (NPV) terms and the costs are not, so they aren’t directly comparable. However, if we assume the construction time isn’t longer than a couple of years and the NPV is discounted back to around the same period of time, it isn’t two outrageous to compare the two numbers (Using un-discounted costs does of course understate the BCR, depending on whether the benefits need to be discounted further so the start dates are consistent.).  Three things jump out

1. The projects seem to either have a BCR substantially less than 1 or only moderately greater than 1
2. The second harbor crossing costs $4.7b  yet only has benefits of $568m
3. The East-West link costs $1b and the project has the backing of the government even though the benefits are “yet to be assessed”

As mentioned above, (1) isn’t particularly worrying if you believe that the benefits of transport projects are hard to quantify.  On (2),  that is a hell of a lot of non-quantifiable benefits to make a 2nd crossing worthwhile. And (3) provides us with the 3rd category that could have been in the first half of this post “projects for which the benefits have not been assessed, yet someone has decided it’s a good idea anyways”. I’ll call this the “entirely gut feel” category. I don’t know about you, but $1b is a lot of tax payer money to spend on something without actually thinking about what the benefits are relative to the costs. (Sidenote: it will make my day if someone can point out that I have misunderstood and this isn’t actually the case!)

Update:  as this post went to press everyone has been talking about the Puhoi-to-Wellsford “holiday highway” (Herald and ATB). Looks like no attempt has been made to quantify the benefits, beyond estimates of saved travel time  for people going on holiday up north (which could be used to estimate a benefit if you have an estimate of the opportunity cost of people’s time, which if the stereotype of rich Aucklanders heading up north to holiday homes is true , it might be quite high!). This particular Road of National significance (RoNS) suffers from the same problem as above, i.e.  having politicians decide to build a road first, then think about whether it is a good idea afterwards. At least this road is going to be tolled. (Sidenote: is the same true for all of the RoNS? i.e. no CBA?)

Update 2: If you are interested in transport funding in NZ, this paper mentioned by detmackey in the comments looks to be great read. I will certainly be giving it a thorough to read to lessen my ignorance on the institutional framework for road funding in NZ

Buehler and Pucher found that the presence of off-road bike paths and on-street bike lanes were, by far, the biggest determinant of cycling rates in cities. And that’s true even after you control for a variety of other factors like how hot or cold a city is, how much rain falls, how dense the city is, how high gas prices are, the type of people that live there, or how safe it is to cycle. None of those things seem to matter quite as much. The results, the authors write, “are consistent with the hypothesis that bike lanes and bike paths encourage cycling.”
If that sounds overly obvious, the authors do note that previous research was somewhat scattered on this question. A few studies had found that more bike lanes in a city were associated with more cycling, though it was unclear which was causing which.

The tricky question here is the direction of causation, and it’s likely that causation runs both ways. To claim that bike lanes generate cycling we really need a plausible hypothesis for why that might happen. Thankfully, it’s not that hard: bike lanes lower the cost of cycling because they’re more pleasant and less dangerous. Lower prices mean increased demand for cycling.

OK, so building bike lanes makes cycling cheaper, which gets more people cycling. More and more people are actually getting road bicycles for beginners and changing their lifestyle. But that doesn’t mean they’re a good idea, unless more cycling is just inherently good. To decide whether it’s good policy to build more bike lanes we need to compare the cost of building them to the price that people are willing to pay to use them (plus any externalities). Hopefully that’s what’s being done, even though the local newspaper makes it sound as if the main issue is the strength of the cycling lobby!

The previous Government introduced a Supergold card, offering concessions and discounts on various goods and services. In all their wisdom, they offer free off-peak travel on certain public transport. One such service was the Fullers Ferry to Waiheke Island.

It has now been reported that pensioners flocking to Waiheke Island have delivered more than $750,000 in Government subsidies to Auckland ferry operator Fullers in the first five months of free travel, with an average of 200 pensioners per day taking in the journey.

Who could possibly have foreseen that response?

The key bit for me is this (highlighting by me):

The results are striking. Virtually all the life-saving impact of the MLDA21 comes from the few early-adopting states, not from the larger number that resulted from federal pressure. Further, any life-saving effect in those states that first raised the drinking age was only temporary, occurring largely in the first year or two after switching to the MLDA21.

So this isn’t saying that lifting the drinking age is necessarily a bad idea – but that it isn’t necessarily going to save lives either. In the end only the states which did it voluntarily (where it was more of a community effort) had any impact – and even that was only temporary.

They go on to say:

This makes sense if a higher MLDA works only when state governments can set a drinking age that responds to local attitudes and concerns–and when states are energized to enforce such laws. A policy imposed from on high, especially one that is readily evaded and opposed by a large fraction of the citizenry, is virtually guaranteed to fail.

The major implication of these results is that the drinking age does not produce its main claimed benefit. Moreover, it plausibly generates side effects, like binge drinking and disrespect for the law–the very behavior that events planned for this month’s alcohol awareness theme are designed to deter.

I don’t disagree with this set of conclusions at all.

I would think long and hard about rising the drinking age in NZ from 18 – and then I wouldn’t do it

Update:  Paul Walker also discusses the article here.

It is true that cyclists don’t cause as much wear on the road, or take up as much space as cars. There are environmental benefits from cycling instead of driving, and probably reduced health costs too. However, that’s not a reason to exempt cyclists from paying to use roads: it’s a reason why they should pay far less than cars. Cyclists still benefit from much of the road improvement and creation that is done and there’s no reason why they should enjoy that for free. To suggest that we’d have to come up with a reason why cyclists should be actively subsidised by the government. Unless we think that the number of cyclists is sub-optimal, because people prefer to stick with the status quo of driving their car, then I can’t see a reason to subsidise cyclists.

According to Houston personal injury attorney, in NZ there is a further justification for making cyclists pay. Road users pay ACC levies to insure themselves aganst injury as a part of their road user charge (not the NZ terminology to make this more accessible to overseas readers). Cyclists have a pretty good chance of being hurt on the roads, given their lack of protection and vulnerability. Since they voluntarily choose to ride, shouldn’t they have to pay the expected health cost of their care when they crash? Otherwise we’re forcing all other people who pay ACC levies to subsidise cyclists’ healthcare.

Obviously the cyclists don’t want to pay, but the benefits to the environment of one less car are not a reason to let them off scot free!