Londonomics: Money Down the Tube

By Londonist Last edited 123 months ago
Londonomics: Money Down the Tube

The Underground is running again, but how much did the strike cost?

Perhaps not as much as you might think. The Press Association and many others have been bandying about a figure of £50 million a day. Unfortunately, details about where that number comes from are difficult to come by.

We can’t judge the methodologies of anonymous ‘analysts’, but we can point out that a simple count of all the transactions that weren’t made because of the strike will tend to overstate the figures.

There’s two reasons for this. The first is that some of those purchases will simply be postponed, not eliminated. Say you were planning to meet some friends for a drink on Tuesday night but cancelled because you weren’t sure how you were going to get home. It’s likely that you’ll meet up later — next week, say — and spend just as much money at the bar.

This displacement effect is tough to account for because your money could go to a completely different business while still fulfilling the original purpose. Instead of the pub, you and your friends might see a film, for instance, or check out Koko on Saturday night.

The second reason the figures could be inflated is because in some cases the strike will actually boost business. Instead of the tube, you take a taxi — and taxis are more expensive, so the economy wins.

It’s odd that what any normal person would consider a waste is considered by a lot of economists to be a net benefit. But this is why natural disasters like this summer’s floods also stimulate economic growth — they attract a lot of state aid and related spending that would ordinarily not exist.

Admittedly, none of this is going to make you feel much better if you spent a couple of days with your face pressed against the window of a bus. But you can at least feel some satisfaction in knowing that Bob Crow isn’t as influential as he thinks he is.

By MikeW

Last Updated 06 September 2007

guest

Not to mention that a large percentage of tube riders have season passes. Will TFL be extending passes by two days? Doubtful.

guest

"Instead of the tube, you take a taxi — and taxis are more expensive, so the economy wins."

Not quite....

You're getting very close to the "broken window fallacy" here. People sometimes say that riots are good for towns because the aftermath brings lots of work for carpenters and glaziers. Which is clearly nonsense.

The point is that wealth is created when buyers are able to get things for less than they value them for and the sellers are able to sell them for more than they cost.

I *value* being able to go out for drinks with my friends. I don't particularly value being forced to take a cab because the (more convenient) tube is down.

So, yes.... you're right that some of the headline figures may be spurious but if your argument were really true, it would be good for the economy if we were to increase cab prices and shut the tube an hour earlier every evening :-)

guest

Hi Guest 2, it's MikeW here. In fact, I completely agree with you! Just because things are counted in a certain way doesn't mean they should be counted that way. Outside of mainstream economics there are robust movements demanding a bit of common sense when it comes to tallying up the numbers. Check out the idea of 'Gross National Happiness' or
True Cost Economics.

guest

Hi Mike, guest "2" here.

Thanks for the comment.

I was aware of "Gross National Happiness" (bottom line: I think it's a farce.... :-) e.g. see here: http://burningourmoney.blogspo...

However, I wasn't aware of True Cost Economics. I'll take a look - thanks.