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making up for lost time, why economists dream in dollars

July 28, 2010

Did you catch the news that yesterday a single piece of overhead wire snapped on the Melbourne rail system between Flinders Street and Southern Cross stations? If the answer is no that’s OK this is only the introduction to the article so please keep reading. This solitary piece of cable that supplies the electricity to the trains also is able to cause chaos to Melbourne’s train system in the event of failure. Yesterday that failure occurred and caused delays for in excess of 400,000 passengers of at least an hour but in many cases much more. I have written in the past of the folly that is the public transport system in Melbourne and of its ongoing woes so this is neither surprising nor unexpected just another passing failure to add to the long list or previous ones.

To apologise for the delay the state government has offered free travel on suburban trains on Friday, and a free daily ticket for many V/Line commuters and to compensate. The blame game will of course begin with each side of politics with their own agenda’s, the operators no doubt bear the lions share and the whole affair will be quickly forgotten.I could go into further details of what caused the snap, how it went down and so on and so forth however I would prefer to leave that for others to comment on as I was more amazed at the estimated cost to the Melbourne community of the snapped cable.

Melbourne University finance professor Kevin Davis yesterday estimated the rail meltdown had cost Victoria’s economy more than $12 million in lost productivity.

This cost in lost productivity has me wondering at how these estimates are arrived at, and if they really mean anything, after all many industries come up with extraordinary estimates of lost sales due to privacy and yet no real data supports it. I personally think that equating everything in dollar terms serves no real purpose except to highlight the ridiculousness of the assertion in the first place. I think the idea behind the $12 million goes something like this 400,000 multiplied by average hourly rate of $30 equals $12 million. But does this really work? Did Melbourne really stop work for an hour? I think the real cost of this is no more than embarrassed politicians and Metro bosses. In the real world the one that economists dream about but the average person resides, we might have worked twice as hard that day, maybe we might have skipped lunch, or someone else has taken up the slack. The reality is there was no additional cost to productivity, humans do what they always do and adjust and get the job done. Now if the analogy was using robots instead of humans that might just work as they don’t have the capacity to adjust to non programmed instructions and thus the time and productivity would be lost.

Now I am sure that some will want to argue and say that I missing the point and that there was a cost and that it has been shifted on to today or the task was not done at all and yes you might be right, however yesterday did not cost anyone $12 million dollars, humans don’t work like that. It makes great headlines but the cost of yesterday was intangible not some thing measured in dollars. No the cost might have being someone missing out on a job interview and the chance of the dream job, missing out on meeting up with a friend who only had an hour to spare in town or as simple as missing breakfast with your wife. We don’t put costs or a price on these things because money can’t bring them back. In a world where everything is measured in dollars human life is devalued, we are not robots so we don’t need economists to refer to our productivity as if we were.

There however will be a cost for yesterday’s disruptions and this one is not intangible and will cost Metro and the state government big bucks. This cost is the free travel day on Friday. I am not sure how much this will cost the parties involved, but I can say this with some authority that it will be at least in the magnitude of $5.80 as I will avail my self of this kind offer and catch a train down town or as us Australians prefer to say in to the city.

What do you think? Were you delayed? Leave a comment they are always appreciated.

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3 Comments leave one →
  1. David O'Brien permalink
    July 28, 2010 10:28 am

    Rory, this is easily one of the most simply constructed but intelligent, wide ranging, perceptive locally focused piece you’ve written to date. How rare it is to see the notion of cost and costing tackled from a behavioural perspective, to see intangibility considered above a black and white numeration.

    • July 28, 2010 10:41 am

      Thanks David, that is always the dilemma about what to write, I must admit that once the wheel starts roiling the ideas do flow and that I have a backlog but I find patience sees me find the correct focus. I am experimenting with length and style trying to find my formula and I am getting good feedback.

      Thanks again for the kind words it makes this adventure so much more.

  2. Michael B. permalink
    July 28, 2010 7:31 pm

    I think this is a good length Rory…….long enough to get your points across but not so long that people start to drift off.

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