Tuesday, 2 February 2016

Politicians and Correlations

Steve Luce, The Deputy of St. Martin, and Environment Minister had this to say about a question on  parking costs in town:

“I am not sure if the Deputy means me or the Minister for Infrastructure but I think that both of us would say there must be a direct correlation between the price people pay for their parking and their willingness to use their cars to drive into town. It is one of many on a list of things which is available to us. Some people would say if you want to force or encourage people on to public transport, making it more expensive to park their cars in town, is something that we would need to look at. We will continue to look at it just like we may also continue to look at the provision that private people make for parking their cars on private land in town. There are a number of levers which we can pull and we will continue to look at them.”

Of course, what would be ideal would be for parking to be directly correlated to amounts going back to transport, for car park maintenance, and for resurfacing roads, mending potholes etc, but in practice if more money is levied, it will go into the “central pot”.

This answer doesn’t really make a huge amount of sense. You can measure price. What is much harder to measure is “willingness to use cars to drive into town”. Unless you can quantify that in some objective mathematical way, it makes no sense to talk about a direct correlation. Steve Luce is using it more as a metaphor, and speaking as a mathematician, it rather irks me when politicians do this. It conveys a spurious plausibility to their arguments.

What I suspect the Deputy is really looking more at is elasticity of supply and demand. In other words, if you put the price up for parking in town by £x, how much will it diminish the number of road users coming to park in St Helier.

Differentiating between short-term parking (for shoppers) and long-term (for commuters) is also a necessity, otherwise there will be reduced footfall in St Helier, a result that I am sure town retailers would be unhappy about.

But the oil shocks of the 1970s showed, as E.F. Schumacher pointed out, that supply and demand for oil is rather inelastic

“It used to be said that the oil exporting countries depended on the oil importing countries just as much as the latter depended on the former; today it is clear that this is based on nothing but wishful thinking, because the need of the oil consumers is so great and their demand so inelastic [insensitive to price] that the oil exporting countries, acting in unison, can in fact raise their revenues by the simple device of curtailing output.”

What happens when oil and petrol costs increase is a marginal effect on behaviour. People question whether they need to make journeys, they plan ahead more, but they do not give up on the convenience of their cars. Instead, they cut spending elsewhere, and other luxuries – goods, holidays, dining out, etc – get scaled back.

The result is a slowdown in the circulation of money, and that can, of course, impact on other sources of government revenue – in the case of Jersey, on indirect tax like GST. And that is not just my opinion, the best evidence we have from statistics on spending patterns backs it up.

J.P. Morgan produced a study based on a massive sample (25 million people!) on the subject in October 2015. The writers looked at spending patterns in America and concluded exactly this – note that “gas” is the American term equivalent to English “petrol”:

“We conclude that people are spending their savings from the pump to a greater extent than previously thought, and that the recent gas price declines are fuelling growth in personal consumption in nongas categories. This boost to consumers spending could be here to stay and even strengthen with time if gas prices remain low or continue to decrease as predicted. On the other hand, a substantial increase in gas prices might proportionately dampen consumer spend.”

What will happen if parking costs increase? Probably much the same as if petrol costs do - a dampening of consumer spending. That is the real correlation here.


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