OPTIMIST PRIME: TESLA IS IGNORING A TRUCKLOAD OF RISK

Was the problem a shortage of cool plans? I didn’t realise the problem was a shortage of cool plans.

Yesterday, Tesla announced two new vehicles – a semi trailer, and a roadster. The launch was awesome.

Musk does theatre like a natural. Adding to the happy vibe was that he spent no time covering Tesla’s big problem, which is delivering on existing plans. Instead, he added more plans.

Here’s the problem with plans. Not everything works out. The more plans you have the more chances for something to go wrong.

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When you have many independent systems, adding an additional system adds to your chance of one working.

However when each system is interlinked (by, say being in the same corporate structure, or worse, by being an input to another system) the rising chance of one failure increases the chance of mutliple failures.

For example, the gigafactory battery plant is an input to the Model 3 production line. Failures at the gigafactory are holding up production, imperilling the Model 3 and the whole company’s cashflow, and therefore its survival.

When you have interlinked systems, risk management is, in the long run, almost everything.

If you google “Elon Musk” and Risk, you find a lot about him worrying about the risk from artificial intelligence to human survival. And I could see nothing about him discussing his approach to risk management in business.

SELF CONFIDENCE

Elon Musk has a longstanding pattern of managing risk by insourcing. When something’s not going right he tries to solve it by doing it in house, or even personally.

Most recent example is the purchase of the tooling company Perbix. … Prior to that they sacked their self driving supplier MobilEye and rebuilt the systems from scratch. Before that they bought Solar City.

Is it clever to insource everything?

Nobody wants their supplier to go broke because they forced the supplier to take on too much risk. If it happens you’re short on inputs. But if you bring the problem under your own roof and find it can’t be solved then you’re short on inputs and in a financial hole.

A list of things Tesla is doing in house that a regular carmaker doesn’t is… eye-opening.

  • Fuelling stations
  • Dealers
  • Repair shops
  • Energy generation and storage systems. (solar panels and batteries)
  • Developing autonomous driving systems

All of these are tricky. They may cost more to do than expected.

Just because this looks like a car company doesn’t mean it has the risk profile of a car company. Building cars is not the only prerequisite for success.

And of course Tesla is having all sort of trouble building cars. It has had big hiccups making the batteries and doing the welding. It also likely can’t fit all the planned production inside its current factory, meaning it will need a new factory to hit 500,000 cars a year. Tesla is being broadly upfront about this, with Musk referring regularly and breezily to “production hell” – although without giving much detail.

Solving production hell will take management effort and money. But the two new vehicles will divert effort and money. A juggling analogy may be apt. When you add extra balls, the juggler trying to control them drops the lot, not just the new ones.

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You need every column to line up to win.

The recent release of negative stories about the culture inside Tesla may be an indicator a breaking point is near.

OPTIMIST PRIME

The Roadster has some serious technical questions to answer, but – if it can be built – of course they can sell a lot of copies. It’s the world’s fastest car from the world’s coolest brand.

The truck, however, is not certain to sell. While consumers buy on brand and image, the logistics industry is relentlessly optimised around cost. The range Tesla’s truck offers (500 miles) demands an enormous battery, which will make the truck expensive to buy and increase its weight by an estimated 12 tons. That weight matters for at least three reasons

1. The total weight to payload ratio changes, offsetting some fuel advantages.

2. Road damage increases exponentially on a weight per axle basis and governments are increasingly keen to get the logistics industry to pay road user charges based on weight.

3. Trucks are sometimes empty and carrying a battery at those times raises the cost.

The truck also means Tesla had to invent a whole new charger to make sure their trucks could be charged in a reasonable time (30 minutes for 400 miles). It is unclear to what extent this new Megacharger has been invented as opposed to just envisioned. It is further unclear how much they might cost to install, or if they are compatible with existing electricity distribution infrastructure.

Incidentally, the time it takes to charge a vehicle means Tesla may need to install a high ratio of chargers to vehicles on the highways. We’ve all pulled into a petrol station to find all the pumps are in use. You wait three or four minutes and they become free. If the person in front of you is going to take 30 minutes to charge, and then you’re going to take another 30 minutes, you’ve got an enforced one hour stop. God forbid it’s busy and there’s more than one person in line in front of you.

The way for Tesla to combat this inconvenience is by installing *a lot* of chargers at places where people are taking long trips. (This problem should not apply at home, where people can charge their vehicle overnight, but it would apply if you’re doing distance travel, and especially to semi trailer trucks.)

CAPITAL IDEA

The Tesla semi trailer and the roadster are, however, not just extra risk. They can help Tesla raise capital it sorely needs. Pre-orders of the first 1000 roadsters are available by putting down $250,000.  If they can find 1000 people willing to put 250k on ice for a few years, that will put $250,000,000 into Tesla’s pockets. Its most recent cash burn was $1.4 billon in a quarter, so $250 million would buy them an extra three weeks.

Every little bit helps!

Think I’m being excessively mean? Read why here: Why does Elon Musk make me so Cross?

 

 

 

 

 

Money for jams

Congestion charging is back on my list of good ideas

For a while there, I was influenced by the equity arguments against it. The lack of substitutes to travel, and the unique role of commuting to work in a person’s well-being tipped me against congestion charging. Good economic reform doesn’t throw out equity every time it can get an efficiency dividend, and I decided congestion charging equity problems made the policy unworkable.

I dreamed up a ‘clever’ scheme that was a halfway-house to full congestion charging, preserving the substitution effect of a price rise, but without an income effect.

But I’m swinging back to support for a simpler price signal. What has captured my attention is the following graph from a new Grattan Institute report. It shows the extent of congestion in Sydney. Amazingly, most people experience almost no congestion. Their commutes are swift.

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What this tells me is the the impact of a congestion charge is actually not likely to be widespread. Serious congestion, of more than ten minutes in a trip, is the purview of a small subset of commuters.

That  subset is likely to be going into the CBD, where congestion is real.

Screen Shot 2017-10-05 at 6.04.58 PMRemember that despite the importance of CBDs, most jobs are still in the suburbs.  If we know one thing about CBD jobs – especially nine to five CBD jobs – it is that they tend to be the good kind.

City centres are where the business services jobs are. The specialised jobs that pay big coin, as opposed to the population-serving jobs (pharmacies, florists, bakers, doctors, schools) that are found disproportionately in the suburbs.

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It looks like driving into the city in peak hour is an elite problem. No wonder it gets so much attention. The Grattan analysis makes it clear the congestion charging would really only have to be applied in a narrow area.

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This fact also counters the argument that congestion charging can’t be introduced until better public transport happens. Melbourne and Sydney have radial public transport systems that provide terrific CBD access.

 

Traffic is bad. The absence of price signals on the use of existing infrastructure causes crowding and delays. You end up listening to way too much FM radio. But that might not be the most costly effect. The big downside is probably the pressure to build yet more infrastructure.

Daniel Andrews has green-lit the West Gate tunnel – a big freeway that will not only soak up $5.5 billion but also lock Victorians into a regimented tolling regime (not a congestion charge system) for decades.

Big freeway projects have a lot of side effects.

One is making the places that they travel through less pleasant. Place-making is a big theme in urban planning now and a lot of money is spent on making areas seem nice. This “tunnel” which is actually an elevated road for a good section of its length,is kind of the opposite of place making.

A second side effect is city-shaping. You can cut travel times to the city, but that encourages yet more sprawl and inefficient urban form. (Thanks, marchetti’s constant._

If you want a policy that is likely to be equitable, can potentially conserve scarce government funds for more valuable projects, and prevent the paving over of the inner city, then congestion charging is your horse.

To finish with here’s some data to make you go “huh!” – rain, apparently, has no effect on traffic:

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Doctors and drugs: when we can’t trust the white coats

Sometimes you can see a policy change coming a mile off. For about the last two decades, drug legalisation looked like such a case.

The positive results of decriminalisation in Portugal, and the examples of marijuana legalisation in Uruguay and various states of the US were becoming more widely known. The Penington report in 1996 argued for decriminalisation of marijuana and when Victorian Premier Jeff Kennett ignored its recommendations it was seen as a stance justified only by retail politics.

It seemed only a matter of time before expert recommendations on decriminalisation and legalisation  were taken on board by Australia and nations across the world.  An armistice was about to be announced in the increasingly stupid war on drugs. So it seemed.

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Then the opiates crisis began. America is in the grip of a really shocking wave of premature mortality, caused by addiction to opiates. The scale of it is really awful – at 32,000 deaths a year, roughly equal to the numbers killed by firearms in that country.

(If you’d like your faith in journalism to be restored utterly while your heart is smashed into a million irrevocable pieces, I recommend this piece, Seven Days Of Heroin, from the Cincinatti Enquirer.)

The US opiates crisis has forced some hard thinking on the merits of legalisation (for drugs beyond talking about drugs beyond marijuana, mostly.)

The rethinking of legalisation has come from the left, like this piece at Vox: I used to support legalizing all drugs. Then the opioid epidemic happened.

And from the right, like this piece at the National Review: The Opioid Crisis Should Kill the Call to Legalize Hard Drugs

Opiates are not only a gateway to heroin abuse but a problem in themselves. Legal opiates accounted for 20,101 overdose deaths in the USA in 2015 compared to 12,990 related to heroin. If a legal drug, tightly controlled by law and available only under prescription, can be abused in a way that spirals way out of control, what does that say about the prospects of ending prohibition of drugs?

TOO MUCH TRUST

With legalisation, nothing is going to end up as available as buying flour at the supermarket. There will always be controls – regulation, licensing, etc. Choosing them is critical. But there is one shortcut we tend to take.

We love to rely on doctors as one of those controls. “Only available via prescription” sounds like a big barrier to drug availability. We have a lot of trust in doctors at a personal care level and that transfers over to a policy level.

But a look at the US medical marijuana system reveals that prescriptions are available ridiculously easily, over the internet, for trivial complaints. The controls in Canada are not much tighter. Doctors are like anyone and are subject to incentives. If they can make money writing quick and dirty prescriptions, some will.

Meanwhile, even the best-intentioned doctors are at the mercy of a pharmaceutical system that is itself far from perfect.

(If you’d like your faith in journalism to further cement while your faith in capitalism is smashed into a million irrevocable pieces, I recommend this piece, ‘You want a description of hell?’ OxyContin’s 12-hour problem, from the LA Times. It describes how a big Pharmaceutical companies lies about its products, got loads of people hooked on opiates and evaded a whole lot of systems designed to stop exactly that from happening.)

To some extent this is like the story on Elon Musk yesterday. It bothers me when too much trust is vested in an entity, person or institution that doesn’t deserve it. And nobody deserves as much trust as we invest in doctors without an panopticon of ombudsmans, review committees and inspectors.

I think we can move towards legalisation of drugs. But what is crucial in regulating anything is the fine details of the way they are controlled.

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Hoops to jump through

I wrote about this in The Right Amount of Smoking. Finding the exact sweet spot for control and legalisation is hard. You can fiddle with public and private ownership of suppliers, taxation, occupational licensing, sales licensing and controls on consumption.

At this stage, we probably don’t have enough controls for gambling, and we have too many of the wrong kinds for most drugs.

Finding the right kinds of control is hard and requires ongoing adjustment of the policy settings. Trying to outsource the difficulty we have in solving that to doctors is an attractive shortcut, but not the answer.

 

Why does Elon Musk make me so cross?

Elon Musk gets on my nerves. Whenever I see him in a headline my teeth start grinding.

But why? I agree with all his goals. I love the idea of clean energy. I want better batteries. I’m excited by colonising the universe and digging cheaper tunnels. So why does his every pronouncement get me upset?

I’ve been dwelling on this recently, and can only conclude it’s because of the lack of public skepticism he encounters.

Whenever I think about the future, I like to consider it in probabilistic terms.  So when I hear Elon Musk talk about using rockets to travel from New York to Sydney in an hour, I naturally try to imagine what the likelihood of this happening is. I generally come up with numbers awfully close to zero.

Apparently other people’s thinking goes off in different directions, wondering about comfort during take off:

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I don’t find myself thinking about g-forces. I’m too busy puzzling over why he should be able to make a roof including solar panels for less than the price of a roof. What does he think roof manufacturers have been doing for all this time?

Musk is not short of ambition or afraid to make his life more complex. For example, the original Telsa plan had nothing in it about automation or self-driving. He just bolted that onto the plan, presumably expecting it would be doable if the engineers just tried hard enough.

I remain skeptical.

When people think about the progress of science, they have an awful tendency to be swayed by survivor bias. They think especially about progress in personal electronics – because that’s where the progress is. They infer that technology can utterly transform itself with a decade or two.

But when you take a broader sample, you see something different. For every iPhone that did get invented, a flying car failed to be. While we beat back AIDS, cures for dementia and multiple sclerosis languished. And not for want of effort. You can’t tell in advance which fields will yield to effort.

I was a big fan of an old website called Paleo Future, which goes back and looks at old predictions of the future. They’re mostly silly.

In fifty years, most Musk plans will seem as silly. But they’re being repeated across all forms of media. That credulity, and the adulation that goes with it, really rustles my jimmies.

WHY SO CREDULOUS?

There’s a well-characterised cognitive bias where we think that a person who has success in one field will be able to translate it to another. It’s why former Olympic swimmers get hired by big financial institutions, say. It explains why we think Elon Musk can set up a dozen companies including in busy fields like automotive and tunnelling, and come out a winner.

The other relevant cognitive bias is the base rate fallacy. People ignore the fact that in a given domain (colonising space, say) background probabilities of success are very low. They prefer instead to focus on some other seemingly salient factor, like whether the person making the plan to do so is a genius. (And I’m perfectly willing to admit Musk is.)

Now, the charm of having so many cognitive biases running in your favour, is you can attract a lot of capital and hire a lot of good employees. You get to make a lot of bets at once.  Take one 5 per cent chance, you’re set to fail. But take ten and you have a 40% chance of one of them coming good.

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So I’d be surprised if everything Musk tries from hereon turns to poop. He can probably go down in history as a genius inventor. But at the moment he’s getting way ahead of himself.

STRATEGIC THINKER?

Musk’s strategic thinking has worked well so far for Tesla, but past performance is no guarantee of future performance. You only need to look back on his Tesla “Master plan Part Deux” from 2016 to get a sense of how iffy it can be. It contained a very peculiar section on taking the aisles out of buses to make room for more seats. Ignore for a moment that aisles are important to buses – the point is that that kind of fine detail has no place in a strategic plan. Shortly afterward, he walked back the whole section on buses anyway.  The whole thing made me wonder if his success came because of or despite his strategic vision.

It is possible that long before he has a chance to be proven wrong on intercontinental travel, Mr Musk will have a reversal of fortune.

MODEL 3

Tesla’s plan to ramp up production of Model 3s in a new facility looked risky to me from the start. Manufacturing is hard and Tesla is new to doing it at scale. Today we learned initial production of the smaller more affordable car has fallen short.

The company has identified ‘a handful’ of bottlenecks in its production systems and produced way fewer Model 3s than it planned (260 vs an expected 1500). I fear that for a company doing its first ever mass-production, solving that handful will only reveal another handful. Complex systems are interlinked and problems can cascade throughout.

Expecting to move smoothly to mass production was pure hubris – big new projects regularly have huge cost overruns and delays.  (I used to work on Defence projects so I’ve seen cost overruns and delays.) Furthermore, in making its new factory, Tesla skipped a step most manufacturers use, getting all its tooling made before they’d had a dry run. That will save time and cost only if all the systems fit together neatly and as expected.

I understand why they’re rushing. There’s two reasons Tesla must sprint to survive.

First, so much debt has been brought on that they need a lot of sales to pay the interest (with the share price so high I don’t understand why they wouldn’t just issue shares, which don’t need to be periodically refinanced).

So far Tesla burns cash just to stay running. Having big debt and negative cashflow is not sustainable. There’s not many times corporate finance is heart-in-your-mouth terrifying, but Tesla is making it like watching one of those guys in a wingsuit.

Second, the longer they delay the more competitors with proven manufacturing ability can catch up and steal the market. The Chevy Bolt is a proven success and we heard last week that even vacuum manufacturer Dyson is entering the electric car market. A Bloomberg article published today had a huge list of Tesla competitors. Fifty new electric vehicles are going to hit the market in the next five years, from companies with a strong history of making quality products.

I think the Tesla corporate structure needs careful steering to not end up on the rocks. The technology and brand could well be for sale within five years, and gleefully bought up by someone like General Motors or Google. That’d be awful for Tesla investors and employees but mostly fine for society, as the losses incurred in creating all this technological progress would be internalised by all the investors who’ve done their dough.

SHOULD I BE SO MAD?

So am I justified in being so cross at Elon Musk and all the people who believe in him?

One argument is I am not. To the extent that he is making great progress, I should shut up, and to the  extent he is selling risky bets, his main victims are private investors who are welcome to include in their portfolios a few risky bets.

While money will be wasted, technology will also be created. If it has value, that technology will presumably be up for grabs if Tesla (or SpaceX, or Hyperloop) ever needs to make their creditors whole, and society will still be able to benefit from them. From this perspective, the cult of Elon Musk is just a big scheme to get private investors to take the risks of moving science forward. And it’d be awfully pig-headed to be mad at that.

From another perspective, investor money is finite, and we should be careful to steer it toward those schemes with the highest chance of success.

So tell me, dear reader. Am I being too much of a grouch toward Mr Musk?

Have we found a way to finally get Australia to do preventative spending on health?

I love government. But it is not a blind love. Government is not done as well as it could be. I’m very much for the idea of achieving collective goals to improve society, and very much open to reforming how we do that.

Here in Victoria we have two of the most potent and innovative public agencies: TAC and WorkSafe. The Transport Accident Commission works to reduce injuries and deaths from transport accidents. Worksafe works to reduce injuries and death at work.

They do a lot of good preventative work. Both have been very effective.

Victoria has the second lowest workplace accident rate in Australia, measured by fatalities (after the ACT) and by workcover claims (after the NT), as these next two figures show.

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Victoria also has some of the best road safety performance in Australia. It has improved substantially over the last decade, as the next chart shows. (Of course, improvements in safety also come from improvements in cars themselves, but via programs like How Safe Is Your Car? the TAC encourages Victorians to buy safer cars, accelerating those positive changes.)

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What makes Worksafe and the TAC effective?

  1. Reason one is their independence. (The 2014-15 blip in Worksafe performance that you see in the above graph may be related to the state government meddling with its operations at that time. Independence matters.) They are statutory agencies free from direct ministerial control, giving them the ability to take extra risks.
    The innovations that are most visible to the public are their communications – Worksafe sponsors a football team while the TAC pioneered using TV advertisements to change culture and reduce the road toll. This kind of communications strategy is rarer in government departments, where ministers face tough questions over spending.
  2. The second, related reason is that these are not just policy agencies but insurers. Worksafe takes premiums from employers, and TAC from car registrations. They pay out when a worker is injured, or when a person is injured in a vehicle accident. This gives them not only a funding source independent of annual budget rounds, but also a clear financial incentive. (nb. Worksafe is also the workplace safety regulator and inspector, giving it further powers. TAC is not.)

These are both world-leading organisations which have had powerful positive effects on society, and organisations whose successes I have admired.  So I was excited to see, earlier this year, the head of the Productivity Commission throw up a powerpoint slide with a dot point that argued we should Address disease prevention as directly as we address workplace accidents.

I was immediately captivated by the idea of using the Worksafe model to try to fight disease. The upside looks to be huge. Australia’s preventative spending on health is fairly terrible, as is well-documented, and was again confirmed in a paper by two Public Health academics in July this year. 

“Treating chronic disease costs the Australian community an estimated $27 billion annually, accounting for more than a third of our national health budget.

“Yet Australia currently spends just over $2 billion on preventive health each year, or around $89 per person. At just 1.34 per cent of Australian healthcare expenditure, the amount is considerably less than OECD countries Canada, New Zealand and the United Kingdom, with Australia ranked 16th out of 31 OECD countries by per capita expenditure.”

Could we fix the preventative health spending deficit by setting up organisations akin to Worksafe and the TAC? Might it have the exact combination of novelty, innovation and actual prospects for success that could make politicians and public servants agree on it?

At a high level the opportunity seems to be there (for preventable diseases but not, so far as I can see, for non-preventable ones like MS). Does it persist when you dive down into the details?

THE DEVIL INSIDE

Imagine you were setting up a statutory insurer to fight against adult-onset diabetes. The insurer would collect premiums and pay for treatment after a person was diagnosed.

The big question is where the premiums would be levied.  There is a key difference between this scenario and the workplace safety situation. Employers opt in to insuring employees when they hire them. Likewise, road users opt in to the TAC scheme when they register a vehicle.

The sort of population-wide coverage required by a diabetes insurance scheme means the beneficiaries could not be expected to cover their own premiums. (i.e. not without undermining the public nature of the health system! This fact may motivate some skepticism towards this idea from people who fear it is a Trojan horse for dismantling public healthcare. I don’t think it is.)

IT ALL COMES BACK TO CANBERRA

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The only plausible premium-payer would be the federal government. That raises the question: How different, ultimately, would this be from Medicare? If the government is paying premiums into a public insurer and taking out the payouts to cover treatment costs, isn’t this just replicating an existing system?

The answer is it might be a replication. But if there is something in the culture, funding or control systems of the Health Department that makes it less than optimally effective, then there is a chance of improving outcomes by making a new organisational structure.

Following the Worksafe and TAC models, a good insurer would be focused on a single disease or group of diseases that we have at least some ideas how to prevent (lung cancers, diabetes, heart diseases). It would work on culture change and system changes to try to find the most cost-effective ways of reducing the incidence of that disease. (As an example of systemic changes, the organisation paying the premium might be more inclined to levy a sugar tax if it knew that would reduce its premiums for diabetes insurance). If it had success, the premium it would have to charge to the government for coverage would fall.

NDIS-ESQUE?

Any such systems would be different from the NDIS. The NDIS is far more about organising and coordinating the care for people who have disabilities. It is premised on helping people after the fact and is a vital service.

It does not seem, so far as my reading has shown, to have a focus on identifying avoidable disabilities and investing to avoid them. ( I am sure there are exceptions down in the details but at a high level NDIS is more about service-delivery than prevention.)

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Sometimes puppers are not relevant to the post so much as reward for reading so far.

ISSUES

I’ve painted a picture above that I find promising, but I’m not going to expire in the proverbial drainage channel for this idea. I can see its weaknesses.

For starters, this looks like a case of bower-bird problem solving. You spot a shiny thing (TAC, Worksafe) and take it back to your nest. Then you’re seeking out a good way to use it. That is different to taking a first-principles approach to figuring out how best to optimise preventative spending. There may be better ways. And it could be that the azure sheen of TAC and Worksafe blinds one to the inherent unsuitability of the model in other environments.

Secondly, I may have mis-identified the effectiveness of those two organisations. I know their existence correlates with big improvements in the outcomes they’re targeting, and I know they are well-regarded but I can’t show causation. Other jurisdictions have similar organisations that are not as effective.

Third, the advantages might all fly out the window when you have the federal government paying the premiums rather than other customers. That’s a powerful customer and it might be hard to fight for justified premium hikes in tough fiscal situations, in which case the independence of the agencies becomes blurry.

Having said all that, I’d love to see a superlong .pdf  getting into the guts of this idea and figuring out whether there is promise in it. If you work for a thinktank or a department and you’ve already written such a thing, please let me know!

Anyone else, please leave a comment sharing any insights or aspects you think are relevant!

Octagons and smashed avocado: a good Eixample?

I just got back from a little holiday that took me to Barcelona.

In Barcelona I was thrilled to stay in the famous Eixample district. In the kind of urbanism blogs I like to to read, Eixample has been used so often as an example of density done right, that I was pretty stoked to get a taste of the life it has to offer.

Eixample is famous for its donuts. Not the bready treat, but the shape of its blocks. (Spanish calls them manzanas, or apples, but I call them donuts.) They are octagonal blocks exactly 133m in length.

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The six to eight storey buildings of this “newer” part of Barcelona are often held out as a counterpoint to the fifty storey needles I can see piercing the sky above Melbourne. So I had high expectations of the experience I would get when I booked my airbnb in the heart of the region. It was amazing, as I expected. But my high expectations meant I came away with a few reservations.

First, the good stuff: there is lots of ground level retail, lots of restaurants etc, and lots of apartments above them, all arranged in a distinctive urban form. Public transport is abundant. The place is buzzing day and night, which means you want a quiet apartment facing the interior of the block.

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And it was the hollow interiors of the blocks of Eixample that were the site of my first disappointment. The cores are all built over.

Our apartment had a balcony facing the interior of the donut. It was nice and quiet, but rather than a green space below, we looked down on a bunch of roofs. The ground floor retail has been so successful they have basically all built out to the very back of their blocks, leaving very little open space inside the donut at ground level.

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There are one or two exceptions to this rule in the Eixample district –  I saw one tunnel leading through to a children’s playground. But Google Maps shows the interiors of the octagons mostly all built over.

The problem is compounded by the near total absence of open space in the district. Regular readers of this blog will know that I am no knee-jerk admirer of open space. But just as I think Melbourne can sometimes go too far in one direction, Barcelona goes too far in the other.

All those blocks, and none left open as a Plaça? Nowhere to sit and take your espresso without traffic whizzing by? The lessons of old Europe were not applied!

This becomes all the sadder when you look at the original plan for Eixample. (Eixample, which I found out is not pronounced remotely like the word example, means expansion. It was designed as a contrast to the higgledy piggledy old town of Barcelona.) The original plan shows not only were plaças dotted around, but the octagonal blocks were intended to be developed on only two or three sides.

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Developer interests have been making a mockery of density intentions for a long time.

One thing that has been preserved from the above map is the octagonal blocks. In contrast to the square corners of grids like Manhattan’s or Melbourne’s these mean the intersections have an open feel. Sounds great, right? And it is great, for drivers.

That open space is mostly devoted to road.

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They use some of the extra space for parking, some for huge dumpsters and some to make the footpaths slightly wider, but cars can still zoom around the corners. It reminded me of the lesson of the “sneckdown” – a lot of road space is often allocated to cars that they don’t necessarily need. You can actually see a colour differential on the road above where traffic rarely treads. That space could be better used.

The following picture shows a fairly typical scene at an Eixample intersection – crowded with vehicles.

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The octagonal design also means pedestrian crossings are shifted back up the street. To cross the road, pedestrians must divert from the shortest distance between two points.

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Walk far enough like this and you become a huge fan of squares.

The blocks are reasonably short, so if you’re walking a long way, that’s a lot of meandering. Some people don’t bother diverting to take the lights, and just wander out across the expanse of road instead. The pedestrian crossing placements mean the two at each corner are not adjacent, so if you just miss one light, you have to walk back across the chamfered corner to get to the other one. A small pain point, to be sure, but a real one when it is repeated so often.

In summary, the Eixample district charmed me, but was somewhat more car-focused than I’d expected.

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Motorbikes: everywhere. This street was traffic calmed, actually.
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The streets are also all one way, with no parking, which I find raises vehicle speeds.

Eixample is an expensive and desirable part of Barcelona. You can get some pretty fancy smashed avocado there, which says a lot. The part of the old town called El Raval, meanwhile, remains amazingly rough and ready.

So, Eixample was very easy and enjoyable to live in, but not quite the urban design paradise I’d imagined.  And in fact, some of the problems I’ve mentioned are currently being reviewed.

Have you been to Eixample? Any thoughts on its advantages and disadvantages? Leave a comment below!

Can we ever get road user charging to work?

PART 1 – WHY ROAD PRICING ISN’T WORKING

I’m an economist – I think I understand markets and am tempted to use them when they can do a good job.  Road user charging would do a good job of keeping people off roads at peak times and, used properly, could kill traffic congestion.

I’m reluctant to endorse road-building sprees before we even try to manage the use of the infrastructure we have. Taking, say, the least useful 10 per cent of traffic off roads could kill congestion for a while and mean we can wait another few years before making huge billion dollar infrastructure investments. That has big value to society.

(A small drop in traffic can make a big difference: While slow but steady traffic can be efficient, there is a tipping point where congestion is too high, the system overloads and it fails. At that point the effect of another road user joining the road is negative sum. We really want to be below that point. Also, a surprising share of trips are ones that could be moved around – less than a fifth of trips are commutes.)

However. Road user charging has serious problems. The big one is fairness.

Charging people to use existing roads is seen as unfair – and what’s worse, it probably is. (Perhaps not the most unfair policy in all of the Australian history but enough to pose an insurmountable political challenge to implementation.)

Yes: we charge for food, we charge for electricity, we charge for water, and nobody would deny those are more fundamental. But roads are different in a key way.

The big factor is that a group of people who are below and around the average wage consume a lot of road time, and they do so in ways they can’t avoid. Remember, most jobs are in the suburbs, which are not well served by public transport.

(This is not to deny Joe Hockey’s ‘controversial’ point that the very poorest people own cars less and drive less. He is right. I’m kind of displeased with this ABC fact-check that rates the comment misleading. It’s plainly fricking true, and he was pointing it out in the service of raising the petrol excise, which is good policy. n.b. All this is not to deny that Joe Hockey was a bad Treasurer. Also, he blocked me on Twitter for making a joke about the aforementioned debacle. The joke, shown below, is totally innocuous.)

Alack, I digress. The key point is that less well off people live further out and consume a lot of road time, so road user charging is seen as pure sadism. I wrote about it recently at Crikey and a commenter asked why I wanted to “penalise” people. I read the comments on these sort of pieces a lot and I very often see charging for roads described as a penalty or punishment.

If your policy solution is perceived as cruel, you have a big problem. I’ve written previously about a PR strategy for congestion charging (and gee it’s a good one) but I’m still not seeing much progress for the idea. Maybe, just maybe, we need more.

2. BREAKING IT DOWN

My Crikey piece tried to sort through the ways in which a market mechanism works to sort out why the market is seen as unfair.

A market mechanism rations demand, yes – and encourages supply too. It also incentivises suppliers to be efficient; tempts competitors who may do a better job to enter the market; encourages people to consume things that are cheaper; and also, reveals who wants or needs something most.

Well, it does that last one in theory. In reality, the buyer is not always the person who wants the thing most in any sort of objective sense. Budget constraints are the deciding factor: Rich people can afford lots of things while poorer people have to make a lot of tough decisions.

Of course, it is not just roads. Many consumer goods go to rich people even though poorer people would get more subjective value from them. This, we implicitly say in a capitalist world, is fine because the reason the system works at all is by rewarding the people doing the highest value work with a life of being able to afford more things and facing fewer tough trade-offs. (this implicit choice is an issue for another time.)

But work is not something we consume like other goods. Getting to work is not a reward for work, it is an input. If you make getting to work more expensive, you risk putting some people off going altogether.

If there is literally no other option for how to get to work, and no way to bargain with your boss for another start time, and you don’t think you can find another job, and all the more fuel efficient cars cost more than your current car would fetch second hand, then the effect of a higher road use charge is 100% income effect / 0% substitution effect and you can see why it might seem punitive.

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When household budgets are tight due to child care and high effective marginal tax rates, a road user charge might actually prevent a person from commuting. If we dissuade someone from working now, it can not hurt them only now, but damage their lifetime earnings, and the lives of the generations that follow them.

Even if most people are not at these extreme cases, the trade-offs that a road pricing mechanism forces are difficult ones over things that already seem hard.

So you can make a good case for a road rationing mechanism that tries to ration road use without putting a cash price on roads. I have previously proposed a system that might do that.

A recent article in The New York Times describes a food donation network that used a kind of pricing mechanism to solve an allocation problem. It created a big range of efficiencies via a points system — local food banks used points to bid for various items from each other.

A similar points system could overcome the fairness problem in pricing roads. People could be allocated points based on, for example, how far from the CBD they live, or their lack of access to public transport. Unwanted points could be sold off.

This system would totally eliminate congestion if few enough points were given out. It would also create incentives to use other kinds of transport. And it would do so fairly.

What it doesn’t do is reward the owners or operators of roads, or provide a funding stream for roads. Public provision and funding would still be necessary.

But perhaps waiting for the perfect market mechanism that can deliver all the potential upsides is unrealistic. Can road pricing advocates choose not to let the perfect be the enemy of the good?

The more I think about this, the more I see the devil is in the detail. Who would get the points?

This goes to another of the points I made in the Crikey piece. Market allocations of goods may not be fair, per se, but they are a sort of Schelling point – a way of allocating scarce resources that society generally tends to land on in lieu of other ideas.

I like the idea of giving them to households with worse public transport options or lower access to jobs. “I have no other options” is one of the big reasons road user charging is seen as unfair. Having no other transport options is also sometimes a proxy for socio-economic deprivation, although an imperfect one.

But an allocation based on geography would be tough for any government to operate without causing a fuss and furore that would see them voted out.

traffic

While society doesn’t agree to market distribution of road space, yet, that doesn’t mean it agrees to some other rationing plan either. We have a few non-market rationing models in place in other parts of the economy: Income testing and asset testing are both known ways of allocating scarce, government-provided goods. Neither is an obvious fit for allocating road space.

So a geography-based allocation model would be wholly new. And in our geography-based political system, very much open for abuse. New allocations of road use credits would not be safe from the electoral cycle, although whether congestion would rise to previous levels is not clear.

We should also consider the unintended consequences of such a system. Would it reward sprawl if you gave road access credits to people with low public transport access? And punish people who’ve bothered to make the trade-offs to live in smaller spaces closer in?

The whole thing starts to look very difficult indeed. Is there another way to make a non-market rationing system work? Please leave your ideas below!