Daily Archives: December 6, 2012

Brum Looks at Cable Car – Despite The London Flop

BBC West Mids

Birmingham could get a cable car system under proposals being considered by city transport bosses.

It follows calls by transport authority Centro to find ways of linking up the redeveloped New Street, Moor Street and Curzon Street stations.

Curzon Street, currently a derelict site, is due to be turned into the city’s HS2 high-speed rail terminal.

The designers behind the cable car that spans the River Thames in London are due to give a presentation to Centro.

Greenwich News Shopper

GREENWICH’S £60m Thames cable car link risks becoming a cash-draining “white elephant”, it is claimed, as passenger numbers continue to flatline.

News Shopper first reported how Emirates Air Line, plugged as a “much needed river crossing” by the Mayor of London when it opened in June, nose-dived after the Olympics to less than five per cent capacity.

In the latest Transport for London (TfL) figures, the five-minute link, which can carry up to 2,500 passengers an hour in each direction, took less than an hour’s worth of riders each day.

There were just 30,667 passengers using the route from Greenwich peninsula to the Royal Docks for the week spanning November 18 to 24 – a daily average of 4,381 users.

London Assembly Green Party member Darren Johnson slated the figures as “extremely disappointing” and called for the transport link to be incorporated into travelcards, encouraging commuter usage.

Mr Johnson said: “To boost ridership he should review the ticketing policy to include the cable car in travelcards, the freedom pass and the Oyster cap so that it is more attractive to Londoners undertaking everyday travel.

“Otherwise, the cable car risks becoming the white elephant of the Olympics when it has the potential to become an integrated part of London’s transport network.”

 During high winds the service closed for eight hours on September 24 with just 301 passengers using it.

Leader of the Liberal Democrat London Assembly Group Caroline Pidgeon said: “It is now increasingly clear that the Thames cable car is little more than a tourist attraction and not proving a useful link for people who regularly commute across the Thames.”

TfL’s Head of the Emirates Air Line Danny Price said: “It is envisaged that revenue generated will, over time, cover all costs.

“The number of journeys made on this route is already over 1.5 million, well exceeding our first year target and customer feedback shows very high levels of satisfaction with value for money.”

Some notes on Pontus Rendahl’s review of ‘Keensian Economics’

In a short presentation at a seminar at Cambridge England last week Pontus Rendahl responded to a presentation by Steve Keen outlining his theories (or rather a subset of them in time constraints).

This is interesting as it is the first serious (as opposed to a sly remark in a blog Krugman style) review of Keen’s ideas by a noted neoclassical economist.

Pontus’s remarks in part result from not knowing the full corpus of Keen’s work (such as on bank’s power to lend) and as Keen acknowledges ‘talking past each other’ on occasion.  But what is interesting is that Pontus’s main thrust is not utterly dismissive of Keen but are implied in general equilibrium models dating back 30 or 40 years.  Of course the mainstream reaction to any heterodox idea is at first dismiss it and then to acknowledge we have known this all along.

Keen’s analysis starts from a very neoclassical observation … In the macroeconomy everything comes from somewhere and goes somewhere …The rest of us call this General equilibrium”

No the sectoral balances approach – though implicit in and predating Keynes – was neglected by neoclassical economics and only taken up interdependently by Wyne Godley and Hyman Minsky.  An economy modeled as  ‘everything comes from somewhere and goes somewhere’ is the classical circular flow paradigm, not the neoclassical snapshot of an instantaneous equilibrium of prices with no retention of ‘stocks’ such as capital accumulation through time.  Note the key driver of the Classical adjustment process was switches in equity funding, this is not yet modelelled though by Keen.

Keen is of course not modelling a snapshot of equilibrium but the process of change between one set of prices and another and how and why that changes.  The Walrasian approach has nothing to say about how and why economic actors move prices towards or away from equilibrium.  The simultaneous equation approach is simply one (like the neo-ricardian project) a modelling of possible sets of prices not of price formation, profits and loss.  Keen’s systems dynamics approach can models dynamics of prices moving towards equilibrium – but also potentially overshooting it and building up pressures which can result in  disequilibrium and breakdown – financial crisis.  The GE approach cannot do that.

Also of course GE  not a stock – flow consistent approach, Pontus  rather puzzlingly claims

All GE models (including DSGE) are stock flow consistent

Well only if SFC is redefined to include abolishing stocks and cash accumulation, we only have flow (period 1) flow (period 2) consistency in DGSE.

Pontus also says Says Law holds in Keen model.  Keen of course claims that monetary injections (credit) invalidate Says Law.  There is an important insight here though – that the law of markets (Says Law) does hold if you add two qualifiers:

1) You include credit advanced for investment; and

2) The prices planned at the point of investment are realised (markets clear and their is no inventory remaining)

Of course the view of the business cycle as a credit cycle – which Keen has revived – shows circumstances where entrepreneurship overestimate sale prices, because they have speculated on goods prices, and / or by the time the consumption good is ready demand is depressed by debt repayments and deliveraging forcing sale of inventory at market clearing prices of a new (lower price point) equilibrium.  Perhaps one way of looking at the Circuitist tradition to which Keen belongs is explaining when and when not the ‘law of markets’ works and why (and why not).

I should note though that although Keens models currently include modelling of ‘inventory’ in labour markets  it is not yet modeled in goods markets.  However of course if these is insufficient demand in one market Walras’s law dictates there must be excess demand in another so it is no great fault, it is implied.

Pontus claims Keen’s model lacks any ‘forward looking’ behavior   Code for rational expectations and microfoundations.  Keen’s approach though is based on Keynes’s insight on radical uncertainty in fluctuating markets – economic actors carrying on doing what they have been doing.  His aggregative approach assume firms invest if their are profits and hire workers as a result these incomes and profits being reinvestment etc.  There is as yet no sophisticated modelling of investment functions (even in Kaleckian form). or modelling of portfolio preferences.  Though there are others modelling in the Stock Flow Consistent tradition that do include portfolio – optimising behavior (such as for example the NEF model).  The key point where is whether an approach founded on Keens approach can be modified to include these.  It shows important results without them suggesting that the Keynes insight that the key driver of the economy is demand is correct and the claims for microfoundations somewhat overblown, macrofoundations are more important than microfoundations.

Pontus states that Keen’s insight that effective (aggregate) demand must exceed (exante) income is – ‘nice but not novel’ and is implied in Lucas’s cash in advance model from 1982.  Keen claims the concept of ‘cash in advance  comes from a Minsky paper in 1963 (claims about priority seem to go nowhere as Clower, Simonsen and Minsky all seem to have discovered the concept in 1963 in response to the Patinken controversy).

Note The ‘Cash in Advance’ concept seems to me weak as the decision to spend against a liquidity constraint is always made simultaneous with a decision to not spend to maintain liquidity for future spending – which also undermines the pure Keynsian concept of ‘liquidity preference’ as idle balances  can accumulate or without concious decision to vary them, automatically running up with wages and investment returns, running down faster than anticipated as interest rates and prices rise etc.  The Randall Wray’s concept of a demand for money depending on current balance sheet levels and investment plans (which can translate into a demand for credit) seems much superior. 

But the Lucas approach, though endlessly cited (my theory is that papers that use hard but not excessively difficult   in obfusicating, dry,  none real world way are cited so much to make the author look clever to their PHD and Journal referees) is based on a world with no debt or cash /capital accumulation.  However the insight that even with a single ‘Representative consumer’ that they require an injection of money is important.  Of course in Lucas’s world that injection is from exogenous money from a monetary authority that mysitcially anticipates the investment and monetary requirements of banks.  One might ask that if Lucas had seen this why he did not map out the dynamic implications for business cycles it implies and predict the GFC, when instead in his address to the AEF in the mid 1990s he suggested an eternity of stability.

Pontus accuses Keen of implying that

banks [mindlessly and recklessly] extend credit

But this is a caricature as Keen (though not in the Cambridge Presentation)    – has modelled explicitly the balance sheet constraints on the creation of endogenous money – such as in his INET paper of earlier this year for example.  If Keen is to be criticsed is that this modelled does not yet (at least in published form) include the sources of investment to create this lending power – such as from equity or retained profits (Keyne’s revolving fund of credit) and how this lending power transmits through and across banks through excess reserves – which my own modelling has attempted to fill.

Pontus also states that Keens graph of discontinuous demand from an injection of credit was generated in a drawing prtogramme and not a maths one, im sure this is right but very quickly im sure the Fields Institute will send one generated in Mathematica slam dunking the point.  His point about infinate integrals is not relevent to Lebesgue integration used by Keen where integrals are calculated horizontally as follows where the top is conventional Reimann integration and the bottom is Lebesgue integration.

Also if Pontus doubts this how does he square this with the assertion that discountinous injections are implied in the Lucas Cash in Advance model – either Keen is right or the Lucas Model is mathematically flawed, which is it to be?

Why we need a Herts-Cambs-Beds-West Essex (West Anglia) Study

Events have conspired to compel the need for a large than local planning study in this area;

1) Yesterday it was announced that LEPS were to conduct strategic housing/transport/infrastructure growth studies.  These will legally need to adopt the procedures of any plan (consultation, SEA etc.) yet without local democratic involvement will suffer a democratic deficit.

2) This area has the highest concentration of unadopted local plans in the South East, as well as some of the highest economic and housing growth rates, a toxic combination.

3) The NPPF is forcing strategic green belt reviews on authorities, as St Albans found last week, few have yet been commissioned.  Yet if all growth was met locally many towns, especially in South Herts, would converge and the M25 would grind to a halt.  In the North of the area on the other hand large new housing and employment growth could be planned together leading to less commuting overspill.

4) Many have said, including local Councillors, that a better solution would be to build one of more Garden Cities in the North Herts/South Cambs area.

5) Cross boundary issues are leading to some joint planning initiatives such as West of Stevenage and Harlow Expansions grinding to a halt, LPAs need an out as they know that they will be slaughtered under the Duty to Cooperate.

6)The Green Belt was defined in 20 year Structure Plans more than 20 years ago.  So the Green Belt is out of date, a ‘permanent’ restriction without a permanent counter magnet for growth that these plans provided.  The RSS for East of England will soon be revoked leaving a huge hole for LPAs with out of date local plans.

7) The strategy for Cambridge expansion from the old Structure plan is aging and needs to be looked at again on a wider than City basis.  Also the key constraint of the WAGN Cambridge Rail Branch from Hitchin has now been removed and more broadly the ‘North of Cambridge – Sod Public Transport’ strategy of the structure plan is hardly Smart Growth.

8) If these areas are first to do so they will be front of the queue for infastructure pots from this or any future government.

I would suggest that the logical boundary would be Beds, Cambs, Herts and Uttlesford, Harlow and Epping Forests Districts in Essex.  These lie on the North South Motorway and Rail Connections running out of London and cover the complex overlapping housing market areas in the North and West of London commuter belt.

Of course the old London-Stansted-Cambridge Corridor approach was savaged by the East of England Plan panel, implying because of its vague definition by government at the time a continuous corridor of development potentially road based rather than nodes on railways.  (I worote a long piece on this in Planning).  The implication is such a nodal approach rather than a corridor approach.  The Thames Gateway and East Anglia have quite separate issues.

A few notes.  Firstly it needs to include much studied options (such as West of Stevenage, Harlow Expansion, West of Luton) as options, indeed legally under the SEA directive it has too.

It should study the scope for better East-West transport links including   the expensive eastern section of the restoration of the Varsity line and the former Northampton-Bedford linefunded by one or more Garden Cities, the potential to part gap fund the A10 improvements and other key improvements should also be looked at.

Looking at opportunities in the north of the area may avoid the potential showstopper of the Rye Mead Sewerage works and its adjoining SPA as catchments would fall to the Ouse.

As any new settlement will have a long lead in time and as the need for housing is urgent some Green Belt releases in the South of the area will be inevitable.

The timescale of the study will mean that any government chosen expansion of Stanstead would have to be left out and looked at in a supplementary study, which is convenient.

The way ahead.  I think the LEPS together with the (remaining three) county Councils should call a Planning Conference to set up a joint board to commission the work.  Now either Districts are either in or out.  But if they refuse they will of course get short shrift at plan examinations on Duty to Cooperate.  Though bottom up driven once the ball got rolling the process would in effect be hobsons choice, taking part would be the only way to demonstrate full compliance with the duty.

So lets get on with a West Anglia Study.

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