The Economics of Bike Lanes – How can John Cassidy get it so wrong?

As an economic journalist, I absolutely admire John Cassidy. He is one of the best economic writers I’m aware of. Few people can explain utterly complex issues as simply and entertainingly as John does. I wholeheartedly recommend his books on the internet bubble (“Dot Con – the greatest story ever sold”) and the financial crisis (“How markets fail : the logic of economic calamities”). I’ve cited his brilliant interview with Eugene Fama several times.

However, as an avid cyclist (from John’s perspective: as a sansculotte of the bicycle lobby), I’m deeply disappointed in him. He recently published a rant against bike lanes in his home town New York City on his blog “Rational Irrationality”. His central argument is that bike lanes come at the expense of free parking. (Many thanks to Andreas aka London Cyclist for drawing my attention to John’s post.)

What really annoys my inner economist is that John is using improper economic arguments. He writes:

from an economic perspective I question whether the blanketing of the city with bike lanes (…) meets an objective cost-benefit criterion. Beyond a certain point, given the limited number of bicyclists in the city, the benefits of extra bike lanes must run into diminishing returns, and the costs to motorists (and pedestrians) of implementing the policies must increase. Have we reached that point? I would say so.

I find it absolutely incredible how such a smart economist  can get it so woefully wrong. For a number of reasons his economic arguments are deeply flawed.

Free parking isn’t free

First of all, John is taking free parking for granted. However, there is no such thing as  free parking. As Donald Shoup, Professor of Urban Planning with UCLA, argues in his book “The High Cost of Free Parking”:

“The cost of parking is hidden in higher prices for everything else. In addition to the monetary cost, which is enormous, free parking imposes many other hidden costs on cities, the economy and the environment. (…) If drivers don’t pay for parking, who does? Everyone does, even if they don’t drive. Initially the developer pays for the required parking, but soon the tenants do, and then their customers, and so on, until the cost of parking has diffused everywhere in the economy. When we shop in a store, eat in a restaurant, or see a movie, we pay for parking indirectly because its cost is included in the prices of merchandise, meals, and theater tickets. We unknowingly support our cars with almost every commercial transaction we make because a small share of the money changing hands pays for parking. Residents pay for parking through higher prices for housing. Businesses pay for parking through higher rents for their premises. Shoppers pay for parking through higher prices for everything they buy.”

Update: The Washington Post has recently published an interesting piece on Washington’s Metrorail, which tries to encourage more people to use their bicycles to get to the station. The piece included some staggering numbers about the costs of parking:

Parking spaces cost on average $25,000 each, compared with $1,000 per space for a secured bike cage. “It’s an extremely expensive proposition for us” to expand car parking, [Kristin Haldeman, Metro’s manager of access planning] said.

Bike lanes are economically different from parking

You might ask yourself if those arguments also apply to bike lanes. Frankly, I don’t think so,  because parking is a private good which the free market can easily provide. The same isn’t true for bike lanes. Parking has a market price (the going rate for one hour of parking in Manhattan around 9 am in the morning currently seems to be between $9 and $24. ) If there is high demand for parking in Manhattan private investors can knock down houses and build more multi storey-car park.

Unfortunately, however, the free market is not able to provide bike lanes in the same fashion. To a certain degree bike lanes are public goods.

If I use a parking pace, John cannot use it at the same time. However, if I was cycling on one of those malicious bike lanes  John could do this as well simultaneously. (Of course,  bike lanes ultimately have capacity constraints. At some point congestion would  be an issue. However, it will take quite some time until they are going to bite. Cyclists need much less space on the street than cars, as this poster impressively shows)

The second criteria which defines a public good also applies for cycle paths: non-excludability. Nobody can be effectively excluded from using a bike lane. Hence, it is practically impossible to charge cyclists who are using them. This means that even if there is  significant demand for bike lanes the private market won’t be able to deliver them.

From an economic perspective bike lanes are rather similar to interstate highways or paved roads.

Increasing Returns of Bike Lanes

John is suggesting that bike lanes have diminishing returns. I’m afraid this is another point he’s getting wrong. Quite  the contrary is true. Bike lanes are probably characterised by increasing returns. Transport for London is using  exactly this argument as a  justification (see page 8 of this document)  for the introduction of the so called “cycling superhighways” :

Seeing other cyclists undertaking a safe and direct journey to work is expected to attract people to  start commuting by bike, or to cycle more often. The high visibility of the Barclays Cycle  Superhighways is also likely to generate increased awareness and consideration of cyclists among  different road users.

Update: This “bandwagon effect” probably isn’t the most important reason why cycle paths are characterised by increasing returns. Two  economists idepentently drew my attention to another issue: network effects. “A few isolated bike lanes don’t help much if you still have to go through dangerous stretches on most trips”, Matthias Doepke(Northwestern University) wrote me. “Once there is a connected network, the attractiveness of biking goes up a lot. That’s where we are in Chicago now – good number of lanes, but no real network yet.”

Greg Ip, US economics editor with “The Economist”, puts it this way:”Just as you are more likely to buy an Ipad the more applications it has, you are more likely to switch from car to bicycle the more bicycle lanes (and therefore destinations reachable by bicycle) are available. Doubling the number of bike lanes more than doubles the number of cyclists likely to use them.”

They are both absolutely right  – I’ve  missed this point.

The number of cyclists is not exogenous

Another key pillar of his arguments is that there is just no demand for bike lanes in NYC.

When I drive up and down Third Avenue, as I do often, what I usually see are cars and trucks inching along in single file (it’s a two-way street) with an empty bike lane next to them. (On those rare occasions when I do happen across a cyclist, or two, he or she invariably runs the red lights.)

At first sight this is true. Only 1% of NYC citizens currently commute to work by bicycle. Nonetheless, John does not have a point here. He is treating the number of cyclists as exogenously given.  I’m sure that this is a fallacy.  In Amsterdam, for example, 22% of all journeys are being done by bike. Even here  in Central London in morning peak the ratio of bikes to private cars is now 1 to 3. (Felix Salmon makes a similar point.)

This is neither due to a biking gene nor to Amsterdam or London  being flatter or less rainy than NYC. It’s due to cycling infrastructure as  well as a different cycling culture.

Both things don’t have to be taken for granted. They can be influenced by policy.

Hence the whole  argument boils down to one simple political question: Should the government promote cycling?

This is a normative question which cannot be answered using economic arguments.

My personal opinion as a citizen is: Yes, of course. The private and social benefits of cycling are impressive (the health benefits are nicely summarised by UK’s Cyclists Touring Club) and it’s obvious that cycling is carbon neutral. Paradoxically, even car drivers are benefiting from cycling (more cyclists mean fewer cars and less competition for parking spaces) (Felix Salmon with Reuters makes a similar point here . Other good replies to John come from Ryan Avent (“The Economist”) and Adam Sternbergh  (“New York Times”).

I have to accept that John apparently has a different political view on cycling than I have. However, I’m don’t think it’s fair that he  disguises his political opinions with flawed economic arguments.

P.S.: John, the next time you happen to be in London I would love to convince you how much fun cycling in a big city can be. I’d love to pay for rented cycle and show you around by bike. Afterwards I’d invite you for dinner. And don’t worry, I won’t take you to “Look Mum no hands”.  Just drop me an email [o dot storbeck at gmail dot com] in advance.

P.P.S: This is probably one of the very few posts I’ll publish on my econ blog as well as on my cycling blog

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