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The economics of a traffic jam

By Jamal Nasser (China Daily)
Updated: 2010-05-19 08:02

Today, I don't want to bore you with the effervescent housing market, nor do I want to talk about inflation, let GDP forecasters crank out the numbers and comment on the movements of the markets.

Mine is a more humble task, to investigate and make a few observations regarding the economics of traffic jams in Beijing.

Perhaps a few definitions are in order, before we begin. Armed with information, and with the assumption that we are usually rational, economics is about choices that maximize our gains or minimize our losses. Observation requires seeing beyond the commonalities and becoming acquainted with what we see, as well as having the wisdom to know what to observe, how and for how long.

So with all that out of the way, let me be blunt, blaming too many cars is premature.

Observe what happens when you take a taxi: you end up waiting and therefore are late; you observe many occupied taxies and no empty ones and therefore you are late; or, as is too often the case, you get stuck in Gulou Dajie, or Sanyuanqiao, or Muxidi and therefore are late. Blame scarcity in the first two situations and network externalities - when the value of a service depends upon the number of people using it - in the last one.

The fear of being late is one of the reasons people drive to work-those who can. The other reason is the subway.

Take Line 1 to CBD in the morning and you will begin to appreciate my belief that either the ticket price should be doubled to 6 yuan, or more subway cars should be allocated at peak times. Preferably both.

Traffic jams mean a loss in both productivity and time. And we have not even explored the income implications of spending on gas, or the costs resulting from the impact on the environment.

Paradoxically, buying more cars stimulates aggregate demand (the economy) and therefore is not a disincentive to production. And if people did buy more cars, what about lay-offs in the auto industry and the resulting chaos that follows unemployment in one industry causing unemployment in others - the multiplier effect - not to mention further losses in productivity and time when you are late for work when the subway and taxis fail you?

But we could all gain if there were more subways and subway trains, and the buses were on time and there were enough taxis to satisfy the demand: car sales would be up, subway and bus revenues would be up, more income for taxi drivers and thus more tax revenues. As a result, Beijing would be experiencing higher economic growth and none of the fuss about the slow grind of traffic.

To be fair, Beijing - in its aspiration to be a world city - is adding new subway lines and has introduced stricter traffic regulations.

However, there is an even simpler economic solution. Get up earlier and escape the dread of an ensuing jam. Before 7 am things seem normal. Pay attention to your driving skills and road etiquette and encourage such behavior in other road users, and hey presto, life becomes easier. And if you take a taxi or subway, do the same: start earlier.

Do you see it now? One of the reasons we have crowded subways or the infamous traffic jams is because most people delay things to the last minute, which is not a rational choice.

Of course, if most of us got up earlier, we would have an early morning traffic jam. But rest assured that won't happen. Some people will not rise earlier no matter what. Others may not be able to afford this luxury.

So this guarantees that you will avoid the jams as long as you manage your time rationally, which if you can and you should, as you will maximize your gains.