Wednesday, September 10, 2014

UBCM Ferry Report - I hate flawed economic analysis

The UBCM released a report on the socio-economic impact of ferry fare increases in BC.  It looks all nice and fancy and has some provocative numbers but overall it is not a well done report at all.

I am starting this posting again because the first one was 3000 words long with details of the flaws in the report and I was only part way through.  Overall the report seems to been written to be misleading as to the impact of the increase in ferry fares.   The one aspect that looks to be done well is the calculation of the lost passenger numbers due to the fare increases but I admit I have not done the math independently to test if it all works.

The core of what is misleading about the report relates to the economic loss due to the fare increases, here are my main issues with that

  • The GDP value should have been expressed as an annual value and not a ten year value.  It is very rare to speak of the dollar GDP values on any term longer than a year.  Using ten years inflates the value in the mind of the public.   The headline number should have been $230 million, though that would not be accurate because of my following issues
  • The GDP loss calculation makes some assumptions that are not true which means the numbers that arise from those assumptions are wrong.   
  • The report leaves the impression that all the potential passenger spending is lost to the BC economy when very clearly this is not the case.   Most of the people travelling on BC Ferries are from BC and will have spent their money somewhere else in BC.   Spending money on ferry fares adds less value to the BC economy than most other discretionary spending.   The spending they would have done at their ferry destination will all have been done somewhere else.   If I do not go to Vancouver I still spend money on food and entertainment.  Take this away and the annual economic loss to the province is much smaller than $230 million 
  • The data used to try and show a general economic downturn on the Island and coast does not show that at all.  The report does not use  a consistent set of dates for comparison of data even the relevant data is available online.  It looks like data cherry picking to try and prove an economic downturn
  • Many numbers are presented without any backing as to how they were arrived at.  As an example, on page 45 the have a table showing loss in taxes to governments including $53 million in local government taxes.  I have no idea how they could have come up with that number since local governments simply set the property taxes each year at the level they need to fund their programs, where the does the loss come from?   I could list a dozen more examples.
  • The data is often too specifically accurate.  When you are working with estimates and models you can not have a long string of significant digits.   You have to stop after the margin of error is reached.   In table 34 on page 45 they have values calculated down to the last dollar for a nine digit value, that is misleading and less accurate than properly rounding the numbers.  People think $13,982,756 must be more correct than $14 million even when the first figure is a fantasy.  It is very misleading.   First year economics students using basic mathematics would understand doing this is wrong.
  • The report does little to account for a number of specific economic impacts between 2003 and 2014 in different communities around BC.  These events are so much larger than any possible BC Ferry fare increase impact that the impact of a ferry fare increase could not be seen in the data.

I could go on for page after page on the flaws of the report, trust me, it is fundamentally flawed.

What can I take away from this report?

  • The increase in ferry fares has reduced BC Ferries traffic
  • BC Ferries is much more cost efficient than similar services elsewhere especially Washington State Ferries.   
  • Some of the most ferry dependent communities have suffered economically though the report does a bad job of showing this and my own work on the issue shows it much better
  • Overall the possible negative economic impact on BC of the higher ferry fares is so small as to not realistically be measurable if it is there at all.   

The final kicker, the data from this report could be just as easily be used to show that for the vast majority of people in BC the current government's approach to BC Ferries is beneficial.   BC Ferries is still subsidized and this comes from fuel taxes from all of BC, a more cost effective BC Ferries is good a thing.

Bad research and analysis is a pet peeve of mine.  
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