Thinking Like An Economist

When reading “What’s The Use of Economics” edited by Diane Coyle, and briefly touched upon by Geoff here, I started thinking about some of the themes picked up by the book. Although primarily targeted at those teaching at university level, the book argues that economics teaching needs to move away from some of the traditional aspects of the subject and, as well as considering different areas of study, there needs to be a rethink of approach. The central thrust of this is that tomorrow’s economists will need a different, more flexible and perhaps more evaluative range of skills than ever before. Indeed, many of the essays made it clear that whilst many economics students emerge with reasonable quantitative skills, far fewer have a critical approach to data and its subsequent analysis. I wondered how this might be introduced to 16-18 Economics education.

One of the news stories this week that interested me dealt with young drivers and the Association of British Insurers report “Improving the Safety of Young Drivers”. In it, the report calls for a raft of new legislation affecting young drivers:

1. A ban on learners being able to take an intensive driving course as their only method of passing

2. The introduction of a new "graduated" licence for the first six months after passing a test

3. During this time the number of young passengers that a newly-qualified driver could carry would be restricted

4. They would also be banned from driving between 11:00pm and 4:00am for the first six months, unless they were driving to and from work or college

5. There would be no blood alcohol allowed during those first six months

6. But young drivers would be able to start learning earlier, at the age of 16 and a half

I’d like to askA-Level/IB/Pre-U students:

1. How would you feel about the introduction of these measures?

2. Can you evaluate whether such proposals are really viable or not?

Of course, this raises a lot of issues, both personal and economic. I’d like to see my students be keener to conflate the two, and also show sophistication in looking at the data. In the first instance, what is the nature of the Association of British Insurers interest in young drivers?

In all fairness, the Introduction to the report states “We have always approached the young driver problem primarily from a road safety perspective. The key objective is to improve the safety of young drivers. That their insurance premiums will reduce as a result will be an added benefit to society.”

However, is this credible? Surely, the Association of British Insurers would want an industry where everyone paid their premia and there were as few as accidents as possible, increasing profit. However, on reflection, if this were the case, then premia would fall long-term and this might reduce profit. So from their perspective is there an optimal level of road accidents consistent with profit maximization?

Equally, is there an optimum level of road accidents for society as a whole? Clearly, to economists, zero is not a satisfactory answer – and I say this as someone who lost his housemate to a motorcycle accident 15 years ago: it would imply all sorts of inefficiency – not least a possible reduction in road speeds, the number of cars on the road and so on. But that then prompts the question as to what would be an optimum level of road casualties and how would you measure it: a good place to start would be the Department of Transport’s “Reported Road Casualties in Great Britain: 2011 Annual Report” which records 1,901 people killed in reported road accidents in 2011. This equates to 6 fatalities per billion vehicle miles, a 31% decrease over the 2005-2009 average.

But is this still too many? And if so, by how much? I’m not sure I have an answer - although the UK's rate of road fatalities is low in comparison to other countries here, but thinking about the problem as an economist has proved a rewarding way to spend a couple of hours on a Sunday afternoon.