What will Congestion Charging do to the GDP?

Tim Harford might be the most accessible economist alive today. Fun even. His book, The Undercover Economist (2006) has a brilliant and readable chapter dealing with how to think about the externalities of congestion. I may have to put the whole chapter up here and risk suit. But for today, here are the last three paragraphs of this delightful chapter:

Yet you will often hear so-called experts complaining that taxes on driving or on pollution would be bad for the economy. That sounds worrying. But what is “the economy”? If you spend enough time watching Bloomberg television or reading the Wall Street Journal you may come to the mistaken impression that “the economy” is a bunch of rather dull statistics with names like GDP (gross domestic product). GDP measures the total cost of producing everything in the economy in one year-for instance, one extra cappuccino would add $2.55 to GDP – or a little less if some of the ingredients were imported.

And if you think this is “the economy,” then the experts may be right. A pollution tax might well make a number like GDP smaller. But who cares? Certainly not economists. We know that GDP measures lots of things that are harmful (sales of weapons, shoddy building work with subsequent expensive repairs, expenditures on commuting) and misses lots of things that are important, such as looking after your children or going for a walk in the mountains.

Most economics has very little to do with GDP. Economics is about who gets what and why. Clean air and smooth-flowing traffic are part of the “economy” in this sense. It's possible that congestion charging would increase GDP because people would get to work more quickly and produce more, and prices in stores would be lower because of more efficient distribution. But it's perfectly possible that congestion charging would reduce GDP. This does not, in fact, matter in the slightest. We know for certain that it would make us better off in a much more meaningful sense: that we would have many new choices open to us about where we go and what we do. There is much more to life than what gets measured in accounts. Even economists know that.

Thanks for this, Tim.

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