Tuesday, September 06, 2011
With the refusal of Edinburgh councillors to stump up for the most expensive tram option and the Lib Dems insisting that what is left is the worst of all possible options, is it not time for them all to admit that the whole tram scheme never made any economic sense in the first place and just cancel the whole thing?
If you can't stop when you are ahead, perhaps it would be best to stop when you are only £600 million behind.To show the influence of myself and common sense on the Scottish political scene they immediately, under pressure from the SNP government which will come back to haunt them, voted to reinstate the full (well the full scheme after cutting it down to ending in St Andre's Square). They will thus spend at least £1 bn building 2/3rds of a project that could have been completed in full by now for £110 million, in the rest of the world, and wouldn't have made economic sense even then.
There was also a rather good letter yesterday explaining the technical term "sunk costs" and why it is always vital to ignore them when making a decision. This is one of the differences between government and real life and why government is inherently less competent. In government it is better to spend a billion of other people's money and hope the chickens don't come home to roost before you retire, than admit failure now.
THE Edinburgh Tram Fiasco (ETF), its history and the biographies of all those involved. will provide as much material as is required to demonstrate the fallacy of Honouring Sunk Cost (HSC).
This fallacy is well known to every professional manager, accountant and auditor, but apparently is something of which politicians are comfortably oblivious.
Sunk cost is past expenditure that has no present value. "Honouring" sunk cost consists in having faith that if only more money was spent, somehow past expenditure would regain its value. Herein lies the fallacy.
The fact that money has been wasted in the past should not feature in any argument that proposes to waste it in the future. Sunk cost should be ignored and the benefit of future expenditure, if any, evaluated on its own merit.
The pathetic fact is that HSC and the enthusiasm for the further escalation of expenditure on what is an obviously failed project, is more directed to the creation and preservation of myths to pass on to future generations about the wisdom, foresight and acumen of the decision- makers than about achieving any viable outcome. This is especially true when the money involved is extracted by force from helpless taxpayers.