Uber Is a Force for Equality

Uber is a company under attack by politicians and the media.  Many politicians, like Bill De Blasio, want to restrain its growth to protect incumbent cab companies. Others want to undermine its business model by requiring that its drivers using its devices be employees rather than independent contractors. The New York Times recently ran a story clearly suggesting that the company is using unfair psychological tricks to keep drivers picking up customers.

These complaints lack merit. Protecting incumbents against new forms of competition is a classic harm to consumers. Uber drivers do not meet the traditional criteria for employees because, among other factors, the company does not control their hours or place of doing business.  And as Geoffrey Manne shows, the management innovations Uber introduces through the understanding the psychology of workers have benefits to consumers and drivers alike.

But the assault on Uber also ignores a hugely important effect of company and similar services: they reduce  inequality— which these same politicians and mainstream media argue is the most important issue of our time.  Uber improves both the material condition of the middle-class consumer and the lower-middle-class driver.  First, the consumer gets a service that starts looking more like having a chauffeur than a taxicab driver. For instance, he can summon a driver without previous notice and within minutes by pushing a button on his phone in the comfort of home rather than hail a taxi in a storm.

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Focusing on Flat Incomes Obscures Fundamental Economic Changes

Economic growth concept

In General Sherman’s memoirs, he reports that in 1850 the U.S. Army reassigned him from San Francisco to the east coast of the United States. He mentions that the passage from San Francisco back to the east coast of the U.S. cost him $600. I priced a ticket from SFO to NYC for a flight next month. It came in from between $200 and $550 on AA.com. So today, we can get from one end of the country to the other end for about the same nominal cost, and for stratospherically less time — several hours instead of several months.

The qualitative improvements considered by themselves are astounding. But we shouldn’t compare nominal cost of transportation. Annual income in the U.S. in 1850 (in 2005 dollars) was around $2,500. So it took about a quarter of a year’s oncome (around 88 days at average wages) to pay for the travel from San Francisco to the east coast of the U.S. Today average income in the U.S. is around $45,000 (in 2005 dollars). It takes the average worker about three days of wages to pay for a ticket to cross the U.S. in a matter of hours.

To point out the obvious: the change for society and for economics is simply revolutionary.

The data got me thinking about comparing household wealth across time.

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Rebuilding the Liberty Narrative: A Conversation with Gordon Lloyd

liberty-equalityThere is nothing more arduous than the apprenticeship of liberty, Tocqueville informs. While equality in modern democratic society is a natural tendency—one that grows without much effort—it is liberty that requires a new defense in each generation. In this spirit the next edition of Liberty Law Talk discusses with Gordon Lloyd the Liberty Narrative and its unending contest with the Equality Narrative.

The San Francisco Compromise: A Conversation with Michael Anton

san franThis conversation with Michael Anton explores how the gargantuan wealth of Silicon Valley allied with San Francisco Progressivism and is now redefining American culture and politics. But how durable is the alliance?

A Postmortem on Classical Liberalism in the 2016 Presidential Primary

United States Declaration of Independence on flag background

At the beginning of the campaign for the Republican nomination, many thought that it was a libertarian moment in which even Rand Paul might well emerge victorious. But with tonight’s results from Indiana, the Republican Party seems poised to nominate the most illiberal candidate in its history—someone who wants to restrict trade and civil liberties and has no interest in taming the growth of the state.

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The Dangers of an American Caste System

Barrier To Business

John Stuart Mill is a pretty complicated figure in the history of liberty. The phenomenon of Donald Trump is a pretty complicated development in American politics currently. Both had demanding fathers, successful professional careers, and an impact on the world around them, in ways intended and unintended. It’s doubtful Mr. Trump seriously thought he’d get this far as a candidate, and I wonder if Mill could have envisioned how much his contributions to the history of ideas would have promoted the growing rift between utilitarianism and liberalism.

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Dedicated to an Important Half-Truth

corruption

This past week, at the invitation of a dear friend (Christopher Wolfe  —no, wait: this guy),  I visited the University of Dallas. On some accounts it’s the ugliest campus in America. On all accounts it’s among the most amazing: where else would you find students who sit in rapt attention for a six-hour (!) debate on inequality (featuring William Galston, Ross Douthat, and yours truly)?

Pending the webilcation of the entire event, herewith my opening remarks. I’m way out of my league here but what the heck:

Inequality

Inequality, we have it on presidential authority, is “the defining challenge of our time.” Arguably it’s the (or at least a) defining challenge of all times—a profound question that invites deep reflection. Jerusalem had one answer; Athens had another. Hobbes and Machiavelli had different answers yet. A bit closer to home, this country was famously founded on the “self-evident” truth that all men are created equal.

The raging contemporary debate, for good or ill, has nothing to do with any of that. It is limited to income inequality, and it says that r is greater than g: the returns to capital will exceed the economic growth rate and so the rich get richer and the poor get poorer over time. That’s not quite inevitable, or always true. The post-War era experienced a “great compression.” But income inequality has increased dramatically since the 1980s and especially after the 2008-2009 financial crisis: all the gains from growth have gone to the 10 percent or the one percent or whatever. Surely we should do something about that.

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The Sharing Economy’s Political Power for Liberty

It is rare that an election in San Francisco brings good news to the nation, but last Tuesday voters there defeated a referendum that would have interfered with Airbnb by limiting the number of nights people could rent out rooms in their homes. While this victory is good on policy grounds, it is even better for what it tells us about the capacity of the sharing economy to mobilize small businesses and consumers against onerous regulations.

Small businesses and consumers tend to lose out in politics, because they are diffuse groups where the gain for each individual from engaging in politics to shape regulations is small and the cost of organizing is high. In contrast, large businesses and labor unions are more concentrated interests and as a result  have more leverage. In politics concentrated interests tend to win out over diffuse groups.

Such concentrated interests stood to gain substantially from restrictions on Airbnb. Hotels are competitors of Airbnb and so are the labor unions of hotel workers. Generally owners who want to rent out apartments for short stays and their customers would be no match for these interests. But Airbnb lowers the cost of organizing, because it is internet based. This organizational ability levels the playing field. The sharing economy is the porcupine of politics with ample quills in the form of participating consumers and small businesses for defense against government regulation.

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The Special-Interest State: Onward and Upward

Reichtum versus Armut, internationaler Vergleich, abstrakt

My buddy Steve Teles—in my estimation, one of the country’s most creative thinkers—just sent me his latest on “The Scourge of Upward Redistribution.” Here’s the lead paragraph: America today faces two great challenges. First, the explosion in inequality threatens the public's belief in the justice of our economic system. Second, the slowdown in the formation of new businesses, a key metric of economic dynamism, endangers economic growth and employment. The solutions to these problems are usually in tension with one another — greater inequality is often the price of economic growth — and our politics has been divided according to this tension, with one side playing…

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Demand a Politics of Innovation

2016 is shaping up as an election in which one of our parties will emphasize the need for growth and the other will call for greater economic equality. These concepts are often seen in substantial tension with one another. In my view, however, if the government encourages innovation we can have both growth and greater equality in the relatively short run.

As I wrote in yesterday’s Washington Times for the celebration of Liberty Month:

In this age of accelerating technology, there is no more important policy than to encourage innovation. Innovation is the primary source of economic growth. New innovative businesses, like Google and Uber, transform our lives for the better. And innovation builds on innovation, compounding growth from generation to generation. As the Nobel Prize winning economist Bob Lucas once said: “Once one thinks about exponential growth, it is hard to think about anything else.”

Innovation in the modern era also tends to make us more equal. Innovation creates a stream of new ideas that are rapidly enjoyed by the great mass of people. Material goods are scarce, because individuals can by and large not enjoy the same material simultaneously. But ideas can be enjoyed by all. To be sure, some innovations are patented, but these patents expire. And, as better innovations come along, the old patents rapidly become less valuable. That is one reason that smart phones have so rapidly become available to people of modest means. Thus, the greater the supply of innovations, the great the common pool from which almost everyone can benefit quite rapidly.

We thus need to ask all Presidential candidates what they will do to promote innovation.

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