David R. Henderson  

Uberize the Economy

PRINT
Passing the buck... Ridley, liberty, optimism and ...
Kay is the editor of The Walrus and has been writing about Uber, usually positively. But here, he argues that it's unfair for competition from Uber to undercut the taxicab monopoly. He could have gone two ways: (1) advocate banning Uber or using tax money to compensate taxi monopolists whose monopoly power is weakened by Uber or (2) say that even if doctors and lawyers scream bloody murder, they're wrong because they, just like taxi cab monopolists, don't deserve a monopoly.

Unfortunately, he chose (1).

Kay does make a good point and it's one that the late public choice economist Gordon Tullock made in a famous article titled "The Transitional Gains Trap." Tullock pointed out that although many economists can agree that it's inefficient (and, I would add, wrong) to give monopolies or subsidies to various industries, after those monopolies and subsidies have been around for a while, many of the "gainers" are people who paid for their gains.


This is from my post on the Fraser Institute blog, "Let's Uberize the Rest of Canada's Economy," January 7, 2016.


Comments and Sharing


CATEGORIES: Regulation




COMMENTS (8 to date)
Pithlord writes:

Assume that it is politically impossible to eliminate all mandatory professional regulation, agricultural "supply management", occupational licensing and other government-supported cartels.

Isn't there a fairness case for compensation if somebody made an investment to be part of the taxi cartel? If not, isn't there a consequentialist argument that a norm of compensation (even if partial) could make it politically easier to break down these cartels?

I suspect that doctors and lawyers would still be fine if they just relied on the substantial brand advantages of being identified with their professions. Yes, they obviously resist this kind of reform, but it may not be for self-interested political choice reasons, but for the same reasons the rest of the public generally thinks allowing "unqualified" people to compete with professionals is bad.

Harold Cockerill writes:

I know I really appreciate my local politician explaining to me how having the freedom to do business with anybody I want ain't all that good for me. Thank God for smart people that want to help us yokels navigate a complicated world.

On the other hand was that guy really all that smart to pay a million dollars for a NY taxi medallion? If it wasn't that smart then should he be protected? I'll ask my local politician. He'll explain it to me, and he never lies.

Jon Murphy writes:

I'm a huge fan of Uberizing the economy

Nathan W writes:

Compensating monopolists for their losses in the face of new technology is a bad idea. It would ensure that the net social gains of a disruptive technology should always be zero.

gda writes:

The elephant in the room is the increased insurance cost for Uber drivers.

I rather think that the ardour of those rushing to get on the bandwagon as Uber drivers will be considerably cooled once they start to receive their revised insurance bills and/or cancellation notices (guess what, your insurance company will not be happy you neglected to tell them you arbitrarily changed the use of your private vehicle).

Expect premiums to be even higher than regular licensed taxis, simply because the risk will be greater. Uber's "contingent insurance" is a joke.

Did Uber really get going without (fully) considering the insurance aspect? Makes me wonder whether these guys know anything about business plans.

David R. Henderson writes:

@Nathan W,
Compensating monopolists for their losses in the face of new technology is a bad idea.
I agree.
It would ensure that the net social gains of a disruptive technology should always be zero.
I’m pretty sure that’s not true. If the new technology creates net benefit--and the presumption is that it does or else the old technology would not be threatened--then a tax could be imposed that would compensate the losers. The net social gains of a disruptive technology would fall dramatically, but they would still be positive.

ThomasH writes:
... a tax could be imposed that would compensate the losers. The net social gains of a disruptive technology would fall dramatically, but they would still be positive.

Does not this depend on how responsive disruptive technology is to the taxes levied to compensate the losers? Are you assuming that the compensating tax is levied only on the disruptive technology itself? If compensation were paid from a progressive consumption tax, I'd consider that a pretty low cost and if (a big if) it made the technology possible, a good deal.

One of the benefits of a robust safety net is to make everyone less risk averse about new technologies and income enhancing policy reforms. Everyone knows that in some degree they will be compensated if they loose out from the change.

gda writes:

"Uber is the biggest, noisiest example of the race to create a totally unstable and dangerous workplace. Virtually anyone driving for Uber right now – estimates are 20,000 drivers in Toronto alone – is doing so uninsured. It is against the law to operate a motor vehicle without appropriate insurance; if you’re driving for Uber and your insurance company is unaware that you are doing so, you have invalid insurance. If you think because you still have that little pink slip you’re covered, you’re not."
http://driving.ca/ford/auto-news/news/its-time-to-stop-giving-uber-a-free-pass

A different perspective of Uber. An actual quote was given in the article - $17,000. Factor of 10X greater than what you're probably paying for private insurance. Aren't those 20,000 Uber drivers (in Toronto alone) going to be surprised.

Time to short those Uber shares perhaps?

Comments for this entry have been closed
Return to top