Way back when the phrase “new economy” caused economists to swoon, cynics made sport of them and the idiocy of the dot-net boom. I recall a conversation with a friend who was involved with a dot-com back in the 1990’s. I kept asking him how they made money and he kept talking about hits and stickiness and other nonsense. I kept trying to get an answer and he finally got frustrated with me and said I did not get the new economy. The company burned through all of its cash in about six months and went bust.

The tech boom was driven, in part, by free money from the credit boom. It is not an accident that the tech boom quickly followed the Louvre Accords, which codified the floating exchange rate currency system we enjoy so much today. All of a sudden there was cheap money for all sorts of crackpot ideas. Some turned out to be revolutionary, while others turned out to be insane. The information grid is an example of the former. The financial services industry is an example of the latter.

This post at Marginal Revolution and many others like it at various other places make me laugh. The new buzz phrase is “sharing economy” which is as devoid of meaning and value as the people who like to use it. The vapid hipsters love prattling on about Uber and how it is “disruptive” as if that is always a good thing. Earthquakes are disruptive. The Black Plague was disruptive. Like everything else today, Uber is about signaling. You are a beautiful person if you think Uber is the best. You are a loser if you think it sounds like a handful of sharpies convincing hipsters to be gypsy cab drivers at below market rates.

That is the thing about the “sharing economy.” It is not new. Ross Perot got rich doing much the same thing in the 70’s and 80’s. In the old days, computers were expensive. Companies would sell their idle time to guys like Perot who would find customers in need or processing power but lacking the money to buy their own mainframe. It was the technological equivalent of the oxpecker bird and rhino. The bird picks ticks and parasites from the hide of the rhino and functions as a warning system. The rhino can live without the bird but lives better with him.

Perot and others could make a business out of renting processing capacity because it was very expensive in the old days. When processing costs plummeted in the 80’s and 90’s that “sharing economy” went away. In other words, the “sharing economy” was just a transitional phase, not a desirable economic arrangement. The companies renting their mainframes rented them out to defray the cost of ownership. The renters wanted their own mainframe, but they could not afford it. The solution was a temporary one until the preferred solution was available.

Ride sharing “works” now in the same way. In most cities, taxi service is regulated by the municipality. That means lots of costs on the taxi company. They are real companies so that means they have to abide by labor laws, zoning laws, OSHA regs, insurance regs, etc. Of course, it is not cheap to maintain a cab. The cabs take a lot of abuse and they need a lot of service. The end result is a price for cab service the hipsters in these cities think is too high, so they are searching out alternatives. In steps Uber.

Unlike the old sharing economy, the new sharing economy borrows from the new new economy or economy 2.0 or whatever. That is, the money is made in shifting the cost onto unsuspecting third parties and/or by not complying with the laws that govern everyone else. Amazon avoided sales tax. Google and Netflix shifted costs to non-customers. Media companies taxed people through their cable bill. In the case of Uber, they are not abiding by the municipal laws that govern the livery business. Instead of having cabs, licenses, insurance, and employees driving the vehicles, they shift those costs onto their customers.

If you look at the Uber website, they make the claim that you can drive for them without incurring the wrath of your local government or your insurance company. Neither is true. My insurance specifically says it does not cover me as a hired driver. They will not cover my car if it is used for hire. Similarly, my state does not permit me to rent my car without a permit and a special license plate. But that’s not Uber’s concern. They will not be paying the fines or the insurance premiums.

That is what gets missed in the gushing over companies like Uber. If your wife gets raped by the Yellow Cab driver, the company pays the price. Not only does their reputation suffer, but they also get investigated by the authorities and they get sued by the victim. Therefore, they have a strong incentive to keep their cabbies from raping their fares. If the Uber guy rapes your wife, that is your problem. Uber is not accountable. That is an extreme example, but that is the point. We have these laws because of extreme examples in the past. No law sprung from nothing. Every one of them is there for a reason.

To wrap this up, let us circle back to the old days of renting our mainframe time. Back then, the companies renting the time had an expensive asset they want to maximize. The renter was looking for a lower cost alternative to the million dollar mainframe. Cabs are cheap. No one gets rich driving a cab. How desperate do you have to be to be an Uber driver? How hard up are you if you want to take a ride from some hard up weirdo you met on-line?

Forty years ago, a symbiotic relationship between mainframe users was a temporary solution to bridge the gap between the now and better future. Uber represents a desperate attempt to squeeze the remaining juice from the lemon of the modern economy. It is the equivalent of a widow taking in laundry and borders in order to pay rent. It is not something signaling a better future. It is a desperate attempt to delay the inevitable decline. Maybe they should have named the company “Unter.”

8 thoughts on “Unter

  1. Sorry Z. I can’t agree with you about Uber.

    Uber puts the customer, not the New York City Taxi and Limousine Commission, back in control.

    I don’t know anything about the “sharing economy”,
    but I drove a cab in NYC many, many years ago, when I was in college. It was a crap job then and I don’t imagine it’s improved much today, (except back then we all had college degrees).

    I think Uber does a pretty good job at distributing scarce resources to where they’re most needed, when they’re most needed. Uber also incentivizes the drivers to be customer oriented, as the drivers are reviewed by the customers (like on Amazon)

    I’ve used Uber many times when visiting NYC where cabs are always in short supply. Better cars, better drivers & speedy service. Best of all,
    there’s none of the indignity of standing on a corner waving your arms about trying to attract a rattletrap yellow cab.

    The price for an Uber “black car” is about the double that of a regular yellow cab, but the price includes the tip. It’s well worth the extra to me. I think Uber keeps one third and the driver gets two thirds. It’s no different than calling an ordinary car service except its much faster and you can see them driving right to you on a real-time map on your phone.

    I never use cabs in NYC anymore, except when I come out of a hotel and they’re parked right out in front. Even then, the NYC cab experience sucks.
    The cabs are crap and the drivers are usually sullen & unappealing.

    There are fewer Yellow Medallion Cabs on the streets of NYC today than in the time of Mayor Fiorello LaGuardia. This has raised the price of a NYC Taxi medallions to over a million dollars each. Anything that disrupts this completely artificial supply constraint is okay with me.

    As for insurance, good luck suing if you’re in an accident with a taxi. I believe you’ll find that NYC cabs carry only the required minimum amounts. The medallion itself is not owned by the cab company, only leased, and each individual cab is it’s own separate entity with virtually no assets other than the aging vehicle.

    NYC Taxi medallions are a good example of regulatory capture. The medallion owners want to protect the value of their medallion monopoly and do everything they can to prevent more being issued.

    Without real competition you get typical crap monopoly service. Uber has dramatically altered that equation. Good for them! Good for us!

  2. Most Arabs are convinced the Jews run American and Europe. Since the problems in the Muslim world are the fault of the West, the Jews are to blame.

    The cab driver had some very elaborate conspiracy theories about how the Jews control his country. I forget the details. Conspiracy theories are really popular in that part of the world.

  3. Seriously, Z? There are probably about 1000 Jews left in Moslem Pakistan, and that is being generous. Jews have never influenced anything in Pakistan, this is simply Moslem anti-Semitism. Which the Moslem “immigrants” bring with them when they come to our country.

  4. A lot of the cab regulations are in place to keep the competition out and therefore the prices high. So, while I think your points about the “sharing economy” are valid, Uber has picked on a business sector that could use a shaking up.

  5. Around here, the cabbies are all third world. I had a Paki cab driver a few years back who spent the entire time telling me how the Jews destroyed Pakistan.

  6. I don’t live near a big city, don’t go to big cities, never have the need to take a cab so, meh.

  7. Good post and valid points.

    About twelve years ago when I used to drive home from work I would listen to a BBC program of full of bitty news packaged to entertain (or sometimes inform) drivers like me. One bit I looked forward to was a five minute report on the financial world, essentially reporting London’s financial position. The guy who did it was old school Londoner which — contrary to Dick van Dyke’s accent in Mary Poppins — is not all mock cockney (Mockney as we call it) but in a cheerful working class accent now labelled as ‘estuary English’

    This meant he would have hailed from the east end of the city, probably be in his shirt sleeves and red braces (suspenders, as you may prefer) when delivering his comments about industry and money, including the stock market figures. Being old school, he wasn’t fooled about where money came from. He was scathing about the dizzy world of the dot com surge and wanted to know where the money was going and how it was being generated. As you say in your blog, it was all speculation and exciting words. Hot air and no substance. The man would say, often, ‘but we aren’t making anything’ and he was right. Britain’s manufacturing industry had fled and having bubbly young things telling us about how all this froth would make money didn’t convince him, and it showed.

    I haven’t listened to the man’s segment for some time but I expect he fell out of favour because he insisted in asking a question no one could answer, and Al-Beeb just don’t like that sort of thing.

    PS: near my home a lot of the taxi-drivers are Pakistani and it isn’t unknown for the licensed, named driver to be replaced when he doesn’t feel up to it by his cousin, who may or may not be qualified. I doubt anyone ever asks. I also wonder, as you never get a receipt from a lot of these guys, just how much their takings are declared.

  8. I’ve only become more familiar with Uber in the last few weeks with their coming to Las Vegas. I’m very happy to see the cab cartel-government cartel monopolies being gutted. If Uber is as you describe, or worse, it’s still a long step forward. As jimmy madison saw it, settling things by judging who has the better motives is a loser, so put those bad boys up against other bad boys and watch things shake out. The cab business did not reach a state of perfection and stay unchanged forever, it just stayed unchanged forever.

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