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Price controls create dead weight loss. Price controls are great for politicians but don't actually do what they are supposed to do. Doesn't matter whether it

Price controls create dead weight loss. Price controls are great for politicians but don't actually do what they are supposed to do. Doesn't matter whether it is rent control or minimum wage laws. Government set price controls distort markets negatively. In this case, the total number of trips taken on Uber in Seattle is going to drop because a certain percentage of trips will now become uneconomical to those riders: they will cost too much to be worth it. Two negative things will happen: 1. In aggregate drivers in Seattle will make less money due to fewer trips. Demand for Uber drops as the price increases. A simple thought experiment confirms this: lets say that Seattle demands a flat $25/tax per ride. A lot of potential riders will pass. 2. Some percentage of riders will forego the benefit of uber trips due to the higher cost. Whether it will be drunks leaving bars or whomever. Some people who would take Uber at a lower price will not take it at a higher price. Seattle may see an uptick in drunk driving as a result of this. Governments love price control because they give the illusion of helping: uber drivers will earn more per hour. BUT - they may work fewer hours and there may be fewer Uber riders working. In summary, this will reduce the total income of Uber drivers in Seattle. It will also reduce the number of Uber riders - some of whom are likely to become drunk drivers instead. This is bad public policy.

missedthecue 6y ago
Why does so much of politics benefit the person passing the bill at a cost to everyone else. (on net). It's like a market failure, but for the political system.
- hnracer 6y ago
  I think there's two reasons. First is that the costs are hidden and complicated. We need a decent understanding of economics combined with an honest and deep analysis of the consequences of the specific policy to conceptualize why it's deleterious. Very few people will tick both boxes. Second is that politicians want to be seen to be doing something. Even if leaving the market alone is the best of all options.
- testfoobar 6y ago
  I suspect because most people do not understand dynamic system and equilibrium. They do understand individual data points such as: my rent is too high or my wage is too low. Therefore it is easy to sell a remedy that claims to address this. Unfortunately, when the dynamic system finds a new equilibrium, people are surprised. To this day, people don't seem to understand that rent control suppresses supply leading to higher overall rents.
adewinter 6y ago
If your business cannot afford to pay a living wage, it does not have a viable business model. No amount of dressing it up or attempting to shift the blame will change that fact. That the unions and local governments are attempting to ensure a business isn't extorting labor out of the population is a _good_ thing. Yeah, it sucks that taxis aren't cheap and also pay drivers well. It also sucks that we don't have light rail going everywhere. In both cases the implementation is just not economical. Therefore we need a different solution that doesn't sacrifice people at the altar of convenience
- testfoobar 6y ago
  Uber drivers are adults who are not being exploited by any one. They are free to choose any manner of employment available to them. That is the beauty of the free market. Taxis are absolutely terrible monopolistic businesses with absolutely no regard for proper service. Uber and Lyft thrived because taxis are so disastrous.
  - gugagore 6y ago
    > Uber and Lyft thrived because taxis are so disastrous. Yes! Exactly! These businesses create value with convenient apps and better logistics. They should rely on that value, and not the value that they can extract from labor. (The rest of your comment is so far removed from my understanding of "exploitation" and "free to choose any manner of employment available to them" that there is no way for me to respond to it meaningfully.)
- throwaway201103 6y ago
  > If your business cannot afford to pay what the government defines as a living wage, it does not have a viable business model. Is that what you are really saying? Because there is a difference between a government-defined living wage and the true economic value of any particular job.
- jandrewrogers 6y ago
  The taxis in Seattle were vile before Uber. I know women who were literally extorted by taxi drivers. Nothing in my experience with Seattle taxis back then suggests that this is not plausible. Even when I literally had a taxi line outside my door, I avoided it at all costs as there were many bad experiences. The “unions and local governments” tacitly backed a criminal enterprise in the taxis. No thanks.
delecti 6y ago
It's not a price control, it's a minimum wage. The developed world has decided that it's better for some jobs to not exist than to allow exploitative wages.
- testfoobar 6y ago
  Minimum wage and rent control are both examples of price controls. This is Econ 101 terminology.
  - tomlu 6y ago
    Australian minimum wage is about 15 USD per hour, which is a wage that can sustain people if they do not spend excessively. The economy is not tanking, the same type of jobs exist. Are you claiming that the Australian standard of living is generally horrible as a result of this? That it would otherwise be better for everyone if there were no minimum wage?
Traster 6y ago
>Some percentage of riders will forego the benefit of uber trips due to the higher cost. This is not necessarily true. What you're assuming is that the demand is highly elastic - that a small increase in price will drive a large drop in use. It's possible it is entirely the opposite, a small increase in price causes no practically no drop in use. This would result in higher total pay. Either way, this will likely be balanced by drivers stopping driving for uber, or more drivers starting to drive for Uber. Uber will have to account for this by shedding excess drivers. In reality if it's true that Uber riders are highly sensitive to price, then uber's entire business model falls apart since the plan the entire time was to gain a monopoly and jack up prices. If it turns out that jacking up prices means a huge drop in ridership then the value of their busienss is actually way smaller than what they claim and they are likely unable to run a viable business while paying minimum wage.
beowulfey 6y ago
On the other hand, one could argue that disincentivizing yet another form of car travel will ultimately be better for the environment. Seattle has one of the fastest growing public transit networks and this could help it grow even more. Keeping Uber convenient will always encourage people to use it vs other options.
dimes 6y ago
While true that price controls create dead weight loss, the failure of neo-liberal economic policy shows that dead weight loss isn’t always a bad thing and that economic efficiency at the expense of people can have terrible consequences. Supporting domestic industry, when cheaper global alternatives exist is a form of dead weight loss, but it prevents your middle class from being hollowed out and keeps your society healthy. The same can be said for living wages.

missedthecue 6y ago

Why does so much of politics benefit the person passing the bill at a cost to everyone else. (on net). It's like a market failure, but for the political system.

hnracer 6y ago
I think there's two reasons. First is that the costs are hidden and complicated. We need a decent understanding of economics combined with an honest and deep analysis of the consequences of the specific policy to conceptualize why it's deleterious. Very few people will tick both boxes. Second is that politicians want to be seen to be doing something. Even if leaving the market alone is the best of all options.
testfoobar 6y ago
I suspect because most people do not understand dynamic system and equilibrium. They do understand individual data points such as: my rent is too high or my wage is too low. Therefore it is easy to sell a remedy that claims to address this. Unfortunately, when the dynamic system finds a new equilibrium, people are surprised. To this day, people don't seem to understand that rent control suppresses supply leading to higher overall rents.

adewinter 6y ago

If your business cannot afford to pay a living wage, it does not have a viable business model. No amount of dressing it up or attempting to shift the blame will change that fact. That the unions and local governments are attempting to ensure a business isn't extorting labor out of the population is a _good_ thing. Yeah, it sucks that taxis aren't cheap and also pay drivers well. It also sucks that we don't have light rail going everywhere. In both cases the implementation is just not economical. Therefore we need a different solution that doesn't sacrifice people at the altar of convenience

testfoobar 6y ago
Uber drivers are adults who are not being exploited by any one. They are free to choose any manner of employment available to them. That is the beauty of the free market. Taxis are absolutely terrible monopolistic businesses with absolutely no regard for proper service. Uber and Lyft thrived because taxis are so disastrous.
- gugagore 6y ago
  > Uber and Lyft thrived because taxis are so disastrous. Yes! Exactly! These businesses create value with convenient apps and better logistics. They should rely on that value, and not the value that they can extract from labor. (The rest of your comment is so far removed from my understanding of "exploitation" and "free to choose any manner of employment available to them" that there is no way for me to respond to it meaningfully.)
throwaway201103 6y ago
> If your business cannot afford to pay what the government defines as a living wage, it does not have a viable business model. Is that what you are really saying? Because there is a difference between a government-defined living wage and the true economic value of any particular job.
jandrewrogers 6y ago
The taxis in Seattle were vile before Uber. I know women who were literally extorted by taxi drivers. Nothing in my experience with Seattle taxis back then suggests that this is not plausible. Even when I literally had a taxi line outside my door, I avoided it at all costs as there were many bad experiences. The “unions and local governments” tacitly backed a criminal enterprise in the taxis. No thanks.

delecti 6y ago

It's not a price control, it's a minimum wage. The developed world has decided that it's better for some jobs to not exist than to allow exploitative wages.

testfoobar 6y ago
Minimum wage and rent control are both examples of price controls. This is Econ 101 terminology.
- tomlu 6y ago
  Australian minimum wage is about 15 USD per hour, which is a wage that can sustain people if they do not spend excessively. The economy is not tanking, the same type of jobs exist. Are you claiming that the Australian standard of living is generally horrible as a result of this? That it would otherwise be better for everyone if there were no minimum wage?

Traster 6y ago

>Some percentage of riders will forego the benefit of uber trips due to the higher cost. This is not necessarily true. What you're assuming is that the demand is highly elastic - that a small increase in price will drive a large drop in use. It's possible it is entirely the opposite, a small increase in price causes no practically no drop in use. This would result in higher total pay. Either way, this will likely be balanced by drivers stopping driving for uber, or more drivers starting to drive for Uber. Uber will have to account for this by shedding excess drivers. In reality if it's true that Uber riders are highly sensitive to price, then uber's entire business model falls apart since the plan the entire time was to gain a monopoly and jack up prices. If it turns out that jacking up prices means a huge drop in ridership then the value of their busienss is actually way smaller than what they claim and they are likely unable to run a viable business while paying minimum wage.

beowulfey 6y ago

On the other hand, one could argue that disincentivizing yet another form of car travel will ultimately be better for the environment. Seattle has one of the fastest growing public transit networks and this could help it grow even more. Keeping Uber convenient will always encourage people to use it vs other options.

dimes 6y ago

While true that price controls create dead weight loss, the failure of neo-liberal economic policy shows that dead weight loss isn’t always a bad thing and that economic efficiency at the expense of people can have terrible consequences. Supporting domestic industry, when cheaper global alternatives exist is a form of dead weight loss, but it prevents your middle class from being hollowed out and keeps your society healthy. The same can be said for living wages.