Posted tagged ‘Free Markets vs Central Planning’

‘CAR WARS’ Return Of The Jitneys

July 20, 2015

UBER vs. THE TAXI CARTEL

The battle between upstart competitor Uber and the monopoly held by the taxi cartel isn’t anything new. Around 1915, owner operated taxi services called ‘jitneys’, fought this battle against the government created rail transportation monopoly. The rise of Uber and their battle with the taxi cartel reminded me of something I read in Thomas Sowell’s book Knowledge and Decisions, published in 1980. (Everyone should read this book.) In the chapter, Trends in Economics, Dr. Sowell talks about “forcibly changing costs” through government regulation. Here are his words. Does this sounds eerily similar to what Uber is doing?

“The history of American transportation, from municipal bus and street lines to railroads and airlines is a history of government – imposed cross-subsidies. Initially, municipal transit was privately owned by a number of firms operating streetcars along various routes. The creation of city-wide franchises – monopolies – was usually accompanied by fixed fares, regardless of distance traveled or transfers required. “

“When a price is simply made higher by government fiat…it conveys a false picture of the “society”, thereby causing potential consumers to forego the product even though others are perfectly willing to supply it for a price that they are willing to pay.”

“Like most price discriminators, municipal transit was vulnerable to competitors who chose to serve the overcharged segment of their customers. Around 1914-1915, the mass production of the automobile led to the rise of owner-operated bus and taxi services costing five cents and therefore called “jitneys” the current slang for nickles:”

“The jitneys were owner-operated vehicles which essentially provided a competitive market in urban transportation with the usual characteristics of rapid entry and exit, quick adaptation to changes in demand, and, in particular, excellent adaptation to peak load demands. Some 60 percent of the jitneymen were part-time operators, many of whom simply carried passengers for nickel on trips between home and work. Consequently, cities were crisscrossed with an infinity of home-to-work routes every rush hour.

The jitneys were put down in every American city to protect the street railways and, in particular, to perpetuate the cross-subsidization of the street railways city-wide fare structures. As a result, the public moved to automobiles as private rather than common carriers…”

“The rush-hour traffic congestion caused by thousands of people going to work separately in individual automobiles has been denounced by social critics as “irrational” and explained by some mysterious psychological attraction of Americans to automobiles. It is, however, a perfectly rational response to the incentives and constraints conveyed. The actual costs and benefits of automobile-sharing are forcibly prevented from being conveyed by prices. As in other areas, claims of public irrationality are a prelude to arguments for a government-imposed “solution” to the “problem”. As in other areas, it is precisely the government’s use of force to prevent the accurate transmission of knowledge through prices that leads to the suboptimal systemic results which are articulated as irrational intentional results of a personified “society”.”

“…maintenance of incumbent transportation entities, often implies the maintenance of incumbent technologies ie., subsidized obsolescence, resisting the phasing out of existing modes of operation, as competing modes arise…..competing modes with technological or organizational advantages are either penalized or prohibited (as in the case of the jitneys), to preserve incumbent organizations and technology.”

MONOPOLIES CAN’T EXIST WITHOUT GOVERNMENT SANCTION

Uber is the modern-day version of the jitneys from 100 years ago. The taxi cartel is the protected “incumbent transportation entity”. The street rail system couldn’t foresee a competitor until a new technology, the automobile, came into existence, just as the taxi cartel couldn’t foresee a competitor until a ride sharing app came into existence. Government created monopolies look to government for help in stifling competition. When a business begins to expand because they win a larger share of the market, its efforts turn away from serving customers and toward protecting their market position. They lobby government to pass regulations making it more difficult, if not illegal, for competitors to enter the market. The combination of big business and big government is toxic to the economy and consumers.

FREE MARKETS OR CENTRAL PLANNING

In this article, Once A Sure Bet, Taxi Medallions Becoming Unsellable, there is a video of a Chicago taxi driver complaining about Uber drivers not having to jump through all the government hoops that taxi drivers have to jump through to be licensed to drive people around. He doesn’t realize that he is actually making the case against government intervention into the taxi industry. Starting with the price of the taxi medallion and going through all the other costly regulations is an indictment of government, not Uber.

This article, Major Trouble For Uber In California, is an example of governments trying to regulate Uber, at the cost of the consumer. Politicians and bureaucrats don’t understand that a free market creates the incentive for businesses to provide great service, or the consumer has an option of going to a competitor. Under a government created monopoly system the business has no incentive to provide great service for the consumer, because there are no competitors, (Think DMV) read this article, Uber vs Big Taxi: Time To Resolve Driver Complaints – Seconds/Days vs. Years.

The consumer pays a higher price because the supply of cabs is limited to the amount of medallions issued by the government. In a free market supply and demand coordinates the number of cab  drivers and passengers at a particular price. Allowing the price to change, allows supply and demand to be continually coordinated according to the changing values of demanders and suppliers.

HOW UBER WORKS

 

The ride sharing Genie is out of the proverbial bottle. Governments can’t stop it. With how quickly technology changes, don’t be surprised if something different comes along that will challenge Uber as the most cost effective way of transporting people from one place to another. Can you say, “Beam me up Scottie”?

 

Related ArticleAre People Smarter Today Compared To People 100 Years Ago?, at austrianaddict.com.

Is The Economy; Growing, Shrinking, Or Exactly Where It Should Be?

August 26, 2014

Is the economy growing, or shrinking? Looking for answers to this question by listening to political rhetoric won’t help you find the answer. Politicians will always state the opposite of what their opponents assert about the economy, and will propagandize economic data in an attempt to prove these assertions. Like a pawn on a chess board, the economy will be sacrificed at the expense of winning a  political power game. Politicians preface comments about the economy by stating; “economists say” or “economists agree”, in order to prove their political position related to the economy.

ECONOMIC EXPERTS

These “economic experts”, cited by politicians, either work for the Fed, the Congressional Budget Office, the R and D parties, think tanks, or write op-eds for the NY Times. These “experts” are always talking in terms of an economy improving, growing, or healthy, on the one hand or getting worse, shrinking, or weak on the other. We should be weary about these “experts” pronouncements, because the question isn’t, is the economy growing or shrinking, the real question is, how can anyone have enough knowledge to know where the economy should be at any particular moment?

WHAT IS AN ECONOMY

The simple answer to the question, where should the economy be, is very simple: exactly where it is. To understand this we first have to know what an economy is. An economy is what results when each individual makes decisions on what to produce, consume, save, or exchange. The economy is never stationary it is constantly changing, because what each individual values related to production, consumption, saving, and exchange, is constantly changing. Economic forces are constantly in play adjusting the economy to these new changes based on what individuals value. The economy can never be measured at one particular point in time. The economic data that the experts look at is essentially an inaccurate report about what has happened in the past. This economic data is the placing of a numerical total on individual economic activity, but it says nothing about the individual activity. It’s like trying to understand a three-dimensional world by only using  length and width. How can you know what a sphere is, if the only thing you understand is a circle? Think if you had to make decisions about the D-Day invasion if all you received was information on its progress every ten hours. You would make very different decisions than if you knew in real-time what was happening. Now think if you had to make decisions about D-Day with inaccurate information that is transmitted every ten hours. Your chances of making a good decision are nearly impossible. Trying to make decisions about the economy is much more difficult because there are many more constantly changing  variables.

CENTRAL PLANNERS ARROGANCE

All these “experts”, whether they’re liberal or conservative, or whether they’re for central planning or free markets, think their particular policies can produce a growing economy. These “experts” aren’t just arrogant enough to think they know best how much the economy should be growing or contracting, they also think their policies can make it happen. They think that the decisions of hundreds of millions of people on what to produce, consume, save, and exchange, should be ignored and replaced by their decisions on what they value. Does more knowledge exist about what should be produced, consumed, saved, and exchanged in the millions of decisions made daily by millions of individuals, or does more knowledge exist in the decisions made by “experts” after they analyze false ex post facto data about these millions of decisions?

CONCLUSION

In a free market economy the economy is at any moment exactly where it should be. Whether it is growing of shrinking doesn’t matter because it reflects what millions of people value based on every decision they make. When “experts” intervene in the economy through regulations, taxes, electronically printed counterfeit money, etc, these interventions are factored into the process individuals use to decide what to produce, consume, save and exchange. Even with all of these interventions the economy is exactly where it should be at any given moment. It should be no surprise that interventionist policies, by politicians and bureaucrats, can’t produce the outcomes these planners had hoped for, they were doomed from the start. Not only because the knowledge they receive is useless, it is also late. But instead of repealing their policies, central planners try to fix the outcome brought about by their previous interventions, by proscribing new interventions. They are trying to cure the symptom instead of the problem.

The only way these interventions have a chance of working is if they were made by a totalitarian regime. But even in a totalitarian regime, individuals still have a choice on what they will produce, consume, save, and exchange. Even though the Soviet Union had all of the power to enforce its edicts, they couldn’t make central planning work. The Soviet Union’s economy, at any given time, was exactly where it should have been, even at the point when it collapsed. So don’t vote for politicians who want to steer the decisions of individuals. Allow individuals the freedom to make unhampered decisions about what they produce, consume, save, and exchange, even if you don’t like the outcome of these decisions. The result will be the optimum amount of satisfied individuals that can possibly be achieved in a world ruled by scarcity and subjective value.

Related ArticleCentral Planners Don’t See The Consequences Of Their Actions. Or Do They? at austrianaddict.com.

Related  ArticleA Look Over The Horizon At What Lies Ahead If We Continue Down The Central Planning Road. at austrianaddict.com.

Related ArticleSpontaneous Order Utilizes More Knowledge Than Central Planning Could Ever Hope To Utilize, at austrianaddict.com.

Related ArticleSpontaneous Order = Free Market Economy, at austrianaddict.com.