Thursday, July 14, 2016

For this DMV Guy, the "Other" Washington

A state full of contrasts with lessons on the economy

Our summer vacation took us to Seattle, Mt. Rainier National Park, the Olympic Peninsula, and the San Juan Islands. With the exception of its dry east, we saw a good bit of what Washington state offers. Over the next few posts I'll tell you about the sights and share some thoughts. And I hope you get the urge to visit – it's a beautiful part of America.

In our little loop of Washington we saw rich and poor, liberal and conservative, young and old, and every shade of American. The young, hip, let 'er rip vibe of Seattle couldn't be more different than the staid, agrarian, pious feel of Centralia and its surrounding counties. Whereas Aberdeen stands as the gateway to the Pacific Coast, touting espresso stands and cannabis shops, it also looked like a town falling apart – with houses barely able to stand the next strong breeze.

And yet the splendor of the land and the industriousness of its people are without compare. Mt. Rainier is the most spectacular single peak I've every seen. Olympic National Park, creating its own weather, dominates the landscape across the peninsula. Ruby Beach and Rialto Beach beg day-long strolls. Three days was not nearly enough to explore the San Juan archipelago. And then there's the rolling farmland that links it all together.

As I'm apt to do (it's an occupational hazard), I also found a few economic tales to tell. In Seattle we took our first Uber ride; the fine staff at our hotel was very happy to help the uninitiated. A short time after downloading the app and requesting a ride, a car pulled up. Our driver, Robert, had recently retired from his career with the City of Seattle and had been driving for Uber for two months. Robert's wife was still working, heading out at 6:30am each morning; he needed something to do during the day and had a car that was sitting idle.

The transaction between us and Robert couldn't have been simpler or more pleasant: easy request, nice car, nice driver, nice conversation, quick ride to the waterfront, jump out. 8 bucks. We rated our driver (5 stars) and Robert rated us as passengers (hopefully 5 stars). Later that day, with tired feet, we ordered another ride. Our driver, Yonas, a pleasant younger guy who grew up in Seattle, got us home quickly. Even with a rush-hour premium (which is stated upfront on the app), the ride was only $10 for four people.

And here's where detractors of Uber and "gig economy" miss the boat: this is a voluntary transaction between two parties. I need a ride. Robert and Yonas have the time and a car and want to make a few extra bucks. The Uber app connects the parties and defines the price upfront. That's a marketplace with complete information. Each party knows what to expect, severs the relationship once the transaction is complete, and can offer feedback as to the "comparative assessment of their quality, standard, or performance". For me, the term "gig economy" seems to imply a one-night-stand transaction (it's not) and wrongly deemphasizes the personal initiative of putting idle assets to work.

In a recent essay James Schmitz, Senior Research Economist at the Federal Reserve Bank of Minneapolis, offers a "new view" of monopoly and monopolistic firms:
The new research also shows that monopolists typically increase prices by using political machinery to limit the output of competing products—usually by blocking low-cost substitutes. By limiting supply of these competing products, the monopolist drives up demand for its own. Thus, in contrast to conventional theory, the monopolist actually produces more of its own product than it would in a competitive market, not less. But because production of the substitutes is restricted, total output falls.
The reduction in productivity exacts a toll on all of society. But the blocking of low-cost substitutes particularly harms the poor, who might not be able to afford the monopolist’s product. Thus, monopolies drive the poor out of many markets.
Political push back against Uber and similar private transaction enablers is happening around the world at local (Austin) and national (Hungary) levels. Would Robert and Yonas find work without Uber? Maybe. Would they be able to put their idle assets to productive use? Maybe. But constraints by governments that are urged by incumbent producers shouldn't determine or bar these private transactions.

In a survey last year, Washington was deemed the best state for entrepreneurs; Virginia the fifth worst. In Virginia Tesla can't sell its own cars because existing cars dealers squawked. Perhaps it's time to push the Commonwealth's incumbent political machinery and monopolist machinations aside to let people grow and consumers choose.