Thursday 24 November 2016

Uber ignorant

A lot of people who should have failed intermediate microeconomics like to make the following argument.
  1. The theory of perfect competition has perfect information as an underlying assumption
  2. Nobody has perfect information
  3. Therefore, government must regulate to protect people from bad choices because market failure.
It's wrong on a pile of grounds. First, and most importantly, the first welfare theorem gives us sufficient conditions for optimality, not necessary ones. But even leaving that aside, we need a Demsetz move into comparative institutional analysis. How do people act to overcome their information problem? Are there profitable opportunities for some entrepreneur to bridge the knowledge problem so that consumers and producers can meet up successfully? Are there heuristics that consumers use in response to information problems and how close to optimality do they get us? And, most importantly, do the legislators and bureaucrats have any better clue themselves?

On that latter point, here is how New Zealand's Parliament covered itself in glory this afternoon in the select committee hearings on Uber. Parliament's deciding how to modernise the transport regs so that innovation can happen. There are some problems in the proposed legislation, but the Transport Committee has the MPs who are most expert in the committee's area. The best of the best. Here's what they thought about how Uber works:
Appearing before Parliament's Transport Committee, Uber New Zealand general manager Richard Menzies tried to argue that the company should not have to adopt outdated taxi requirements like logbooks, signage and stringent driver and vehicle checks.

But first he was forced to explain to the committee, over and over again, that Uber was not a "rank and hail" taxi company.

National MP Alastair Scott was the first to bite.

"We're concerned that you could get some gypsy operators who are not licensed by anyone appearing on a taxi rank."

Labour MP Sue Moroney interjected, offering a more politically-correct term: "Cowboys".

"Cowboys, gypsies, whatever," Scott said.

Menzies politely explained that an Uber vehicle could only be ordered through its app.

"People can't simply spot at Uber and jump into random car," he said.

Labour MP Sue Moroney wasn't convinced.

"How do you know that? How do you know that people who are your drivers are not sitting at taxi stands or being hailed?"

Menzies, looking slightly bemused, said: "We don't use taxi ranks."
None of these people seems to have ever used the service, or ever to have talked with anyone who has.
Green MP Jan Logie noted that the law change would allow Uber to use taxi ranks - how did Uber feel about that?

Menzies, again: "The way our system is currently set up, we don't need taxi ranks."
The whole point of Uber is to not have drivers sitting around at freaking taxi ranks, idling. They go to where demand is expected.
As it was becoming apparent that no MP on the committee had ever used the Uber service, National MP and technophile Maurice Williamson piped up that he was a "massive fan".

But he did not favour the ordinary Uber, he said. He wanted to know when Uber New Zealand would roll out Uber Black - the company's VIP service.

By now, Uber's committee appearance had gone well overtime. But Moroney wanted one last shot, asking Uber whether it would actually follow any rules set by Parliament.

"All I want to hear is that you won't be breaking the law," she said.

Menzies raised his hands in front of his face, wordlessly, as the committee chairman brought the session to a close.
I have a different argument we might wish to consider, in place of the one with which I opened. I think it works better.
  1. Good laws don't require that MPs have perfect information about the industries that they're attempting to regulate, but they should be at least half-way to having a clue.
  2. They don't. Not even close. And the feedback loops that help normal people get a clue when they make mistakes - those don't operate for MPs. They can be wrong, forever, with no personal consequence. They may even be more likely to be re-elected rather than less if they're wrong in particular ways.
  3. Therefore, Parliament should get out of the way. Stop pretending you're protecting me from bad cab drivers or whatever with rules that protect incumbents when you have absolutely no clue how Uber even works. Get Out Of The Way. Everything else has far more risk of doing harm than of doing good. 

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