Michael Munger on the Sharing Economy
Jul 7 2014

Mike Munger of Duke University talks with EconTalk host Russ Roberts about the sharing economy--companies like Uber, AirBnB, FlightApp, and DogVacay that let people share their houses, cars, or other assets with strangers in exchange for money. These companies dramatically increase the use of resources that would otherwise be idle and disrupt existing services such as hotels and taxis. Topics discussed include the regulatory response to these companies, the politics of that response, and the significance of these new products. The conversation closes with the potential impact of Uber combining with driverless cars to change the automobile industry and cities.

Michael Munger on Sharing, Transaction Costs, and Tomorrow 3.0
Economist and author Michael Munger of Duke University talks about his book, Tomorrow 3.0, with EconTalk host Russ Roberts. Munger analyzes the rise of companies like Uber and AirBnB as an example of how technology lowers transactions costs. Users and...
Nathan Blecharczyk on Airbnb and the Sharing Economy
Nathan Blecharczyk, co-founder and chief technology officer of Airbnb, talks with EconTalk host Russ Roberts about Airbnb, one of the earliest companies to use technology to allow individuals to share underused resources, and in the case of Airbnb, housing. Blecharczyk...
Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Brian Rosen
Jul 7 2014 at 11:51am

Just listened to this podcast and was surprised and disappointed by Dr Munger’s attack on Uber at the opening. I think the comparison to the trees on his lot was a false narrative as Uber is often more expensive than taking a cab. Even with Uber X, because of surge pricing, will result in fairs higher than a cab. But unlike a cab the service will be both reliable and excellent.

I moved to Boston 7 years ago and the taxi service here was horrible. The drivers awful (my friends and I lodged numerous complaints). My friends and I are happy to spend more to use Ubers.

I’m a huge fan of the sharing economy. While there are challenges with these new models I don’t see the answer being to shut them down with old outdated regulations because some old business invested in government protection. Dr. Munger kept talking about the property rights created by the medallion. While property rights are important this misses the point that Uber, BnB and other services aren’t beating on price but on service. Admittedly occasionally on price but to the extent that is true, because of taxes, then the government can simply tax the offending entity without adding any unnecessary regulation. It’s not like the records aren’t digital.

Glenn Mercer
Jul 7 2014 at 12:00pm

Another great podcast. Really fleshed out my view of “the sharing economy” (though it is ironic we’re all of course PAYING to share (grin)).

When Russ steered (pun intended) the conversation off to driverless cars, I felt we lost some traction (pun intended). First, a factual error: fatalities on American roads are now under 35,000 annually, below Russ’s 40-50,000 estimate. It is still 35,000 too many, but it is good to have facts (specifically, 33,561 in 2012, says NHTSA). Second, I was 100% with you when you were emphasizing capacity utilization and convenience when you brought up driverless cars: imagine if one’s elderly house-bound parent could just summon up the family car and tell it to drive her to Costco and back! Amazing value released. But then you brought in safety. I think the safety angle of driverless cars is overstated. We have about 35,000 deaths, across 3 trillion (no typo) miles driven, in the USA. That is one fatality per 85,000,000 miles. Pretty darn good. The reality is humans are actually very good at avoiding death in a car. Do you know any software that can beat one fatal error in 85,000,000 operations? Google says their cars have covered 700,000 miles accident-free. I am not ready to extrapolate that to the real world. This is one of the reasons that the latest Google announcement is for a low-speed (25 mph) vehicle: they found difficulties in accident avoidance at high speed. (For example, one of the failsafes is for the car to hand control back to the driver if it encounters something it can’t figure out. Sounds good until we imagine how this really works: you’ve just been lulled into complacency playing Angry Birds in the driver’s seat when the car announces “Difficulty ahead, restoring control to you in 5 … 4…. 3….” And how does one adjust this handover for different driver competency levels?) Anyway, with a 25 mph car we dodge (pun…) intended many of the safety issues (hard to kill someone at 25 mph) but we unleash vast amounts of mobility and convenience value.

I believe “selling” the autonomous vehicle on safety (another view of the numbers: road fatalities were 1.8% of all fatalities in the USA in 2012) is a mistake. Shift the focus more to productivity, convenience, mobility for the elderly and disabled, release of spare capacity, etc. But if you SELL on safety, then you’d better be safe, or else we have the possibility of the Hindenburg moment (“Franken Car Kills Family of Four!” goes the headline), and dirigibles still haven’t recovered from that…

Please note I am in favor of autonomous vehicles, I just think “leading” with the safety argument is the wrong way to go.

End of rant, back to my walker…

Mike F
Jul 7 2014 at 12:23pm

Very interesting episode. I think Roberts underestimates the sources of resistance to the driverless cars and the increased asset utilization. I think it would be great to have fewer parking lots, fewer gas stations, fewer cars on the roads travelling at higher speeds; not to even mention, as Roberts briefly did, the fewer commercial vehicles that could schedule their travel time so much more efficiently without having to take human frailty into account.

But I wonder what impact that would have on measured GDP. How many makes and models of cars would be necessary in this scenario? Who would buy them? How many of them would be Teslas? What about paving and building companies? No need for a garage, no need for a driveway in addition to the need for many fewer parking lots. But the need for 2-way traffic at RedSkin (or some future name) games would be terrible. All those driverless cars would have to arrive and depart twice. And where would everybody tailgate?

Greg G
Jul 7 2014 at 12:45pm

Wow. This was one of your very best ever. I will definitely be giving it a second listen. No matter how often Mike is a guest here it never seems like enough. Mike might have the best sense of humor of any economist out there. You could argue that’s like being the tallest midget so I should probably add that he’s just about the funniest guy I can think of in any field.

I loved how fair you were in discussing the fact that property rights issues can cut both ways on these issues. People who complied with the old rules have an argument that they will not be getting what they paid for. I agree with Russ though that, for the most part, these new technologies are so compelling that they will win out in some form.

Sometimes I think you guys overstate the extent to which markets solve almost any problem. But not today. You were very fair and it is pretty clear that customer internet ratings can be a very potent regulatory mechanism in many cases.

Today’s topic is one of those cases where libertarians can ally with environmentalists. The efficiencies available here will surely lead to less fossil fuel use than we would see without them.

Also agree that the so called “price gouging ” on Uber is a feature, not a bug. I used to own a retail store. One of our niches was carrying cold weather clothing for construction workers – and carrying it much deeper into the season than our competitors who often had it at closeout prices soon after Christmas.

During late season storms I would often get customers complaining they had seen the item at a lower price elsewhere. I always responded, “Wow! That’s a great price. Why didn’t you buy it?” They always said, “They didn’t have my size.” I would always reply, “I’ll quote you as low a price as you like as long as I don’t actually have to sell it to you at that price.”

I never raised prices above normal in a storm though, not because I think it’s immoral – just because I knew it would result in a lot of customers being annoyed and choosing to shop elsewhere in the future.

Jul 7 2014 at 2:18pm

All I can say is that if someone decides we’re not allowed to ride motorcycles anymore, there’s going to be hell to pay.

Jul 7 2014 at 2:20pm

Great episode! It appears Uber is a more decentralized method of matching supply and demand (perhaps more effective and efficient). I lived in San Francisco for 7 years and found it impossible to give up my car and rely entirely on public transit and taxi services. There are various ‘dead zones’ where taxis rarely appear and local transit service is insufficient. As a result, we have people living in dense urban environments who own personal automobiles which are rarely used to bridge the gap.

Taxi companies should be happy Uber is successful – the more Uber is successful, the more people will feel comfortable giving up personal autos, and the greater the increase in the demand for all ride services.

Richard Fulmer
Jul 7 2014 at 2:30pm

If a new company (say Ford Motor Company) pops up and makes an old company (say Sam’s Buggy Whips) obsolete, and the government chooses not to regulate the new company out of existence, is that a takings?

Or is this just an issue with existing regulation? That is, the taxi company depends upon current regulation to limit competition (and increase its value) whereas the buggy whip company (presumably) does not.

Michael Munger
Jul 7 2014 at 2:32pm

Brian Rosen: I don’t think you listened to the whole thing. And that’s fine, of course.

But I said, toward the end, that my “attack” was an attempt to bring out the issues. I gave the argument for why the different kinds of property rights are just that, different.

It’s important to shock people out of their complacency and face the counterarguments. If you conclude (as I did, at the end of the podcast) that those counterarguments are actually wrong, at least now you have HEARD the counterarguments.

I always tell my students that I have no obligation to argue my own beliefs. I am obliged to help people refine their beliefs. That’s what I do. Well, that, and cry about the StLCards.

Patrick R. Sullivan
Jul 7 2014 at 2:37pm

I don’t believe that the people who’d invested in motels, restaurants and gas stations along Route 66–from Chicago to L.A.–were compensated when the interstate highway system was built in the 1950s that destroyed much of the old assets’ value.

Earl Rodd
Jul 7 2014 at 3:57pm

In the discussion, there seemed to be a missing piece of information – the details of the money flow (seems pretty important for economists!). Dr. Munger mentioned that Uber has an advantage of tax avoidance. I have not used Uber so don’t know the money flow, but from the discussion it sounded like it is tracked by Uber and done via credit card. What is the money flow and it is easy to not report as income?

Michael Munger
Jul 7 2014 at 4:32pm

Earl Rodd: We did leave that out. Because it’s going to change. We mentioned how Amazon had changed, and given in to the tax compliance requirements of the states. I think that will happen also.

It appears my attempt to play Devil’s Advocate at the outset was not very clear. I thought we should raise the issues of property rights, and taxes, and so on. Now, I do not in fact believe that those are devestating arguments against Uber. As I said at the end, do not get hung up on the problem of competing away rents. The real contribution of these new apps is the way they reduce transactions costs of people finding each other, and how they enable more intensive use of what is now excess capacity. The people who are all upset about the transitory destruction of artificial rents are missing the real point.

Jul 7 2014 at 6:28pm

The future is not far away.

“As part of the Mercedes-Benz Future Truck 2025 program, Daimler Trucks has taken the most advanced of its autonomous trucks for a spin on a section of the A14 autobahn near Magdeburg, Germany. Daimler says the vehicle drove itself in “completely realistic driving situations” in front of the media, government officials, business representatives, market analysts, and investors.”

Michael Byrnes
Jul 7 2014 at 6:51pm

Great episode.

Munger’s devil’s advocacy was interesting and reasonable. I am one who does believe that some government regulation of the taxi/Uber/etc. industry could be beneficial, for some of the reasons suggested by Munger – for example making sure that cabs have adequate insurance.

However, the current cab medallion system, at least in some municipalities, turns out be be one of the most loathesome cases of governments handing out monopoly rents. Here’s a great series by the Boston Globe on regulation of taxis in Boston:


Judging from those articles, Boston’s regulation of taxis is not doing anything that might be construed as beneficial for consumers or drivers. All Boston is doing, really, is selling artificial monopoly rents to what seems to be a rather loathesome cast of characters.

Also, pre-Uber, I had painful experience of trying to catch a cab in NYC. It was actually very hard to do because we were trying to go from downtown to Penn station – a route that is not worth the time for most cabbies, who prefer to take people to the airport, a higher fare. In fact we only succeeded in getting a cab because the driver thought we were going to the airport and had us half way there before we convinced him otherwise!

So, all in all, I would like nothing better than to see Uber win out here.

Regarding safety, there may be “only” 35,000 fatalities per year, but there are also severe injuries, property damage, etc, so focusing only on fatalities when considering safety understates the potential benefits.

Michael Byrnes
Jul 7 2014 at 7:14pm

Mike F wrote:

“But I wonder what impact that would have on measured GDP. How many makes and models of cars would be necessary in this scenario? Who would buy them? How many of them would be Teslas? What about paving and building companies?”

This is one of those cases where GDP is not that informative. In the scenario Roberts poses, transportation may or may not contribute less to overall GDP. I don’t know. On the one hand, maybe fewer cars, paved areas, parking garages, etc. On the other, maybe we would be moving more people and goods, faster, over smaller roads. That’s legitimately valuable in a way that should contribute to GDP.

Sure, it would be bad for legacy industries, but that is the essence of creative destruction. Cheap personal computers were bad for the adding machine industry, automobiles ruined the horse and buggy industry, the availability of recorded music put a lot of musicians out of work (before the record player, if you wanted music you had to hire someone to play it) but of course the digital age is, in turn, hurting the big record companies.

One of the great politcal failures of our time is the idea, bought into by both parties hook, line and sinker, is the idea that a “job” is a product in and of itself, rather than just a means to an end.

I do think that our society could do a much better job, somehow, of helping out those who are victims of creative destruction. I hope that someday, Roberts and Munger do an EconTalk on Basic Income and “Hayekian socialism”.

James Liu
Jul 7 2014 at 7:55pm

Russ & Mike,

As much as I like your vision of the future without private car ownership (I haven’t owned a car in my entire adult life, which isn’t that long, but isn’t so short anymore either), I think it’s a little bit too optimistic. Parking won’t disappear nearly as much as you predict because there will still be peaks and valleys in demand, and the driverless cars will have to go somewhere during the valley times. Of course, there will be less need for parking because at least some cars can make multiple trips throughout the day.

And then there is the issue of how hard-baked the built environment we already have is. Jonathan Rodden talked about it in the episode you had on the geography of voting. Just as the core of cities have been difficult to unbuild over the last century, it seems that the suburbs, and the car dependence that comes with it, will be difficult to unbuild over the next century.

Glenn Mercer
Jul 7 2014 at 11:03pm

For a deep analysis of Uber from someone who has spent his entire career analyzing taxi companies, see this:


For a deep analysis of the value of the Uber economic model, in terms of its stock price, see this:


Brice Fuqua
Jul 7 2014 at 11:29pm

How about this scenario? An 18-wheeler is loaded up at a warehouse. A driver gets in and heads for the interstate. A second driver follows the truck in a car. At the edge of town, the driver pulls the truck into a roadside park or truck stop. The driver gets out, gets in the car and goes back to town and repeats the process with another truck.
A computer takes over the truck and drives it down the interstate. Since computers don’t get tired, the truck can be driven 24 hours a day and at a lower speed to improve fuel economy and still arrive sooner than if a human were at the wheel.
Someone sitting in a cubicle monitors the truck along with a number of others on a computer. If there is a flat or breakdown, a repair crew is dispatched .
When the truck nears its arrival point, it pulls into a rest stop and another driver gets in and drives it through city traffic to its destination.
Trucks spend the vast majority of their driving time on interstates. Interstate driving is so much simpler than city driving, that the technology we now have could handle it easily. Humans would only be needed to tackle the more complex city conditions.
Transport companies would have lower labor costs , fewer accidents, lower fuel costs and faster delivery times. I think before we see driverless cars, we will see self-driving trucks.

Dan Keshet
Jul 8 2014 at 2:03am

I would be interested in your take on Uber and universal service requirements. In Austin, we don’t have medallions owned by individuals; taxi companies are granted the right to a certain number of non-tradable taxi licenses. Part of the regulatory requirements is that they must provide universal service: at all hours, to all parts of the city, with a certain percentage of the fleet accessible to those in wheelchairs.

Both of the latter two provide powerful political impetus against allowing Uber, which is currently operating in the city in contravention of the law. Those with wheelchairs and those in parts of town cab drivers have historically avoided fear that Uber will destroy the taxi system, and with it, their ability to get mandated service.

J Scheppers
Jul 8 2014 at 3:11am

Bryce Fuqua:

In response to your self driving truck model, much of the conceptual model you discussed seems very close to how multi-model freight works now with trucks and trains instead of self driving trucks. This methodology is working great, except for Amtrak who has to deal with more competition for rail time. Amtrak now has increased delays and higher access payments to the rail network owners.

J. Drotar
Jul 8 2014 at 9:22am

I agree with the prospect that in order to maximize efficiency in a future where we have driver-less cars as the norm we will need to have a smart grid. But this entails that either we we privatize our road system or we rethink how the government collection of metadata can effects us.

The government as the principal supplier of roadways would not be able to design such systems without have access to GPS signals in our phones and cars however, it has become clear from the blow-back on the NSA scandal that we are not ready to allow the provider of public goods the same access to information that we readily give private vendors.

Google tracks your movements and traffic with this information but what do you believe the reaction would be if Uncle Sam asked for access to you GPS location?

Trent Whitney
Jul 8 2014 at 10:20am

Another great podcast with Prof. Munger because, as always, I learned something, and he made me think.

What I think you both bring out most effectively in your economics discussions are the unseen effects – e.g. your brief sidebar on what if there were no FDA/look how the movie ratings sites like Rotten Tomatoes have emerged.

The one thing I’d add to your discussion of the government process is that sure, some politicians will be more likely to support the driverless car technology on the guise that it’ll save lives. Call me overly cynical, but I think new technology only gets strong polticial support when the politicians figure out how they can tax it. I think that’s what’s truly at the heart of the “objections” to the car/home sharing technologies.

Jul 8 2014 at 10:32am

How does Uber’s ride sharing insurance differ from the insurance Munger says Uber doesn’t have?


Patrick R. Sullivan
Jul 8 2014 at 10:39am

Timely, this, from Seattle. The politicians blinked;

The Seattle City Council has voted 6-3 to repeal an ordinance it adopted last March that limited ride-share companies, including Lyft, Sidecar and UberX to 150 active drivers apiece.

The reason the city council changed their minds is that the citizenry collected enough signatures to put a repeal of the council’s action on the next ballot. They were headed for a humiliating defeat, so now they’re leading the parade!

And the Public Choice economists can smile;

The agreement has a number of provisions. Drivers for transportation network companies will be licensed by the city and must meet insurance requirements. The city will issue 200 new taxi licenses over the next four year.s

Taxi and for-hire drivers will see their licenses “transfer into a property right” on the order of New York’s valuable taxi medallions.

Julien Couvreur
Jul 8 2014 at 11:05am

Regarding MonkeyApp, this reminded me of “The High Cost of Free Parking” by Donald Shoup (which was not on Econtalk yet ;-).
Parking being sold quite cheap causes a number of side effects (more congestion and pollution). It seems that scalping would make the situation better (bring the price closer to market price).

Generally, regarding road issues and rights on the road, it is important to remember that roads are a essentially a government monopoly. Rules are less controversial on private roads and other frameworks which allows businesses to develop (such as malls).

If medallions defined a promise or contract, then taxi drivers should be able to sue the city for fraud. More generally policy-defined “rights” are not known for their stability and being enforceable (will pensions and other welfare terms still be available to those who paid in?).
It is sad that people’s livelihood was severely damaged by this racket, but this hardly justifies applying bad rules to others.

Mr. Econotarian
Jul 8 2014 at 12:46pm

“Legacy” cab companies are trying to compete with the online service of Uber.

For example, LA Checker Cab has the “iNeedTaxi” app.

I tried it the last time I went to LAX from my house. I fired up “iNeedTaxi” and saw a map of all the LA Checker Cabs around me. One was very close, perhaps a minute drive away or so, and I went ahead and sent in a “hail”.

The cab they assigned me was not the closest one. After panning around the map on my phone, I found the cab, and it was about a 5 minute drive away. All I got was a cab number, not a driver photo or ratings of course.

I was preparing to enjoy watching the cab come to me, but it did not move. It stayed motionless for 20 minutes. At that point, I started downloading the Uber app to try it for the first time. After about 5 more minutes, I decided to check iNeedTaxi one last time, and now the LA Checker Cab was finally moving in my direction.

About 30 minutes after I “hailed” the cab on my phone, it showed up.

So while legacy cab companies are trying to emulate the software and service of Uber, they have a long way to go!

Steve Price
Jul 8 2014 at 5:54pm

Great podcast. I do think that framing the sharing economy as a way to increase utilization of privately owned assets was well done and will likely be profitable.

But two legal notes [caveat; I am not a lawyer and these laws vary significantly state to state]:
The monkey parking service is likely clearly illegal most places. And there is nothing new about it: it is merely attempting to make a profit by asserting control over a public asset. Parking stalls are located on public right-of-way and are intended for temporary parking, not for commercial re-sale. You cannot legally sublease them. Monkey could claim it is not subleasing, that it is merely providing information, but that information looks a lot like brokerage and earning a commission on a public asset is another clearly illegal act.

Uber uses public roads, which by contrast are intended and permitted for unlimited use (except for toll roads) by both personal and commercial traffic. On the other hand, a real lawyer will need to address the issue of whether governments that have a medallion system can be sued for inverse condemnation for not defending that system. But it is always harder to sue for damages due to a lack of action, rather than damages as a result of an action. And it may end up being narrowly defined as the medallion only allows you to pick up people who wave you down, not people who call in a request.

As for the sharing economy, I think it was easy for early observers to underestimate its strength given that we have strong cultural messaging that tells us not to talk to strangers and not to trust people who behave differently or have significantly different income levels. Ray Kroc made lots of money by creating a restaurant chain with standardized food and service across the country, so you never had to go into a “stranger’s” restaurant. But eBay taught us all that even if we cannot rely on the other party to a transaction, we can rely on our peers’ reviews of that other party and we now have systems that allow that review information to be easily accessible (or where much of the value add is in fact the ownership and control of those peer reviews).

Jul 8 2014 at 6:54pm

Another great podcast. The Uber discussion was particularly interesting and I appreciated Mike playing the role of devil’s advocate.

By the way, I’m not sure if this news came out after your taped this episode, but the SF City Attorney sent a cease-and-desist letter to MonkeyParking; He said the business model was premised on illegal transactions.

Julien Couvreur
Jul 8 2014 at 10:05pm

Jesse, how long until someone comes up with a BitCoin-like protocol to replace the monkey parking app in a decentralized way which cannot be threatened by cease-and-desist? Will they go after users then?

jason wetzel
Jul 8 2014 at 11:19pm

At the car museum one notices that the very first cars look like carriages. And they were called horseless carriages. 100 years from now the museum will have a driverless car. Looks just like a car but with no driver. It will show a comical lack of imagination on our part. In the future, a “car” will be a mobile room. And while in a “train” going down the highway, you will be able to order a bathroom and one will dock with your “car”. It will be seamless. Your business done, you walk back to your unit. Or to a lunch car. These could all be moving down the highway at 100 mph and you would not feel it. Vast ad-hoc conglomerations will be possible. I want one with a piano in it. I would love to practice Bach fingering on the dead space between cities.

The Unbeliever
Jul 9 2014 at 4:49am

The problem with all “sharing economy” systems is the same: they introduce a reliance on 3rd party infrastructure that can fail.

The guy with his library on his iPad, taking an Uber car to a new AirBnB spare bedroom each night, will coast along just fine… until he loses Internet connectivity. Or until he needs to make an emergency 3 AM trip 20 miles into a remote suburb. Or until he takes a 3 month contract in a town that bans house sharing a week after he arrives. Or a flood destroys roads and cell phone towers. Or the market suddenly fails to clear, even though the price shot up. Or he drops his phone and breaks it after all the Starbucks and public libraries have closed for the night.

“I won’t have to own a car!” Maybe. But, to use Nassim Taleb’s terms, owning a car is robust; relying on Uber is fragile. Car ownership is expensive, but it confers freedom and reliability; Uber merely attempts to replicate the appearance of such benefits. (I don’t know what the anti-fragile equivalent is, probably something like knowing how to repair cars and owning a car.)

The reliance on infrastructure, and structuring your life around its utilization, is a historically common blind spot in metropolitan living. You assume that all the invisible mechanisms that enable you to live “more conveniently” will always be there. But that infrastructure isn’t there to make daily life perfectly efficient; it’s there to handle edge cases, exceptions, and black swans.

There’s good reason all the post-apocalyptic stories start out with collapses of cities, and depict safe havens with backups, supplies and resilience in the countryside. Less convenient infrastructure forces people to adopt more robust options, and develop backup plans, networks, and relationships to deal with its inevitable failure.

The sharing economy is a network with multiple fragile assumptions at its heart. Such things work beautifully… until they suddenly don’t.

Bob Steger
Jul 9 2014 at 12:18pm

Interested podcast. A few comments.

On Uber, et. al: As noted, their cost advantage is largely due to tax evasion. Cabbies aren’t getting rich, but there are likely inefficiencies that can be eliminated. It’s just a matter of time before Uber et. al. will be declared de facto cab companies and forced to comply. Cab regulation exists to avoid oversupply driving down quality and safety. These issues remain. Oh, and, where’s the moat here? There’s nothing Uber’s doing that cab’s can’t copy, and they will.

All of these app services are highly computerized, and that will make it easy for the IRS to audit them and their users. Just a matter of time. Could be “disruptive.”

As for driverless cars, I’m much less enthusiastic. This idea was in the engineering pubs when I was in engineering school in the early 70’s. The problem is technically very complex, and reliability very hard to achieve. How often do you encounter a software bug? You’re reading a book at 60 mph on a freeway…. Google’s toy runs around sunny Mountain View (a town I know well) — not in blizzards, downpours, etc. A car design which is much costlier and only works under pristine conditions will not sell — or be made.

What about liability? And who’s going to build all this? After what the trial lawyers did to Toyota and Audi (with NO defects!) I doubt car makers will be jumping on this — although they may investigate it. But the military contractors have spent the most time on the problems — at tremendous cost, and without trial lawyers, insurance companies and irresponsible users. And then there’s the insurance industry. May take a step back on this one. Notice that trains, light rail, subways — all have drivers? And in a highly controlled environment? Sure, some bow to unions here, but maybe a bit more.

There will be a series of car enhancements, in baby steps, like collision avoidance, adaptive cruise control, (MUCH simpler than driverless) and maybe inter car communication. And these will have real benefits at modest cost. And truck convoys on major interstates with a single driver may happen (already in AUS), perhaps driven by the acute shortage of long-haul drivers.

But the first nasty accident may throw cold water on all the hype. Look at the public comprehension and response to fracking, climate change, GMO — how will they react when they start to perceive the real risks here?

Big subject — inspiration for more exploration? Hope so.

Matt Taylor
Jul 9 2014 at 1:43pm

As Julien Couvreur hinted at it would be great to get Donald Shoup on the podcast.

Max Scher
Jul 9 2014 at 9:54pm

The sharing economy is of course a BIG deal. But for one more reason then was mentioned. A world where we optimize the use of all our assets, is a world we do more with less and therefore consume less. The savings in our ecological footprint would be massive if every car served ten people instead of one. And when we consider sharing buildings, or the possible population density allowed from this sharing economy, the carbon/water/energy/landuse footprint of humanity is drastically reduced.

Jesse Bailey
Jul 9 2014 at 10:01pm

Strong Towns listener who discovered Econ Talk through Chuck’s interview. Great episode, and I especially enjoyed the conversation around resource utilization and the potential to fundamentally change land use patterns, streets, and automobile ownership by switching to a more ‘on demand’, variable pricing type scheme. I think cities will become safer and more pleasant places to be with much less negative externalities from cars, and this along with other trends will hasten a move back toward walkable urban places.

I second other commenters: You must interview “The Don” of parking policy, Professor Donald Shoup. I was surprised the SF Park experiment was not mentioned while discussed the Monkey App. SF Park is an attempt to set a market clearing price for on-street parking in San Francisco, but SF Park has been limited to a ceiling of $6 per hour rate. Apparently this price is set too low since apps like Monkey App facilitate arbitrage of this sort.

Graham Lawlor
Jul 10 2014 at 8:28am

“The technology wins. Because the people who benefit from it, for whatever reason, the institutions respect that in some way–don’t know the mechanism exactly how it happens. But the standard Mancur Olson, diffuse benefits, concentrated losses, somehow doesn’t work over time like that”

I think the startup and venture capital business model concentrates the benefits of technology pretty well. Founders and investors in disruptive technology startups like Uber and AirBnB stand to make billions for their firms and for themselves. This gives them the means and the incentives to fight the legal and public relations battles required to get these technologies adopted.

If you happen to be in NYC this week, you’ll see AirBnB ads all over the city. But they are not urging customers to use the service. Rather the tagline is “New Yorkers agree: AirBnB is great for New York City”. It’s a PR campaign to attempt to influence the political battle with the incumbent taxi medallion owners. It’s a very “concentrated” effort.

Rather than Mancur Olson’s theory failing, venture capital is a great tool for concentrating benefits in the hands of the disruptors. It’s a mechanism for market efficiency.

Alan Clift
Jul 10 2014 at 9:51am

Russ’s comment ‘pedestrians are going to have to be more careful.’ Made me wonder if that would be true. I assume driverless cars would stop for anything. So as long as pedestrians gave the car time to slow down, pedestrians could cross the street anywhere. Would we need crosswalks, which are used to assign rights.

Wonderful podcast.

Jul 10 2014 at 12:38pm

Alan, pedestrians will always have to be careful, but it’s important to note that self-driving cars are infinitely better at avoiding collisions with people. This is simply because, when a human driver sees a person he/she needs to avoid, brakes are usually not applied quite firmly enough. Self-driving cars apply the brakes much more firmly and are therefore much safer.
Good podcast though, let the revolution begin!!!

Jul 11 2014 at 6:16am

It seems the auto industry is already aware of the disruption from driver-less cars.

Interestingly Bill Ford released this to The Wall Street Journal (subscription) on the 7th July, same day as this podcast.

Bill Ford on the Future of Transportation: We Can’t Simply Sell More Cars

Ford’s Chairman Says We Must Rethink How We Make Vehicles—and How We Use Them

The rise of companies such as Lyft, Uber and Zipcar underlines individual ownership as not always being the most cost-effective way to obtain access to a vehicle, especially for urban customers. Individual ownership also may not be the primary model of vehicle ownership in the future. Just how this affects the current sales model is yet to be seen.

We also will need to rethink what defines the act of driving. Autonomous driving, or cars that navigate themselves, will be possible, and in certain situations, common practice. We already are seeing some of this make its way into vehicles to provide safer and easier driving. As these technologies develop, we expect they significantly will extend the useful driving life of individuals and offer new opportunities for the physically challenged. Some entrepreneurs are even pushing current boundaries further by exploring the feasibility of flying cars. While these would require significant regulatory development to become a viable option, they do provide a glimpse of what our future of mobility may look like.

Cody L Custis
Jul 11 2014 at 10:48am

I’ve wondered how much of the market failure of the taxi cab medallions is due to the decision to sell, rather than lease, a public property right. I see two problems with the selling of such public property rights.

First, the public benefit is paid by future generations, but only recieved by one generation. For example, here in Montana, state liquor licenses are similar to medallions (sold in the 1930s, high demand and value of roughly one million dollars). Whatever benefit the public gained from their sale happened in the 1930s, while generations such as mine (in the 2010s) continue to pay higher prices for liquor.

Second, the value of a right may not be properly known at the time. Wireless spectrum has been inefficiently allocated to analog (or even digital) television, rather than cellular communication. Although the inability to transfer ownership is responsible for some of this inefficiency, the value of such spectrum was not known when it was originally allocated in the 1920s and 1930s.

If New York City has made the decision to lease medallions with a lease of say, 20 years, the current public would recieve current value for such medallions. Instead, the situation is one where owners of rights purchased in the 1930s rent and sell those rights, with a large net loss for the current public.

Don Rudolph
Jul 12 2014 at 12:49pm

I think one thing that may slow down the future of driverless cars is the liability issue. When a driverless car fails the car company will be sued. Industry is going to be more aware of these costs than consumers. I think consumers have a way of miscalculating a risk . If people considered how one split second of in attention could threaten their life or wealth, would they text while driving. While I think driverless cars will some day be here, I think it isn’t just around the corner.

John Thurow
Jul 14 2014 at 2:15am

I think there is an inherit risk to owning any kind of property. If Mike bought the forest then what stops the town, county, etc from rezoning the area around the forest i.e. if they decide that the land around the forest would be great for a factory or a military base etc. that would affect the value of the forest, most likely in a negative way. In that case, would the town, county, state, etc. in terms of the takings clause give just compensation for the change in zoning if at the time you purchased the land the zoning was residential?

Jul 16 2014 at 6:46am

I’m sure I remember hearing Russ mention a service like AirBNB but targetted at business travellers where they service the apartment as well. But the second time I listened to it I didn’t hear it. Does anyone know what I’m talking about? Did I imagine that?



Jakob Engblom
Jul 20 2014 at 2:18am

Every time I hear about Uber I just wonder how it comes that taxi service is so broken in the US that something odd like that is perceived as needed and attractive.

The obvious solution is not Uber, but just plain old deregulation of taxi availability, plus harder rules on what a taxi should be like. That would let the classic market work out.

In Sweden, taxi was deregulated in 1990, allowing anyone to start a cab company. The drivers still have to have a Taxi license, and the cars have to be registered to be a Taxi, and they have to have proper meters. Typically, taxis are reasonably new and fresh cars and take credit cards without a problem. Much much nicer than taxis anywhere else in the world, except Germany and Finland where the standard is similar.

According to an evaluation from 2013, the result is that taxi availability has increased by some 22% on average, prices have gone up more than general inflation, and waiting times are shorter compared to the situation pre-deregulation. Cabbies also tend to have a hard time getting a living wage out out of their job, due to a slight over-establishment.

However, you also have cabbies cheating customers and overcharging tourists. It has got so bad that airports and train stations try to control which taxis get in, typically favoring the larger taxi companies that do not cheat their customers. Thus, you can see where the medallion system comes from — but the market can also handle this. People will tend to book and travel with the bigger known companies, avoiding the individual cabbies.

You are starting to see mobile apps being used to order cabs – so it is possible to “imitate” uber for a regular company.

A plain old deregulation move would seem to level the playing field here — just make sure that Uber drivers also have to have cars registered as taxis and drivers licensed to drive a taxi. What they end up with then is just a nicer way to call the cab. That would seem simple and fair.

Ron Crossland
Jul 22 2014 at 8:05am

Engaging discussion. Technology disruption in the case of Uber and Airbnb demonstrate how poorly, generally, established businesses innovate. Large city taxi services could have and still can find technological upgrades to their services.

I agree with Jakob Engblom and Munger – deregulation is the straightforward path to providing as level playing field that everyone is at least used to, even if not always happy with.

Steven Aves
Jul 22 2014 at 3:42pm

I finished the podcast today – I’m a bit behind. I agree with the benefits of utilizing all those wasted assets. I also understand the discussions of rent seeking, government licenses, etc. But I’m surprised that local taxes on out of town guests has not been mentioned. Those are substantial so I can’t see cities not fighting Uber and the like.

Also, the tourist taxes that all of the cities mentioned need to promote themselves, let alone the promotional money spent by those “rent seeking” hotels.

Governments are not going to do with less tax revenue, they’ll just raise it somewhere else.


Mike Murphy
Jul 22 2014 at 6:00pm

Wow, what a wonderful episode. I’m a technology professional and had to go back and explore all the technology solutions discussed here. Really interesting content.

Aug 6 2014 at 4:34am

Greg G: “The efficiencies available here will surely lead to less fossil fuel use than we would see without them.”

The Jevons paradox applies here. If anything, I suspect the efficiencies available here will accelerate fossil fuel use. For instance, when you can read or sleep on your commute, and your car travels at 150 mph, a 400 mile commute sounds a lot more reasonable.

Glenn Mercer: “another view of the numbers: road fatalities were 1.8% of all fatalities in the USA in 2012”

This number includes cancer, old age, etc. For children aged 5-14, in 2011, road fatalities were 16% of all deaths. For people aged 15-24, it was 24%. This is no small matter.

Comments are closed.


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Podcast Episode Highlights
0:33Intro. [Recording date: July 2, 2014.] Russ: My guest is, finally, Mike Munger of Duke U. Mike is the Hank Aaron of EconTalk guests, having appeared an astounding 25 times by my count. Mike, welcome back to EconTalk. Guest: It's a pleasure. It's taken me this long actually to get over the end of the baseball season. Russ: Well, I'm sorry about the Hank Aaron reference. I would have said Stan Musial, but he's not the all-time home run leader, fine and extraordinary player that we was. But as many listeners will remember, you are a Cardinals fan, which is why I mention that. Guest: Right. I think I'm actually just Carl Ripkin: I have the most games, not the most home runs. Russ: Good point. You're the iron horse, if I may make another reference. We made a prediction, you reminded me, before we started recording this a long time ago. Guest: It was a joking prediction, that the Cardinals and Red Sox would appear in the World Series, and I'm almost sorry that happened. Although I have to say, unlike 2004, the Cardinals were not swept this time, so it wasn't quite so bad. But I still wake up screaming. Russ: I'm sorry to hear that. I still suffer from 1967; even though '46 was before I was born, I still have virtual memories over it. Guest: You're spoiled. [?] Russ: I am not spoiled. Our topic for today is not the rivalry between the Boston Red Sox and the St. Louis Cardinals. Our topic for today is what is called by some the 'sharing economy' and by others the 'peer-to-peer economy,' and it's the rise of web-based and typically cellphone ways to share your house, your car, even your pets. So, some of the companies we're going to talk about today include Uber, AirBnB, Lyft, DogVacay, FlightCar, MonkeyParking, and maybe some others. Let's start by talking about, what's the basic idea behind these companies? Guest: In each case there's a difficulty that might be created by lack of information; it might be created by regulatory or property-right rents. And so it's a complicated mix, when we talk about all these different things. I think the most interesting thing that they all share is that they are a way of undercutting or offering a new technology that gets around something that right now is either more difficult or more expensive than it--and I'm making air quotes--"should be." But of course the traditional taxi cab companies, hotels, people that want to find parking spaces disagree. So it's controversial because it's not only sharing--it's destructive. Russ: And the other aspect of it besides the end around, that you're referring to, around property rights or other information problems is there's a transaction cost aspect to this, an issue that you and I have talked about many times in past episodes. So, I might have a car parked at the airport and I am away for 4 days for a trip. My car sits at the airport for 4 days and it's just a wasted resource. Nothing is being done with it. In fact, it's a little bit vulnerable sitting there with no one using it. And that can be true of my house as well. And one of the aspects of this new kind of product or service is that it allows much better capacity utilization of assets that we've acquired and own and often are sitting idle. And at the end I hope we'll be able to talk about what an extraordinary set of implications that has for life, that aren't apparent at first glance. It sounds nice; you get some use out of something you don't always use. But I think it's actually quite revolutionary.
4:31Russ: Let me start by just saying something about Uber. I used it for the first time yesterday--not to prepare for this interview but just actually, I'm out in California for a big chunk of the summer. I'm staying in a house that I was able to find via AirBnB, it turns out; and I had not rented a car yet. So I wanted a ride to campus at Stanford, where I work. So I called--I didn't call--I contacted. I pulled up my Uber App on my iphone. It immediately recognized where I was and said, 'Where do you want to go?' I said I wanted to go to such and such place on campus. And Uber responded, saying, there's two options for what you mentioned. There's a cab like service that has a meter; and then there's more like a limo service that is a fixed price. So, I chose the meter, which is "less fancy." And what's remarkable, when I said where I wanted to go, it said, 'There's a driver within 3 minutes. Do you want this ride? It will cost between $15 and $20.' I said, Yes. And immediately a map came up on my screen with an image of the car coming to get me. At the bottom of the screen was a photograph of the driver, his name, and his rating provided by other previous users of his services. He showed up in his own Toyota Camry, no markings on it to suggest it was a cab. So, here I am getting into the car of a stranger. Which I think makes some people very uneasy. I got in. had a lovely conversation with him about Uber. He told me that if your rating drops below 4.6, you can't drive any more. Uber gets rid of you. And at the end of the ride, he said, 'Welp, we're here'; and I said thank you; and I got out of the car. I didn't pay him. I didn't tip him. I asked him how much it was; he said it was $15.56. Immediately as I got out of the car, Uber prompted me to rate him; I gave him 5 stars--he did a fine job, drove well, was a pleasant conversationalist. And it's a part time job for him; he does it occasionally. He has another job. He uses his car and his time to make a little more money. And I get a cheaper ride to work with an incredible bit of improved service beyond just the price. Actually, I shouldn't say it's a cheaper price: it might have been about what a cab would cost. But I loved that it told me he was 3 minutes away. Uber looks for the driver that's nearest to where you are calling from, and it knows where you are calling from because of your phone's embedded location service. And it's just an extraordinary thing. I'll add one more thing about it and then I'll let you react to this brief story. Which is that Uber has gotten into controversy over the last few months, because when there is a snowstorm, or a rain downpour, the rates change for their black car service, and I assume for their cab service as well. They raise the rates, because demand is higher relative to supply at those times. And that encourages other drivers at Uber to become available, because they see they can make more money during that time; and so you can get a ride. Which in New York City, say, you might not get a ride at all in the rain. Or in a snowstorm. And that's infuriated some people. They've complained that Uber is price-gouging. And that's a topic that you and I have talked about a great deal in the past. So I wanted to start with those two things, just literally how it worked and that they've had some price gouging issues. What are your thoughts? Guest: Well, I think the appropriate comparison, to play devil's advocate--one of the reasons it often is cheaper is that he is probably not paying taxes; he is not subject to a safety inspection-- Russ: compared to what, Mike? You think cab drivers pay taxes? Guest: If you pay by credit card, yeah. Russ: Yeah. Well, some of them do. It's true. Go ahead. Guest: And more and more, you can pay by credit card. He doesn't have insurance. So if there had been an accident and you'd been injured, you'd have been on your own. He did not have an FBI (Federal Bureau of Investigation) background check; and he didn't have to pay for a medallion. So, the comparison I would make is, you and I say, you know, we can make a lot of money: Let's buy cigarettes in Virginia and then we'll drive them up to New York City and then we'll open the back of the truck and we'll sell cartons of cigarettes, because the taxes there are $4.50 and it's only $.30 per pack in Virginia. And so somebody comes up and says, I'm having trouble selling my cigarettes because I did what was legal and I paid the New York taxes. And you say, You're an idiot; we can sell much more cheaply this way. And, look, we're helping consumers. There's a long line for us; nobody wants you. So we put them out of business. Just because we are breaking the law. Now, it's true that Uber is a clever way around the law because they have this out: they are a software package. It's like the Yellow Pages. All they are doing is providing information. But it's actually a way of getting around the law. Obviously, I think the truth is somewhere between these two. But they just had an auction in Chicago for new medallions. They were going to sell 50 new medallions, and they expected the starting price would start at $350,000--supposed to be in January. Usually within 2 weeks, they've come out with the results. They still haven't released the results. I think nobody actually made a qualifying bid. So, nobody wants to buy a medallion now. One way to look at this is-- Russ: We should explain. A medallion is-- Guest: A license. Russ: It's a license that allows you to, in the case of a cab company, to pick up a stranger on the street who is raising his hand, saying, 'Taxi'. There has always been an out for limos. You can always call a limo service to your house. I don't think they need the same--they don't have the exact same regulatory structure. But certainly, it is against the law in almost every city in America to cruise around and offer to pick up somebody who is raising his or her hand looking for a taxi and act like a taxi. And what Uber has done is be a little bit different. Sort of like that, but a little bit different. And that's what the regulatory issue is. Guest: Yeah. It's much harder for the police. You don't have to raise your hand, now. You just press a button on your phone unobtrusively. And the police don't know. For all they know, it's your friend picking you up at the airport.
11:13Russ: But, I think you exaggerate slightly. So, the medallion--now medallions have sold recently for as much as a million dollars. Guest: In New York. Russ: In New York. Despite the Chicago story. So, there are people who are still investing in the right to be a taxi cab driver, either because they think that Uber is not as important as we do, or they think that Uber will be stopped and shut down and will not be a competitive force. Guest: I predict that Uber will be stopped and shut down. Russ: Okay, I'm going to go against you there. I'm going to disagree with you. It is under tremendous regulatory pressure. Pittsburgh just announced-- Guest: I just meant in New York. In New York City. I just think that the people who made that, are making a good bet. It's too easy to make a sting operation. Russ: Okay. We'll see. But I do think that--the question isn't that--I don't think that Uber is illegal right now. It's a gray area. Pittsburgh has just ruled that it must comply with the Pittsburgh Utility Council's, or Pennsylvania Utility Council's regulations. In Europe there's tremendous pressure to shut down Uber, not allow them. But remember, there is tremendous pressure from riders. Who like it. And I think--I want to make sure we make something clear here. There are two aspects to this attractiveness of Uber. One of them--I don't think it's so much the price. I don't think the price is that much different. I think it's the convenience and power of it, on a calm, normal day; and I think it's its ability change price on the fly, using a fairly sophisticated algorithm. Guest: But the taxi companies can mimic all of that. They'll do it within a month. It's easy to do. If that were the reason, that's easy to do. It's basically open-source software. Russ: I don't know about that. Um, you are suggesting then that the cab company doesn't offer me a web, a phone-based opportunity to hail a cab because they don't need to? Because they have a monopoly? Guest: Yeah. Russ: I don't know. I think the software is what gives Uber its comparative advantage, it's competitive advantage. Guest: It's interesting that the taxi companies are so awful at this. So, if nothing else, Uber may force the taxi companies to improve the way that you connect with a taxi. But I think the cost advantage is really a problem, because it actually raises a lot of questions about the nature of due process. Suppose that we don't take any action and the value of these medallions falls to zero. Are we obliged to offer compensation, because we in effect made a regulatory decision that is a taking? This property right, this medallion, had significant value. We made a choice, without due process, that said we are going to reduce the value of this medallion to zero. Are we obliged to compensate? Russ: Who is 'we'? Guest: The state. Just like we would if we were taking your land under eminent domain to build a road. Russ: Yeah, I'm just giving you a heard time. Um, I don't think that would win. But I'll be interested. Guest: It would not. And one of the reasons I wanted to bring it up was my good friend Peter Van Doren had an article at Cato this past week that's a really terrific discussion of that, and in fact gives good reasons why "we"--in quotes--would not be obliged. Because it's something different. This is a sort of political property right that we all recognize is contingent on policy. It changes all the time. And it's a restriction on competition. Now, the thing that kind of bothers me is you could say all property is. So I have 35 acres of pine forest south of Pittsboro, North Carolina. And suppose I were down there one day, and I heard some chain saws, and I walked back 300 or 400 yards into the woods, and I saw some guys with chain saws cutting down my trees? I'd say, What are you guys doing? They said, We've had a tremendous cost to manage; because we can just take these trees and sell them, we can really undercut you! And I'd say, It's my land! He said: 'You need to read Rousseau: The fruits of the earth belong to all and the earth to no one. So, we can just take this. And that piece of paper that you say has property--well, the state's going to change that. As soon as they realize that you took this land from the Indians; it's unjust. It's not a real property right.' This is the same argument that people make about taxing medallions: It was unjust, it was a restriction on competition; it's not a real property right. Once we start saying property rights aren't real, I'm not sure I have my pine forest any more, either. Russ: Well, it is certainly true that if you paid a million dollars six months ago and now you find that asset isn't paying out--first of all you can't resell it for a million, and secondly, it's not the cash flow that you anticipated from it. Using the medallion isn't coming through. That's a real unpleasant surprise. You definitely lost money. Guest: Isn't it a violation of due process? Because did we make a promise? The reason that you need this medallion is we are going to force anyone who provides transportation services to have a medallion. No one else can provide this. And so when you pay for it, you can in good faith think we're going to protect your property right. And that's why you pay for it. Russ: Yeah, it's an interesting question. It's a dangerous slope. Because what it does, of course, is set in stone all rent-seeking victories. It's very depressing. Guest: I think the answer is--I think--we'll put the link up--the Van Doren article makes the distinction. There is a difference between private property and kind of reifying rent-seeking victories. Other than where the line is. But if it's clearly just a restriction on competition and entry into an industry where there would be big benefits, then we shouldn't compensate. But in a pine forest--of course I'm going to say this because I own a pine forest and not a taxi-- Russ: That's right. That's riiigght. Guest: But in the pine forest it makes sense. We don't want it to be a commons. We don't want everyone coming in and overfishing, overharvesting; and so it's a solution to an externalities problem. Whereas the medallion--maybe it's a solution to an externalities problem. That's the argument we make--is we don't want too much congestion. But if you look, there probably are not enough taxis in New York, particularly at peak times. And so I think the congestion story doesn't hold up as well. But, when I started to think of this sort of devil's advocate argument, I actually, I'm not as sure as I was that the difference is as clear as I thought. Russ: Yeah, no; I'll have to confess the same.
18:00Russ: But I wanted to go back to this other issue of what the end-around aspect of this is and the cost advantage. You said something I thought was interesting, that I think really highlights the approach of Uber and a lot of these other companies to more traditional companies. You said they save money because they can be cheaper because the medallion cost isn't there. And, you gave examples like they don't have FBI background checks. But actually Uber does check their drivers. I'm on their website. I didn't know. This is not a gotcha. And I don't know if they do FBI background checks, but they do check-- Guest: Well, I do. I spent about half an hour looking. They don't do FBI background checks, but do their own background checks. I think perhaps their own background checks might be better, to the extent that Uber's reputation is a hostage, a depreciable capital asset. If the FBI says 'oops,' they don't lose any value. If Uber doesn't do good background checks, they actually lose. They can't blame it on the FBI. So in a way, it could even be better. The problem is, if Uber starts to go bankrupt, the value of the bond that they would lose would fall, and the thing would just devolve into a lemon's problem, where they'll take any driver. Russ: So that's what I wanted to highlight. That on some dimension, Uber has an incentive to be more careful, because they have more money at stake; and they are not protected in any way by a monopoly from other competitors. Lyft is another example, another company that does this; there are probably others that do similar things. But of course, because there is money at stake, they might have an incentive to cut some corners. Like you said. They might find themselves in a bad situation, where they might hire some bad people. Of course that news could come out fairly quickly. That's what's remarkable about these services to me, is how information about quality is spread and sustained. So, the example I gave, if you are a driver with a rating below 4.6, Uber doesn't give you the chance, even--say, I'll take a 2.4 driver, maybe it'll be cheaper. No. They're out. Uber wants to maintain its own brand names quality, its perception of quality. And they are vigilant about it. At least right now. Guest: What I think is interesting is it may be an age thing. My son, my older son--he's 25--he's used to looking on these online services for stars--you look at the reviews. He accepts that as good information. If there's a lot of reviews and there are no bad ones, that's good enough for him. Whereas, you--I know you were out there waiting for the car with your walker, because you are a really old guy. So he pulled up-- Russ: Eh, eh, can you take me to, uh, Stan-Stanford? Guest: What do these stars mean? I don't understand these numbers. So it may just be that for people under 30, that's fine; they accept that the state doing background checks--ach, I'm not sure that's good, but if I actually have a credible signal for, I can look at reviews, that's fine. So, it's subversive. It's actually subversive of the state's sort of traditional role of licensing and restricting access. And now we have--the whole world is basically Rotten Tomatoes, where you get by on peer to peer information about reviews, not just the reducing of transactions costs. But the quality. Russ: Your reference to Rotten Tomatoes, I assume, is to the film site. Not to the-- Guest: Yeah, I try that in class sometimes. I ask my class what would happen if there were no FDA (Food and Drug Administration). It would be the Wild West. All sorts of drugs would be out there. You wouldn't know what to do. And I say, Yes; what if there were no Federal agency in charge of reviewing movies? And they look at me and say, Well, there isn't one. Guest: Well, no there isn't. And yet you still are able to find out something about movie quality, right? So, in fact, there is all sorts of ways to get information if it's a valuable and scarce commodity. And Rotten Tomatoes is free. And this information we can just attach for information. I use it on e-bay; I use it on Amazon. If you are under 30, you trust--within limits--the information that you get from reviews much more than old guys like me with my walker. Russ: I think it's my walker.
22:23Russ: Well, let's talk about AirBnB for a minute. Now, AirBnB, fascinating to me, is a way that people can rent out a room in their house. Competing pretty directly, somewhat directly, with hotels. Hotels don't like it, naturally--it's undercutting them, and their occupancy rates. And their complaint is that this is taking place without any regulation. There's no safety; there's no cleanliness monitoring. Of course, some of these complainers have never stayed in a hotel. Obviously. Because even with that regulation of the hotels, you can find--in New York City, bedbugs. I've never had to deal with it. But I've heard of it. And occasionally you don't get a clean room. But they are pretty good about it, because they are in the business of trying to get you to come back. But, so, is that person renting out the room in their house. So, it's true there isn't a city inspector, reliable, honest, who knows. But there is no city inspector at all who comes to this person's house. All there are, are previous travellers who have decided, with a certain number of stars, how nice or un-nice it is to stay in somebody's house. And it's an alternative regulatory regime, effectively. Guest: Yeah, it is. And there are two potential problems. One is that maybe there's not enough information, enough reviews for me to be able to tell. Or, previous users, for some reason, just decide to troll; or maybe I find out there is somebody I don't like and so maybe I go and put some false reviews. There's some potential for abuse. Russ: Absolutely. Guest: But by and large, the way that it uses excess capacity, particularly in situations where it's relatively scarce--if you go and pay for a regular hotel on Manhattan Island, it's really expensive, even for a not-very-nice hotel. You can get a much nicer place in northern California, New York, Boston, and that means that the person who is not there actually gets some use out of it. There's going to be fraud; there's going to be crime; there's going to be some problems. But overall, the improved use of resources just swamps that, by orders of magnitude. It's an amazing innovation. Russ: Now, I want to talk about the quality differences for a minute. Again, I think it's depending on your age--for a lot of people, the idea that you would get into somebody's car or go stay at somebody's house, people you've never seen before, is just plain scary. For other people, it's a feature, not a bug. It's like: I get to meet a new person, stay at their house, have breakfast with them. And there's a high level of trust there. It's sustained by successful re-selling--people who transact over and over and get a good rating and earn people's trust. Of course, you can invest in that and then take advantage of it, which as you say is certainly going to happen. I wonder why it hasn't happened in a more dramatic fashion already. I think it's fascinating whether these will be sustainable, given the potential for bad publicity from a really horrific tragedy that could take place. And you could imagine--I just saw an email correspondence between a couple of venture capitalists considering investing in AirBnB. One of them is pretty skeptical, and missed it. It's a huge success right now. But I can imagine somebody [?]: Are you crazy? You think people are going to pay money, even a lower rate, to stay at somebody's house? People are going to let them? You think people are going to offer rooms in their house to strangers? It's really a--it's a surprising phenomenon. Guest: I am surprised how many people that I actually know that rent out, and have just repeated positive experiences. Now maybe it's just partly because of where they live. I have a friend--I'll call him Mario, because it's his name. He lives near the National Science Foundation (NSF). And they are constantly having people in. You get paid a per diem. So, they would prefer to be able to stay someplace cheaper. So he lists this as being right near the National Science Foundation offices. And so people who are on the panels for geology, physics, chemistry, all of these interesting sciences come in. And he says 2 or 3 nights a week he has these amazing conversations with these scientists. They'll sit in the living room; he'll open a bottle of wine. And the word gets out; and people say: Stay here, if you're going to the NSF, stay with Mario. It works great. And he has an extra room. I think that sort of word of mouth is going to be the answer--combined with the fact that there are reviews--is going to mean some people are going to have repeat business. They actually are going to have a pretty good sideline, where two or three, four nights a week, somebody's going to stay with them. And it's pretty great. Russ: Now you mentioned taxes. I assume, but I don't know--I don't know whether the state takes a cut from any of these transactions. If you stay in Manhattan, or Boston, or anywhere probably, there is a special tax for hotels, that I assume AirBnB avoids right now. Guest: Yeah. I think it will be like Amazon: they'll fight it for a while and at some point they'll give in and go along. Because otherwise--all you have to do is pass legislation; and it's easy to run a sting operation. The same thing really is true if they were a taxi cab. If you make it illegal, the nice thing about Uber is, if you run a sting operation, they'll actually come to you. And you can arrest them. Russ: The efficiency! That's great. Guest: Right at the donut shop. If you're at Uber, you know: Don't pick anybody up at the donut shop--it's a policeman. Russ: I need to laugh for about 15 seconds. We'll cut that out of the final version. But that's a [?] highlight there, inside-the-park home run, off the beaten track. Love that. So, again, part of their advantage is they are providing a service that evades taxes and regulatory structures that apply to the existing hotel or taxi guys. But again, I want to emphasize the other part that's really, really important is this enormous increase in supply that's coming from the fact that these rooms that weren't available to be rented out are suddenly through this technology now relatively easy to find. You can always rent out a room from a stranger if you wanted to walk on the street and knock on the door and say, Hey, I'm looking for a place to stay tonight; want to take me in? Guest: There's probably bulletin boards or something, too. It was always possible. Russ: Yeah. You'd call a friend. If you wanted to go stay somewhere where there's a large event--the technical name for this is, you alluded to earlier, is peak load pricing, a peak load problem. Demand isn't smooth. It's not smooth throughout the day, throughout the year. So if there's a big event in a small city, all the hotels are filled. Like graduation at Indiana University--my niece graduated from there recently, and my sister and her husband had to stay 50 or 100 miles out of town and drive in. Well, AirBnB let's you stay right there--because the rates will be a little bit higher that night for staying in somebody's house, but there are rooms. If you are willing to do that.
30:09Guest: That's the genius part of why--it just needs to be explained. If there's a blizzard in New York, anyone who can either is taking a taxi or there aren't any taxis. So somebody who is sitting warm and safe up in his room watching the news says, 'Oh, man, it must be terrible to be out there,' now is tempted to go out there himself because he can make $140 bucks for driving somebody two miles. So, when people are in desperate need of a ride, a lot more people show up. Now, it's true that the reason they show up is to that they can make money. But if I'm standing there minute after minute and there are no taxis, it doesn't matter that the price of the taxi I can't get would be $7. Russ: Yeah. People have trouble with that, though--as we've talked about in detail in a previous episode. I find it remarkable--as I would--being an economist--when people say it's so unfair that Uber has a multiple--they warn you when you try to get one of their cabs or limos when it's extra high demand. They say: This is going to be x times more than usual. I didn't end up getting the car, but I tried it at one point; it said it was going to be 1.15--15% higher. Okay, that's fine. But on a rainy night in New York as the theaters are emptying, it might be 5 times higher, 4 times higher. As you say, it might be a $90 fare instead of a $20 fare. And people are outraged. And I say to them: Keep your phone in your pocket, my friend. Guest: Yeah. Just wait for a taxi. Russ: Start walking. It's easy to avoid. Guest: Put your hand up. Russ: You don't want to be gouged--don't get in the car. Guest: I think what's interesting about it is we have this odd view of the person sitting up in his apartment watching TV and sort of expressing sympathy, saying, It must be tough--is somehow more moral than someone who puts his coat on and goes out into the snow and picks up riders. Because the second person, if anything, is at least trying to provide a solution. Sure, he's doing it out of self-interest, because he says: That's a lot of money, I can help people. But it must still be a mutually beneficial transaction. As you said, we've talked about this a number of times. But it does crystallize the fact that: Why would you think the person who sits up in his room and does nothing is okay, in fact good, because they are sympathetic, whereas the other person is so sympathetic he puts on his coat and goes out, he's bad? Russ: Well, you'd like him to do it for free. And that's the problem, the real issue. I want a world, says the critic, where Uber is able to attract more people into their cars to pick up people without having to charge a premium. That's not the world we live in. It's an interesting world. And of course, you might go get your brother in a snowstorm. But you might not. It depends. It depends how your relationship is with your brother.
33:08Russ: I want to mention two other--I mentioned the service that lets you rent your car out to a stranger at the airport, while your car is at the airport--it's called FlightCar. Then there's DogVacay--rather than board with a kennel, you send your dog to somebody who has already got a dog. What a great idea. This person already walks their dog. Why not have them walk two dogs? It's a genius idea. I don't know how that's working out for the dogs at breakfast[?]--you see a strange dog you didn't know before, it might be a little bit awkward. Guest: There's information problems. You would want to know how previous people had done. So you'd have to break in. But again, once-- Russ: Say that again? What did you say? Guest: You would want to break into the system. I don't want to be the first person to send my dog to you. Russ: Oh, I see. I thought you meant you'd have to like break into their house and watch how they'd treat your dog. The dogs' ratings are very inflated. Dogs being who they are--they'll give a guy 5 stars when they are at his house for vacation that should have been a 4.2. They're just so darn happy. Guest: Yeah--he fed me every day! Dog food! Again! It's my favorite thing! Russ: Oh, God bless you, kind sir! Let me wag my tail some more and follow you around the house. I'm a cat person, by the way. I don't know what you are. Guest: I see. I'm certainly a dog person. And I get excited about this. We would be happy to dog-sit. Russ: Well, you could be making some money soon. But the other one you wanted to talk about, which I love the name of, is Monkey App. Which is not a place where you leave your monkey when you are on vacation. Explain what MonkeyParking is. And it's not getting a good reception. Guest: It think this is the most interesting of all because in a way it's the most ambiguous. I actually am not sure what I think about this. I made a half-hearted objection about Uber, just to sort of get it on the table. But Monkey Parking, I signed up and I tried to bid for a parking space. It's in San Francisco, so obviously I wasn't really doing it. But I went through the process. And you can bid $5, $10, $15, or $20. Russ: To do what? Explain it. Guest: What you are bidding for is someone to leave a parking space. So they are very explicit: what you are paying someone to do is to leave a parking space. You're not buying the parking space-- Russ: That you're going to fill. Guest: Well, that's up to you. Russ: You are subletting it from them. Guest: Well, that may be. You are paying them to leave when you get there. Now, maybe you take it, maybe you don't. Maybe you just enjoy watching people leave parking spaces. But they really are careful not to say you are buying the parking space. And that you are going to get it. All they are doing is paying them to leave a parking space. And so, this has several effects. One is that there are people now who instead of sitting at home playing video games, drive their old junker jalopy across the bridge from Oakland and look around for parking spaces. And if they see one, they jump into it; and they pay the minimum amount and then put themselves down. MonkeyParking App has two buttons. One is: I have a parking space; and it looks for your location, because it's a cellphone app. And the other is: I want a parking space; and it looks for your location. And then it matches people that have them with people that want them. And so-- Russ: It encourages staking a claim. It's like people who go out and get a good URL (Universal Resource Locator), hoping that someone will also want it; and then they can re-sell it. So it encourages people to prospect for parking spaces--and make it even harder to find one. Guest: It makes it impossible. It's literally impossible to find a parking space. Russ: Unless you want to pay for it. Guest: On the other hand-- Russ: In which case it's really easy. Guest: And it means that you don't have to drive around for an hour. So there are distributional consequences. I would use it every time. If I bid $5, I'm going to be able to find one not too distant, and pretty quickly. I pay him--and there's no actual payment that takes place. It just matches. It's like Uber--it's a genius thing. I have to have my credit card number; it's credited to his account. No money changes hands. We don't even have to talk. I just pull up; I wave; he's got my information. He pulls out; I pull in. And then I have to pay. I think of it like ticket scalping, actually. Because a ticket scalper buys a ticket that he doesn't intend to use. Russ: An underpriced asset, like the parking space, which is "too cheap"--which is why there aren't any. Guest: Yeah. So it ends up being a 2-part tariff. One is the money that the scalper charges you in excess of the price. And the other is the price that's received by, in this case, the city, which has the parking meters. And so the question is: Is this a good thing? Should it be allowed? And I think the hard part about it is that it means that there are no parking spaces. There are no parking spaces that you can find-- Russ: At the legal price--at the statutory price that the city has set. Guest: Well, again, suppose I'm old, so I have my walker beside me in the front seat of my car, and I don't know about this app. I drive around and I say, There used to be parking spaces here. Russ: Right. Exactly. Guest: Now there aren't any. Russ: Every place is filled. Guest: Yeah. Literally, the only way you can find a parking space is by using Monkey Parking, now. Russ: That's if enough people find it, and get used to it. Guest: Well, let's suppose it's successful. And it seems to be becoming successful. Now if it fails, then, yes, we don't need to worry about it anyway. So I'm assuming it becomes successful. If it does, then either this or some competing software is the only way to find a parking space. I don't drive around. I am able to find one pretty quickly. It's a little bit expensive, but for me it would easily be worth it. I am happy to pay. I think some people would object to paying. What I think is interesting about this is that this has happened in South America for a long time. And you may have seen it in Chile. When I would drive from Santiago over to Viña del Mar--we would visit the Congress; I know some members of the Cámara de Diputados. There are no parking spaces. But there are these guys who provide car-washing services. Russ: Oh, yeah. I've seen this--it used to be you used to have this in New York, by the way. Not just in South America. Go ahead. Guest: Well, in New York, the parking spaces are so valuable--here, there are actually no parking meters. The parking is free, but parking is scarce. It's hard to find. So what they do is they put buckets of soapy water in the parking spaces. And they'll have 3 or 4 parking spaces marked out with these buckets of soapy water. And it's not legal--they don't have any right to do this. But you come in and you say, I want my car washed. And they'll move the buckets of soapy water. You can park. And then they'll wash your car for the next 6 hours. Russ: It's incredibly clean when you come back. It's an amazing thing. Guest: And they also say, if you give them a little bit of money, they'll also make sure that it's not scratched and none of the windows are broken. So it's sort of a protection racket. Russ: That's the service that I'm used to, that I've seen in New York City. You don't see it any more. There's an implicit threat; they offer to "protect" your car. They are offering you the space that they've staked out for you--which is kind. And you get a clean car. And they charge you for it. Guest: Yeah. And it is not in fact scratched and the windows are not broken. Because it's understood that that's your--it is fabulous if you can afford to pay. And I'm a rich gringo, and I can pay. It means that there's no free parking spaces. On the other hand, if you can pay just a little bit, you can just pull right up and be sure there's a parking space, and pull in there, park, give the guy 1000 pesos and then go off to your appointment. Russ: When you said you're going to assume it's successful, for me it would be successful if I could just use it whenever I needed to, because I have a psychological problem when I go to an event--I have parking anxiety, where I'm worried I'm not going to find a space. So this is like--if it didn't catch on very much and only a few crazy gearheads, geeks, got into it, it would be great for me. Because I would just love--I would pay an enormous amount to not have to worry about finding a parking place. Guest: The problem is it's just too good an idea given how many rich people there are that have parking anxiety like you and I do. I couldn't live in a city. I could not live in the city--it makes me nuts to drive around. I don't mind traffic so much, but driving around looking for parking, I want to just run over a fire hydrant and leave it and have it towed. Russ: And for me the anxiety is--there's a space: how big is it? My parallel parking skills are mediocre; I have anxiety whether I'm going to fit in it or not. Guest: The guy behind you is blowing the horn; you have parking performance anxiety. Russ: Exactly. Then he's breaking my windows even before I can offer to let him wash my car. It's bad news all around. Guest: But you are rich. Russ: Yes. But even if I were poor, I'd be paying for that parking place, because I have parking anxiety.
42:34Russ: I want to shift gears. Do you want to say anything else about these particular sharing economy, peer-to-peer stuff? Guest: No. Russ: I was going to ask you--before we shift gears--is this a big deal? Or no big deal? It's kind of cool. Very cool. Is it important? Is it just a novelty item that cab drivers and hotels of course are going to care a lot about--can't blame them. They've made these investments; I understand they are going to want to protect them. They are going to want to use the power of the state to stop this innovation. And certainly enforce a "level playing field." And make them pay the same "costs" that they pay, whether those are productive or not. And sometimes of course they are--I'm not suggesting they're not. But again, this excess capacity being used--is this important or not important? Guest: Having at first tried to disagree with you, let me come back and agree. The two main things--we listed three factors. One is that this is sort of subversive to past rent-seeking victories by licensing and other competition-restricting groups. It's a way of taking advantage of new technology that reduces transactions costs. And it's a way of taking much more efficient advantage of excess capacity and resources that are now being underused. Actually I think the first of those is the sort of typical friction that you get as a result of innovations. And it's the second and third that are important. And so it is a big deal, the fact that technology has made this possible. It's really the second. It's the technological change, the fact that we are now opening these big new vistas of interacting with each other, essentially in an impersonal way. So, one of the genius parts about markets is we don't have to have detailed personal knowledge of the person we are doing a transaction with. So, that fact, combined with there's always been this problem of excess capacity, means that we can reduce what until now have been deadweight losses. Now it's true that the collateral damage is going to be people who, in good faith, invested in assets that the political process said, 'No, no, we promise that we're going to protect the value of these.' But it's always been that way. It's always been: people make good faith investments; they end up losing them. And of course it's easy for me to say because I am of good cheer about this, because I don't have a taxi medallion. But the downside is that I think it makes us less certain about the time horizon over which an investment can be assumed to pay, about the value. And that means that we are a little bit more uncertain. The technology that works today may not very soon, because somebody else is going to come up with a better idea. Monkey Parking App is crude. It works, but somebody is going to come up with a better one, and in 5 years it will be gone.
45:45Russ: So, I want to suggest a technological innovation that I think is really extraordinary and is the direction I want to shift to. There was recently an injection of capital into Uber--it was a little over a billion dollars--by a set of venture capital firms. And the stake that they got from that investment implied that Uber was worth $17 billion. And there was a little flurry of articles on the web that said that was ridiculous; it can't be worth $17 billion. Other people said yes it could be; here's why. And the part that I think is so extraordinary, that is potentially revolutionary is when Uber, instead of calling a person with a car who is in front of that television on that snowy night, it calls a driverless car. So, what I want to imagine--and I'm going to spin out some of the implications of this world and let you react to it. So, what I'm imagining, and I don't think it's very far away--I think it's very close to technologically feasible, at least in a small way; the question is what would happen in a large way; and we'll talk about that. But in a small way we already know that it's possible to create a car that drives you around without a driver. Think of it as a drone on wheels. And I think the next step will be in the sky, with a drone in the sky that flies you around. But let's not go too far in the Flash Gordon direction. Let's imagine that you want to go to work and you don't own a car. So what you do is you go to Uber and Uber calls a driverless car to come get you, that picks you up and takes you to work. And while you are driving you don't get to make chitchat with the driver, because there isn't one, for better or worse. But you do get to do work or read or do whatever you want--if you want to watch videos on your phone or whatever you want to do for that drive. And so not only are cars going to be used more effectively, your time is going to be used more effectively. Of course, we are heading in that direction now. People listen to things on their phone--right now you are no doubt listening to EconTalk while you are commuting in a car, trying to use that time more valuably. But imagine if all of your time in your car was hands-free and accident-free. What would that do to the world? Besides the obvious fact that it would save 40-50,000 lives a year from car accidents. It would have an incredible impact on all kinds of other things. I want to imagine what those are. And I didn't warn Mike that I was going to talk about this. So, if you want to think about this and throw out some ideas--but I have been thinking about it for a little bit, and reading about it. And I think--at first you think, oh, it will be nice: you'll be able to work while you are in your car. You'll be a passenger. It will be great. But it's so much more than that. Guest: Well, it seems to me--earlier I predicted that Uber in its current manifestation would be smashed. And I do think that it will break down, but then rise again. I think Uber is like Amazon. Amazon, early on, sold books. Now they sell everything. And so, it's the technology. It's not the transportation of a guy who shows up at your house who has a Honda and it's not too dirty and it's okay. It's the way of interaction that is important. And you said having a drone or a helicopter is Flash Gordon stuff. Uber is considering merging or at least allying with a helicopter service called Blade. And it might not be very long before, if you had pilotless drones, in just a couple of years. That probably also is possible. One of the reasons that helicopters are so expensive is they have so much down time. Whereas if you could come and be picked up, it might not be that expensive. And if you didn't have to have a highly skilled pilot, it might not be that expensive. Russ: And a space to land it. Guest: Yeap. And that's the other thing: while you are driving and working, you are also not fretting about parking. Because there's no reason for that car--it sits there all day! Think about that. Russ: No, it's unbelievable. So one of the more extraordinary things about a driverless car--the first thing I thought of, naturally when we think about driverless cars again, if it's done correctly, very few or no accidents. The Google driverless car has driven I think millions, or at least hundreds of thousands of miles. I think millions. It's never had an accident that was its fault. They could be lying; I don't think they are. But as far as I know--they've been rear-ended at least once, but in general they have not had an accident. Which is--so your first thought is: that will be a better world; that's great. Your second thought might be: well, if driverless cars work really well, they can go really fast. Or, they can go pick up more than one person. A driverless bus, a driverless van-- Guest: There's some optimal size. A driverless van is probably right. Russ: Well, I think you'd have everything. When you punched into the Uber App you'd say: I need to go to the airport with my four kids and my 7 suitcases, so send the shuttle; whereas, today I'm going by myself, so bring the mini. You'd have all these different options. You'd choose which one you wanted to come. There's no reason to own a car any more. You start thinking about that: there's no reason to have a garage. There's no reason to have parking lots downtown. Guest: Huge. Huge amounts of valuable space-- Russ: Wasted right now. Guest: Underground, a gigantic expense, just gigantic expense. Russ: So you'd have cars moving at high speed, getting better mileage, being used more effectively; all the maintenance costs over, taken advantage of because of economies of scale. We've got one car with all these boltable parts, one type of car perhaps, few types of cars, maintained very well. And of course the cars would start to compete, would offer movies while you were driving. They would offer--food service. It's a mind-boggling exercise. But the other part--roads don't have to be so wide. Roads don't have to be nearly as wide. So all of a sudden you've expanded the land mass of the city. Really, not just: oh, it's a little improvement. It's transformative. It would be a transformative, wild world. And it would be creepy for most of us, who are used to using, those of us who use cars as a status symbol. Those people would have to find something else. Our roads would look--it would be weird. You'd go out into a city street and you'd see all these cars moving at relatively high--of course, pedestrians are going to have to be more careful. That's a different issue. But putting that problem aside--which is real--you're going to see cars moving at high speeds with nobody driving them. The passengers doing reading, talking, doing whatever they do. It reminds me of the movie The Fifth Element, for no reason. Just because I see this wild set of vehicles moving at high speed. But it would be a very alien landscape to me in my walker. But to our children and our grandchildren, it's going to be normal. And it's cheaper. Guest: It's already so--we're almost halfway there, in the sense that young people--and by young I mean maybe under 30--are just so used already to thinking of this way of interacting with other people. So, much more informally. I was at a conference this past weekend and I offered to give rides to a few people to the airport. And I ended up being promiscuous and offered rides to 6 people when I only really could take 3 and their luggage. And the other people said, no, it's fine; we'll take Uber. And I said, no, you don't have to do that; it's sort of icky. And they looked at me like I had a walker. I must have left it back up in my room. They were gone before I did. I went out to get my car, I pulled up, we put the luggage in; the other people were already gone. Russ: And they had a more entertaining driver, who probably drove better, I'm sorry to say, Mike. Guest: Probably more competent. May have been a cleaner car. Russ: They didn't have to talk economics with the driver. Didn't have to pretend they were interested in economics with the driver. Guest: We shouldn't get hung up--and you are suggesting this, actually--we shouldn't get hung up on the particular manifestation of Uber. It's more the interface and the general ways to use more--when you say, 'I don't have a car'--I may not need a house. If I move around, I can have--my entire library is on my iPad. I don't need to have physical books. I have it backed up somewhere in the cloud, so I actually can't lose it. Even if there's a fire or I lose my iPad, I have all this stuff. I have all my pictures; I have movies of my grandparents. So, all that stuff I have forever. I don't actually need a house. I can go from place to place and stay with people. Famously there have been some people who have tried to do this in the past. I think it's difficult for me, a sort of bricks-and-mortar and BMW (Bavarian Motor Works) person to imagine the level of change that we would get from not having so much excess capacity, taking full advantage of the resources. And our cities would be actually less congested and have a lot more people in them.
55:40Russ: Yeah. It's a game changer. It's a revolution that I think is coming. One of the challenges, again, is the existing regulatory structure is not well-suited for this world we are talking about. Guest: I actually have a question about that. Russ: Yeah? Guest: What compensation--not do we owe, necessarily--but what compensation should we make in order to remove impediments for moving towards this world? So, should we buy a house, sort of reparations, some part of these property rights? Not that owe, necessarily, the taxi drivers. Russ: But it's a political--it's like trade adjustment assistance, a way to make it politically-- Guest: There's huge political opposition. The opposition has been very organized. And the people that benefit from Uber--the benefits aren't that great. Taxi drivers and the people own the--some of these people own-- Russ: Pretty focused on it. Guest: Yeah. You may own--some people in New York own 30 medallions. It's a fortune. Russ: Yeah. If you're not careful you're going to be wearing cement shoes. Swimming in the river. These people have a lot at stake. Guest: You're going to have 2 or 3 city councilmen that are going to come up with apparently principled arguments for why we can't do this. And we're not going to be able to move towards a world which would in fact create potential Pareto benefits--that is everyone would be better off. It's just that it's hard to take all of the enormous benefits and compensate the relatively small losses. And if you don't do that, the people who are suffering these losses are going to find ways to block it. The political process power is asymmetric. It's much easier to block things than it is to accomplish things.
57:26Russ: So, I have to say something in favor of the political process. I agree with you, of course. But I'm going to say something positive about our current existing set of institutions which may surprise--some listeners for some reason think I'm some kind of anarchist. And occasionally I get emails from you out there, say, that you are surprised I said something nice about government. Or when I didn't say something it showed that I was obviously in favor of x, y, or z. You know, obviously there are many, many useful things that government does. Some of them are not so useful. And I often do talk about those because I think it's good to learn about that. But, I'm going to say something positive about our current set of institutions. You are right. Obviously cab drivers, hotel owners, stockholders, etc., medallion holders, have an enormous stake in focusing to stop this revolution we're trying to talk about. I'm going to tell you now: They've got no shot. They're not going to do it. They have no chance. And that's because of our political process--for all of its flaws, doesn't stand athwart of progress like that in the United States. It does in some places, and there are things of course that persist and that are crazy and benefit a small group at the expense of a diffuse benefit to the rest of us. But if you can save 50,000 lives a year by moving to driverless cars, combined with Uber, we're going to get it. Somebody will--and I say that not just because I'm an optimist, which I am. But I say that because I look at the past. And I see that when technology comes, that it makes like hard for existing folks--yeah, there's sometimes people that try to slow it down; and they slow it down. They almost never stop it. The technology wins. Because the people who benefit from it, for whatever reason, the institutions respect that in some way--don't know the mechanism exactly how it happens. But the standard Mancur Olson, diffuse benefits, concentrated losses, somehow doesn't work over time like that. So I'm going to predict right now that in the next 20 years driverless cars are going to be a reality; and it will combine with Uber. And there aren't going to be any cab drivers. There may not be any truck drivers. So, I have to get this line in: Mama, don't let your babies grow up to be cabbies. Because that life is not comin'. It's going to be gone. It's a whole separate issue of what people who used to do things like that are going to do. We've talked about that recently on EconTalk on a few other episodes. But it's a fascinating transition that we're going to be into. It will be hard on the existing people. But no one's going to plan on it. Just like they are not going to bid for medallions, they are not going to plan on learning how to drive a car any more, because it's not going to pay. But the regulatory issue I want to talk about is how--is the city, state, and local government, and Federal government going to allow cars to drive without drivers? And then the question to me is: Do you have a smart grid? It's one thing to have one driverless car buzzing around town, avoiding accidents. Or a hundred. Or a thousand. But if every car is a driverless car, you now create the opportunity, you now create the opportunity to create a road system that can--your car will be hooked up in tandem with other cars going 150, 200 m.p.h. You are basically creating trains on demand, where you would potentially link in to roadways that would have very high-speed traffic but without having to create that via the railway system. You are creating it [?] the software that's driving those cars in conjunction with the other cars. And that's the real Flash Gordon crazy world. And I think we're going to head in that direction. Guest: Well, Marc Andreessen, who you interviewed earlier on EconTalk, often says, also that software eats everything. Software could very easily eat cars. It is interesting to think about the two steps you just talked about were, first, we might allow driverless cars. And then how long could it possibly be after that before we prohibit drivers? Humans are just not pretty good at this. Russ: Right. Unbelievable. Guest: And so actually for safety reasons--not just because of efficiency, but for safety reasons. I'm sorry--you are doing 180 kilometers per hour--you can't drive that well. Nobody can. Russ: Yeah. It's too dangerous. Plus, I've got my walker in the back and I'm eating my donuts and my dog's with me. It would be a lot of distraction. And I'm listening to EconTalk. So it's too dangerous. Guest: Right. But at least you're not fretting about parking. So you are actually focused.