Hi, I'm a Vice President at the Competitive Enterprise Institute in Washington DC, where I specialize in analysis of the regulation of work, finance, and trade. I've previously worked extensively on environmental issues. I'm bullish about the future of freedom - as long as regulators get out of the way (see my FEE articles on the Sharing Economy, for example).
I'm also British by birth, took second place in the Brexit Prize competition in 2014, and am still closely connected with politics in the UK, so feel free to ask about UK, EU, and Brexit politics.
Uber has had a lot of bad press lately. The CEO just stepped down and they've faced scrutiny for sexual harassment and sustained losses in many cities for quite a while trying to keep Lyft out of the market. Do you think they'll maintain their monopoly or lose out to Lyft?
Hi, Tricia. Thanks for the question.
What Uber is going through is actually not unusual - most entrepreneurial founders of successful companies are forced out of their position quite early on. What Travis is facing is called the Founder's Dilemma. It's not a surprise that a company with such explosive growth as Uber has these sort of problems with its CEO.
But the question of competition really comes down to the value proposition presented by the two companies. If Lyft has a superior product it will gain market share. I think the big question is what comes next technologically - which will be the first to deploy successful driverless cars, for instance. If Lyft is first to that market, they could reap rewards, but if they have an early conspicuous accident, it could delay development as regulators move in and slow everything down.
So look for further developments within both apps - if Uber's problems affect its engineering, I think Lyft could steal a march, but time will tell.
One final thing - it is plausible that Blockchain technology could develop quickly enough that a distributed platform matching drivers and riders without a corporate middleman could rise up to challenge both companies. In that case, we'll probably end up with both companies losing human drivers to that technology. In the end it is all about transaction costs.
People sometimes say to me: you are constantly complaining about regulations but I don't feel regulated. I feel really free. what are you kvetching about?
What to your mind are a few of the most devastating regulations that ruin lives that people are mostly unaware of?
Hi Jeff, and thanks for all you do to advance the cause of liberty!
There are plenty of devastating regulations out there. For instance, the Endangered Species Act leads to a phenomenon known as "shoot, shovel, and shut up." If an endangered species moves on to someone's land, the ESA restrictions on what you can do with that land lead to you losing all of its value. An endangered species is therefore a huge cost to someone. The horrifying but understandable reaction is to kill the animal, dispose of it, and never let on that it was there. If the regulation was designed such that the animal added value, thinsg would probably be different (this could be achieved through property rights in the animal, for instance).
The there are regulations such as the minimum wage, which again sound good, but have perverse incentives. For instance, restaurant workers in the Seattle area initially welcomed the wage rise, but then learned that they were going to lose non-monetary benefits such as free meals, free parking, and so on, and even monetary benefits such as end-of-year bonsues, all of which together added up to far more value lost than the wage increase gained them.
But regulations are in most cases a good example of Bastiat's What is Seen and What is Unseen. It's their unseen effects that are the real killer - sometimes literally. For instance, FDA regulation slows down the approval of life-saving drugs. If a new drug is approved today, ask yourself how many lives were lost yesterday and the day before that faster approval could have saved. This is why the Goldwater Institute's "right to try" initiative is so important.
And the minimum wage is a good example of unseen effects too. It leads to many thousands, perhaps millions, of entry-level or low-skilled jobs not being created. The high youth unemployment rate in continental Europe has been shown to be linked to the high mimimum wages in those countries. And there are perverse effects too - a high minimum wage can create a demand for illegal low-skilled work, paid under the table, which will often go to immigrants, placing them in more danger.
There's also a chilling effect on innovation. For instance, financial technology is in a boom right now - we are working out new and exciting ways to allow people to pay for things, to borrow money, and to store value. But there are regulators with the power to punish what they view as "unfair, deceptive, or abusive acts or practices" in the financial industry. So a lot of products aren't being brought to market in case they might fall foul of these sweeping powers, which aren't defined anywhere.
There's no denying that regulation often brings benefits. The question is always whether those benefits outweigh the costs, and most cost-benefit analyses performed by government ignore these "unseen" effects.
I'll add one other thing - there isn't really such a thing as an unregulated market. There are non-governmental regulatory pressures from such things are competitive discipline, market approval, and trust. New technologies are able to make these pressures more effective - think of feedback ratings, whether it be Yelp or the Uber app. The more effective these technologies are at that, the less case there is for heavy-handed government intervention. I'm confident that this will become more important as time goes on.
What do you see as possible solutions to property rights that are negatively impacted by "downstream pollution?" More specifically, how do you propose that the free market operate to resolve disputes when property rights are violated by negative envoronmental impacts from neighboring properties upstream or upwind?
Hi, Ted. Great question.
The common law has always been clear on this - if you cause damage to a neighbor's property or even property right you have to either compensate them or cease the polluting activity. There's a great example in the Pride of Derby law suit in England where an anglers' association sewed a company that was polluting the River Derwent because their rights to fish in the water had been adversely affected. The court told the company to cease operations rather than provide compensation. So that's an example of what happens when property rights are well defined.
It is actually possible that this could all get worked out without needing to go to the expense of a court case. As the great Ronald Coase noted in The Problem of Social Cost, there are normally mutually acceptable solutions that could be worked out between the parties. The problem is that transaction costs (there's that concept again!) prevent the solution being reached. If we can get transaction costs low enough, that should enable more mutually acceptable resolutions of the problem. In really complicated areas like atmospheric pollution (eg vehicle emissions) then it is plausible that micropayments to large numbers of people could help solve this problem. I am in the very early stages of looking at practical solutions in this area and hope to have something that we might be able to test at some point (perhaps in a charter city) later in the year.
Yet as noted above, property rights have to be well defined. In many cases they aren't, or government has taken control. If you read Jonathan Adler's Fables of the Cuyahoga you will see the sorry tale of how the City of Cleveland and the State of Ohio encouraged the abuse of the Cuyahoga River and prevented private companies from suing to protect their property rights. I think a major step forward in environmental protection of America's rivers and wetlands would be to assign private property rights in American waterways. Occasionally you see conservative outrage at someone being fined in Oregon or somewhere like that for collecting large amounts of rainwater. This is misplaced, as those people are almost always depriving others of their property rights. I'd prefer a Coaseian bargaining solution than the fine, but if we think seriously about rights, we have to recognize that actions like that are injurious.
I've heard of government subsidies for various of energy (wind, solar, coal, oil, et al). How do they stack up against one another if subsidies are removed?
Hi Carl - delighted by your tasteful surname.
I don't think I can do better than point you to recent Senate testimony by Ben Zycher of the American Enterprise Institute. If you look at table 1 you will see the subsidies per unit of output given to each form of generation. So, for instance, wind is subsidized to about $35 per mWh, while coal is subsidized at about 45c per mWh. If you look at the levelized cost of energy you'll find that onshore wind is projected to cost around $85 per mWh while conventional coal costs about $100 per mWh. So there is a huge incentive for wind energy producers compared to coal (and note that subsidies don't include regulatory costs that up the price of coal generation).
We are often told that renewable energy is now competitive with conventional energy. If that's the case, and the EIA's figures do suggest that when it comes to onshore wind, then there's no need for subsidies. Of course, gas fired electricity generation beats them all still thanks to the fracking revolution, and given the lower carbon emissions of gas compared with coal, that's been the major reason why the US actually met its Kyoto Protocal targets despite never actually ratifying the agreement.
What do you think will be the most difficult and/or common regulatory challenges for blockchain technology in the next year to five years?
Hello, Anthony! Very interesting question.
I suspect the biggest challenge will be regulators - and lawmakers - just not understanding the technology at all. For example, a recent bill intorduced in the Senate calls for "a strategy to detect digital currency at border crossings and ports of entry." I can imagine calls for audits of distributed ledgers based on the same complete misunderstandings.
So in many ways the biggest challenge will be to get regulators to understand what Blockchain technology is and why it solves a lot of the problems regulations are intended to solve. Happily, there are lots of very clever people at banks and fintech companies who are developing use cases that should provide good examples of that. There is also the example of the regulatory sandbox in the UK that is allowing lots of blockchain development over there - hopefully US regulators will learn from that (and the President's Executive Order on principles of financial regulation should encourage them to do so).
I also think the emerging Internet of Payments will also help drag regulators into the 21st century.
I'll also add tht there are interesting questions related to governance of Blockchain. Sinclair Davidson and Jason Potts of RMIT in Melbourne have been doing some very insightful work on this question - see here and related papers on SSRN.