> the companies and their wealthy investors are profiting from exploiting their communities and refusing to play by the rules. That's a point of pride among the tech titans, who speak proudly of the "disruption" that they create and adopt vaguely libertarian anti-government postures when it suits their interests.
Ok I don't think when an entrepreneur says "disruption" he means "exploiting my community." The community wants Airbnb and Uber, that's why the pay for them.
"The community wants Airbnb and Uber, that's why the pay for them."
Really? A specific community wants Airbnb and Uber. Other specific communities do NOT want them. Most rental companies and condo associations probably do NOT want Airbnb. Cities may or may not want Uber (at least not outside of their control & tax claws).
Airbnb & Uber are able to be cheaper than their "competitors" (hotels & cabs) at least partially because they don't have to live by the same rules: taxation & regulation. People that I know that like these services use them because they're generally cheaper than the alternative (also the cool app, certainly). They pay for them because the alternative is to pay more elsewhere. That's the friction caused by taxation and regulation, at least partly.
Consumers have a choice not to use their services. If they are so bad, no one is making you use them. The rules supposedly exist to benefit consumers. But if that was the case, consumers wouldn't knowingly use services that don't comply to them.
When an insured cab crashes insurance companies are there to help people potentially rebuild their lives.
When an uninsured cab crashes without insurance and there's no insurance... Well then you're out of luck. And lets not forget that it's not only the customer of the taxi that can get hurt in a car crash.
I wouldn't be surprised if many taxi fees and regulations went to help the roads that those taxis proceed to drive on (in many places). Uber cars aren't contributing to that and the steadfast refusal to do so at the behest of municipalities hurts everyones system as a whole.
It's not just about whether the consumers will choose to use this or that. It's about a system that works for everyone. Of course you can overdo regulation, and disruptors are a necessary forward for change but just because of libertarian principles which have never worked as espoused anywhere doesn't mean that these people shouldn't be subject to certain regulations and shouldn't thumb their noses when asked to comply.
Now most of this is just what I think. I don't have examples where a municipality requires its taxis to pay for the roads through fees, but hopefully the point has been made clearly.
While good in theory, the rules are more than likely to be abused to limit or get rid of uber entirely to protect the existing taxi industry. If corruption and incompetence weren't issues we could just trust them to do whatever and not have to worry about it.
I thought gas taxes were the established way of paying for roads anyways. And all drivers should be required to have insurance to begin with - the fact someone else is in the car has nothing to do with it.
> Consumers have a choice not to use their services.
You have a choice on whether to rent out your apartment on AirBnB. You balance the money you can make from doing so against the risk created by randos walking through your building. Your neighbor, on the other hand, bears additional risk if you decide to rent on AirBnB,[1] but does not benefit in any way from the transaction. This is a textbook example of an inefficient negative externality.
[1] It also substantially reduces her property value, as people hate buying property in buildings with lots of transients. Condo prices in a building with apartment units can be substantially lower than in a building without them, purely because people put a lot of value on not having renters in their building.
The fault line in this discussion lies between the different perspectives on the common good in question.
Here's a hypothetical: What if we "disrupted" the regulation on what you can hook up to the electric grid and how you have to do it, so everybody can start messing around with "throw-on" connections as they do in Egypt?
Probably a lot of HN users would dislike having to cope with the thus ensuing frequent power-outages. The problems that Airbnb causes in residential areas can have a similar impact on life, it's just that it is the life of people from a different demographic than the HN crowd.
The customers aren't the ones being exploited. What you're missing is what we in economics call an "externality"[1]. Let's say you rent out your apartment through Airbnb to somebody. Well, now what you've done is taken money for that transaction, but who assumed the risk? Sure, you risked some of your things, but your landlord has assumed the risk of liability and property damage without his or her knowledge or consent. In fact, it was probably strictly prohibited in your lease. The cost of the landlord's risk (which is not $0) is an externality. Let alone your neighbors, who are now living in a less secure building due to your actions.
Understand that these businesses have a larger impact on the economy and your community than just the money flowing between them and their customers. Also understand that laws exist for reasons--not infallible reasons, just reasons. Whenever a law seems to be completely nonsensical to you, start looking into it a bit more. Typically, the answer is just behind the curtain, or people were exploiting the system in ways you didn't even think of.
There is an externality, but it's still smaller than the total benefit. I think the ideal way to handle it would be to find some way to insure for it, or hold the tenant responsible. It certainly shouldn't be illegal, just at best violate a private contract/agreement with the landlord.
I mean in the sense they can agree to any contract they want in theory. As opposed to having a law that no one anywhere can do it legally even if the owner agrees to it.
>I think the ideal way to handle it would be to find some way to insure for it
That is absolutely the best way to handle it and Airbnb should require appropriate documentation that hosts are insured appropriately and aren't violating the terms of their leases. But Airbnb wont do that because then they would have fewer hosts and thus less revenue. The answer that the original article tried (and failed) to say is that Airbnb and others should be responsible for ensuring that their operators are within the law but they don't and claim ignorance.
> There is an externality, but it's still smaller than the total benefit
Benefit to whom? And how can you say that? Nobody knows yet what the total cost of externalities and benefits are for Airbnb.
You're also thinking about one use case. What about a condo owner that decides to use Airbnb for profit, and just rents the room from afar, hires a cleaning service, and treats it like a hotel? The other residents of that condo end up assuming all of the risk, security breaches, and headaches of an endless supply of tenants. There are many other uses cases with different externalities associated with each. As a society, we have to decide what's acceptable and what's not--and that's where laws come into play.
Good points although I still think it's very debatable. Housing is one of the biggest costs, and this is a great way to improve efficiency and save everyone money and resources. It would be said if it was banned entirely due to hypotheticals.
>As a society, we have to decide what's acceptable and what's not--and that's where laws come into play.
That sounds great in theory. In reality the government is far from perfectly competent. Additionally you get corruption where the government tries to protect an existing industry from competition at the expense of everyone else. Or jerks that shout "Not In My Backyard!" whenever anyone tries to change anything. People are irrationally resistant to new things and that is, on average, far more of a problem than the new things themselves.
> There is an externality, but it's still smaller than the total benefit.
The problem is that the benefit and the cost of the externality accrue to different people. When that happens, you get a higher level of the activity than is economically efficient.
This argument is wholly disingenuous. This externality may actually not exist (the landlord may be the one putting the property on AirBnb) and in any case, you have no standing to object because this is a contractual matter between landlord and tenant. It's one of countless contractual issues that are spelled out in thousands of different lease agreements throughout the country, and can be resolved in the same way that these contractual issues have been resolved for hundreds of years.
As far as your neighbors are concerned, they're probably more concerned about the rotting car you have on blocks in your driveway. Or any of the zillion other perfectly legal but annoying things you do, like paint your house bright pink or let your kids run screaming around the yard at all hours of the day. At least with Airbnb properties, if you don't like your neighbors, they'll be gone in a week. Permanent neighbors you have to live with, no matter how batshit crazy they are.
As I said below, there are many different externalities associated with Airbnb, and it's nigh impossible to even begin to know them all. I was providing a common example--it wasn't an argument. My intent was the educate on how economists talk about these things, and what types of issues you need to think about when understanding a business. I also wanted to clear up some confusion about the language used in the article.
Anyway, I will not address your other points--you are clearly only thinking about one use case and trying to start an argument where there is none.
This is a ridiculous comment. Governments should be entitled to a reward for schooling these people to wealth, for likely funding their growth (as people) and health, for protecting them from criminals, for collecting their trash, for cleaning the streets around their office, governments (despite many government workers) don't just sit around trying to extort businesses, they're trying to fund a happy future.
I'm not saying I agree with the article in its' entirety, but there is a solid reasoning behind taxation.
"Governments should be entitled to a reward" -> what??? They're entitled to a reward for a business becoming successful? You're mixing up corporate taxes and individual taxes. I find your comment somewhat ridiculous - "entitled to a reward for schooling these people to wealth, for likely funding their growth (as people) and health" - even if you believe that to be the case, which is debatable, they've already paid individual taxes their entire lives to receive those things - it's not like the government waived their taxes and took a stake in their company. If you've paid taxes your entire life for the services you've already received, why would the government be entitled to your business's taxes in the future if you've created a business outside their tax scope. Take Uber - they claim they aren't a taxi service, so the government is rewriting the laws to get make them a taxi company and get their money from Uber. I highly doubt the government is doing this to try fund a happy future.
I went to all private schools, my healthcare if provided by a private company and I work for a privately owned company. And none of the investors in my company are government entities. Also, the government hasn't been doing a good job protecting me from criminals, only imprisoning minorities with a dimebag on them or shooting the mentally ill. Trash pick up and road cleaning? Sure, I'll keep paying for that. But they are most definitely extorting businesses.
Regardless of one's opinion, how can you have a serious discussion without mentioning the benefit users get from these products? That's what drives the whole thing.
The benefit is getting a car, or a place to stay, far more easily.
My point isn't that these services are net good (though I do think so). It's that any "net bad" argument that doesn't consider these benefits isn't serious and so discredits its own side.
I also agree that these services are a net good, but I think what the original article was trying to say was "why don't they just suck it up and insure their operators?" Then the "net bad" argument disappears.
Every driver on the road is a potential uninsured operator. Uber didn't create uninsured drivers. And they require their drivers to be insured. Should we ban all vehicles because they might at some point be uninsured?
Uber got popular in SF even when they only had towncars (which cost more than taxis) simply because their drivers would actually show up. They shouldn't be skimping on insurance, and that's not the only reason they exist.
"Governments should not make it their job to protect individuals from every bad choice they could make."
Essentially, one role of government is to step in when there are harmful things being done to people. This author seems to argue that this is exactly why some things are regulated, and argues that their "competitors" (probably not the right term) should fall under the same rules: hotels, taxis, etc.
Personally I agree that the government's job isn't to protect people from their own stupid choices, but it's a big grey area of where to draw that line.
No they can't. Sure, they can make a decision, but it won't be a informed one. Most people are unaware that Uber drivers are questionably insured. They don't read HackerNews or ArsTechnica, or even WSJ, NYT. Moreover, Uber doesn't advertise that fact on their website or in their smartphone apps. So it is impossible for an uninformed customer to make such a decision in the first place.
Individuals can freely choose a taxi cab
over Uber if insurance is a concern for them.
People hit by Uber drivers with invalid insurance don't get a free choice in the matter. And if higher numbers of uninsured drivers drive up premiums for regular motorists, they don't a free choice either.
This is what economists call an externality [1]. A voluntary transaction that looks good to the two parties who have a choice in the matter, but which imposes a cost on a third party who doesn't have a choice.
If I own an apartment and the apartment next door gets sold to an investor who rents it out on AirBnB for nightly loud parties, eroding my property's value, that's the same thing.
Liability insurance is required for all drivers, not just taxis. If the driver didn't have insurance, he was violating the law regardless. The fact he was operating a taxi service has nothing to do with anything. License plate readers could trivially identify cars on the road without insurance if it's a huge problem.
But as a company who employs these drivers, shouldn't at least part of the onus be on them to ensure that their drivers meet these requirements? In the same way that Uber/taxi companies have to ensure that their drivers have a license, shouldn't they also have to make sure he had adequate insurance?
Drivers are not employees of Uber. Before you say "that's just a technicality" consider also that freelancers are not employees of 99designs.com, freelancer.com, or crowdspring.com - even though that's how they negotiate and get paid for work. The idea of a clearinghouse for matching freelance drivers and customers is something new.
> But as a company who employs these drivers, shouldn't at least part of the onus be on them to ensure that their drivers meet these requirements?
No, it is the job of law enforcement to enforce laws. Uber should fire drivers that are known to be breaking the law, sure, but requiring that they screen up-front for lawbreakers is the same as requiring drug testing or other such nonsense.
the insurance company won't cover it because it's personal insurance not commercial insurance. Personal insurance isn't priced on people driving around in their cars all day.
At work they ask Bob to take a widget to a customer. Bob drives his car to the customer but is involved in an accident before he gets there. This is the only time Bob has ever driven for the company like this.
Bob finds that his insurance does not cover him. He could lie and not mention the widget delivery, but that is fraud and is a serious crime.
We could say that the widget delivery is irrelevant and that the insurance company should just pay the money but insurance companies are SCUM and they employ many people whose only role is to see how to reduce or avoid paying money to the customers.
You are correct. The same caveat that makes using one's personal automobile (and insurance) for pizza delivery problematic is the same one that applies to using your car as a Lyft / Uber or other driver.
Personal policies rarely cover commercial use of the vehicle.
The insurance company for the Uber driver who hit and killed a little girl refused to pay on his policy arguing that he was engaged in a commercial activity at the time and thus not covered by his personal auto insurance liability coverage, which excludes commercial insurance liability claims.
Yes it is, so Uber should be MANDATING with documentation that their drivers maintain insurance that covers them at the appropriate times. They should actively be filtering out drivers who do no have a commercial insurance policy. But Uber doesn't do that because that would restrict the number of drivers they could collect fare fees from.
Governments in democracies work in service of the people, and when the people want the government to protect them collectively instead of having to fend for themselves individually, that is what the government does.
If the people want some protection from being exploited by ruthless companies, that's what they get.
An gee, what surprise, most people don't want to spend their days looking over their shoulders and constantly having to be concerned with every little detail for fear of getting screwed.
They just want to get from A to B in the certainty that in a civilized, well-organised society these things are properly arranged.
Why is this concept which is so simple so terribly hard to grasp?
I think it is because it is an attempt to break down a terribly complex system into a set of simple rules which simply do not factor in all of the externalities of day to day life in societies featuring tens of millions of independent actors.
Insurance mandates exist to protect the people hit by cars, not the drivers of the cars.
As a general principle, businesses should bear the cost of the externalized risk they create. If you run a taxi business, which is what Uber does regardless of how you try to lawyer your way around the definition of "taxi," then you should bear the cost of insuring against the inevitable collisions and accidents that arise from your business.
Domino's disrupted the pizza industry with 30 minutes or less, then they got the shit sued out of them. McDonald's disrupted the coffee market by offering super hot coffee through the drive thru then they got the shit sued out of them. As sad as it is sometimes trial lawyers accomplish what the government can't.
Although the general point about lawsuits stands, it's worth being aware that the McDonald's suit isn't actually a fantastic example of frivolous lawsuits. By the time the famous lawsuit came through there had been several hundred claims of coffee-induced injuries resulting in half a million dollars in payouts. The Liebeck case kicked off after McDonald's offered $800 on $10k of medical bills after paying out sizeable amounts of money to other people who were injured. There's still room to dispute the value of the suit, but it's not as simple as it's made out to be.
I wasn't implying that they were frivolous. Do I think individuals should get punitive damages and lawyers 30% of millions of dollars verdicts probably not, but sometimes lawsuits are the only things corporations listen to.
66 comments
[ 6.3 ms ] story [ 142 ms ] threadOk I don't think when an entrepreneur says "disruption" he means "exploiting my community." The community wants Airbnb and Uber, that's why the pay for them.
Really? A specific community wants Airbnb and Uber. Other specific communities do NOT want them. Most rental companies and condo associations probably do NOT want Airbnb. Cities may or may not want Uber (at least not outside of their control & tax claws).
Airbnb & Uber are able to be cheaper than their "competitors" (hotels & cabs) at least partially because they don't have to live by the same rules: taxation & regulation. People that I know that like these services use them because they're generally cheaper than the alternative (also the cool app, certainly). They pay for them because the alternative is to pay more elsewhere. That's the friction caused by taxation and regulation, at least partly.
When an insured cab crashes insurance companies are there to help people potentially rebuild their lives.
When an uninsured cab crashes without insurance and there's no insurance... Well then you're out of luck. And lets not forget that it's not only the customer of the taxi that can get hurt in a car crash.
I wouldn't be surprised if many taxi fees and regulations went to help the roads that those taxis proceed to drive on (in many places). Uber cars aren't contributing to that and the steadfast refusal to do so at the behest of municipalities hurts everyones system as a whole.
It's not just about whether the consumers will choose to use this or that. It's about a system that works for everyone. Of course you can overdo regulation, and disruptors are a necessary forward for change but just because of libertarian principles which have never worked as espoused anywhere doesn't mean that these people shouldn't be subject to certain regulations and shouldn't thumb their noses when asked to comply.
Now most of this is just what I think. I don't have examples where a municipality requires its taxis to pay for the roads through fees, but hopefully the point has been made clearly.
I thought gas taxes were the established way of paying for roads anyways. And all drivers should be required to have insurance to begin with - the fact someone else is in the car has nothing to do with it.
I have no choice if my neighbors choose to use AirBnB, but I do have to deal with the consequences.
Nuisance law and other private means of address simply aren't available when you're dealing with a constant stream of strangers.
If you want to protect yourself from AirBnB, there are ways to do it.
You have a choice on whether to rent out your apartment on AirBnB. You balance the money you can make from doing so against the risk created by randos walking through your building. Your neighbor, on the other hand, bears additional risk if you decide to rent on AirBnB,[1] but does not benefit in any way from the transaction. This is a textbook example of an inefficient negative externality.
[1] It also substantially reduces her property value, as people hate buying property in buildings with lots of transients. Condo prices in a building with apartment units can be substantially lower than in a building without them, purely because people put a lot of value on not having renters in their building.
Here's a hypothetical: What if we "disrupted" the regulation on what you can hook up to the electric grid and how you have to do it, so everybody can start messing around with "throw-on" connections as they do in Egypt?
Probably a lot of HN users would dislike having to cope with the thus ensuing frequent power-outages. The problems that Airbnb causes in residential areas can have a similar impact on life, it's just that it is the life of people from a different demographic than the HN crowd.
Understand that these businesses have a larger impact on the economy and your community than just the money flowing between them and their customers. Also understand that laws exist for reasons--not infallible reasons, just reasons. Whenever a law seems to be completely nonsensical to you, start looking into it a bit more. Typically, the answer is just behind the curtain, or people were exploiting the system in ways you didn't even think of.
[1]: https://en.wikipedia.org/wiki/Externality
Breaches of contractual obligations are civil matters. You don't go to jail, generally.
That is absolutely the best way to handle it and Airbnb should require appropriate documentation that hosts are insured appropriately and aren't violating the terms of their leases. But Airbnb wont do that because then they would have fewer hosts and thus less revenue. The answer that the original article tried (and failed) to say is that Airbnb and others should be responsible for ensuring that their operators are within the law but they don't and claim ignorance.
Benefit to whom? And how can you say that? Nobody knows yet what the total cost of externalities and benefits are for Airbnb.
You're also thinking about one use case. What about a condo owner that decides to use Airbnb for profit, and just rents the room from afar, hires a cleaning service, and treats it like a hotel? The other residents of that condo end up assuming all of the risk, security breaches, and headaches of an endless supply of tenants. There are many other uses cases with different externalities associated with each. As a society, we have to decide what's acceptable and what's not--and that's where laws come into play.
>As a society, we have to decide what's acceptable and what's not--and that's where laws come into play.
That sounds great in theory. In reality the government is far from perfectly competent. Additionally you get corruption where the government tries to protect an existing industry from competition at the expense of everyone else. Or jerks that shout "Not In My Backyard!" whenever anyone tries to change anything. People are irrationally resistant to new things and that is, on average, far more of a problem than the new things themselves.
The problem is that the benefit and the cost of the externality accrue to different people. When that happens, you get a higher level of the activity than is economically efficient.
As far as your neighbors are concerned, they're probably more concerned about the rotting car you have on blocks in your driveway. Or any of the zillion other perfectly legal but annoying things you do, like paint your house bright pink or let your kids run screaming around the yard at all hours of the day. At least with Airbnb properties, if you don't like your neighbors, they'll be gone in a week. Permanent neighbors you have to live with, no matter how batshit crazy they are.
Anyway, I will not address your other points--you are clearly only thinking about one use case and trying to start an argument where there is none.
I'm not saying I agree with the article in its' entirety, but there is a solid reasoning behind taxation.
By being exposed to risk by uninsured operators? The operators (drivers or hosts) undercut current offerings (taxis and hotels) by not being insured.
My point isn't that these services are net good (though I do think so). It's that any "net bad" argument that doesn't consider these benefits isn't serious and so discredits its own side.
Individuals who are not concerned with insurance may find that they should have been.
Governments should not make it their job to protect individuals from every bad choice they could make.
Why is this concept which is so simple so terribly hard to grasp?
Essentially, one role of government is to step in when there are harmful things being done to people. This author seems to argue that this is exactly why some things are regulated, and argues that their "competitors" (probably not the right term) should fall under the same rules: hotels, taxis, etc.
Personally I agree that the government's job isn't to protect people from their own stupid choices, but it's a big grey area of where to draw that line.
This is what economists call an externality [1]. A voluntary transaction that looks good to the two parties who have a choice in the matter, but which imposes a cost on a third party who doesn't have a choice.
If I own an apartment and the apartment next door gets sold to an investor who rents it out on AirBnB for nightly loud parties, eroding my property's value, that's the same thing.
[1] https://en.wikipedia.org/wiki/Externality
No, it is the job of law enforcement to enforce laws. Uber should fire drivers that are known to be breaking the law, sure, but requiring that they screen up-front for lawbreakers is the same as requiring drug testing or other such nonsense.
At work they ask Bob to take a widget to a customer. Bob drives his car to the customer but is involved in an accident before he gets there. This is the only time Bob has ever driven for the company like this.
Bob finds that his insurance does not cover him. He could lie and not mention the widget delivery, but that is fraud and is a serious crime.
We could say that the widget delivery is irrelevant and that the insurance company should just pay the money but insurance companies are SCUM and they employ many people whose only role is to see how to reduce or avoid paying money to the customers.
Personal policies rarely cover commercial use of the vehicle.
If the people want some protection from being exploited by ruthless companies, that's what they get.
An gee, what surprise, most people don't want to spend their days looking over their shoulders and constantly having to be concerned with every little detail for fear of getting screwed.
They just want to get from A to B in the certainty that in a civilized, well-organised society these things are properly arranged.
Why is this concept which is so simple so terribly hard to grasp?
As a general principle, businesses should bear the cost of the externalized risk they create. If you run a taxi business, which is what Uber does regardless of how you try to lawyer your way around the definition of "taxi," then you should bear the cost of insuring against the inevitable collisions and accidents that arise from your business.
http://en.wikipedia.org/wiki/Liebeck_v._McDonald's_Restauran...