Big ideas most people don’t understand about the economy, using Uber as an example

Source: Fee.org by RICHARD LORENC

I was in an Uber car the other day, returning from a conference. I love Uber and used it for years in Chicago before returning to my hometown, Atlanta. There are a lot of amusing exposés out there contending that the majority of Uber drivers hate their jobs and feel enslaved by corporate overlords.

Virtually every driver I encounter tells me they love working with Uber; an off-duty Uber driver once overheard me saying something about the company over lunch, and he volunteered enthusiastically that he loves his job. There was no driver rating at stake in that exchange.

I’ve had interesting discussions in Uber cars. One driver told me he had walked a young woman into the ER minutes before picking me up (he thought she had overdosed). Another driver explained how he had escaped New Orleans just hours before Katrina hit, only to return to complete destruction. And there have been quite a few who’ve told me they drive to earn money to build other businesses. Uber drivers are by definition entrepreneurs. And many see driving as a stepping-stone to something bigger.

Occasionally, Uber drivers will volunteer economic views as they relate to their business. My driver the other day — his name was Chris —  even identified himself as a “free-market guy” while talking about Uber.

Naturally, this got my attention, but I decided not to spill the beans until he asked what my colleague and I do. I explained that we work for an organization called the Foundation for Economic Education, which teaches young people about the free market.

Chris is a big guy, and on hearing my words, he shook the car with laughter as we drove on the interstate.

Then he asked for tips.

“Stock tips?” I asked.

“No, big ideas that most people don’t get about the economy.”

I gave him those tips. I thought I would share them with you, too.

Big idea 1: Trade is win-win.

My colleagues and I teach our students that trade is win-win by saying, “Trade is made of win.”

I asked Chris to imagine being a customer at Starbucks. He wants a venti café au lait so much that he’s willing to part with $5 to get it. For the customer, the coffee is worth more than the money; why would else would he surrender his cash at the register? The opposite is true for the seller: $5 is worth more than the coffee. The buyer and seller exchange property rights, and each says, “thank you.” (This is sometimes called the “double-thank-you phenomenon.”) The transaction makes them both better off — they have created value for each other through trade.

Big idea 2: Entrepreneurs create value.

Entrepreneurs create massively greater value for society generally than they create in profits for themselves.

An estimated 98 percent of the innovators profits generated by nonfarm businesses in the United States between 1948 and 2001 were never captured directly by the individual innovators or firms. Innovators profits — or “Schumpeterian profits” —vary by industry. Apple did not fully capture the Schumpeterian profits generated by the debut of the iPhone, for example. Instead, the iPhone created entirely new business categories and lowered the consumer price of supercomputers that fit into your pocket. But Apple captured enough of its innovators profits that it has an incentive to continue to innovate — and potential competitors had an incentive to enter the market. Competition lowers prices, benefitting consumers.

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