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Tag Archives: Human capital

Don’t Cry for the Former Taxi Monopoly

23 Friday Mar 2018

Posted by pnoetx in competition, monopoly, Technology, Uncategorized

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Cartel, Consumer Surplus, Creative Destruction, Human capital, Lyft, Mark Perry, Ride sharing, Taxi Medallions, Taxi Monopoly, Uber, Warren Meyer

It would be odd to argue that innovation is not unequivocally positive, that its costs will exceed its benefits. Certainly there are downsides: human capital invested in the methods and technologies supplanted by an innovation is devalued, jobs may be lost, retraining becomes necessary, and even consumers must get used to new ways of doing things, which is not costless. But most of these costs are temporary. And when an innovation eliminates an incumbent’s monopoly, the former monopolist’s profit ends up back in the pockets of consumers.

People do seem to focus excessively on the downside of innovation without carefully tallying the benefits. For example, this article focuses on the loss of New York City taxi pickups since ride sharing services like Uber and Lyft began to have an impact in 2014. Mark Perry reproduces a chart from that article, which is featured above. The number of monthly taxi rides in NYC has fallen by about one-third since then, from an average of 13+ million to about 9 million in 2017. In fact, Perry reports that the market for taxi medallions has tanked since then as well, with plunging medallion prices and many medallions sold out of bankruptcy and foreclosure. But don’t be too quick to shed tears for a monopoly lost.

The same chart shows the massive upside to ride sharing, as discussed here by Warren Meyer. The size of the total market has nearly doubled, from about 13 million per month to roughly 24 million (adding the two lines together). And it was a quick transition! That’s what happens when real competition is introduced to a market: prices fall and quantity increases, with an attendant increase in the welfare of consumers. That increase always exceeds the loss suffered by the former monopolist or cartel (as the case may be), which was earning excessive profits at the expense of consumers before the innovation had a market impact. And many former taxi drivers have made the switch to ride sharing providers, and they seem to prefer it for the flexibility and autonomy it offers. Yes, the best innovations benefit workers as well as consumers.

Competition can bloom when government opens markets to competitors or when an innovation creates new alternatives for consumers. In the case of ride sharing, both were necessary. For many years, NYC restricted the supply of taxi medallions, which kept taxi fares artificially high. The formal approval of ride sharing services in the city was not uncontested. But once it was approved, consumers took advantage of superior dispatching and payment technologies enabled by their smart phones, as well as security features and rating systems, not to mention lower fares. Again, these developments have contributed massively to consumer well-being, which is ultimately the point of all economic activity. Traditional taxis have to try to keep up. The ride sharing industry has inflicted the kind of creative destruction for which consumers are quite grateful.

Human Machinations, Technophobic Trepidations

04 Thursday Sep 2014

Posted by pnoetx in Uncategorized

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Automation, David Autor, Factor complementarity, Factor substitutability, Human capital, Jackson Hole, Luddites, Mark Mills, robots

human-machine collaboration Are robots likely to replace labor at an increasing rate? Or, are robots and labor sufficiently complimentary as inputs that there will be a continuing role for humans in production? The first argument has been made by pessimists and Luddites for at least two centuries, often hysterically, and they have been consistently wrong, as Mark Mills demonstrates in “The Data Are Clear: Robots Do Not Create Unemployment!”

Of course, “labor” has many facets: there is physical labor, there are skilled crafts, and there is so-called knowledge work; many other categories and sub-categories can be delineated. Mills makes the simple distinction between “drudgery” and higher-level “cognitive chores,” and he notes that automation has primarily functioned to eliminate the former. He also emphasizes that over time, automation has actually given rise to various cognitive chores that were never imagined prior to the substitution of capital for human drudgery. In this sense, new forms of labor are seen to be complimentary to capital. So, at once, the automation of tasks is both “labor-saving” and generative of new human functionality. There is every reason to believe that this process will continue to play out as robots begin to collaborate with humans in more complex ways.

Mills links to this interesting paper by David Autor of MIT, which the author Autor recently presented at the Federal Reserve’s annual conference in Jackson Hole, WY. The paper offers an interpreted history of the labor market over the five decades since the computor revolution. He summarizes the thrust of his thinking on the subject by appealing to the paradox that “our tacit knowledge of how the world works often exceeds our explicit understanding.” This implies that technological advance can and does tend to create expansive opportunities for humans. Autor says:

“… journalists and expert commentators overstate the extent of machine substitution for human labor and ignore the strong complementarities. The challenges to substituting machines for workers in tasks requiring adaptability, common sense, and creativity remain immense.”

Autor and Mills both note that automation necessarily leads to reduced demand for certain types of labor, and that the process can lead to severe dislocations and losses for many individuals in the short run. Autor also notes that some lower-level tasks are not yet especially amenable to automation, and that workers in such occupations are unlikely to benefit as automation takes place elsewhere. This serves to emphasize the importance of gaining the kinds of complex skills that can be of value in collaboration with more intelligent machinery. In other words, investment in human capital will be as valuable as ever.

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