Wednesday, 16 July 2014

Curb Your Enthusiasm

Paul Krugman, who has long cultivated the fertile lands between Sci-Fi and economics, has been thinking about the implications of "IT-mediated car services" like Uber. He avoids mentioning robot drivers, perhaps to prevent the discussion tail-spinning into angst about capital-labour substitution before the madness of cars gets a proper airing: "when you think about it, for most people owning a car is quite wasteful. It’s an expensive item of equipment that sits idle most of the time; it requires parking (and often a parking structure) both at origin and at destination; it requires maintenance and is a big hassle all around". In other words, it is an inefficient use of capital that involves a significant waste of land.

The promise of Uber et al is that "reliable, quick-response chauffeur services could free many people from the need to tie up all those resources in a consumer durable that they only use now and then. And from a social point of view it would avoid the need to tie up so much capital that sits unused most of the time". The implication is that the capital could be put to more productive use (from a social point of view) elsewhere, though Krugman is coy about recommending increased investment in public transport, which would simply bring the anti-state harpies down upon him. Instead, he seems keen to get marginalists onside by echoing the thoughts of Tyler Cowen, who previously advocated the incentive pricing of parking, in respect of capacity.

"There is, however, an obvious problem: rush hour. Peak car use comes twice a day, and that would seem to dictate that we have nearly as many cars as we do now even if they’re supplied by the likes of Uber. But here’s where surge pricing comes in. If traveling during peak hours is more expensive than off-peak, people will have an incentive to shave off those peaks. People who aren’t commuting to work will avoid travel at peak hours; some people will find other ways to travel; some people (and businesses) will rearrange their schedules to take advantage of cheaper off-peak travel".

As with all incentive-based arguments, the first question to ask is: who are these "people" of whom you speak? If traveling during peak hours is more expensive than off-peak, then peak-time travel will be dominated by the better-off. You could spin this as a form of progressive taxation, but the reality is that peak hours will only command a premium if they are a more attractive good. In other words, this is a system in which the less well-off exchange relative inconvenience for a discount on travel costs (unlike the democratic basis of public transport). While there will always be some individuals whose time preference makes this a win-win, aggregate satisfaction must be reflected in the time-slot price. The most popular slots will cost the most.

Though his blog post is provocatively titled "Life without cars", what Krugman actually envisages is "a society that still relies mainly on cars to get around, but manages to do this with significantly fewer cars than we need at present", which is a pretty accurate thumbnail sketch of New York, where the incentives of housing density, land value and loss of utility (i.e. traffic jams), as well as decent public transport, mean that more households are car-less than own a vehicle. It would be easy to suggest that familiarity with limos makes Nobel laureates comfortable with services like Uber, and easier still to suggest that well-paid economics professors like the idea of buying marginal services while investing their capital for yield, but Krugman is clearly in tune with the zeitgeist.

The wider secular trends are the move from ownership to subscription (already seen in many other areas) and consequent concentration of capital; the emergence of a generation that considers ownership of both homes and cars to be unfeasible in the short-term, if only because all their capital went into tuition fees; growing concerns about the environmental impact of cars (which is not unrelated to the decline of car manufacturing in developed nations); and the increased physical control of city centres and public spaces, variously sold on the grounds of security, "traffic management" and pollution reduction (London is well ahead of the field here).

Massively open online car schemes (hey, MOOCS!) may prove to be a stepping-stone to the introduction of robot cars in metropolitan areas - i.e. first get the infrastructure of car pools in place and then substitute the drivers. They promise a brighter and better Sci-Fi future, with minimal discussion about the changing landscape of power. As Krugman himself said (in the Wired interview linked to above), "Evil will come in stylish, Steve Jobs-inspired designs".

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