Sharing Economy Services Reduce Income Inequality

Sharing economy services like AirBnB, Lyft, Uber, et al reduce income inequality as follows:

Once upon a time, only rich people who could afford to build hotels could offer rooms for guests to rent. Thanks to AirBnB, now anyone with a home or apartment can offer a room for rent. Hence, income inequality reduced.

Once upon a time, only rich people who could afford to buy a taxi fleet or medallion could offer car rides to other passengers. Thanks to Lyft and Uber, now anyone with a car can offer rides to other passengers. Hence, income inequality reduced.

The same dynamic of reduced income inequality will play out in each new sharing category. Delivery, field service, personal care, etc. This expansion of economic opportunity and reduction of inequality is a direct result of widespread deployment of disruptive tech, the smart phone. As history has repeatedly shown, putting means of production and technology in the hands of the masses increases their opportunity and income.

Since we are at the very beginning of understanding the full range of real world applications of the new wave of technology, we are also at the very start of the creation of thousands of new opportunities for economic growth and progress for a huge number of people.

Source Tweets: 1,2,3,4,5,6,7,8,9,10

Lessons from the Secular Stagnation Theory

Wrapping up my series on the secular stagnation theory with some more things I learned along the way. Again, filter on #stag as desired.

Glaeser: 72.7% of US college grads ages 25+ are employed, vs 39.4% of high school dropouts in same cohort. I’d like to quote Mokyr’s entire essay in the Vox ebook but that would be rude, so read the whole thing here.

Olivier Blanchard: Post-crisis reforms require financial institutions to hold another $3 trillion in safe assets. (!) #stat

Reference for all of the above: http://www.voxeu.org/article/secular-stagnation-facts-causes-and-cures-new-vox-ebook

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14

Responses:

The Secular Stagnation Hypothesis From The Bank of Italy

Fascinating overview of the secular stagnation hypothesis from the Bank of Italy (In English).

After reviewing recent long-run projections, we argue that similar warnings were issued in the past after all deep recessions.

 

Interestingly, pessimistic predictions turned out to be wrong neither because they were built on erroneous theories or data nor because they failed to predict new tech, but because they underestimated the potential of the technologies that already existed.

 

These findings suggest that today we should not make the same mistake and undervalue the effects of information technology.

This matches my personal belief: Much current economic commentary is the result of living through a 15 year down cycle, which will change.

Interestingly, our friend Larry Summers on CNBC today conceded secular stagnation may be more a Europe/Japan issue than a US issue. If the US economy is indeed at the front of a broad-based recovery, as it appears, it will be interesting to see where this issue lands.

 

Source Tweets: 1,2,3,4,5,6,7,8

The Christensen Style Disruption Idea

Few intellectual concepts in our time have been mangled by observers more than Clay Christensen’s disruption idea. Some thoughts:

A disruptive innovation gives new consumers access to product historically only available to consumers with a lot of money or skill. Disruptors offer a different set of product attributes valued only in new markets remote from, and unimportant to, the mainstream. – Clay Christensen

The key attribute of disruptive innovation is a new product for a previously underserved market, typically cheaper than an existing product. This is inherently pro-consumer: Disruptive innovation only works if customers buy it and if they do, lives are improved vs prior status quo. Similar, disruptive innovation is only funded by investors who believe underserved market exists, customers will buy it, lives are improved.

It’s a fabricated myth that disruptive innovation is about destruction: It’s about the creation of new products, new choices, for more people. Later, of course, the new product often evolves to squarely take on incumbents serving established customers which is cheaper and better for them too! Disruptive innovation shrinks inequality, by bringing to lower-income consumers things that only richer consumers had access to before.

If you are reading this, many of the things you own that make your life better are the result of prior disruptive innovation. The printing press disrupted books from scribes; recorded music disrupted live concerts in homes, washing machines disrupted live-in maids. Rich people always had books, music, clean clothes, etc.; disruptive innovation made these things available to many more people.

In the exact same way, sub-$50 smartphones are disruptive innovation to PCs bringing computing and Internet to far more people than status quo. To be FOR disruption is to be FOR consumer choice, FOR more people bring served, and FOR shrinking inequality. To be AGAINST disruption is to be AGAINST consumer choice, AGAINST more people bring served, and AGAINST shrinking inequality.

If we want to make the world a better and more equal place, the faster we have more Christensen-style disruption, the better!

References: Disruptive Innovation, The Innovator’s Dilemma, Clayton Christensen Responds to New Yorker Takedown of ‘Disruptive Innovation’

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17

Outstanding Piece On What Today’s Economic Gloomsayers Are Missing

Outstanding new op-ed by the best living economic historian, Joel Mokyr at Northwestern: What Today’s Economic Gloomsayers Are Missing.

There is nothing like a recession to throw economists into a despondent mood. Much as happened in the late 1930s. The economic growth experienced through the 20th century, they tell us, was fleeting. Our children will be no richer than we are.

 

What is wrong with this story? The one-word answer is technology. The digital codification of information = reinvention of invention. [Terms] like ‘IT’ don’t begin to express the scope of the change [array of] tools that the digital age places at science’s disposal.

 

The consequences are everywhere, from molecular genetics to nanoscience to research in Medieval poetry. As science solves problems that were not even imagined, inventors, engineers and entrepreneurs are waiting in the wings to design new gizmos and processes based on the new discoveries that will continue to improve our lives.

 

The economy may be facing some headwinds, but the technological tailwind is more like a tornado. Fasten your seat belts. So: If everything is so good, why is everything so bad? Why the gloominess of so many of my colleagues?

 

[GDP and productivity] work for a steel-and-wheat economy, not [ours], as they mismeasure the contributions of innovation to the economy. Many new things are expensive to design, but copy at low/zero cost: They contribute little to GDP even if the consumer welfare impact is large.

I highly recommend Mokyr’s books: The Lever of Riches: Technological Creativity and Economic Progress, The Gifts of Athena: Historical Origins of the Knowledge Economy, and The Enlightened Economy: An Economic History of Britain 1700-1850. I also highly recommend Mokyr’s recent podcast with from Nov 2013, an hour of genius.

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14

The International Socialist Review In 1964

The answer to the last last tweetstorm is: 1964, in the International Socialist Review. Every single argument made by today’s “technology will eat all the jobs” brigade is in there, from 50 years ago. The claim that “this time is different”, that we finally reached the tipping point where the Luddite Fallacy would come true. Including the demand for massive additional government intervention in the economy to correct the resulting inherent structural flaw.

Of course, since 1964, an enormous number of new jobs have been created and the quality of life in the US is way up at all income levels. Identifying the fallacies and flaws in logic in the 1964 manifesto given the 50 years that followed is an interesting exercise and I propose, identical to identifying the fallacies and flaws in logic in the equivalent arguments today. Perhaps the most interesting change in the era: Advocates then were proud to call themselves Socialists. This is less so today, history is speaking to us.

Source Tweets: 1,2,3,4,5,6,7,8

Karl Marx and The Lumpenproletariat

The thing I find most interesting about Marx is how much he hated the poor and dispossessed. Lumpenproletariat: “Layer of working class lost to useful production, of no use to the struggle, an impediment to the classless society.” “Translated as slum workers or the mob. A class of outcast, degenerated, and submerged elements within a population of industrial centers.” “Beggars, prostitutes, gangsters, racketeers, swindlers, petty criminals, tramps, chronic unemployed or unemployables.” “Declassed, degraded or degenerated elements…innumerable young people also, who cannot find an opportunity to [become] producers.”

“Alongside decayed roués w/dubious means of subsistence and dubious origin, alongside ruined and adventurous offshoots of the bourgeoisie.” “Vagabonds, discharged soldiers, discharged jailbirds, escaped slaves, swindlers, mountebanks, pickpockets, tricksters, gamblers.” Maquereaux [pimps], brothel keepers, porters, literati, organ grinders, ragpickers, knife grinders, tinkers, beggars.”

“In short, the whole indefinite, disintegrated mass, thrown hither and thither.” The man did have a way with words.

References: Lumpenproletariat, MIA: Encyclopedia of Marxism: Glossary of Terms, The Eighteenth Brumaire of Louis Bonaparte

[tweet https://twitter.com/SvenPries/status/480086864448454657 align=”center”] [tweet https://twitter.com/adamgurri/status/480087481657085952 align=”center”] [tweet https://twitter.com/jaykreps/status/480088330097274880 align=”center”]

Source Tweets: 1,2,3,4,5,6,7,8,9,10