Two-Faced On Inequality, Politicians Harass the Sharing Economy
While liberal politicians bemoan income inequality and use government policies as a tool to reduce it, they are also using government policy to protect rich, entrenched interests against poor people who are trying to improve their lot in life. The liberals are busy throwing Thomas Pitketty's book, Capital in the Twenty-First Century, at everybody as proof of capitalism's shortcomings. However, most problems with capitalism today are not anything inherent in capitalism itself, but are introduced through the intrusion of government into free markets. A perfect example is crony capitalism.
One of the most important trends in our current economy is the rise of what is commonly termed the sharing economy. Famous examples are Uber, Lyft, and Airbnb, but Zipcar and many other sharing-style companies are sprouting everywhere. Even the citibike program in New York City is a variant of a sharing concept: you sign up, pay a fee, and can borrow and use a bicycle when you need it. Many people, particular young, urban dwellers love the flexibility of not owning rarely used items. Similarly, many people have enjoyed the extra income they can gain by participating as seller in the sharing economy.
Essentially, the sharing economy allows people with extra time/space/equipment to rent it to people who need to use that time/space/equipment for a little while and prefer such arrangements to either purchasing their own or using more traditional arrangements such as hotels, rental car companies, or taxis. Most users like such sharing economy companies because they can save money, but many also value the ethos involved of helping small-scale entrepreneurs and enjoy the eccentricities and authenticity they can experience along the way.
Joseph Schumpeter was an Austrian economist whose most lasting and influential contribution to his field was the idea of creative destruction as a key mechanism of economic growth. This theory, which posits that new innovation destroy established companies and jobs while simultaneously creating new jobs and new wealth, helped launch the formal academic study of entrepreneurship.
In this case, the sharing economy threatens jobs, companies, and wealth based on the established industries of hotels, taxicabs, rental cars, and even car dealers and bike shops. If people can use take advantage of the sharing economy, many people will lose some or all of their investments in industries threatened with creative destruction. New ideas such as the concept of the sharing economy give rise to new businesses but also simultaneously lowers demand for the goods and services it replaces.
Nobody wants to lose their investment, nobody wants to see a business they built become obsolete, and nobody wants to lose their job. The buggy whip company, kerosene lamps, VCRs, telegraph messages, and an approximately infinite list of products and services has become obsolete over time. The Post Office is losing billions of dollars each year because creative destruction in the form of faxes, email, and FedEx has taken so much of its business. Such has happened to businesses and entire industries for hundreds of years as part of the process of economic growth. Innovation and progress inevitably have left tread marks on the run over body of the previous generation of companies.
However, today companies have a new tool in their fight against innovation's creative destruction: crony capitalism. While crony capitalism is certainly not new, it has grown in size and pervasiveness. Taxi companies use city regulatory agencies to block Uber and Lyft. Hotel owners call on city and state regulators to rein in Airbnb. Those in fear of becoming obsolete are fighting back not with better products, smarter marketing, or lower prices, but with government regulation.
Such crony capitalism is so effective today because government is bigger and more intrusive and campaign contributions are so much more important. Political campaigns are so expensive that our elected representatives are constantly raising money and are eager for the contributions that the established industries can offer. Government is so big, reaching into so many aspects of our lives and businesses, that it has much to offer to potential contributors. Businesses would not pay if the politicians could not deliver something of value.
If government really cared about reducing inequality it would not protect rich corporations, but rather should encourage the start ups. Creative destruction destroys wealth and accumulated capital, so liberals should be in favor of it. The innovators are redistributing wealth more effectively than any wealth or estate tax has ever managed. Innovative and creative destruction is always and everywhere good for consumers, because ideas which are not favored by consumers simply fade away in a competitive market. There is no reason for government to side with the large, established, wealthy interests except for their ability to deliver campaign contributions.
If politicians wanted job growth more than they want to be re-elected, they would side with the innovators. Creative destruction may be messy and may have costs while we all adjust, but in the end we will be better off for it. Let the disruption begin.
