For strong economy – use Uber surge price model


18194781702_c3d97c971e_Uber-taxiLast week in The XYZ I argued that an Uber economy is an Ayn Rand economy, and that the Uber business model should be applied across the board to all levels of the economy. Here is an interesting article, Uber for Labour (not Labor) from the excellent libertarian site Catallaxy, by “I am Spartacus” who makes a similar case, and goes into more detail why it is a success.

It argues that although Federal government rhetoric promotes entrepreneurship, over-regulation is still stifling business and the hiring of labour, particularly low skilled labour. Thus, “Governments are increasingly welcoming new “innovative” business models like Uber, but are vehemently reluctant to create opportunities through regulatory equivalence to other parts of the market.”

Importantly, the article pinpoints one of the keys to Uber’s success – its surge pricing model:

“In periods when demand exceeds supply, regulated taxi drivers are forced to keep charging the regulated price.. doing nothing to better meet supply or reduce demand.

“Uber on the other hand has (claims to have) sophisticated algorithms that can adjust the price of taxi travel when demand exceeds supply. A price variation, usually an increase in price, can attract more supply (additional drivers) and shake out demand. This allows the market to clear, or at least near clear.”

Thus, if the surge price model was applied throughout the economy, “the Uber base price would be equivalent to the minimum wage and surge pricing would be equivalent to penalty rates.” In this way, wages and prices would be set by supply and demand, as opposed to a misplaced notion of “fairness.”

Before you protest that this is subjecting workers to the harsh realities of the marketplace, remember that we, people, are the supply, and the demand. Such a system would respond to our own needs, and create opportunities for workers economy wide.  It would do so, dare I say it, organically.

As I wrote last week:

“An Uber economy, the free market, isn’t about the exploitation of one person by another. It is about people making free choices to exchange money, goods, services, labour, for mutual benefit, with minimal disruption from the government.”

The more the Australian government can do to fulfil its election promise and “get out of the way,” the better off we will all be.

Photo by illustir