Uber Clueless

The media’s ignorance about basic economics is galling.

I expect it from politicians. I expect it from The New York Times. But it’s sad to see in the New York Post, my town’s rare alternative to Democrat media.

Recently the tabloid freaked out over higher prices imposed by ride-share companies. “New Yorkers are fed up with forking over excessive amounts for Uber and Lyft rides.”

Excessive? Just what is “excessive?” Who decides?

Prices were already up because gasoline costs more, NYC keeps imposing new taxes and regulations, and the federal government pays so many people not to work that there’s now a shortage of drivers.

That day, unusually high “surge” prices were in effect because there had been a horrible shooting on the subway. Commuters, fearful of another subway shooting, turned to ride-share services.

How should a company like Uber deal with that? Suddenly, there is much more demand for rides than supply. Should customers just wait in line? Most wouldn’t get a ride for days.

So, ride-share companies do the sensible thing: They temporarily raise prices. They lower them again when there are free cars. This is the best solution for the most people.

Those who desperately need rides can pay extra for them. Those with spare time can take a bus, walk, call a friend, etc., or just wait for prices to drop.

Higher prices also mean higher pay for drivers, which encourages part-time drivers to drop what they are doing and start offering rides.

Such congestion pricing could also reduce traffic jams if politicians gathered the courage to impose it.

But this pretty good solution is not good enough for economically ignorant reporters. The Post said, “Critics say the sticker shock is unsustainable.”

“Critics say” is a clue that you are reading the product of lazy reporting. When reporters don’t take the time to search out reliable sources or gather actual data, they simply write, “critics say.” The critics could be their friends, family or a couple Uber users at the airport.

How do these critics know the prices are “unsustainable?” They don’t. Ride share investors, with their own money on the line, know more about what is sustainable. If prices were really unsustainable, the company would go out of business.

The reporter went further: “critics say (the fares are) … sometimes downright unethical.”

Unethical? Uber drivers don’t force people into their cars. They don’t even trick us with advertising.

In fact, they do the opposite. Before I can book a ride, I get a message warning me that the cost will be “higher due to increased demand.”

Economist Don Boudreaux wrote the Post (good for the Post for publishing his letter): “Prices reflect underlying realities of demand and supply. In New York City, rising crime (thanks, Bill de Blasio!) simultaneously raises the demand for Uber rides as it lowers the supply of such rides. These realities cannot help but push fares upward.”

Right.

Uber and Lyft are great innovations. They forced taxi monopolies to treat customers better and let ordinary people use their cars to drive for money.

But businesses get clobbered in the media whenever there’s an aberration. On that day, social media exploded with comments like, “Fare surge after a mass shooting … Shame on you @Uber.”

The companies quickly went into damage control mode. “Our hearts go out to the victims,” tweeted Uber Support. “We disabled surge pricing in the area.”

Disabling surge pricing may be good PR, but it’s a terrible practice. At the beginning of the pandemic, when toilet paper and hand sanitizer were scarce, politicians told people, “Report merchants who raise prices!” They called that “illegal price gouging.”

But “gouging” was a good thing even then. It disincentivized hoarding and got suppliers to make more of the products we need most.

Yes, today “gouging” is often illegal.

But that’s only because when it comes to what makes markets work, well, most politicians and reporters are just clueless.

Photo by Oleksandr Pidvalnyi from Pexels

31 thoughts on “Uber Clueless

  1. Yes, The New York Post has lazy reporters, but remember, the goal of every newspaper isn’t to print: the truth, the whole truth, and nothing but the truth. It’s to make money. News, whether it’s left wing, or right wing, whether it’s: paper, radio, TV, or internet, has to cater to its customers. That’s what keeps the eyes & ears. And that’s what keeps advertising dollars flowing in.

    We all like being told that we’re right. Our views and opinions are on ‘the right side of history’. Not like those ‘other people’.
    So, enjoy your NY Post articles. The left will enjoy their NY Times articles. And both readers will have their views reinforced with each article.

  2. Excellent article. Our Educational Systems need to start teaching our children at a young age about these realities instead of the fairy tale about picking your own gender and that kind of ignorance.

  3. Price gouging is wonderful. It saves me money by encouraging me not to buy — and leaving the supply for others. When the price comes back down, then I’ll buy. In the meantime, the supply is available to others who need it badly enough to pay.

  4. Critics of instacart and Shipt “say the same thing”
    “Fees are excessive “

    Well you know what? I am an ic shopper
    Ic pays us $7.00 to shop most orders (a tiny bit more for heavy or those with long drives)
    $7 to shop that 30-125 item order and deliver it in our own car

    Customer tips is the only way we make anything and most people either aren’t tipping or not tipping
    Much and then they wonder why it takes so long for their order to get picked up and shopped

  5. My wife drives for Uber and Lyft. This article is dead-on. When she sees surge pricing (which equates to higher pay), if it’s enough of an increase, she will drive to the surge price area and start taking fares. Otherwise, she will continue to drive her normal sectors. When demand goes up, surge pricing (with associated incentives to drivers) is the only way to increase the number of drivers to accommodate a temporary increase in demand. These drivers are independent contractors so neither Uber nor Lyft can force drivers into serving a particular area. Also accurate, certain metro areas and facilities (such as airports) attach additional “fees” that Uber and Lyft have to pay. This is added on top of the fare, which increases cost to the customer with no benefit to either the company or the driver. People who write stuff like what was in the Post clearly don’t understand business, let alone econ 101.

  6. Even when you explain the need for price “gouging” and how it keeps supply coming while telling the consumer to conserve or find alternatives, people just don’t get it. At least my college students couldn’t get it.

  7. Thank you for the info, I never looked at it that way
    I am not being facetious I appreciate learning. The facts.
    Keep up the GOOD work

  8. For me, it a simple supply and demand model. If there is no demand, the prices fall and/or the availability of the product or service changes. Think about this, if there were few plumbers or electricians, what would you likely pay for a simple service? If you do not like the Uber or Lift price, use other mass transit services. Your only defense is to become the plumber, the electrician or the transit driver.

  9. Well said! I don’t understand economics that well, but I understand supply and demand and that makes total sense. It’s like people have lost touch with reality and money for that matter. Maybe it’s because our government spends money that is literally unfathomable, remind you, it will cost nothing!

  10. The standard liberal ideology starts and stops with how it makes them feel. Neither logic nor feasibility has any bearing on their actions.

  11. This is to basically please their readers. Even conservatives can be bought off if you tell them the price they are paying is too much. It has nothing to do with economics. With raging inflation with no end in sight, we will have to get used to this kind of reporting everywhere. Democrats will use this opportunity to harass the business people for gouging etc. There will be a congressional circus as well

  12. “Price gouging” is a term applied when supply and demand do not favor the buyer and prices rise sharply. People think it’s bad. They almost always automatically attribute it to greed. I applaud it. People hate me when I say this, but what they call “price gouging” I call a rapidly responsive market.

    People will complain of gouging, then complain when there is no supply when prices are shame-lowered.

  13. This is like reading Thomas Sowell. So I’m not alone on the planet! There is at least one other person who gets it. It’s just hard to find them or hear them because stupid people shouting to each other drown them out. Nobody gets or defends the free market, nobody gets or defends free speech. Or so it seems. Somebody must have, once, or we wouldn’t have the ideas, but it’s not convincing some days.

  14. I drive Uber. Yes, If it’s 3 am and all the bars close. Prices go up because everyone wants a ride at the same time. If they didn’t go up we would be at home in bed and only work afternoon shifts and non-Rush hour shifts. The hell with staying up till 4 am to get your drunk butt home that I worry will throw up in my car. Why in the world would I go out and fight Rush hour traffic to get you to work if the drive didn’t pay more.

  15. Great article, but it omitted the reality of why I quit driving for Doordash and Grubhub. Obviously not the same companies that the article focused on but related in that the incentive structure puts in emphasis on getting drivers in the area to activate on pick up rides. The downside is that often those extra fees drive tip amounts much lower. Prior to the inflation taking off my average split was around 40% pay 60% tip. After inflation took off, gas prices were also up so GH and DD began adding incentives, presumably passing those on to the consumer. After I started seeing the incentives the average was 60% pay 40% tip almost overnight. I know that eventually that will self correct as well, but in my case it was no longer worth sacrificing my time away from my family.

  16. Perhaps.it is the nature of humans to want more for less.and never be held accountable. Only because wiser people left us a country so wealthy can we actually go down our current irresponsible path.

  17. There are no more honest newspapers. The journalists will write up a lie in order to get people rattled up. People forget that before Uber and lyft we were over paying for horrible service in disgusting cabs with dirty impolite drivers who would cheat by taking the longest route. Of clórese they won’t write about that.

    1. No, there aren’t “honest newspapers” if what you mean is a paper that prints the truth, the whole truth and nothing but the truth. But then, there never has been. President Jefferson wanted to shut down those newspapers that were critical of him (the were Federalist papers). The age of yellow journalism is treated as if it were something of long ago, but it isn’t, basically, different than FoxNews vs CNN. If you disagree, it’s bad journalism, but not if you agree. You simply can’t trust the media — there job is to make money.

  18. John, your complaint about the media’s ignorance about basic economics implies that you are not ignorant. Good, maybe you can explain something that has been bothering me.
    We have been told that when a company is taxed they will just raise prices and pass that cost onto their customers, so the tax is really paid by the consumer. That makes sense.
    Republicans gave corporations a big tax cut in 2017, arguing that it would make American companies more competitive. But I did not see any companies passing that tax cut onto their customers through price cuts. I even checked the Consumer Price Index, and it went up as usual by about the usual amount. In other words prices went up after the tax cut, instead of down. Companies used their tax cuts to spend more money on stock repurchases instead of cutting prices. How does that make them more competitive? I can understand how price cuts would make them more competitive, but not stock repurchases. Where is the competition that’s supposed to make capitalism work? That tax cut appears to be a big giveaway to the rich with little or no benefit to anyone else, paid for with public debt. The rich gets the money, everyone else gets the debt. Just like every other Republican tax cut for the last 41 years. Am I wrong about that?

    1. Why do you only blame the GOP for tax cuts to corps? Do not the Dems play that game too?

      As for stock buybacks / etc – the company is not rewarding ONLY RICH PEOPLE. It rewards every single stock owner of that company – which are not all “rich people!” Many IRA’s, 401k’s, and such invest in those same companies – which you may have – so DO YOU NOT benefit from rising stock prices?

      Quit playing the stupid left blame game of the rich. Maybe you should check out such folks like Nancy Pelosi, Joe Biden, Chuck Schumer, and other DEM’s WHO ARE RICH PEOPLE and make a killing off Corp Tax Cuts and insider trading – which is ILLEGAL to us common people.

      If you checked how much in income taxes Elon Musk pays – it’s pretty low. BAD DEAL in DEM TERMS. Yet, Elon only makes $40k per year as salary. How much do people pay making $40k a year? Should Elon pay more? Not based solely on salary / income earned. His main money maker is STOCK, which BTW people who sell stock pay a HEFTY TAX thanks to people like Joe Biden in capital gains. Even us small time stock owners pay the same as well. That’s about a fair as it can get.

      Also, guess who helped pass the bills in Congress to TAX people getting Social Security – you know that money that 99% of us have to pay every pay day in to? Joe Biden. So thank him for doing us all big favors – at our expense – not his.

      1. Thanks for your reply, but you didn’t answer my question. How does stock repurchases make a company more competitive compared to price cuts? The alleged purpose of the corporate tax cut was to make U.S. companies more competitive. Did it do that?
        The alleged purpose of the Reagan tax cuts was to create economic growth, but we got about the same growth after the tax cuts as we has before.
        “Shareholder value” went into vogue in the early 80’s, and stock repurchases were legalized in 1982, with the alleged purpose of returning maximum value to shareholders. But the S&P 500 total return stayed about the same.
        The big difference was that since 1981 nearly all economic growth has gone to the rich and none to the bottom 90%. Wages have stagnated. Corporate profits that used to go toward employee raises and benefits were spent on stock repurchases, which mostly benefitted the company executives. It was a huge con job against the American public that redistributed income upward.
        People who sell stock don’t pay a hefty tax. It’s only 20% maximum. Why should unearned income be taxed at a lower rate than earned income? When rich people like Elon Musk or Jeff Bezos want to buy something expensive, they can and do borrow against their stock holdings so they don’t have to sell and pay the capital gains tax. Then when they die their heirs get the stepped- up value of the stock so capital gains taxes are never paid.

        1. Jeff, You make some good points. I will try to address a couple of them:
          – Stock repurchases — stock repurchases have no impact on a company’s competitiveness. I have been a stockholder and benefitted from share repurchase, but I have never agreed with it. I would prefer to see the money go into R&D or, as you say, lower prices (the stock I held directly was for a company that sold to large businesses, so the average individual consumer would only see price cuts passed down).
          – Economic growth — I won’t try to explain it here because I can’t present the data, but go to Youtube and look for Dr. Antony Davies (note the spelling, otherwise you get the basketball player) and let Dr Davies explain wages, and income with data from the Federal Government. He presents the data clearly, adjusted for inflation so the comparisons are apples to apples, and he also discusses the value to those dollars (most people would like to pay 1950’s prices for health care, but aren’t terribly interested in 1950’s health care quality — an extreme example because there are so many other factors impacting health care). Wages have grown only slightly, but benefits have grown significantly.
          – Capital gains — you might find the relatively short book, Technological Revolutions by Professor Carlota Perez interesting as she researches and discusses how people invest and where the cycle leads to “golden eras” in which many/most people benefit.
          – Elon buying something — yes, he can borrow against his stock to buy something — but he still has to repay that loan. Interest rates have been low, and are unlikely to grow to capital gains tax levels, but it still costs him to borrow — there ain’t no such thing as a free lunch (TANSTAAFL)
          – Inheritance — Again, Dr. Davies has discussed this on Youtube or in his Words&Numbers podcasts (or maybe both). Avoiding capital gains taxes by dying is possible, but Mr. Musks heirs are going to pay a pretty significant inheritance tax. You can’t take it with you, but the government can take it from you. BTW, recall that Elon paid $11,000,000,000 in taxes last year. That’s a tad bit more than either you or I paid.

  19. If you build a business selling $21 rides for $7 no one should be surprised that it will anger passengers when you start charging $21 for the same ride. The complaints about excessive surge prices are an extension of that anger.

  20. I drive for Uber in the Chattanooga Tennessee area. I have for the past four years, if you think drivers are making more because of the high price gas you’re dead wrong. I’ve driven for them for four years and four years I’ve had not one increase in compensation. I used to receive 68th and a quarter cents per mile and $.11 per minute. Uber decided to round that up to just $.68 Restaurant a mile and $.11 a minute. Chattanooga borders Georgia which also has a driver shortage. I don’t know if you know it but drivers only get paid when you’re in the car, they have to pay to come and pick you up no compensation for that ride to come and get you. And here you see how greedy Uber is, they Only pay drivers in Georgia $.60 a mile and nine cents a minute. When they send me down to Georgia it’s usually to Dalton just about 30 miles away. There’s no compensation for those 30 miles and they pay me the Georgia rate which means I make less money to pick up someone and drive them in Georgia. You think there’d be equity and that I might be getting a 32 mile drive back to Chattanooga, You be wrong sometimes they have me pick someone up for just a five minute drive which if you do the math is less than five dollars. Oh and if you think I don’t have to accept that ride, Uber penalizes me in my acceptance rate which of it gets low enough they take away things like knowing how far the rides going to be before I pick it up. Needles to say when I pick you up, I don’t know where we’re going.

  21. How come I never hear complaints about price gouging, when a hotel in the city hosting the Super Bowl rents rooms at $700 a night, when off Super Bowl week they go for $125 a night? Asking for a friend

Leave a Reply

Your email address will not be published.