The Sharing Economy is Great – Don’t Listen to the Naysayers

I agree with Dean Baker most of the time, but find his oddly strong distaste for the “sharing economy” puzzling. The focus of his concern is the regulatory limbo under which many of the services in question (Uber, Airbnb, etc.) operate, and the taxes for which they are responsible.

Understanding the purpose of consumer regulation is in order. For one, most occupational licensing is a way to keep the rich richer, whether we’re talking about millionaire medics or medallion-owners. That is not to abdicate all purpose of sensible regulation. I think we are all happier knowing that the FDA ensures the safety of our drugs and that airlines are required to comply with a slew of safety features. 

But sometimes these regulations get onerous, and plain absurd. Baker worries about the safety of someone renting a house without facing a number of meaningless regulations:

Hotels are regularly inspected to ensure that they are not fire traps and that they don’t pose other risks for visitors. Airbnb hosts face no such inspections – and their neighbors in condo, co-ops or apartment buildings may think they have the right not to be living next door to a hotel (which is one reason that cities have zoning restrictions).

The argument he seems to be making is that these houses are safe for millions of people to live in for many days of a year, but not safe enough for a temporary visitor for a few days while the owner is gone; he similarly wants to argue that Uber cars are safe enough for the many that drive in them on a daily basis for a full-time job, but not for a temporary passenger!

It is fair to argue that perhaps the new era sharing services harm the old guard unfairly as they are beholden to a higher standard of regulatory oversight. The column then should have been militating against the many useless regulations that brings about a need for this sort of service in the first place. 

Consumers would not be using the wildly popular sites apps such as Uber and Airbnb is they were repeatedly unsafe.

In fact, their existence is a shining example of the failure that is the American regulatory system: over-regulate things that should be left alone (food trucks, marriages, and private property) and ignore the toxic weapons ready to blow up (guns and money markets, mostly). 

The irritating part of his post is the disdain towards the “scam-facilitators” and “rip offs” in the sharing story. It is peculiar for a liberal economist to think so. UberX is used by students and immigrants looking for flexible ways to facilitate a comfortable living in an era of stagnant wages. And it’s really bad economics to assume that these services don’t increase taxes. Even if no direct taxes are paid (and despite what the article would suggest, this is plain false) it gives a lot more spending power to those likely to spend it which, through the multiplier, is a key driver of local taxes in the urban areas where these services thrive.

Many of the more specific worries in this post are also highly improbable:

Others in the economy will lose by bearing an additional tax burden or being forced to live next to an apartment unit with a never-ending parade of noisy visitors, just to cite two examples.

In apartments where people have paid for a level of guaranteed quiet and comfort – usually fancier places with doormen and apartment associations – this behavior would not be tolerated. In the case that these safeguards do not exist, if the neighbors are actually loud and disruptive to an illegal extent, it is in the neighbor’s power to stop. If not, well you don’t get what you don’t pay for. That’s the moral part. More practically, the reason this matters in a hotel is that the whole building is filled with a constantly moving bunch of people. In the number of times I’ve stayed in an Airbnb, not only have I not hosted rowdy parties, I have not run into tenants on my way up and down. 

I would be happy to bet Baker, and anyone else, that were these services to vanish, tax revenues would fall.

The article boils down to just a number of platitudes:

If these services are still viable when operating on a level playing field they will be providing real value to the economy. As it stands, they are hugely rewarding a small number of people for finding a creative way to cheat the system.

Where is the evidence for this, I don’t see a single number. 

But what I do know is that while these services may be valued in the billions for its founders, the real value comes not just from convenience to the customer, but giving poorer people an easy way to supplement their income. It is beyond me how Baker feels bad for a millionaire with a medallion that finally has to more than grumble at this customer but not the many immigrants and lower-income Americans employed many hours a week because of this service.

The final moral victory of the sharing economy is something Baker touches on, but dismisses in one paragraph:

The good thing about the sharing economy is that it facilitates the use of underutilized resources. There are millions of people with houses or apartments that have rooms sitting empty, and Airbnb allows them to profit from these empty rooms while allowing guests a place to stay at prices that are often far less than those charged by hotels. [...] Other services allow for items to be used productively that would otherwise be gathering dust.

What a waste it is for a city to loose the value of empty apartments and unused cars. Surely in an economy where we can share more consumer durables is also one where we need produce fewer consumer durables: and thereby emit fewer greenhouse gases. The alternative to a sharing economy is a non-sharing economy: and any kindergarten teacher will tell you this is a bad idea.

So yes, if you think Uber and Airbnb get an unfair advantage by all means write about it. But ask Bill DeBlasio to get rid of archaic and stupid regulations rather than take away the livelihood and lifeblood of the thousands reliant on a better system. 

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11 comments
  1. Brett said:

    It was pretty weird to hear him defend restrictions on the number of incumbent taxi medallion holders in the name of preserving a minimum income for them, considering that one of his Big Points that he’s been repeating for literally years has been the need to use doctors from abroad to lower the costs of health care here in the US (by pushing down domestic doctor wages).

  2. Dan said:

    I hate to be that guy but…”lose,” not “loose.”

  3. Hmm is anyone else encountering problems with the pictures on this blog loading?
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  4. Poorer people usually wind up not being able to supplement their income. They don’t typically have the capital. I mean, yes, they can own their own homes and sign up for airbnb and the like, but the money they make typically does not match the risk burden. In long term rental perspectives, it is much easier to own, manage, and insure an apartment complex suited for renting out, than it is to handle houses, which may or may not be suited. The big guys who would inevitably move in to take advantage of airbnb’s lowered regulation would be able to get good insurance rates, make attractive ads, etc, etc. This, of course, may still be good for consumers, but it may not be, for various reasons, like decreased public view of discriminatory or abusive practices, etc, etc.

  5. “The argument he seems to be making is that these houses are safe for millions of people to live in for many days of a year, but not safe enough for a temporary visitor for a few days while the owner is gone”

    These complications are not as ‘absurd’ as you suggest. Seriously, think this through, and you will realize that it is probably better for residences on the open market to be properly assessed as to whether or not they are fire hazards. If you choose to forgo safety measures in your own home with your own family that is one thing, but once you rent out your room you are taking on an additional level of responsibility here.

    An example that immediately comes to mind: Just a month or so ago in my hometown there was a situation where a man who was renting out a room in another’s house died in a fire. He had been using a space heater, and something about the room (might have been wiring, or something else) caused it to short and a fire started. But the owner of the house, because they had not been using that room, did not have a functioning smoke detector in that part of the house – the batteries had not been replaced. There were clearly some issues with the living arrangements – a lack of communication between the owner and the renter about the safety of the heating unit, a lack of consideration by the owner with regard to safety features – and I think that a bit more hassle on the front end of things, by forcing the owner to do his due diligence, could potentially have averted the tragic outcome.

    It is also worth mentioning here that there is a huge battle brewing over the liability issues in this case, and I don’t see any clear way to resolve them. Which is a separate but related issue – not because someone might not get their money, but because I think it is important for us as a society to have an adequate understanding of who is the responsible party in these sorts of arrangements, and that is not entirely clear, especially when you have these 3rd party mediators, like AirBnB and such, who profit off of these arrangements but can avoid the liability issues.

    Regardless of whether or not regulations are in the aggregate burdensome, there is nothing ‘absurd’ about regulations in domiciles up for lease. There are a number of ways that people can be hurt when ordinary things go wrong in the home, and it is important that those leasing out these spaces have incentives to cover their bases on these things.

    Furthermore, regarding:
    “I don’t see a single number”

    Part of this is the result of the manipulation of figures undertaken by AirBnB and Uber staff. Like when the Uber people tried to claim that the average income of an Uber driver was upwards of 90k, when they were really just playing us all and using business income (pre-gas and etc. expenditures) but letting the reader falsely believe they were talking about take home pay. Both these companies have PR teams spewing falsehoods and misleading figures out into the public space, and its hard to sort the wheat from all the chaff.

    If you want to see some figures, on AirBnB at least, see: http://tomslee.net/2014/05/the-shape-of-airbnbs-business.html

    Only about half of AirBnB’s revenue is from single listers. The rest is from those with multiple listings – ie, predominantly
    wealthy landowners already in the rental game and merely using AirBnB to streamline their business while evading their social responsibilities as landlords.

    ” if the neighbors are actually loud and disruptive to an illegal extent, it is in the neighbor’s power to stop”

    There are cases out there of AirBnB listings being used for prostitution, and this being a major pain in the ass for the neighbors. This is not a moral argument ‘oh they enable prostitution’, but it is relevant to the ‘neighborly courtesy’ issue. I do not think that you would be happy with your next door neighbor’s apartment being used for prostitution, given the unseemly noise pollution that would likely follow. But are you going to call the maintenance office now to burst in on your neighbor’s room to break it up and tell them off? Good luck with that. At least with hotels, the nicer ones have thick walls built with this sort of thing in mind, as well as accommodating common spaces to wait it out in if it gets that far. And with the crappier ones with thin walls, you probably expected these things to happen there in the first place.

    • Fair but disagreeable points. One by one –

      You note that if I choose to forgo safety measures in my own house, that is a private choice and alright. A temporary tenet exercising his or her freedom to live in a place through Airbnb, knowing full well that it is not regulated to the same extent as a hotel, is making an identical choice. The liability issues you mention are of course a cause of concern, but that is hardly unique to this arrangement. The moral and legal quandaries are just as striking for many more mundane events. Of course, the idea of a ‘reasonable expectation’ of safety is well-encoded in our common law, and is hence a subjective question that bears no implication on the sharing economy.

      You can argue that Uber and Airbnb are not transparent. I’m neither here nor there – as private organizations they are not required to disclose anything – but even that aside this is a question of what your null hypothesis is. Do you go around the world believing that everyone and their brother is a rip-off scam artist, or is that your alternate? And if it is, as it surely must be, where is your data to reject the null.

      And, by the way, here is some rich evidence to the contrary: http://ftalphaville.ft.com/2014/01/16/1744662/congress-takes-a-casual-look-at-the-peer-to-peer-economy/

      Finally, about the rowdy neighbors. No, I probably would not want a house of prostitution neighboring me. Nor would I have any moral or legal right to stop it if I knew it to be the case (well, that’s not true, as brothels are illegal – but our argument is premised independently of the ethical question behind prostitution, and more about the nuisance itself). If I can afford to live in an apartment with a full association – which come with hefty monthly fees – that can regulate such business than so be it. If I cannot, I have no right to demand my neighbors to act differently to the extent they are not directly harming me.

      • “exercising his or her freedom to live in a place through Airbnb, knowing full well that it is not regulated to the same extent as a hotel, is making an identical choice”

        I think what I am getting at here is that there is a signalling issue. The AirBnB stamp goes on a listing without any safety procedures ever occurring. But does AirBnB warn you when you are renting that they do not have any safety standards for their list-ers? Not as I remember when I used the site. I guess this comes down to an empirical question, which we probably cannot resolve, but is still very relevant. This would be: determining whether AirBnB not having safety standards is understood by their consumer base and properly accounted for in their (the customer’s) decisions and expectations, or whether the AirBnB brand, being so public and well known, is leading consumers to believe that their rental room has been properly vetted by this large and established company, when in fact no such thing has occurred and all AirBnB is looking into is if your checks clear.

        Re: FT piece – I get that this is an efficiency gain, but I do not see this as very relevant to the regulations issue. The point of the Tom Slee post is to challenge AirBnB’s narrative that this is all supplemental income for low income people. He shows that a little less that half is by wealthy already-landowners using it to enable them to continue their business in a new way that avoids regulations they would otherwise be subject to.

        Re: rowdy neighbors. I actually do not think that you are giving it the weight it deserves. I picked the prostitution thing because its got a yuck factor and I recall reading some anecdotes so its not a silly hypothetical, but in a broader sense, the AirBnB thing can really break down the social contract that is living in an apartment. To a large extent, neighbors get along not because of the law and not because of regulations, but using an unspoken social contract. You respect my space and quiet, and I will respect yours. It works, because you live next to each other and basically have to make it work or else your home life is a living hell. But then the single or two day tenets move in, and they throw a party, or do whatever, and you have no recourse. Can you talk to them about it? too late – they moved on out and someone new is in there. Can you talk to the person renting out the room? They can pass out a list of rules, but there is no clear enforcement mechanism there and if a prostitute rents out the room to do their business they are going to do their business, house rules be damned. Stupid problems like this are part of the reason that we have zoning laws, so i guess it is no coincidence that ABnB is flouting those as well.

        There is a space between acceptable conduct and active harm, and while you can’t bring the coercive force of the law down upon someone for putting you there, I still would not want to dwell in that space. And rather than throw my hands up and say ‘well, it is not my right to stop it,’ I would instead point to things like zoning regulations, and say ‘hey, maybe there is a reason we have those things in the first place’

  6. One more thing:

    The argument you italicized, roughly: ‘ consumers would not use these services if they were not safe ‘ just doesn’t hold water. It’s not quite ad populum…. maybe ad profitum (the appeal to profit margins?). Regardless, it is not sound logic.

  7. And those are not even very efficient taxes! Better to have most Government revenue come from a progressive consumption tax and some other taxes like carbon and pollution taxes to charge for externalaities and of course use taxes like he gasoline tax to pay for roads.

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