Is part of the problem that we have miscast the part played by drivers and cab companies for decades?
I kind of want to cry
Like a Foxconn worker being presented with an iPad, I suppose.
“We fled Germany on November 9th, 1938. It was called the Crystal Night, because there were demonstrations against Jews all over Germany, and many windows were being broken. We were living on the outskirts of Hanover. When my father came home from work that night, he told us that the synagogue was on fire, and that firemen were standing in a ring around it to prevent the flames from spreading to other buildings. He said: ‘We’re getting out of here.’”
“We fled to the Philippines, which was under American occupation at the time. But it wasn’t long before the Japanese took over the islands. We were living in Manila, and when the Japanese occupied the city, they began to teach us to read and write Japanese. When the Americans came to retake the city, they invaded from the north, and the Japanese blew up the bridges and barricaded themselves in the southern part of the city where we lived. Shells were falling all around us, because the Japanese had stationed a gun encampment across from our house. One morning, we decided to make a run for the hospital, so that we could put ourselves under the protection of the Red Cross. Our neighbors were running in front of us, pushing their belongings on a pushcart, when they stepped on a land mine and the whole family was killed. We kept running, but when we got to the main street, there was a checkpoint and we weren’t allowed to cross. So we hid beneath a house, and soon we were discovered by Japanese soldiers. They lined us all up against the wall to be executed. We begged and begged and begged for our lives. They finally allowed my mother and the children to step aside, but they told my father to stay. My mother dropped to her knees and asked the Japanese commander to imagine it was his family. And he finally let all of us go.”
Uber, the car sharing/limo dispatch/whatever service which is sparking protests from cabbies, cab companies, cities, and even some consumer advocates, has “disrupted” (to use the fashionable term for “fucked their shit up”) the somewhat classist world of taxi and limousine services. While there are very real problems with access to Uber (it requires a credit card, something that many people of color and low-to-moderate income folks simply can’t get reliable access to) it resolves many of the equally vexing problems presented by cabs. This recent piece in Forbes gives a pretty extreme example of the problem with relying on cabs, but even in cities where taxis are better managed they are expensive, tough to find at times, and are often charged with refusing service to people or neighborhoods that drivers hold a prejudice against.
I don’t want to focus on these real and legitimate problems with both Uber and cab companies, they are discussed elsewhere in great detail. What I find more interesting is that the roles in this unfolding drama have been miscast.
The dispute between Uber and cab services is often described as a fight over driver earnings, with companies and medallion owners as the employer and the driver as the employee. An analysis of this relationship doesn’t support this conclusion. In any business relationship, the business owner invests his own capital, hires labor to add value to the capital (be it money, land, raw materials, etc) and sells it to a consumer at a profit. This relationship, between capital and labor, is where profit is formed. Upon sale of the good or service that profit is extracted as liquid capital (money in this case) which can be reinvested in the business or extracted by the owner for other needs (such as supporting themselves).
Clear so far?
If the consumer in this relationship is the person riding in the back of the car, cab companies don’t fit into the model as the business, but instead as the labor. The driver, or more precisely the owner of the car and/or the medallion is the owner of the business. The cab company may lease him the car and, for the fee included in the lease, provides dispatch services, advertising, credit card processing, and other services, much like any firm sub-contracted by a business to provide a service. In cases where the cab driver owns the car they pay the cab company a fee for these services. Just as with any business, the driver is investing his own capital in the anticipation of making a profit. Just like any other businessman, his daily earnings over the cost of doing business are his to keep. If he fails to earn out his cost for the day he will lose money.
Into this decades old arrangement steps Uber, offering drivers a lower cost model. Rather than requiring the driver lease an Uber vehicle they use their own car. This can be a traditional limo, a Town Car or other luxury vehicle, or it can be a private car which meets certain minimum requirements. The latter service, UberX, is that which has raised the most dust, and for good reason. A cab driver can easily decide to forgo his daily lease payment and use his private car, making more than he would behind the wheel of a cab.
Many of them do, as my last cab driver told me. He complained about the cost of using Barwood, the dominant taxi service of Montgomery County, Maryland. The Washington Post reinforced my driver’s point a few weeks later, noting the growing line of idle cabs sitting outside the Barwood garage in Rockville.
While Uber and other car sharing services have real issues to address, such as low income access and disposition of workers employed by the cab companies in various support functions, we have to start by disentangling the relationship between drivers, cab companies, and their passengers. Only when we truly understand where drivers fit in the equation can we ask which solution is best for those who do the work and those who pay for it.
"Fuck You, Old People" — Group Piece at CUPSI 2014
"By the way, you can’t actually pick yourself up by your own bootstraps. That’s now how physics works."
this gives me life….
"Act your fucking age" god damn, this has a good message here.
39 seconds in and I reblogged it
Why you should call BS the next time somebody says “taxpayer protection”
I have not been writing much lately due to some follow up work I have been doing around the Opportunity and Diversity Report Card we released earlier this year. Here at a Congressional briefing this week we got a political selfie with Rep Maxine Waters, who has had the GAO study diversity in the financial sector in three reports that provided us with a lot of great background and methodology.
Since the discussion about reforming our mortgage system is on a downswing right now, I thought it was a good point to think more about the concept of “taxpayer protection” driving much of the conservative/GOP efforts to block housing reform.
The concept is that if the government continues to guarantee loans, and securities that are comprised with those loans, that the government will eventually need to step in and pay off investors when the housing market inevitably crashes again.
Let’s unpack this a little bit. First, let’s look at the idea of a new housing crash. Here is a chart of the last 100 years of home prices across the US. You’ll note that after the end of the Second World War there was a long period of housing market stability. This period saw a complete domination of the mortgage market by the government. They controlled the loan products that were offered and the secondary market where investors bought the debt, all with a government “wrap” or insurance against loss due to default on the part of the homeowner. Not surprisingly, this period was extraordinarily stable, the control flow of money going into the system kept prices from rising above real values and everybody could count on a stable gain in equity over the life of their loan.
All in all, not a bad time to have bought a home.
However, the critics would argue that this period wasn’t due to the stability offered by a stable market with strict controls on the kind of lending which occurred and how much money flowed into the system. They instead wish for a return to the later period, where private label securities were free to offer any loans they wants and they could be securitized, or not, based on the will of a free and equitable market.
This sounds like an attractive option for a country as rampantly business minded as ours, except that it doesn’t seem to work and wishing it would fails to make it so.
The problems with it are many, but let’s start with the nature of mortgages. They are a complex product with a high transaction cost and relatively low returns to the lender. This makes them prone to the processes of “creaming” and “predatory lending”. These related concepts deserve some explanation, creaming is the process of serving only the borrowers who offer the highest profit for the lender. This is on display in the “jumbo” market, where loans are too large for government insurance. In this high value space lenders and investors compete for fat loans with high income borrowers and great profits. Smaller loans, like those that first time buyers, moderate income families, and minorities tend to need, are ignored by lenders in favor of bigger fish. This leaves these populations open to “predatory lending” from lenders looking to get more profit out of the smaller loans. Pre-crash this was done by re-purposing exotic loans types, interest only loans, negatively amortizing loans, bridge (balloon) loans, etc. These borrowers don’t get a lot of attention from the big mainstream lenders and often have little experience with lending. This makes it seem reasonable when a nice mortgage broker offers you a rate 2% over the prime rate with a couple of points to pay at closing.
Next, these loans are combined in complicated security products, where the debt of many different borrowers is mixed together and sold as shares to investors. This was the part of the market so thoroughly dominated by the government when Fannie Mae was a public company. That whole period from the end of the war until the early 1970s where prices were stable and there was no boom/bust cycle was made possible by a strict government monopoly on the sale of government insured housing debt. This began to change in the mid-70s, and by the late 1990’s there was a wild west of companies struggling to offer new and better mortgage backed securities which could offer investors better and large profits than traditional government mortgage bonds.
Investors often didn’t understand what they were buying, and relied on the flawed appraisals they got from ratings firms who were themselves struggling to understand these new products. But the profits were so good that investors left the government dominated mortgage market for this new “private” market.
This caused housing prices to explode upward. Caused not by heavy government involvement in the housing market but by the deregulation of a critical corner of our societies economic foundation. Deregulation works for industries which need constant innovation to grow, housing isn’t one of those industries.
So is there a new housing crash on the horizon? Well, maybe, but probably not. The current flow of mortgage dollars is strictly limited since the housing crash and the subsequent lack of reform have left investors uncertain about the safety of their investment. The US has propped up the housing market by adding as much as $85 billion a month to their balance sheet in mortgage backed securities, a process they are slowly tapering off now. Prices have been increasing as rates have declined because when it costs less to service your debt you can offer more for the house you want to buy. It isn’t a bad thing, higher home values and lower interest rates allow borrowers to build more equity. Would you rather buy a $250,000 home at 6.5% interest (and earn 1%-2% a year on $250k as the house increases in value) or a $300,000 home at 4.5%? That is the difference the cost of borrowing makes.
This will lead those who are able to secure a loan to bid up housing prices in desirable areas. However, these prices aren’t outrunning the ability of borrowers to repay their loans, thus no bubble. Now this can change, were we to see a complete return to the no-holds-barred lending of the housing boom we could see a replication of the boom/bust cycle, yet nobody seems to have the political power and the will to make that happen. This is a good thing, despite lender whining about the cost of complying with pesky regulations, like having to verify a borrower can repay their loan, this keeps prices stable.
The reasons we are given for a complete exit of the government from the housing market is that we must protect the taxpayer from the burden of bailing out the housing market. Two problems confound this argument however. First, every taxpayer is also a borrower, a home owner, a renter, or a buyer. Most are all-of-the-above at some point in their lives. The exit of the government from the housing market would raise the cost to borrow, as investors demand higher yields on bonds which lack a government guarantee and lenders cream the market and look for any way to add fees at the closing table. This hurt borrowers by reducing what they can offer for a home, it hurts owners who have to accept a lower sale price when they want to move, it leads to higher demand for rentals and drives up rent while reducing the amount a potential landlord can pay for a new rental property.
These people are taxpayers. How does this policy protect them?
The next issue is that the idea naively assumes the government would really stand by and watch housing crash again. In practice, housing is too critical to the rest of the economy, by virtue of its role as a stole of most of a family’s wealth as well as a critical site for a lot of different forms of labor (from construction, to cable tv installers, to newspaper delivery people; homeowners buy more goods and services than renters). Government will always step in because it is the place of government to protect our economy (politicians might not care about that, but when enough people start losing their homes the public anger will push elected leaders to discard any “no government involvement” pledge).
Finally, when politicians lob around the term “taxpayer protection” they rely on the public using an outdated concept of money, where every dollar spent must be paid back to somebody somehow. While this is true of your household budget, and even state and municipal budgets, it lacks probity when discussing a sovereign government, one which issues its own currency which is valued based on its demand across a global market. In this realm, there is no limit to the spending power of the government. The Federal Reserve can decide to simply add assets to its balance sheet, such as with the purchase of $85 billion in mortgage backed securities every month, without any apparent inflationary effect. Alternatively, the Treasury can raise funds by issuing debt denominated in US dollars. Although this is often derided as “borrowing” money, in fact most of the “Treasuries” created through this process are bought by other aspects of the government (such as the Federal Reserve). Regardless of who owns it, since the bonds are denominated in dollars, the Treasury can simply pay them when they come due by crediting the holder with new dollars or issuing new debt to pay for it.
The point is, there is no clear indication that we ever need to “pay down the debt”. It doesn’t seem to have produced any inflation and it doesn’t seem to be a drag on growth of the GDP. In fact, during a recession the last thing to worry about is paying down national debt, the low rates and slack demand make that a recipe for disaster. Every dollar of “national debt” is an extra dollar circulating on the private market, being used to buy groceries or pay for a family vacation.
Again, this isn’t radical thought, it is how fiat currency is supposed to work and we just need to wrap our heads around that. We can bail out the housing market once, twice, or a dozen times. It’ll suck, because the “bailout” doesn’t help the homeowners who lost their homes, but it doesn’t place additional burdens on the taxpayer in any way. Ask a friend today how the national debt has hurt them, then ask them how austerity budgeting has hurt them. Less infrastructure projects, government purchasing of goods and services, and government jobs (teachers, firemen, etc) are far more dangerous that a debt we only owe to ourselves.
So the next time somebody tells you that taxpayer protection is a priority, remind them that taxpayer are home owners, they are borrowers, and they are renters. Making one suffer to protect the other helps neither.