A long time ago, I was on the CME/PAC. Often, legislators from Washington DC would come to CME and tour the floor. After the tour, we’d get to meet them, take our photos with them, and talk frankly about business and explain the issues to them. We’d also get insight into what they were thinking.
Sometimes, the give and take was relatively benign. Other times, it was really meaningful. One time Representative Barney Frank visited. At the time, he was chair of the House Financial Services Committee. Our group got into an animated discussion about crude oil ($CL_F) trading.
Frank was upset with the gyration in oil prices. At the time they were near all time highs. He wanted more scrutiny of trading, more reporting, and stricter position limits. If the US would have turned all the ideas he had into CFTC regulation, the oil market would have gone underground. There would have been less transparency, and the real price of oil wouldn’t be the one you saw in the futures market every day.
I bring this up because right now, companies like Uber/Lyft/Airbnb are under full frontal government assault. The smartphone innovation that every person loves has created new markets that didn’t exist. Those new markets disrupt incumbents that have political power.
I am not saying that all these kinds of companies should be left 100% unregulated. However, the level of regulation should be very light, and the level of taxation should be close to zero. That makes government officials very uncomfortable because they have to cede power to people.
In my home city of Chicago, we are engaged in a city council debate over what to do with these kinds of companies. What I have seen is that people are able to access economic opportunity for themselves when they were shut out from pursuing it before. They are free to choose. That’s a good thing and helps create more entrepreneurs in the long run. Our city council should tread very lightly.
Austin, Texas took the opposite tac. They banned Uber and Lyft and both services left. What happened? There is now a black market in car sharing. Airbnb is huge in Austin because property taxes are so confiscatory. If Austin got rid of Airbnb, I bet housing prices would decline, even with the influx of new residents. If they banned Airbnb, how could they possibly pull off SXSW? Getting around there without rides haring will be a challenge.
The state of New York got rid of Airbnb too. That was a dumb idea. It was as silly as the Chicago Cloud Tax. In a time when entrepreneurs and innovative thinkers can work almost from anywhere, passing legislation and taxes like that don’t send the right message.
In 1970, President Richard Nixon was talking to economist Milton Friedman about his plans for the war on drugs. Most of the drug users were not Nixon supporters. The war was not about “what’s good for you”, but more about a political power play and a chance to exert government power. What’s the evidence?
Is there a black market for drugs in America or has government won? What are the negative and positive externalities from fighting that war?
When government fights innovation, it is often about power and politics. Governments are not angels. They can be extremely tyrannical and will exert their power over individuals in a vacuum. It’s not about what’s good or right.
Last night’s #Brexit vote may have been more about individuals exerting their power over their government than anything else. As I said yesterday and on Twitter. Money is fascist. It just seeks stability and runs from uncertainty. Even if stability is bad for money in the long run.
I believe having services like Uber, Lyft, AirBnb are good for individuals in the long run.