If the Gig Economy Has Unintended Consequences, So Does Shutting It Down
The gig economy is under attack, and it’s the government beating the war drums (again).
The New Orleans City Council recently voted to impose new restrictions on Airbnb-style bookings, banning the short-term rentals of whole houses not occupied by their owners. Councilmembers also prohibited all short-term rentals in most of New Orleans’ historic French Quarter and Garden District neighborhoods, while limiting the number of short-term rentals on commercial properties.
In New York City, the Taxi and Limousine Commission just extended a 12-month cap on new for-hire vehicle licenses in an attempt to discourage ridesharing services like Uber and Lyft. The agency also ruled that, in a year’s time, drivers will only be allowed to spend 31 percent of their time cruising without a passenger below 96th Street in Manhattan—down from the current 41 percent threshold.
Arbitrary? You bet. Detrimental to the broader economy? Most definitely.
The gig economy may be unpopular in some corners—from homebuyers to taxi union officials—but it has undoubtedly revolutionized digital commerce and taken the U.S. economy to new heights. Technology companies like Airbnb and Uber continue to garner criticism from self-serving interest groups, but their aggregate impact is inarguably a positive one. Analyzing their impact on a piecemeal basis, as elected officials often do to satisfy such interest groups, only serves to undermine it.
In today’s day and age, technological disruption and economic growth are often inseparable. According to Intuit CEO Brad Smith, the gig economy accounts for roughly one-third of America’s workforce. By next year, that number will increase to 43 percent—nearly 70 million workers.
Such workers contribute about $1.4 trillion annually to the U.S. economy. That is equivalent to Australia’s entire economy and higher than the value of Google and Facebook combined.
However, the gig economy’s effect transcends job creation and market capitalization. Tech companies like Airbnb and Uber leave a real and lasting impression on our daily lives. They provide a living experience that was once inaccessible for all but the wealthiest. They provide a transportation service where it wouldn’t otherwise exist. They shorten our commute times and make our vacations more authentic and enjoyable.
In many ways, the gig economy represents the purest form of market exchange. A commuter demands transportation, and an Uber driver supplies it. A vacationer demands lodging, and an Airbnb host supplies it—free from government interference, at least in theory.
Does the gig economy produce some losers? Of course. Airbnb competes with traditional hotels, and such competition ultimately can become a zero-sum game—an Airbnb stay often comes at the expense of a hotel stay. Ditto for Uber and the taxi industry—an Uber driver’s gain is usually a taxi driver’s loss.
That is the nature of disruption. In fact, that is the very nature of capitalism. In a free-market system, there are winners and losers chosen by the free choices of consumers. But, in the aggregate, there are more winners than losers over time as scarce resources are allocated to their highest value.
This makes the pursuit of a free-market system worthwhile—not because it is perfect, but because it is our best option. No economic system ever implemented in human history produced only winners and no losers.
In analyzing the gig economy, there is really only one question that matters: Does it produce more winners than losers? From employment to economic growth, the empirical evidence suggests the answer is “yes.”
It is for that reason that government-imposed restrictions on the gig economy should be met with skepticism. While often well-intended, such regulations quickly become overregulation and leave most Americans worse off, all while threatening companies that create millions of jobs and contribute hundreds of millions of dollars to the U.S. economy.
Even if you are a critic of the gig economy—and criticism is not always unjustified—there are ways to keep it in check short of government interference. Homeowners associations and co-ops, for example, have every right to prohibit Airbnb-style rentals on their premises. Many already do.
But such private actions are not the same as New Orleans banning short-term rentals or New York City restricting ridesharing via government fiat. That is just an abuse of power, accompanied by plenty of unintended consequences.