Friday, October 23, 2015

Price is No Obstacle


Self-driving cars, opportunity costs and idle gold

You'll have to register to read it.
"We argued...that the economics of self-driving taxis don’t necessarily make sense.Which is to say, we’re not entirely convinced (at this stage) that self-driving taxis will be any more or less affordable than those driven by humans. "
That is irrelevant. The economic value of self-driving cars is that people who are currently driving taxis will do something else productive that can't be automated right now... Likely something that is either not being done now or is under-served based on the desire of the public. We should hope that self-driving taxis WILL (without general inflation or legal mandates) become increasingly expensive because that means that the value (productivity) of those hired trips is increasing. People freely pay for things only if they think the money they have is less valuable than the thing they want.

I think the misconception is this: The writer thinks that price is an additional impediment when in fact price is a proxy for or quantification of the scarcity of a product -- that is, how hard it is to get (or make) and how many people want the useful product.

In other words, if the cost of getting something to you from over a mountain range is high, it means...
  1. The thing you are bringing over the mountains is worth the effort of dragging it over the mountains in the first place.
  2. The effort to bring it over the mountains is onerous to some degree -- it is not "easy" for the average person to do for himself.
Think of it this way: You want a doo-dad brought from over the mountain. But due to the difficulty, the cost is too high for you to pay someone to do it for you. So, instead of using capital (which might be money or it might be trading labor or resources or it might be putting up with pop-up adds.), you either expend your own labor to carry it over or do without it. This is like a Manhattanite without a car and without enough money for a taxi who walks to the train station and then walks from the train station to his final destination, or instead gets a friend to drive her (a donation of capital).

Someone who is producing enough excess capital will not waste his valuable time schlepping over the mountain for this truly valuable product. He will hire someone to do it: someone whose time is slightly less productive (that is, producing less excess capital...obviously this fellow is working very hard).

Now the person who hires is not robbing from the person who does his own schlepping. Nor is the hired schlepper  hurting the self-schlepper by not doing the work for less. The self-schlepper would have done his own schlepping if a hired schlepper did not exist so he is no worse off if the hired-schlepper charges more than he thinks he can afford. The employer and the hireling are potentially better off of course. But beyond the self-schlepper's envy at the employer for getting his doo-dad without having to traverse a mountain, his nose is not trimmed at all.

If the hireling builds robots to schlep stuff over the mountain (ala self-driving cars), there is no reason to suppose that the price will go down just because it is now "easier" for him. After all, he has the same bills he did before. He had to devote extra time to design and build those robots and never received any payment for that work. If he were going to be paid less for that work, he would never have built them in the first place. So he'll charge the same amount. But now he has more time to build more robots. He can devote his time to building robots instead of schlepping over the mountains--something he didn't have time to do before. Then he can provide his service to more people who want the valuable doo-dad.

Probably, over time but not initially, the product will become more affordable because it will become less scarce on the other side of the mountain. But if the doo-dad makes people so additionally productive that demand only grows for it, the cost will not decrease at all. Same thing, if the maintenance costs, and up-front capital costs are high. In conclusion, there is no reason, in this example, why the price must increase or decrease. It depends.

Because you might be thinking it...

But what if the maker of robot-schleppers was an employer of human schleppers? Doesn't that mean that his robots are ruining the lives of his hired schleppers?

Well.... Understand that those hired schleppers have been profiting off the problems of their fellow citizens. They had a doo-dad that was scarce and hard to get. These people profited by overcoming the mountain range for them.  This is not an evil. They are doing good. lt is true that they are "profiting off the suffering of their fellow man". They are making their living off the obstruction of the mountain and their willingness and ability to overcome it. They are caring for the needs of their fellowman via a system that is self-sustainable since it allows them to do it all the time and have their own needs met.

But let me try another analogy: Imagine if a city is hit by a hurricane and the roads into it are destroyed. So people hire themselves to schlep goods by hand to the city. They are benefiting the city. They are doing good. They are also profiting off the suffering of the city. But this is not an evil. 

HOWEVER what if the people of the city began to repair the roads into the city. Then, what if the people employed to schlep goods into the city began picketting the repair work?
"You are ruing us! What will we do for employment? No one in this country carries things any more!" 
This is evil, because they want to profit off the unnecessary suffering of their fellow man -- suffering they are trying to personally cause to be maintained.

The robot schleppers are essentially flattening the mountains as if they were not so imposing. In this little way, they are making people more powerful. And the hired schleppers are sharing in that increased empowerment along with everyone else. 

Granted, they will have to do something other than schlep things over the mountain -- a task that is no longer needed by anyone. They will meet the needs of their fellow man in ways they never had time to before. The only way that there will never be any more work for them to do instead is if all human impediments were destroyed -- that is, if humanity (including the hired schleppers) were to become all-powerful. In that case, why would they need jobs?

I don't know what the hired schleppers will do instead. But I do know that we won't find out if we use regulation and legislation to create artificial mountain ranges where they would otherwise not exist so the hired schleppers can pretend to be productive. Or if we were to pay them for being idle.

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