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They didn’t see the Uber-ization of the economy coming
We’re back. It’s January 11, 2023. Here’s the rundown:
They didn’t see the Uber-ization of the economy coming
Non-competes in the crosshairs
Numbers and links
They didn’t see the Uber-ization of the global economy coming
A Fed President admits it: They didn’t see this coming.
We’re all familiar, at this point, with how Uber’s pricing works, right? Essentially, it’s up-to-the-second supply and demand for drivers, which can lead to “surge pricing” during times of high demand. It can result in a $15 trip costing $50, or $100.
When the pandemic threw a wrench into the works of the global economy, the same thing happened to supply chains: We experienced a sort of “surge-pricing” on a mass scale, and for all sorts of goods and services. As a result, big price hikes, and inflation.
That, evidently, is not something that the Fed and other policymakers anticipated. Or, apparently, even thought was possible. In other words, the guys and gals at the top didn’t see the “Uber-ization” of the global economy coming. That’s what Neel Kashkari, President of the Minneapolis Fed, said in a recent blog post:
“I’ve…been wrestling with why we missed this high inflation and what we can learn going forward. To state clearly, I was solidly on “Team Transitory,” so I am not throwing stones. But many of us — those inside the Federal Reserve and the vast majority of outside forecasters — together made the same errors in, first, being surprised when inflation surged as much as it did and, second, assuming that inflation would fall quickly. Why did we miss it?”
Kashkari explains the ins and outs of Uber’s “surge pricing” model, and then writes that though perhaps “too simple” to explain the complex economy we’re now living in, it all sort of does add up.
“My story is of course too simple — just a demand surge, rather than both increased demand and disrupted supply — but the resulting characteristics resemble the economy we have been experiencing: Prices soar. Corporate profits climb. Income for drivers climbs, but not as much as prices. Real wages actually fall. Even though worker incomes are up, labor’s share of income is down. Labor markets are tight, but capital is the constraint on supply.”
Interesting analysis, for sure, and yes, probably a bit too simplistic. But it does make sense. And I think it’s valuable to see someone in a fairly lofty position to sort of own up to the fact that yes, they missed the ball, and that no, they haven’t been able to exactly figure out why. The pandemic was clearly the catalyst, with a decline in supply (factories shutting down, ports closing, etc.) and an increase in demand (more money in circulation). At 10,000 feet, we can see the mosaic coming together. But the details are still fuzzy.
Maybe after a couple of decades go by and we can analyze things more clearly, we’ll know for sure what has led us to these uncharted economic waters — in which unemployment is super low, prices are super high, how nobody can agree if we’re in a recession, but there’s definitely one coming, etc.
I think it’s a lesson in humility, too. Nobody really knows what’s going on. I’ve seen and heard plenty of people say, quite confidently, that it can all be explained by X, Y, or Z. Maybe. We’ll see.
Just remember that we live in an increasingly complicated world, in which billions of variables and factors are changing and morphing at all times, and that there’s really no way to predict what’s going to happen.
It’s the same lesson from “Jurassic Park.” Just go watch “Jurassic Park” again.
Don’t compete with me
Non-compete clauses may be banished to the netherworld, where they belong.
The Federal Trade Commission (FTC) is looking at banning non-compete clauses in employment contracts. You can get the gist of it all in this story I wrote for Fast Company last week.
But here’s what you need to know: Non-compete clauses may soon be banned in most cases, as they generally provide no economic benefit (the opposite, in fact), and serve to warp the labor market in favor of select employers.
A lot of people are subject to non-competes, too. I, myself, have had non-compete clauses in my contracts. That’s not to say that there aren’t legitimate reasons that some companies use them — there can be a lot of trade secrets and intellectual property issues at play. Imagine Pepsi offering the guy who knows the Coca-Cola recipe 10x their salary to come spill it? In a case like that, there could be a good reason to utilize a non-compete.
But that’s not the sort of thing that’s being targeted here. This is more about telling security guards who make minimum wage that they can’t take another job as a security guard at another business within 100 miles (a real example cited by the FTC). Or that a McDonald’s employee can’t apply at Wendy’s across the street because…well, the McDonald’s franchisee doesn’t want to have to compete for workers.
At one point, I had a non-compete clause in my contract when I worked for a valet company. The issue was that valets would essentially get cozy with businesses at which they were working (say, an upscale steakhouse or something like that), and then start their own valet companies and steal the contract. That’s more or less how the free market works, of course, unless you clamp down on it by threatening legal action against minimum-wage workers.
So, I think this is another example of a legal tool with legitimate (but narrow) use cases being commandeered by a bunch of people who are trying to suppress costs. There are billions at stake here for workers, so this is a bigger deal than it seems, too. We’ll have to see how it all shakes out, but I think this could be a good thing — it’ll help spur entrepreneurship, give workers a bit more leverage on the market, and hopefully, help chip away at the ever-growing income disparity in the U.S.
A thought experiment that I often employ, too, to try and figure out how I feel about things like this is to imagine the inverse of the situation. In this instance, I think we would see a bunch of workers telling employers that they are legally prohibited from hiring anyone other than them within 100 miles or for a year (or whatever). Sounds crazy, right?
Well, I think it’s crazy going the other way, too (with some exceptions). Hopefully, this will be a positive change.
Numbers, links, and more
$90,000-$900,000: How much you can earn as a Netflix engineer, as companies comply with new pay-transparency laws for job postings. (Bloomberg)
-35%: The decline in global venture funding from 2021 to 2022, for a total of $445 billion. (Crunchbase)
$26,850: How much some dude paid to have his legs surgically lengthened, gaining five inches. (Insider)
Electrifying news: EV sales increased 3.2% last year, while overall auto sales fell 8%. (The Wall Street Journal)
Aggressive tourism: We all need to chill when it comes to interacting with nature. (The New York Times)
Probably the best story I’ve read recently: Set Adrift