I’m a devotee of NPR’s Planet Money podcast, but listening to a recent episode had me screaming at my—well, at my earbuds—when they described how Uber’s surge pricing and business model was good for everyone. The episode is moderately informative, but I take issue with a major premise of their reporting: the argument that charging a lot for service and matching supply and demand is a benefit for all users. You can listen to the entirety of the episode here; the segment I take issue with starts around 11:00.
Here’s a quick breakdown of the conversation:
- Uber benefits car drivers, because they can make more money when prices “surge.”
- Uber benefits people with high disposable income ($150 for a trip from Manhattan to Brooklyn), because they can choose to pay a lot of money to get a car when demand is high.
- Uber benefits people waiting for cabs because Uber gets more cars on the road, so the wait time for other cars is less.
The last piece is where I take issue. In a closed system, this would be the case. But it’s not. Here’s a quote from the show: “when drivers see an area of the city where fares are high … they all go there.” Remember, we’re talking about New York City. When there’s a congested area, Uber provides an incentive for more drivers to go to this congested area. This creates more congestion, which actually results in slower speeds for taxicabs, and—I would posit—fewer available rides for people not willing to pay a lot of money, not more, as they suggest.
Which is fine, in economic theory. However, when looking at traffic, “congestion” is shorthand for “demand.” So by attempting to provide efficient transportation options, it is a transfer of utility from the poor to the rich. Taxicabs are strictly regulated because they serve as a part of the transportation network, both in fare and in number. By sending a fleet of expensive black cars to a congested area, Uber squeezes out the more affordable taxis from the street. Someone willing to pay triple the fare for a ride might call and Uber, but someone who can’t afford that service now has a potentially longer wait for a cab (which can’t get to the area due to congestion) and then everyone has a longer ride due to the congestion. Part of the taxicab regulations—at least in theory—provide enough cabs to provide service without gridlocking the city (obviously, here too theory and practice are almost mutually exclusive). Adding more and more cars to already congested streets creates crippling congestion. That’s—to use economist speak—a major negative externality for everyone.
Now the argument could be made that people waiting for cabs should just take the subway. It’s a good argument; in the podcast they interviewed someone waiting in a 30 minute cab line, in the snow, at Penn Station for a ride “downtown,” an area well-served by the nearby subway (for lower prices, too). And for some of these riders, they might make that choice. But others probably have rational reasons to look for a cab: perhaps they have a bulky item. Perhaps they’re trying to get somewhere not well-served by transit. Plus, the added street-level congestion might drive more people to use the subway, which will create more congestion below-ground too. Adding more vehicles above-ground doesn’t seem like a great solution.
Uber’s surge pricing, in my view, is the opposite of congestion pricing. What works in London and Singapore has faced stiff opposition in New York City (especially from interests outside the city). With congestion pricing, Uber (in theory) would make more sense, since the overall traffic would (in theory) be mitigated enough that surge pricing wouldn’t send more cars in to already-congested areas. Until then, Uber’s surge pricing is part of the problem, not part of the solution. And it certainly doesn’t benefit the vast majority of travelers.