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The “sharing economy” is the new big idea:

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And like all new big ideas, it has generated its share of consternation, some justified, much not, and all of it a little confused. For me the crux came together a little better after reading Emily Badger’s piece from a few weeks ago discussing some of the challenges in integrating “sharing economy” services into the existing regulatory framework and Daniel Rothschild’s piece on how sharing economy firms empower individuals to operationalize their erstwhile “dead capital.”

The thing I realized, really, is that we already know exactly what these firms do. They leverage economies of scale to provide a regulated and standardized forum to connect buyers and sellers. They are, for all intents and purposes, exchanges.

Financial exchanges have existed for a long time. In some form they may have existed in Rome; they have definitely existed since the late Middle Ages. Financial products are uniquely well-suited to exchanges: economies of scale are high since trading pure institutional claims is low-cost and exchange volumes and aggregate values are high; regulation and standardization are both fairly simple since intra-product shares are almost always equivalent. The thing about exchanges in the past is that, until recently, creating large, standardized, regulated exchanges for more heterogenous asset classes and relatively small consumers and sellers was a logistically monumental project with highly uncertain returns.

The internet, obviously, changed that – and in the long-run, we may see the rise of Internet commercial fora as more important than information fora. eBay has been around for a while, as has Amazon (which hosts other sellers as well as sells directly); and what is Craigslist if not an exchange? The internet also, of course, allowed smaller investors to engage in traditional exchanges.

The sharing economy, then, is basically just the rise of service and rental exchanges. You have a car, I want a ride. You have a house, I need a room. I have an idea, you want to take a flyer on buying it before it’s complete. I need a task done, and you are a rabbit. In the end, it’s just about new kinds of exchanges arising, from a combination of the accelerating technology and penetration of the internet as well as just plain old creativity. Nobody is sharing anything. People are exchanging goods and services. They’re just doing more exchange, and more different kinds of exchange, then they could previously.

And while the article I linked to above highlights some of the potential knock-on effects of this change, the fundamental arc is towards democratization and empowerment. Students need income between classes and studying, so they drive Ubers; homeowners have a room to spare, so they rent out their room to tourists and students. The losers are the people who “made” markets before exchanges could make them, who provided the centralizing, organizing force and reaped the benefits of owning capital – taxi medallion owners, hoteliers. If people stay in Airbnb rooms when they otherwise would have stayed in hotels, that shifts income from billionaires to middle class people and on the margins unlocks valuable land for more productive uses; if it incentivizes new trips, well, it increased human happiness!

But more to the point, when we think about how to regulate these things (and regulate we can and should), we need both to consider the costs and benefits and distributional impacts of the regulatory scheme; but even before that, we need to conceptualize what we are regulating and why. We need to think about what kind of regulatory burden needs to fall on the exchange vs. the participants. Perhaps the kind of certification a hotel or even a traditional B&B receives is not what an Airbnb rentier should require; but if cities streamline the process of certifying Airbnb rooms, should Airbnb then accept more responsibility for enforcing those rules? Is Uber liable when a driver’s error causes harms, even when there is no fare in the back? What should Kickstarter be doing to limit potential catastrophic project failure – if anything? Thinking about these firms as regulated exchanges, as spaces for others to buy and rent the goods and services of others, will give us a clearer idea of how to conceive of them, as well as how to approach the question of “normalizing them.” Especially as international exchanges grow in scope, it’s something we need to think more about.  And perhaps it will lead us to think about how we should be regulating the exchanges that already exist.


On a personal note, those out there reading this thing may have noticed that, over the last month, there hasn’t been much to read. There was a good reason for that – life has been totally bonkers. In a good way, but bonkers nonetheless. However, the causes of that bonkerdom are rapidly drawing to a close, first and foremost my education, which is, for all intents and purposes, complete – after two very meaningful but not functionally high-stakes presentations, one this week and one the next, I will officially be a Master of Public Policy; my 22-month roller-coaster of being a full-time worker and a full-time student (not to mention a full-time spouse, full-time homeowner, and full-time hound-parent) is, basically, at an end. Amen.

Therefore, all the things to which I have been unable to devote a sufficient portion of my CPU and RAM for want of time are suddenly, amazingly possible – and while, sorry readers, my wife is more important than you, and I do have many other wonderful friends and delightful hobbies, it really does mean this blog can take a good deal more of my efforts than it has in a whole. Commensurately, expect more posts – and more, as I have plans to not only kick this blog up a notch but expand both its depth and its scope as well. Big promises from a guy who still hasn’t put out his Best Albums of 2013 list (it’s May, I am ashamed) but promises I plan to live up to. Stay tuned.


Kevin Grier, the sufferable half of Kids Prefer Cheese, writes this about AirBNB:

I used to think AirBNB was cool, but now that Thomas Friedman has slurped it in the Times, I’m not so sure. One interesting thing in the piece was how the AirBNB founder confuses his company’s revenue with new economic activity.

Surely most of AIRBNB’s revenues are actually just diversion, no? I’d guess that at least 75% of their revenue is just diverted from hotel/motel revenue.

This is a common mistake. “look how much NAFTA increased trade”, “Look how much the new stadium will boost the local economy” are examples of this kind of erroneous thinking.

Creation vs. diversion is an important and often overlooked distinction.

I just had a great stay in an AirBNB property in Brooklyn, but the Staten Island Hilton Garden Inn lost the revenue that AirBNB generated.

He’s right about Tom Friedman, of course, but wrong about everything else. But wrong for interesting reasons!

The first, and simple reason, is that on the margins AirBNB, by creating cheaper, unique, higher-quality, or differently-located lodging options, may result in more overall travel. I may choose to take that why-the-heck-not weekend trip to FunTown if I know I can book a super-cheap night in someone’s apartment, or stay in the cool gentrifying neighborhood that doesn’t have any formal hotels.

Secondly, and more importantly, it is certainly the case that AirBNB is more often than not “diverting” trips that would have otherwise occurred in hotels. But that doesn’t mean it’s not creating new economic activity!

A house or apartment is capital, a machine that provides a flow of services, primarily “comfortable shelter.” When you own a house, you can choose to consume those services however you want – entirely for yourself, rent them out to others, occasionally donate a share of those services to friends or relatives (for example, my in-laws just stayed with us the past week, and next week a friend is staying with us). However, until recently, was difficult and uneconomical to rent out one’s residence for simply a day or weekend or week because of issues relating to information, trust, payment mechanisms, and insurance.

But these are all problems that AirBNB, a new technology, has effectively and efficiently solved, making renting out a portion or the whole of one’s home like a hotel or B&B go from “extremely challenging” to “extremely easy.” This makes houses more valuable. To quote the master, Paul Romer:

Economic growth occurs whenever people take resources and rearrange them in ways that make them more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.

Basically, the combination of AirBNB + house = hotel is a new recipe that makes existing resources more valuable than they once were. If AirBNB really takes off, what we’ll see is that, as more people elect to take trips and stay in people’s homes (as my wife and I have done before and will do again, thanks to AirBNB) the existing stock of homes become more valuable, there will be substantially increased efficiency in the hospitality industry and there will be more efficiency in urban land use since the hotel-to-overnight-stay ratio will decline and thus valuable land downtown can be used for other purposes, like offices, residences, entertainment or commerce.

I’m not a shill for AirBNB, but it’s a great example of how the combination of information exponentiation and aggregation economies of scale that the internet enables can substantially increase economic growth and human welfare by making all the stuff we already had more valuable. My wife and I got an espresso maker on Freecycle, so we didn’t buy one. We bought something else instead (probably a couple of board games). So in one sense that was just consumption diverted from one thing to another, but comparing the equilibria that’s clearly a net increase for human welfare. In the pre-internet days, that espresso maker goes to a landfill. Instead, it goes to us. So the original owners are unaffected, the public waste burden is reduced, and we get the espresso maker we wanted and other stuff. Someone else went on Craigslist and bought a board game for $5 that cost $60 new, and used the savings to help buy a new espresso maker. It’s all about increasing efficiency, and just because it doesn’t always increase GDP doesn’t mean it doesn’t increase welfare and, eventually, growth.

Since I was picking on him some let me highlight an interesting bit of reporting from TBD’s Jeremy Binckes:

Air conditioners are being plucked from windows in Washington County by thieves who, presumably, are selling the units as scrap metal. This is not unusual. In this horrible economy, people have resorted to stealing all sorts of weird, boring things.

Copper is fairly valuable, and abundant in air conditioners and electrical wiring. While copper is most commonly stolen from homes under construction or renovation — in Bethesda, for instance, with its fancy gutters — earlier this year the D.C. Department of Transportation battled a string of thefts of copper wire from underground conduits that power sidewalk lights and lighted street signs.

Also fairly valuable: aluminum. Last week, the following was stolen from a construction site in Anne Arundel County: 22 pieces of aluminum equipment, 12 pieces of scaffolding, 17 guard rails, eight guard posts, 10 brackets, 11 long guard rails and 14 cross braces.

Railroad property has also been hit. In April, 2,500 pounds of materials were stolen from a Norfolk Southern rail yard in Hagerstown, Md. Everything in that heist — including spikes, track plates and a four-foot rail — was loaded into a minivan, which, we can only imagine, was also sold for scrap metal.

Thieves in our region are even stealing manhole covers and drainage grates. It’s only a matter of time before our pigs begin disappearing, too.

Here’s my question – if you steal an air conditioner why would you sell it for copper? Copper is worth something like $3-5/lb, but a used air conditioner can get you plenty according to Craigslist. It seems easier just to sell the original unit whole.

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