-Victor Hwang argues in Forbes that as firms such as Uber enter the market, established taxi services will either lose business or lower prices, reducing the nation's gross domestic product.
-This argument has multiple flaws, starting with the assumption that an industry's output must decrease if competition increases. To the contrary, a lack of competition typically keeps prices high and thus reduces production.
-The taxi industry is rife with restrictions on the number of cabs that can operate in a market. By increasing competition, Uber is almost certainly increasing the number of rides taken and thus boosting the industry's output.
-So what do we do about shrinking GDP? Uber might be helping us solve another puzzle. It’s what economists call The Nordic Mystery. For years, economists have struggled to explain the high quality of life in the Nordic countries, especially Denmark and Norway.
-Nordic countries may produce less, but they are more efficient at utilizing what they have. Nordic culture comes from large, close-knit tribes based on high levels of trust, which lowers the transaction costs for sharing resource.
-Uber was founded by a university dropout and his buddy in 2009. The concept is that most any person can become a cabbie for on-the-side cash. What is removed is the taxi driver who is replaced by an app.
-What became of this is a dramatic increase which caused many governments to ban it, deeming it unsafe. Why this has caused such a game changing dominance is the fact that it hit right when the 2009 recession took place.
-In October 2009 the unemployment rate was at 10% in the United States, 9.4% in India, 20% in the UK, and 7.1% in Canada. Basically, in easier terms there were many people sitting on the couch during the middle of the day. All people needing to fill their bank accounts and stomachs. What a perfect time for the college dropout.
In Depth Analysis
-Uber has fallen under an important region in macroeconomics being the Gross Domestic Product of a country. Despite that awesomeness, Uber will lower GDP, because GDP is about measuring production. Note that this is entirely for the better and not for the worse. The more people use Uber, the less the economy will produce.
-GDP is calculated by measuring spending, earnings, and/or added value. If someone takes an Uber ride instead of a regular cab, what happens? The customer is spending less, a taxi driver somewhere is losing a customer
- Taxi companies may try to compete and start lowering their prices, which they are. Add it all up and you get a smaller number. GDP goes down. This is not bad for the economy as it shows a new measurement is invisible that compliments GDP rather than replacing/lowering it
-While Uber continues to decrease GDP, it has become and exceptionally positive thing for the economy. They will help goods and services flow more efficiently, getting where they need to go at lower cost, with less production required.
-Lower GDP shouldn’t worry us, as long as the loss is more efficient utilization of what we already have/an unused asset. A car in the driveway does nothing all day. Use it for the better, and there is already output occurring.
-Uber utilized the fact that the recession occured, by most the factors that took place in it. The unemployment rate, being at a low rate (7.1% in Canada) caused Uber to blow up in the economy. The CPI and HPI was also decreasing with the business cycle only going lower, almost near a trough, which would be doom for the economy
-How Uber took advantage was by giving an opportunity for the unemployed to get up off the couch for some quick cash.
-Uber also introduced a lower rate for transportation prices, since the recession left the unemployed with the choice of the cheaper rate, but started charging higher as the economy reached the healthy recovery period