• Tag Archives California
  • Why Uber and Lyft Are about to Shut Down All Operations in California

    This Friday, Uber and Lyft are set to entirely shut down ride-sharing operations in California. The businesses’ exit from the Golden State will leave hundreds of thousands of drivers unemployed and millions of Californians chasing an expensive cab. Sadly, this was preventable. 

    Here’s how we got to this point.

    In September of 2019, the California state legislature passed AB 5, a now-infamous bill harshly restricting independent contracting and freelancing across many industries. By requiring ride-sharing apps such as Uber and Lyft to reclassify their drivers as full employees, the law mandated that the companies provide healthcare and benefits to all the drivers in their system and pay additional taxes.

    Legislators didn’t realize the drastic implications their legislation would have; they were simply hoping to improve working conditions in the gig economy. The unintended consequences may end up destroying it instead.

    Here’s why.

    AB 5 went into effect in January, and now, a judge has ordered Uber and Lyft to comply with the regulation and make the drastic transformation by August 20. Since compliance is simply unaffordable, the companies are going to have to shut down operations in California.

    Their entire business model was based upon independent contracting, so providing full employee benefits is prohibitively expensive. Neither Uber nor Lyft actually make a profit, and converting their workforce to full-time employees would cost approximately $3,625 per driver in California. As reported by Quartz, “that’s enough to boost Uber’s annual operating loss by more than $500 million and Lyft’s by $290 million.”

    Essentially, California legislators put these companies in an impossible position. It makes perfect sense that they’d leave the state in response. It’s clear that despite the good intentions behind the ride-sharing regulation, this outcome will leave all Californians worse off.

    Uber employs approximately 140,000 drivers in California and Lyft employs roughly 80,000. These 220,000 working Californians will now lose their source of income in the middle of a pandemic and recession, all thanks to the naive intervention of Sacramento regulators who thought they could plan the market. Moreover, the millions of Californians who benefit from and rely on cheap, accessible ride-sharing services will be out of luck.

    Yet this isn’t some one-off example where regulators just got it wrong. Rampant unintended consequences inevitably plague any attempt to intervene and “fix” the economy by central planners convened in the state capital.

    Here’s how FEE’s Antony Davies and James R. Harrigan summed up the key insight of unintended consequences:

    Lawmakers should be keenly aware that every human action has both intended and unintended consequences. Human beings react to every rule, regulation, and order governments impose, and their reactions result in outcomes that can be quite different than the outcomes lawmakers intended. So while there is a place for legislation, that place should be one defined by both great caution and tremendous humility. Sadly, these are character traits not often found in those who become legislators.

    There was nothing humble or cautious about the approach California took to regulating the ride-sharing industry. Legislators took a cursory look at a business model they clearly didn’t understand, wished it was different, and thought they could rewrite it entirely on their own. This hubris has not improved conditions for workers, but brought the industry to the brink of destruction.

    Benevolent intentions simply aren’t enough. As famed free-market economist Milton Friedman once noted, “concentrated power is not rendered harmless by the good intentions of those who create it.” Still, not all hope is lost for the future of ride-sharing in California.

    In this case, voters will have an opportunity to rectify the unintended consequences of this failed attempt at central planning. Uber and Lyft have successfully secured the addition of a ballot question to the November election that will give Californians the opportunity to vote to create an exception to AB 5 for ride-sharing app drivers, allowing them to once again work as independent contractors. (Although freelance writers and many other professions will still be left in the lurch.)

    If this vote succeeds, it might be enough to bring Uber and Lyft back to California. But the struggling Golden State will continue to run into problems like this as long as its legislators continue to abandon humility in favor of a heavy-handed approach.


    Brad Polumbo

    Brad Polumbo is a libertarian-conservative journalist and the Eugene S. Thorpe Writing Fellow at the Foundation for Economic Education.

    This article was originally published on FEE.org. Read the original article.


  • California Legislature Votes to Strike ‘the State Shall Not Discriminate’ from Constitution, Opening the Door to Legalized Discrimination

    On November 5, 1996, Californians headed to the ballot box to weigh in on the California Civil Rights Initiative—aka Proposition 209—to end government discrimination.

    The measure, modeled on the Civil Rights Act of 1964, read:

    “The state shall not discriminate against, or grant preferential treatment to, any individual or group, on the basis of race, sex, color, ethnicity or national origin in the operation of public employment, public education, or public contracting.”

    In the first electoral test of affirmative action on the continent, Californians overwhelmingly rejected the policy. Prop 209 received 55 percent of votes, and has held off legal challenges since.

    On Thursday, the California legislature voted to strike those words from its Constitution, paving the way for repeal of Prop 209.

    On Twitter, supporters of the vote said the move, which would permit state discrimination based on race, sex, color, ethnicity and national origin, would “advance true racial and gender equity in this state.”

    Like the segregationists of the past, these supporters are openly and defiantly seeking to use state-sanctioned discrimination to advance a cause they see as noble. For white segregationists of the past, that cause was protecting the white race from mingling with other races and maintaining a firm grip on power in the South.

    For social justice advocates today, discrimination is a tool to advance the interests of non-whites, particularly in the university system, where applicants of certain races would be legally permitted to be given preferences.

    There are serious problems with this approach, however.

    First, as Janet Nguyen pointed out in the OC Register, enrollment of minority students surged following the passage of Prop 209.

    “In spite of dire warnings that Prop. 209 would negatively impact minority enrollment at the state’s University system, underrepresented minority student enrollment at the UC system has actually risen significantly since 209’s passage, from 15 percent in 1999 to 26 percent in 2019,” wrote Nguyen, a former California lawmaker and the nation’s first female Vietnamese-American state legislator.

    Second, equality before the law is arguably the greatest pillar of a liberal society. It’s an idea that reaches back across time and civilizations, from philosophers like Guan Zhong (720 B.C. – 645 B.C.) to historians such as Thucydides, who at the funeral of Pericles stated, “If we look to the laws, they afford equal justice to all in their private differences; if to social standing, advancement in public life falls to reputation for capacity, class considerations not being allowed to interfere with merit; nor again does poverty bar the way.”

    Equality before the law is at the heart of the Universal Declaration of Human Rights, the enumerated rights carved out by the General Assembly of the United Nations at its third session in 1948. In Article 7, it states clearly and proudly: “All are equal before the law and are entitled without any discrimination to equal protection of the law.”

    To abandon such a principle is to abandon a cornerstone of the Enlightenment and classical liberalism, one of the greatest individual rights that has protected individuals from arbitrary rule and government abuse for centuries.

    In a 2011 article, economist Steve Horwitz explains why equality before law is so important:

    For most of human history political leaders acted with near total discretion, distributing benefits and impositions among their subjects however they like. One of the most important accomplishments of the liberal movement was to subject those with political power to rules. Starting with the Magna Carta and up through the democratic revolutions and constitutions of the eighteenth century, liberalism worked to create a society ruled by law not by men.

    Many on Twitter were horrified by the California legislature’s vote.

    Fortunately, Californians will have the opportunity to vote on equality before the law in November. We can only hope that California voters show more wisdom than the lawmakers running their state.

    Jon Miltimore


    Jon Miltimore

    Jonathan Miltimore is the Managing Editor of FEE.org. His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune.

    Bylines: The Washington Times, MSN.com, The Washington Examiner, The Daily Caller, The Federalist, the Epoch Times.

    This article was originally published on FEE.org. Read the original article.


  • How Cognitive Bias Destroyed the Livelihood of California’s Gig Workers


    In September, California passed a bill regulating the gig economy. The worker status bill, which goes into effect on January 1, 2020, redefines “employee” to include freelancers. Progressives hailed the new law as providing needed worker protections.

    After the law passed, Veena Dubal, a law professor at the University of California, Hastings, and prominent supporter of the bill tweeted, “I have tears in my eyes and goosebumps on my limbs.”

    As 2020 approaches, it is the gig workers who are crying.

    Vox Media announced “it would end contracts with hundreds of freelance writers and editors in California.” Vox is the same media company that hailed the passage of the bill as “a victory for workers everywhere.”

    One of Vox’s fired employees, Rebecca Lawson, tweeted: “California, you’re breaking my heart (and taking my money),” adding:

    I am heartbroken that the state I love so much has forced a company I love working for to cut formal ties with people who are doing amazing work — and who are able to help themselves and their families with the extra income that a passion project or side hustle can sometimes provide.

    Another freelance writer, Andi Loveall, tweeted:

    Just lost my ability to earn a living because of California Assembly Bill No. 5. My freelance brokerage company says they have to let California authors go. Almost a decade of hard work gone in an instant. I can’t stop crying.

    The consequences for freelancers were hardly unanticipated. The law of unintended consequences prevailed: “actions of people—and especially of government—always have effects that are unanticipated or unintended.”

    Dubal and other supporters of the worker status bill could have read hundreds of articles—including here and here, at FEE—that predicted the dire outcomes for freelancers. As Elizabeth Nolan Brown writing in Reason pointed out:

    Mainstream politicians and pundits love to cite “unintended consequences” when their preferred policies cause harm in the exact ways libertarians said they would. It’s a brilliant way to get credit for trying to Do! Something! about a problem while absolving one’s side of any blame for the negative consequences of that action.

    I doubt if Dubal, who is regarded as an expert on the gig economy and technology, will acknowledge the consequences of her mistake.

    It’s all too easy to dismiss Dubal as stupid; chances are, she is intelligent.

    Keith Stanovich, emeritus professor of applied psychology at the University of Toronto, writes,

    We have an implicit [but wrong] assumption that intelligence and rationality go together—or else why would we be so surprised when smart people do foolish things?

    Stanovich, coined the term dysrationalia “meaning the inability to think and behave rationally despite having adequate intelligence.”

    In his book, The Intelligence Trap, David Robson explores “why smart people,” such as Dubal, “make dumb mistakes.”

    Robson reports on research conducted by professors Norbert Schwarz and Eryn Newman, who study how our emotions influence our decision-making.

    Consider this question: “How many animals of each kind did Moses take on the Ark?”

    Since it was Noah, not Moses, who built an ark, the answer is zero. Robson writes, “Yet even when assessing highly intelligent students at a top university, Schwarz has found that just 12 percent of people register that fact.”

    According to Schwarz’s and Newman’s work,

    truthiness comes from two particular feelings: familiarity (whether we feel that we have heard something like it before) and fluency (how easy a statement is to process).

    Robson explains further:

    The problem is that the [ark] question’s phrasing fits into our basic conceptual understanding of the Bible, meaning we are distracted by the red herring—the quantity of animals—rather than focusing on the name of the person involved. “It’s some old guy who had something to do with the Bible, so the whole gist is OK,” Schwarz told me. The question turns us into a cognitive miser, in other words—and even the smart university students in Schwarz’s study didn’t notice the fallacy.

    Try this thought experiment. Imagine you are a politician, professor, or a concerned citizen interested in workers’ rights. You have a pre-established cognitive bias that government is the best protector of workers. Thus, a statement such as California’s Worker Status bill is needed to protect the rights of freelancers would likely meet with your approval. Given your cognitive biases, the statement has “familiarity” and “fluency.” You’ve cheered a thousand times before for statements that begin with: This bill is needed because… Such statements are easily cognitively processed.

    If you need “intellectual” firepower for your bias, Dubal and other experts are ready to assist. In her essay, “Regulating the Gig Economy is Good for Workers and Democracy,” Dubal presents elaborate arguments:

    Poverty is not a suspect classification under our Constitution, but it is an affront to life and dignity and to democracy more broadly. With the evisceration of the U.S. welfare state and the judiciary’s deference to political outcomes in the area of “economics and social welfare,” employment is the primary legal and political means to address economic inequality. In turn, employment is—for better or for worse—key to our democracy. It provides access to the tools for basic sustenance in modern America: the minimum wage, health insurance, safety net protections, and even the right to organize and collectively bargain. Our capacity to participate in life and partake in politics, depends, in no small part, on our employee status. In the words of political theorist Judith Shklar, “We are citizens if we ‘earn.’” To this observation, I might add that we are citizens if we earn enough.

    If you are a true believer like Dubal—concerned about an “alarming trend” of “the use of app-based technology to proliferate work outside the regulatory framework of ‘employment’”—perhaps like Dubal you shed tears of joy that politicians passed a bill you believed would save democracy and solve the problem of inequality. Huzzah! If heaven is reached by having good intentions, surely your ticket has been punched.

    Reading carefully, though, we see that the interests of the gig workers were buried under Dubal’s many other concerns. Perhaps gig workers such as Rebecca Lawson and Andi Loveall mean nothing to those who want to expand the role of government. Perhaps Dubal told herself she was helping the gig workers, while her ideology sought to expand the role of the government at the expense of gig workers.

    Being smart is no protection against foolish ideas. We can expect to hear more elaborate arguments from smart people, justifying the worker status bill mistake. As Robson observes:

    Intelligent and educated people are less likely to learn from their mistakes, for instance, or take advice from others. And when they do err, they are better able to build elaborate arguments to justify their reasoning, meaning that they become more and more dogmatic in their views.

    In other words, dysrationalia needs to be defended. When we think we are smart, Robson explains, we “rationalize and perpetuate our mistakes, without recognizing the flaws in our own thinking.” The result is “building ‘logic-tight compartments’ around our beliefs without considering all the available evidence.”

    Robson offers an antidote to dysrationalia:

    Besides cognitive reflection, other important characteristics that can protect us from the intelligence trap include intellectual humility, actively open-minded thinking, curiosity, refined emotional awareness, and a growth mind-set. Together, they keep our minds on track and prevent our thinking from veering off a proverbial cliff.

    Dysrationalia is not limited to progressives, nor is it limited to politics. We ignore the intelligence trap at our own peril.

    In his 1710 essay, “Political Lying,” Jonathan Swift wrote,

    Falsehood flies and the truth comes limping after it, so that when men come to be undeceived, it is too late; the jest is over, and the tale hath had its effect.

    Swift gives as an example “a physician, who hath found out an infallible medicine, after the patient is dead.”

    California’s gig economy is suffering from the consequences of dysrationalia. The “medicine” in this case is a repeal of a law that is already putting many out of work. No elaborate arguments are needed. Before the gig economy in California is dead, what is needed is a large dose of humility to admit a mistake.


    Barry Brownstein

    Barry Brownstein is professor emeritus of economics and leadership at the University of Baltimore. He is the author of The Inner-Work of Leadership. To receive Barry’s essays subscribe at Mindset Shifts.

    This article was originally published on FEE.org. Read the original article.