Politics, Weather, Photography, and the Dog
Saturday 21 December 2013

A couple of days ago people wigged out that car-share service Uber had significantly increased prices during a snowstorm out East. I posted on Facebook that this made perfect sense, and people getting all mad about it just didn't understand economics.

Today on his blog, Krugman adds Keynesian context:

Uber, it turns out, doesn’t charge fixed prices; it practices surge pricing, in which prices depend on the state of demand. So when there’s a snowstorm or something that makes everyone want a car at the same time, prices go way up — sometimes sevenfold.

This makes a lot of sense from a rational economic point of view — and it makes people totally furious. It turns out that people are OK with fluctuating prices when it’s really an impersonal market — but they get really angry at any hint that someone with whom they have some sort of ongoing relationship is exploiting their distress. In fact, Uber’s surge pricing is really bad public relations, and I won’t be surprised to see the company modify its strategy if only for marketing purposes.

What does this have to do with [Keynesian macroeconomics]? Well, back in the 1990s the economist Truman Bewley...found...that issues of fairness and morale were key. Employers didn’t cut wages, even when unemployment was high and they knew that employees had no place to go, because they believed that morale and workplace cooperation would collapse if their employees felt that the company was exploiting a bad economy for its own gain.

This was part of a set of posts he's written concerning the difference between saltwater (Keynesian) and freshwater (anti-Keynesian) economics.

On a similar theme, in his column yesterday Krugman made a solid argument that UK Chancellor George Osborne is a stooge. I have to agree; but why Ed Milliband doesn't run with this (or at least with the sound economics behind saying it) I cannot figure out.

Saturday 21 December 2013 14:55:37 CST (UTC-06:00)  | Comments [0] | US | World#
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David Braverman is a software developer in Chicago, and the creator of Weather Now. Parker is the most adorable dog on the planet, 80% of the time.
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