Uber – A Test of the Free Market

uber photo
Photo by bfishadow
You’ve probably heard about Uber, I’ve written about it before, and they are all over the news. Uber has a service called UberX that allows normal people to take their cars and get paid for giving rides to people. Basically it’s a taxi service minus all the government regulation.

Uber, not surprisingly, makes wildly optimistic claims about what people make. One journalist decided to go undercover as an Uber driver and tell about her experience. Based on her activities we learn that you can net about $10/hour as a driver for Uber, and some people claim to make a little more.

There are several very interesting things about Uber and it’s competitors.

They Have Successfully Bypassed Government Taxi Regulation

UberX is available in most major cities. Even eastern stalwarts of unions and labor movements like Philadelphia, Pittsburgh and others have allowed Uber to come in to their communities. Medallion systems in these communities require taxi services to operate under strict guidelines and limit the number of taxis in the city. Uber doesn’t require commercial insurance. UberX has an insurance policy which (in theory) works with the driver’s personal insurance. Uber leaves the maintenance of the cars up to the individual that owns them unlike a traditional taxi company that would purchase and maintain their fleet. Many cities with this medallion system are still allowing Uber to operate and not follow all their rules.

Uber is Paying it’s Drivers Less than Taxi Companies

Salary.com lists the average taxi driver salary at $32k per year. That’s $16/hour. While it seems like Uber driver’s hourly income may be below that, the real issue is the cost to the company. These aren’t full time employee’s so Uber isn’t paying unemployment tax, payroll taxes, related insurance costs, benefits, etc… Uber has, so far, succeeded in eliminating all these extra labor costs that regular companies have to deal with.

Uber Has Variable Fees

Uber has adjusted it’s fee schedule in many cities and has something referred to as “Surge Pricing” to increase costs at busy times of the day. The effectiveness of this dynamic pricing algorithm may be under scrutiny, but ultimately it’s the right direction to go.

What does this mean?

Uber has knocked down one of the most highly regulated industries in the country. Will their model be successful? Eventually the transportation sector, if it’s not interfered with by government regulators, should reach an equilibrium. Competitors in the market will limit the amount of profit Uber can take off the top and prices should adjust to the point where there are an optimum number of drivers available to satisfy the market. Hopefully, with the power of the Internet, we will see a perfect free market form.

Right now Uber is taking a 20% charge, plus $1 in insurance from every trip, a fee that seems quite successful. Can Lyft or other competitors apply enough pressure to minimize that profit taking? It will be interesting to see how this whole system evolves and changes our transportation infrastructure.

What $9k Dome Home Would Cost in America

It’s been all over Facebook. A guy named Steve Areen from Calgary Professional moving built a “dome home” for about $9,000 in six weeks. Everyone is raving about how cheap, awesome and sustainable it is.

Why Can’t We Build Like This in America?

Steve’s house was cheap for a few reasons. He got the land for free, he’s in Thailand where materials are cheaper, Thailand doesn’t have the government regulation we have, Thailand has a tropical climate, he was able to do the work himself and not hire expensive skilled labor and finally the house is small with only two rooms and no garage. Steve is currently working on acquiring some land in Oregon to try and build another house. It will be interesting to see what kind of costs are involved there.

What Would This House Cost in Colorado

I’m in Colorado, and this is the area I know the most about, so here are some rough estimates of what the house would cost in Colorado just to pass inspection for occupancy from Work Boot Nerd.

Lot The best lot price I found in the area was $12,500 with water and sewer taps. That’s probably the cheapest you could get buy. There were some unimproved lots out on the prairie for $10,000, but they had a $9,500 water tap fee with them.

Foundation The dome home doesn’t appear to have any kind of foundation. That wouldn’t be legal here. You need soil testing and footers poured at a minimum. Probably another $10,000.

Permit Permits vary by city or county and by value of the dwelling. We are up to about $30k already and will top out above that. Looking at Weld County fees with Road Impact and Facility Impact fees, the total is going to be at least $3,600, over 1/3 of Steve’s original cost.

HVAC Code is going to require certain insulation values for construction materials and windows. Colorado also gets cold in the winter, so some kind of heating system will be required. Steve’s structure didn’t look like it had any heating or cooling. We should probably add another $10,000 for that.

Safety Steve’s rooftop patio, while awesome, wouldn’t meed any kind of US building codes. No railing on the stairs, no railing around the patios. Thatch roof construction could easily catch fire. There are multiple safety regulations that would need to be considered. Let’s budget another $10,000 for that.

HOA Requirements In Colorado all new subdivisions have to have an HOA. Most existing HOAs wouldn’t allow something like this house. Most HOAs specify that houses would have to include a garage or be a certain size. It’s hard to put a number on this, and it’s possible you might be able to find a lot without an HOA, but for large scale adoption of this type of construction it would be very difficult to abide by all the rules set by your neighbors.

Total House Costs

So to total it up:

Lot: $15,000
Foundation: $10,000
Permit: $3,500
HVAC: $10,000
Code Compliance: $10,000
Original cost: $9,000

Estimated Total plus Romford Locksmith: $57,500

These are only rough numbers, and you now have a house with no garage for your car and a location out in the middle of nowhere so you will need that car pretty badly. Building it in a city where you could actually walk to work and the grocery store and not need a care would likely cost $20k more, if you were allowed to build it at all.

$9k homes are amazing, but the same building would cost 8x as much or more here in Colorado, primarily due to the large number of rules we have created for ourselves. There are still places in this country that have more relaxed rules and allow for tiny homes, but for most of us we are better of with more standard construction.

Gentrification Slowing Down

Gentrification is a term used to describe the process of rebuilding and renewal that tends to occur when affluent or middle-class people move into deteriorating areas, often displacing poorer residents. Coined in 1964 by sociologist Ruth Glass, the term’s origins are found in the French word “genterise,” which refers to “those of gentle birth.” In England, the word was used to refer to the class of people known as “gentlemen.” The word has been in greater use as of late, due to the economic ups and downs we’ve experienced in recent history. Many believe that these swings have caused areas to become gentrified; however, the issue at hand is whether or not gentrification is owed to the recent downturn in the American economy.

Because there is so little empirical data surrounding the topic, it is difficult to nail down a real nationwide trend. Some areas, like the De La Guerra Plaza in Santa Barbara, CA, have seen gentrification pick up. According to Dr. Mark Weiser, a Los Angeles Sleep Apnea Dentist who has an office 8 blocks away from the De La Guerra Plaza, the change is a good one.

“They kind of let it go,” he said. “They’re sprucing it back up. It’s a pretty area; so I’m happy they’re doing it. It got to be the kind of place where a lot of the homeless people were hanging out.”

Like many business owners, Weiser sees the gentrification of the area as a benefit to the community; but while De La Guerra Plaza in Santa Barbara appears to be enjoying a consistent renewal, other areas are seeing gentrification slow and even pause. According to Los Angeles Times Architecture Critic Christopher Hawthorne, the downtown L.A area has paused at an opportune moment.

Downtown L.A. was on the fast track to gentrification and saw a tripling of the population from 2000-2008; but when the economy turned down in 2008, the process slowed and then paused. It is an interesting case study, because it has not completed the process – which many see as a negative thing – but rather has paused in what others see as a perfect medium. Rent and costs are still affordable enough for lower-earning people to maintain their lives in the area; but there is also a new feel that has brought in more businesses and higher earners.

Denver, Colorado has also seen its fair share of gentrification in the past decade. Local developer, Kyle Zeppelin of Zeppelin Development has been involved in many development projects throughout Denver. According to him, his company’s niche is in reusing Denver’s old urban and industrial core by utilizing buildings and land.

Forbes recently gathered a panel of experts on the subject to gain insight into the issue, and the results were interesting. The experts looked at the issue from the housing crash perspective and seem to believe that gentrification will not slow down on the national scale. They do, however, see specific locations affected in different ways.

Pat Lashinsky of Zipreality.com does not see gentrification slowing down because of other factors that are playing into it. According to him, his company has seen buyers place more importance on closer-to-work locations and reduced commute times, which has only encouraged demand for gentrified areas.

Michael Feder of Radar Logic agrees that gentrification isn’t entirely dependent on the economy. According to him, demographic growth toward the center city is the true driving force behind gentrification, because lower cost neighborhoods offer a good opportunity for development to satisfy the resulting demand for housing.

The current economy is affecting gentrification as a whole, but in different ways. One geographic location sees gentrification grow, while another sees it come to a halt. If you’re investing, moving, or interested in what is going on in your neighborhood, be sure to do your homework.

CFL vs Incandescent – Update

Back in 2007 I decided to run a test. I replaced several lightbulbs at once, one with an incandescent and six others with CFLs. Since that time, a period of about 4 1/2 years, I have replaced the Incandescent bulb many times (I stopped counting at 4). Recently I finally replaced one of the CFLs after visiting best website for led light bulbs for your home or business.

After 4 1/2 years of testing I feel safe to say that a CFL will last at least 4-5 times as long as an incandescent in my house.

Obama Stimulus package in historical terms

The stimulus package that just passed both legislative houses of the government is set at $789bn. This cost, along with previous stimulus packages and the guarantees the government has made to back some financial institutions could bring the total costs of this bailout, in a worst case scenario, to over 9 trillion dollars.

Just to put things in perspective, here is an analysis by Jim Bianco of Bianco Research of what the largest historical US government projects cost in today’s dollars.

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

The New Deal, which was created to get us out of the worst depression this country has experienced and which included the construction of numerous parks, roads, buildings, dams, power plants, airports and other projects which are still in use today would ONLY cost $500 billion today. That’s less than 2/3 of the plan President Obama has managed to push through congress this week, and only a drop in the bucket compared to all the guarantees the government has made.

We can only hope that this money doesn’t go to bonuses, office remodels for CEOs and other perks for the upper class like the last round of bailout money did.

Mortgage bailout keeps getting worse

During yesterday’s debate, John McCain announced he plans on using $300 billion to buy mortgages for individual homeowners. The government would pay the mortgage and then refinance the property at it’s new value to the homeowner.

This is a BAD plan on so many levels, I’ll just highlight a few

  • No Accountability The only reason ANY kind of bailout of the mortgage crisis is acceptable at all is because it is impacting everyone. Failures of Lehman Brothers, AIG, Wachovia, Washington Mutual, etc.. impact anyone who is doing business with them. When these companies fail, everyone is hurt. Individual homeowners, for the most part, are directly responsible for their own mortgage crisis. Why should all taxpayers help a homeowner out just because they bought more home than they could afford, or took a HELOC out so they could take an Alaskan cruise. These people gambled, and they should have to pay.
  • Fraud If a plan like this goes into effect, everyone who owns a home will start looking for ways to get in on it. It’s going to be much easier to minimize fraud when dealing with a handful of large corporations than it is when dealing with 10s of 1000s of homeowners.
  • It won’t work This crisis isn’t as much about the foreclosure rate as it is about the property values. Right now, if a loan goes into default, the lender stands to loose thousands of dollars. That means the only way something like this will work is if the government bails out everyone that owes more on their home than it appraises for. Buying up these mortgages and refinancing individuals homes isn’t magically going to increase property values. It’s hard to know without a lot of implementation details, but it’s quite possible that it will supress prices even more.
  • It’s not necessary Some references are made to the depression when the government purchased some mortgages. In the 1930s, much of this country was agricultrual, and many farmers lost their homes due to the dust bowl, which coincided with the depression. In those days, many people’s homes (like the farms) were also their place of business, and many of these homes had been in the family for decades. This is not currently the case. Most of the people who are involved in this mortgage crisis have only lived in their home for a few years. They never had any equity in their home and didn’t put any money down, so the only real consequence here is that they are going to have to move from a home they are paying a mortgage on to a home they are paying rent on.

This idea is just another example of politicians playing fast and loose with taxpayer dollars – and just so you don’t just pin this on McCain, Obama has proposed a similar idea. The bottom line is this money our country just DOESN”T HAVE. This is going to become part of the national debt, impact the value of the dollar and ultimately result in increased taxes on us, our children and maybe even our grandchildren. Our government should do what they can to make sure we don’t end up in a worldwide depression, but the must be responsible and feel good election promises like this are a bad idea.

I want to change my Gym

Any of you who were Friends fans (and who hasn’t been at some point in the last 15 years) will remember the episode where Chandler wants to ‘quit the gym’. The episode is a bit over the top with extremely attractive membership personnel who keep everyone from successfully canceling their membership. While this doesn’t really have any basis in reality (at least not in my experience), but changing Gyms is a bit of a traumatic experience.

About a year and a half ago I changed gyms. My old gym was a long time local establishment. Great facility, but it had it’s drawbacks, mostly in the service area. The pricing was a bit high, there were lots of days the facility was closed and the staff spent the last two hours of the day vacuuming and cleaning. I typically went from 8-10pm, which were always the hours they were cleaning. I finally got tired of paying a premium price to listen to vacuums and get sprayed with bleach, so I changed facilities.

My new Gym is a 24 hour facility, lower priced than the previous place, but it has it’s drawbacks. First off it’s small, only about 10 cardio machines and a handful of weights and machines. That’s not really so bad, but they also don’t have locker rooms. There are two unisex bathrooms, so if you want to show up without your workout gear on, you have to wait for one of them to be open. The other thing I don’t like, and this may sound funny, it’s not very busy. Back when I was working in an office, I liked it when the gym was quiet. Now that I’m self employed, work from home, and just hang out with the dogs all day long, I kind of crave human company. Not nearly as much fun to go to an empty gym.

So here’s my dilemma. The city I live in offers some very good facilities. They include a pool, great workout facility, basketball courts and locker rooms. Pretty much full service, and actually $5/month cheaper than my current membership. Downsides? I don’t know how busy they are. That might be annoying. Also, it is about 5 minutes further away from my house than my current gym. The other thing is it’s a public facility. There has been a recent debate about how the facilities are losing money and have to have tax dollars to stay open. So is it evil of me to join the cheaper, tax funded location than to support the independent (well franchised) facility? Is it fair to independent facilities when the city provides a better service at a loss so they can be cheaper than their competitors? Is it right that independent businesses have to compete with these publicly funded gyms?

I don’t know, but I think I’m going to change.

Hillary Clinton – Watching those Intellectuals

You may have heard, but the latest campaign issue is support of a summer “Gas Tax Holiday”. The idea is that the government would stop collecting it’s 18 cent a gallon gas tax for three months over the summer to help the common man pay for his fuel.

This was an idea that seems to have surfaced from the McCain camp, but has been wholeheartedly embraced by former First Lady, Hillary Clinton. She is supporting this ‘tax holiday’ on the premise that it will help the common man, the idea that taxing the oil companies is more intelligent and blasting Barack Obama for not supporting it. Barack is a little more reasonable and sees this for the bait and switch that it is:

“There is not a single economist or editorial that I’ve read that says that this is a good idea, and the reason is, is because it’s not being honest with the American people,” Obama said on NBC’s “Today” show. “People don’t need symbolic relief, they need real relief.”

It’s understandable that Obama’s opinion doesn’t carry much weight with ol’ Hil, but neither does any of the economists who say removing the tax will just cause the gas prices to rise and make the oil companies more money.

Why doesn’t cutting the gas tax this summer make sense? It’s Econ 101 tax incidence theory: if the supply of a good is more or less unresponsive to the price, the price to consumers will always rise until the quantity demanded falls to match the quantity supplied. Cut taxes, and all that happens is that the pretax price rises by the same amount. The McCain gas tax plan is a giveaway to oil companies, disguised as a gift to consumers.

Hillary, of course, has a witty response to this

Sen. Clinton has been undeterred by the outcry. “Well I’ll tell you what, I’m not going to put my lot in with economists,” she said over the weekend. “We’ve got to get out of this mindset, where somehow, elite opinion is always on the side of doing things that really disadvantage the vast majority of Americans.”

Being the “man of the people” she is, she just isn’t going to trust all of those crazy scientists with their numbers, figures, calculators and such.

Hmm… so let’s take a look at this as your average guy who is NOT an economist.

In the last year US Gas prices have risen $0.559 to a nationwide average of $3.613 per gallon. The federal gas tax rate is 18.4 cents per gallon. This means that, on average, right now, even if we get a ‘tax holiday, and even if the price of gas doesn’t increase to absorb this tax, you and I are paying $0.374 more per gallon of gas than we did last May. In the mean time, the economy has been slow and we are not making any more money than we did last summer. If we DON”T go on vacation, and buy, say 15 gallons of gas a week, and we have a tax holiday, our summer is going to cost us $67 more than it did last year. If we don’t get the tax holiday, the difference will only be $33.12.

Remember, the average price of gas is $3.613 per gallon, reducing the price by $0.184 is only a 5.1% discount in price. Heck, I can get almost that much by using my Safeway card.

Fuel price graph

All of the math, figuring, analysis and speculation aside, what I really love about this is Hillary’s disdain for the educated people. The democrats have spent the last eight years for Bush’s alleged low intelligence, and generally ridiculing conservatives in general for skepticism about Global Warming, belief in Intelligent Design. Now one of their two chosen candidates, arguably an elitist intellectual herself, is telling us we shouldn’t listen to these elitist intellectuals. She’s saying that she, as a lawyer and politician, knows more about what’s going to happen than trained economists.

The whole thing reminds me of a joke from the old Soviet Russia days:

Why do policemen always walk the streets in teams of three?

The partners in the police team are always chosen in such a way that one of them knows how to read, the other how to write, and the third one, naturally, has to keep watch over those two intellectuals.

Thankfully, Hillary Clinton is here to keep us safe from those educated people.

Young’s, Walrus gone in Greeley

Looks like Greeley has lost a couple more small businesses recently. Not sure how long they’ve bee

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n this way, but the signs are gone both from Young’s Cafe, just off 10th by Walmart, and Walrus Ice Cream in the King Soopers Parking lot off 35th Ave.

While I personally did not patronize either establishment on a regular basis (prefer the Wonderful Inn to Young’s, and really, who can go out for Ice Cream that often), but both were quality and I enjoyed their products when I did go there. Always tough to see Greeley any business, especially independent ones like these.