Another California Bust

Last year, California passed a law[i] that went into effect in January that deemed ride-hailing drivers to be employees (as opposed to independent contractors, as they had been in California and are still in most places). Unable to get a court to strike down the law, Uber and Lyft are suspending operations in CA starting next Friday. The suspension will put 220,000[ii] formerly independent drivers out of work and income at least until November 3 (when a vote will be taken on a ballot proposition to classify ride-hailing drivers as independent contractors. The law requires Uber and Lyft to classify their formerly independent drivers as employees, which triggers payroll taxes and employee benefits. If the proposition fails, those 220,000 drivers and other California ride-hailing drivers (e.g., DoorDash drivers) will permanently lose their ride-hailing source of income. Ride-hailing companies will exit California.

At least until November, Californians will suffer:

  • The convenience of no ride-hailing services (DoorDash will be sorely missed by people staying at home during an epidemic),
  • More drunk driving,
  • Downward pressure on low skilled wages (due to hundreds of thousands more people looking for work), and
  • Retail outlets having fewer sales because hundreds of thousands of people will have less money to spend (which will reduce the sales and income taxes those retailers pay),

to name but a few of the negative consequences of the law.

The sweet nothing legislators cooed into the ears of voters to justify the legislation was that it would raise wages and benefits for ride-sharing drivers and taxes for the state, which, they said, would be for the benefit of all, especially the disadvantaged, downtrodden, marginalized, poor, and oppressed people of the state.  (As if Californian Democrats had previously shown a willingness to direct a sufficient percentage of its $50+ billion annual tax revenue in a way that would relieve those people of their hardships and dependency.)

The reality, however, is not as Democrat politicians depicted it. Everyone who understood the effect of the legislation would have known that the law would end the viability of ride-hailing companies operating in the state. An ignored critical reality is that no ride-hailing driver drove involuntarily. Consequently, ride-hailing drivers only drove when they believed the advantages of driving outweighed the disadvantages of driving, i.e., when they thought they were better off by driving. Having a right to higher pay and employee benefits is only helpful to people if such jobs are available. The legislation denied over 220,000 drivers erstwhile opportunities to improve their situation and become less dependent on others (which not only cost them livelihood and dignity, it burdened the people on whom they must now depend).

Because legislators hold hearings to gain expert counsel concerning the consequences of their legislation, the likelihood that the yea-voting politicians were ignorant of the likely adverse effects of their law is vanishingly small. One must either believe that California’s Democrat legislators and governor were too stupid to know that their policy would cause ride-hailing companies to leave the state, or that those Democrats were smart enough to know the consequences of the law and that the law benefits them personally and costs the public. In light of the advantages to the politicians of the legislation, the second possibility is a near certainty.

Taxi company owners routinely buy protection of their businesses by making it worth politicians’ while to protect taxi companies from competition and other disadvantages. Compared to unprotected companies, protected companies can charge higher prices, make more money (even after they make campaign contributions to “helpful” politicians), and pay more taxes. With more campaign contributions, politicians can more easily retain power. With higher taxes, politicians can wield and gain more power by:

  • Subsidizing friendly companies and hamstringing their competitors,
  • Trickling extra money to the disadvantaged, downtrodden, marginalized, poor, and oppressed people of the state — while making sure to never trickle enough to enable those people to no longer be poor (being independent would eliminate their political usefulness to Democrat politicians).
  • Fund organizations that provide things Democrat politicians and their contributors enjoy, e.g., ballet, orchestras, opera, sports stadiums, universities that teach students to love social justice (as opposed to actual justice).

Perhaps saddest of all negative consequences is that by passing economically unsound but politically advantageous legislation, which purports to help people who will become the law’s victims, politicians can gain the adoration of economically illiterate people who irrationally believe laws that purport to do something will actually do that something.

The way out of this corrupt and destructive cycle is for voters to be better educated. Sadly, politicians are making it worth educators’ while not to improve economic literacy.


[ii]Why Uber and Lyft Are about to Shut Down All Operations in California

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