Lyft and Uber are pulling out of Minneapolis as the city council demands they raise wages, making the business model unsustainable. The socialists won! Now the workers are unemployed and resort to social services. As an added benefit, the city lost tax revenue not only from the two companies but also from workers.
When considering market prices, businesses take into account various costs, including wages, rent, insurance, raw materials, utilities and advertising. If selling at market price covers all expenses and produces a reasonable profit, you proceed. However, if costs increase, the price must also increase. If the price increase is too much for consumers to bear, the company goes out of business.
In the case of Lyft, Uber, and other ride-hailing apps, customers are very price sensitive. If this were not the case, they would opt for traditional taxis or private drivers. Raising prices for Lyft or Uber would reduce demand to a level where the company cannot sustain operations. Thus, Lyft and Uber’s departure from Minneapolis illustrates why similar services may exit Democratic-led cities with exorbitant minimum wage requirements.
If Lyft and Uber workers believed they could earn more elsewhere, they would have already changed jobs, indicating that Lyft and Uber were paying market wages. Now that Lyft has left the market, everyone is unemployed. The actions of the City Council have worsened the situation of the workers.
In addition to determining the value of people’s labor, the government wants to dictate the prices of products. According to a White House fact sheet on the State of the Union address, “President Biden believes housing costs are too high,” implying that he knows the ideal selling price for your home.
Additionally, the president believes cutting commissions will make homes more affordable. First, if home prices were too high, sellers would be unable to sell them and would naturally lower the price until buyers materialize. The fact that homes are selling, and quickly, at current prices means that they are the right prices.
If you’re currently in the market to buy, it’s challenging and homes may seem “too expensive.” However, if you’ve worked all your life, paid off a mortgage and are preparing to retire, high home prices are good news. Regardless of your position in the transaction, government price fixing is a disastrous idea. If the government capped home prices, sellers would take homes off the market and builders would stop new construction, resulting in shortages.
The Biden administration is targeting the National Association of Realtors for allegedly “artificially inflating real estate commissions.” However, in a free market, a private organization cannot “artificially inflate fees.” They have the right to set the rate they want. Additionally, if buyers and sellers choose not to pay the commission, they are free to conduct the sale without an agent.
The Washington Post said the change could reduce home prices by “aligning rates closer to the true value of real estate agents’ services.” However, the rates are already aligned to the service, that’s why it is called fee for service. If you want the service, you pay the fee.
Some buyers and sellers may have misunderstood the fees and the industry may not have disclosed them properly. Agents were also motivated to prioritize homes with higher commissions, raising concerns about disclosure. The government’s argument may have some validity; people have been paying taxes without full knowledge and these rates need to be made clear to them. The new rules allow for a private contract between the agent and the buyer, making it easier to negotiate and disclose rates. So, the solution is still the free market, with buyer and seller negotiating the price.
However, the government’s claim to know “the right rate” is absurd. When I get my hair cut at a barber, I pay $20, but at a salon I pay $60. Although the two prices differ significantly, both are “fair.” I wouldn’t want the government to make all haircuts cost $30. Not even hairdressers and barbers would want it. We currently operate in a competitive market where barbers can compete on price, while salons compete on service or image, allowing consumers to decide.
Assuming that the government knows the right rate for real estate marks the beginning of a slippery slope, which implies that the government knows the right price for everything and the right wage for everyone, which suggests that we should let the government decide for us.
Homes sell based on supply and demand. There is no shortage of houses at the current price, including commissions. However, if commissions decrease and overall out-of-pocket costs for homes decrease, demand will increase, driving prices higher, even though commissions are a lower percentage. Ultimately, Biden’s policies are unlikely to increase the rate of homeownership or make homes more affordable for most people.
None of us like paying taxes, but if we let the government abolish free markets to “protect us from taxes,” we might as well let the government provide free housing, clothing, and jobs. However, in doing so, the government, not the individual, would dictate the color, type, and quantity.