I have written a review. The book, Tomorrow 3.0, speculates that we could become a society where individuals own few goods and instead rent. I conclude
Up until now, it seems to me that we have managed to become increasingly interdependent without a loss of liberty. That is, we have developed norms and institutions that facilitate interdependence while maintaining our ability to make individual choices freely. Many of the important institutions that provide this governance are in the private sector, and the norms that they develop evolve over time (think of the evolution of payment from cash to checks to credit cards to smart phone apps). Going forward, I would be optimistic that although a society of renters may require more governance and more rules, these will evolve primarily from competition and cooperation among private entities, and we need not see an increase in centralized coercion.
I am very dubious of the economics of renting as the long term reality as well.
1) Home ownership is still over 60% and the number of cars is still exceptionally high in the United States. Or even Japan home ownership is around 60%. So the rental/digital cloud ownership/usage is smaller goods so far. So young people are giving up physical CDs and books.
2) However, I do agree libertarians have to come to grips that large corporations will continue to dominate lives and possibly risk some personal liberty. Even if Amazon failed tomorrow that just means most sales go to Wal-Mart and Target.
3) these will evolve primarily from competition and cooperation among private entities, and we need not see an increase in centralized coercion. This one I don’t agree with and the main example is Health Insurance in which the population of people believe there are rules that Insurers need to abide with. (And 2016 Ds won with pre-existing protections.)
Rent when transaction costs are low then the rent will reflect the cost of the future. But transaction costs can only go so far before in home production begins to gobble up public transaction space. When home production, (skip the restaurant, buy in bulk, manage your own yard equipment,do minor car maintenance in your garage, provide our own security) becomes profitable then mortgage interest payments justified.
The economy will still periodically contract, our votes insure that. When we contract, home production, pick up.
I’ve listened a couple interviews of him. He never addresses the reality that the supply system is easily disrupted. Not owning a car is fine, until that first hurricane, fire, etc., evacuation and you are left to die by the government officials and the rental purveyors. Similarly with a cashless society, in the event of an disruption, it quickly becomes a transactionless society when no one can access the bits and bytes. Well, you can always trade on sex or other skills, but that is most inefficient just as the provision of goods needs efficiency. Again, you starve until the government officials with competency rise to control, but then you’ll be required to live in a “refugee” camp under strict control of government guards and bureaucrats.
Similarly with a cashless
Nah, our smart cards have watch batteries and engage in point to point transactions with any other like minded smart card. So, in a power blackout, the store clerk pulls out the company card, and the two cards touch, digits exchanges. It is not cashless, the bits are watermarked, secure, bearer assets. It is paperless, not cashless.
The role of physically proximate, exclusively owned property in providing certain kinds of insurance and preserving various (financial-like) option value for immediate or flexible exercise is often underestimated.
I wonder if Munger covered the matter of the efficiency of legal self-insurance too. Or of the political risk or social pressure in having to rely on intermediaries who have the legal right to refuse your business.
I pointed out before that use-based capital depreciation can dramatically change the calculus regarding the efficiency of ‘idle’ capital. For example, new Uber and Lyft drivers are often shocked to realize the kind of toll constant use takes on normal passenger vehicles.
For example, perhaps the most obvious and successful case of widespread renting of resources is the use of cloud services providers like AWS. But if one become some persona non-grata and can’t get a server or ISP or DNS or DDOS-protection, etc., – or if they use “price discrimination” to pretend to offer services, but at a price the pariah can’t afford, then he’s out of luck. This doesn’t seem like a big deal for the internet, but what about transit and shelter and so forth?
It’s possible non-discrimination regulations could help worried market participants lower their guard against such risks.
Finally, it’s worth pointing out that we have the capacity right now to do a lot of IT-enabled low-friction rentals, and it’s often surprising how much more expensive these things are relative to the opportunity time cost of ownership, and this hints at certain important and frictions and extra costs which can’t be reduced. I occasionally look up the price of my commute via taxi or Uber, and while there are a few judgment calls about how to calculate it, it never even seems close to what it costs to drive my vehicle.
With Uber you’re not just renting the car but the driver also.
A better comparison is something like Zipcar which is just low-friction local car rental by the hour. If you drive once or twice a week it’s almost definitely cheaper, particularly if you live in a large city where parking can cost as much as your car payment. You also get the benefit of never having to think about insurance, oil changes, or anything other than driving.
Of course if you drive every day or put value on having a car available any time you want, then this type of leasing doesn’t work well. So the biggest impact is probably in medium cities where you don’t absolutely need a car but it’s nice to have one to go to places the transit system doesn’t.
That’s what I mean by judgment calls, because while being moved from A to B by Uber you can be doing other things, and you should discount the price by the value of the time one could use to be doing other things.
ZipCar is like the scooter-rental services, in which the problem is the distribution of the supply, and decreased usefulness away from the dense urban core or heavily-trafficked areas. If I want something like a ZipCar to be available when and where I want it in the suburbs, it might require teams of folks to drive them around and drop them off for pre-posittioning, and I suspect the cost would rise to, or above, the ownership level, which just makes the point that the untapped gains from rental-sharing are probably lower than one would otherwise calculate.
Bottom Line: I think the costs of ownership are overstated, and the benefits tend to be understated, by usual “sharing economic” analysis.
The “teams of drivers” thing is indeed feasible and economical: there’s a Japanese taxi (really “substitute driver”) service called Daiko for people who drove to a bar but get too drunk to drive their own cars back. So a team of guys will show up in a micro-car and one of them will drive you in your own car back to your home, while the other guy will follow you and pick his coworker up, then head out to the next call. Wish we had that in the US, and it’s a good question why we don’t.
P.S. The introduction of cheap, human-quality, self-driving cars will be a game-changer that, by eliminating the costs of the labor component, could indeed radically change the calculus.