Hacker News Reader

According to free market theories, we should all be selling our labor freelance.

This is incorrect. If the disutility to an employer of absorbing short term risk is lower than the disutility to the employee, it makes perfect sense. And similarly, if an employer has a comparative advantage over the employee for hustling, specialization makes sense.

There are also large tax incentives (most notably relating to medical spending) for full time employment.

"Free market theories" don't generally oppose risk mitigation strategies, specialization or exploiting economies of scale.

Those are good points. I should have clarified, I meant a naive interpretation of free market theory.

I'm only a dabbler when it comes to economics, but I think the field of the "theory of the firm" is interesting. And one of their primary topics the question of why all labor isn't sold on a free market.

https://en.wikipedia.org/wiki/Theory_of_the_firm

The Theory of the Firm is an interesting and foundational one, but we should be careful to define "free market" in this context. A labor market still exists inside, outside, and between firms. Firms are simply organizing small aspects or chunks of it. They are both part of, and subject to, the broader labor market.

ToTF is actually a very interesting framework through which to evaluate the "Sharing Economy." It suggests that transaction costs for certain goods and types of labor have been lowered to the point where freelancing / ad hoc exchange makes sense. But there is still an organizing force underlying these pockets of the market. Lyft and Uber haven't eliminated the previously existing firms in the taxi marketplace. They've organized the market more effectively, and in some cases, they've lowered transaction costs for the marginal labor supply who otherwise would not have entered the market. They have also increased and aggregated demand, further incentivizing latent supply to come online. The story of Lyft and Uber is largely a story about how technology made inefficient markets a lot more efficient.

I'm not sure I see the connection between these companies and the plight of the middle class in America. That's where the author of this piece loses me. It's almost as if he's covering two interesting, but tenuously related topics in the same piece. The "hustling" imperative is an interesting one, however, and he's on to something with that.

moreover comparing the "hustling" in Lyft to the traditional "hustling" of taxis makes it seem like a vastly superior improvement (instead of comparing the "hustling" in lyft to the 40-year-secure jobs that americans of the 50s had).

The 'hustling' imperative comes about from inflationary economics. While we had inflation in the past, the general security of previous generations was financed through debt expansion. As the total amount of debt is maximizing the social capacity for trust, we can no longer finance the security of contemporary generations. Ironically, 'taking care of' previous generations came at the cost of stealing it from present generations.

Not to worry, Europe will be seeing this sooner or later (probably not the Nordic countries, as they have low headline inflation rates).

In more general terms employment is an agreement between employer and employee. If you're willing to give your employer a better price for your labor in return for some measure of security you'll probably find an employer with whom you can come to some arrangement, assuming there's any demand at all for your skill.

Where I work we have a ridiculously complicated project with crazy business rules and hundreds of thousands of C++ lines written over twenty years. It takes an entire year for someone to become productive. My employer pays people on that project very well and tries to keep them happy so they won't leave and take that year of training out the door.

Is that year of training worth anything once you walk out the door ?

No, it isn't. But it represents sunk costs to my employer.

But what exactly is the difference between a freelance contract and an employee contract? You can work freelance for a company for several years? Aren't all the employee benefits just negotiable things that a freelancer could negotiate as well? I think in that wider sense everybody is a freelancer. Everybody has to decide for themselves what job to take on, and what compensation they get. Job security is also something that has a certain value.

You can maybe argue that some people are completely unable to make those decisions and society should just make the decisions for them ("you are going to be a plumber" and so on...). That line of thought quickly leads into weird philosophical territory, though (freedom, free will,...).

Traditional employers have multiple management levels specialized in hustling which must be paid, most of them members of the middle class, who consume services and participate in the economy, creating demand and jobs. Their hustling is much less brutal because they need to maintain a personal relationship with the underlings and must strictly adhere to the law, else their team leader job is on the line.

"Innovative" businesses on the other hand have very low costs because they employ maybe a few hundred highly specialized people like programmers, marketers etc. They can engage in cutthroat competition and there is a massive polarization between the lumpen underlings and the owners. I think the Amway parallel is spot-on.

In theory it will reduce prices of taxis, hotels, etc. making them affordable to more people, thus create wealth. In practice it will destroy jobs and most of that wealth will be transferred to the capitalists.

Interesting. You seem to be defending inefficient bureaucracies (middle management etc) because you believe they promote more-human personal interactions. I've never really heard the corporate jungle described with such warm and fluffy sentiment.

I think it's tendentious nonsense, or anecdotal at best (did you just have a miserable experience at a start-up?), but rather than bickering about that per se, I'd prefer to offer a more important principle:

You cannot make an economy more prosperous by making things less efficient and spending more money on unneeded middle management.

You are confusing efficiency with distribution. It's clear that new firms are more efficient, but the median prosperity (your word) is also related to the way income is distributed. If a technical advancement increases efficiency by 5% but drastically changes distribution so that owners make 10x more than they use to, the average person loses.

Traditionally such advances could not stand for very long because competition would creep up and eat away at the innovators' margins, redistributing the gains to the wider public via lower prices. In the walled garden of highly monopolistic internet businesses powered by strong network effects, they seem to stand.

The line about startup employees does not even make sense, the individual contributors used by the likes of AirBnB are not employed in any traditional sense, nor are they entrepreneurs. The folks in Silicon Valley are doing great but the effects of what they are led to create has society-wide implications that you don't seem to grasp.

Not everybody should be selling his labor freelance. There are various economic explanations as to why people work on a non-freelance basis in free markets.

http://en.wikipedia.org/wiki/Theory_of_the_firm

But that's the point. Coase says that transaction costs create the need for firms, because they make it more expensive to engage contractors for every job. You reduce transaction costs, and you consequently lessen the need for firms in certain areas.

Lessen, but not eliminate. Even the best approaches currently imaginable for hiring freelancers have rather hefty transaction costs - in the economic sense, not as fees.

Finding, validating and qualifying a good freelancer is a serious transaction cost; Risk of poor delivery for the buyer and risk of nonpayment/partial payment for the worker is higher than in the employment scenario; those risks are serious transaction costs.

As you say, it can lessen the need for firms (more exactly, make the optimal firm size smaller) - but as the parent states, it can't eliminate the need for firms, there will remain an area where firm-like cooperation is optimal, better than freelancing.

>The argument has an emotional resonance, but does it really make sense? It's not like working for big employers (and entrusting Wall Street with one's retirement) worked out really well in the past decade either.

No, but it worked very well the last time the US middle class mattered, back in the 40's to 60's.

Note that the relationship at the time was between firms and Wall Street brokers and traders mediated via pensions, rather than individuals. Firms and unions will have more leverage.

The present personal investment model (401k and similar) will, I suspect, be seen as one of the larger financial mis-steps of 20th century economic history. Its emergence itself was largely accidental.

The free market is a bunch of fucking horseshit. So there's that.

Maybe try re-examining the assumption the "most efficient" way of distributing resources is better than finding a more equitable and globally beneficial distribution of resources.

You probably think you're getting downvoted because people disagree with you, but it's actually because your comment amounts to the cliché "wake up sheeple".

(edit: sorry, I shouldn't tell you what you 'probably think'. Bad phrasing.)

My definition of sharing does not involve any exchange of money.

When people on HN stop using the fallacy of "Appeal to the Free Market", I'll give a shit about making cogent arguments.

FWIW: I studied economics. I have a degree in the subject. I've continued my education since.

I agree largely (though not wholly -- truth is a bit more nuanced) with your sentiment.

If you want to make the case, though, pointing to references for others to look at tends to be more persuasive.

You'll actually find a lot of support within the field of economics itself, though much as well outside of it -- sociology, anthropology, physics, chemistry, and ecology all come to mind. There've been articles noting the crisis within economics over the past decade in such left-wing pinko rags as The Economist, Financial Times, and Forbes, as well as the more plausible sources such as The New York Times and The Guardian.

Thomas Piketty's recent book Capital in the 21st Century (you've probably heard of it) addresses much of this. Hell, you'll find a lot of similar sentiment within Adam Smith's Wealth of Nations, which, I can pretty much promise you, isn't the unalloyed defense of laissez-faire, non-interventionist, anti-statist doctrine many people would like you to believe (and likely believe themselves). David Brin's been on a kick to get people to read, really read, Smith, and I have to agree.

Even with persuasive argument you'll get a lot of hostility, but you'll also tend to convince a few people if you line your evidence up.