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February 16, 2018

Dallas Is Right to Wait to Regulate Bike Share

  Dallas Morning News

So how's that bike sharing thing working out for you?

Right now, the Dallas bike sharing experiment more than anything else resembles a fiasco. We teach our children to not throw trash on the ground, and we get fined if we're caught littering in the City of Dallas, but most trash is biodegradable or at least eventually blows to Fort Worth. The litter of bikes, on the other hand, doesn't seem to be going anywhere and is piling up in the most inconvenient and visible places.

This of course was entirely knowable, since this has happened everywhere dockless bike sharing has been tried. In China, where the first bike sharing Matrix was designed, there are fields -- seemingly endless fields -- where abandoned bikes are piled up, not ridden. Do a web search on bike sharing and in any city where it has been tried you'll find consternation over the clutter, and astonishment over the indifference of the companies themselves about their own capital being carelessly strewn about the landscape.

Whenever there is a high profile entrepreneurial failure like the one likely facing dockless bike sharing, there is a tendency by some to see it as a failure of the free-market, or an indictment of capitalism, or something. As if somehow any economic system could attain perfect results relying upon imperfect inputs (that's econ-speak for you and me).

An economic system is a way of allocating a finite amount of goods and services in the face of infinite demand, incomplete knowledge and imperfect participants. There are better and worse ways of doing it, but nothing approaching perfect.

The genius of the free-market is that it lets people try things, with no guarantee of success or failure. As consumers, we do best in a system where people with ideas are pretty much free to try them -- these days that's called "permissionless innovation." And as workers, we want entrepreneurs to be free to try things as well, since those who succeed employ us.

But not every idea succeeds, so the only way to know is to try. Succeed or fail, we learn and go forward. It's all the same to the free-market.

For as many years as I've been thinking about these things, I'm always humbled by how many times I've been wrong. When someone first explained the iPod to me, I laughed out loud. As an audiophile, I couldn't imagine why people would need to carry around at all times an entire library of poor quality, down-sampled digital music. Boy was I wrong. I was wrong because I didn't have enough information; I only had information about my own tastes and preferences, but not of the possible tastes and preferences of hundreds of millions around the world. That's just an impossible amount of information for any one person or group of persons to process.

It's helpful to think of an economy as a massive information processing system. It's not a question of whether the market is right or wrong, the market processes information and delivers verdicts. Whether it's the price of a pint of strawberries or the success of the bike sharing industry, the market always answers the question. You just might not like the answer. It's probably still too soon to say whether the bike sharing experiment is going to succeed or fail. But either way, the economy as a whole will learn from the result, and entrepreneurs will incorporate that data as they plan their next venture.

Today, bike sharing is being fueled by an abundance of very inexpensive money, especially Chinese money, which is somehow mysteriously even cheaper. The business model depends on cheap venture capital and up-front user deposits, but has no obvious means of recovering the initial investment, much less of making a profit. It probably won't succeed. It's not even clear that it's succeeding in China, which is actually a bicycle culture.

Futher, the whole bike-share thing seems driven more by social and environmental idealism than by the profit motive backed by a solid business plan. As such, it's even less likely to succeed.

But I could be wrong, and that's why cheap money and permissionless innovation are good. On a regular basis they deliver the pleasant surprise of new goods and services imagined in garages and dorm rooms by entrepreneurs. It's a virtuous cycle and it should be encouraged, even when things seem to be going wrong, because such a system creates far more good than harm.

But there are occasional harms, and that's why regulation is sometimes necessary. The trick is to wait until the need for regulation has been demonstrated, such as it is right now in real time with bike sharing. Reactive rather than anticipatory regulation preserves permissionless innovation while also preserving liveability.

In other words, even though I'm skeptical of bike share, I'm pretty happy with the way the City of Dallas approached it. Dallas has allowed a permissionless experiment to play out. Private capital rather than taxpayer dollars has been voluntarily put at risk. And if it all collapses, that will be okay, too.

What the city must resist is the call for an enormous new investment of taxpayer dollars to facilitate these private entrepreneurial ventures. No, the city should not spend taxpayer dollars on necessary infrastructure so that private ventures can succeed; they should bear all the risks and expenses of their own venture. Neither should the city bail out or take over ownership of failed bike companies.

Finally, these principles of letting entrepreneurs take risks and succeed or fail on their own also applies to much larger projects such as the Texas Central Railroad. We're all best off in an environment where entrepreneurs can imagine great things and take risks with their own venture capital. In a free-market, permissionless environment, we all benefit from their success, and if they fail, we still gain the wisdom and experience of the failure to guide future endeavors. In a free market, it's all good.


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