Uber charges the amount that they need to get enough drivers to drive the number of customers they have. When there aren't enough drivers willing to drive at the given rate, they go into 'surge' pricing to intice more drivers to drive.

You know what would happen if they raised the rates and paid more to the drivers? Two things - fewer riders would ride, and more drivers would drive. You would end up with a lot of drivers sitting around not getting any rides. They would most likely end up making LESS money per hour because they would not have enough riders to drive around.

Correct. Drivers should also be driving less for Uber.

Or, alternatively, everyone is making the correct decision and there isn't an imbalance anyway.

You are probably right about there not being an 'imbalance', but I would like to add that just because there is an efficient market in place doesn't mean there can't also be structural problems in the society. The value of labor continues to fall as automation and machinery improves, which is why uber drivers are so cheap to entice to drive. For most people, the only thing they have to sell is their labor, and as we continue to find alternatives to labor through automation, that downward pressure on the cost of labor is only going to increase.

We really, really, need to address this as a society soon.

I don't think it's zero-sum, though. Before Uber/Lyft, I very rarely took a taxi, not because of cost, but because of the difficulty and uncertainty in being able to find and secure one (in SF). (I would either drive myself, and have to leave earlier due to the difficulty of finding parking, or take the bus, and have to leave even earlier due to how slow it is.) If Uber/Lyft were to increase prices to the same cost as a taxi, yes, I'd use them less, but I'd certainly use them more than I ever used taxis... because I'm getting a lot more for the money.

I'm not really going to keep driving until they do that. I drive during football games in Santa Clara, though, since the rates are much higher.