AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (29 comments)

  1. Robert puharic

    There IS some rationale for licensing taxis. Liability…safety…recourse for overcharges, etc. It’s not QUITE as simple as ‘anyone with a car can be a taxi’.

    1. Charlie

      Perhaps you can agree that the items you cite as protecting the consumer can be regulated without creating the “cartel” as the system now exists. That is, if your intent is to protect the consumer, not the cartel.

    2. So your claim is that people who don’t have licenses aren’t liable for their actions, aren’t save, and customers wouldn’t have any recourse for “overcharges”? It’s also hilarious that you think attempts to institute monopolies would eliminate “overcharges”.

    3. Steve Owen

      Robert, this is really weak.

      Ridesharing companies give the consumer choice. If a consumer values the fact their driver comes with a license they can use him, actually far more easily because there will be plenty of people using the alternatives. If they trust peer review, or some other disruptive innovation, to make their ride just as safe they can go that route. The very fact that taxi medallions are so expensive means things have gotten very out of hand, pent up demand is huge, robbing many willing drivers of a job and driving up prices.

    4. marque2

      Overcharged for a voluntary contribution. Now there is a trick. Safety? Have you ridden a taxi cab in New York?

      I was living in New York when Guilani blocked the taxi drivers from Manhattan for a day. It was the safest I ever felt on the streets of New York. NYC has had a private non medallion system for years. Haven’t heard about it? That is because safety was never a problem.

  2. Bert Ely

    Prof. Perry’s most interesting Carpe Diem post raises the hope that technology will steadily erode taxi cartels, and the artificial value associated with them, but the New York taxi medallions he writes about provide an interesting parallel with a much more recent artifice – Bitcoin and its ilk.

    The current aggregate market value of NYC yellow-taxi medallions is approximately $14.3 billion (13,605 medallions x the $1.05 million market value per medallion Prof. Perry quotes). Apart from the miniscule value of the medal in the medallion, the market value attributed to the medallions essentially reflects the ability of the City of New York to enforce its requirement that New York cabs painted yellow have an authorized medallion.

    If a court found that New York City could no longer limit the number of taxis operating on New York streets, and especially in Manhattan, and that decision was upheld on appeal, the market value of those yellow-cab medallions would disappear in a flash.

    Bitcoin has essentially the same artificiality – at its core, there is no there there, just as there is nothing to a taxi medallion beyond a permit to operate a taxi. While technology increasingly threatens the value of taxi medallions, technology will instantly destroy the market value of Bitcoins the minute a hacker figures out how to counterfeit Bitcoins or finds a very cheap way to “mine” Bitcoins by short-circuiting the Bitcoin algorithm that controls the rate of growth in the number of Bitcoins.

    Prof. Perry’s analysis of the New York taxi cartel should spark a deeper discussion among economists and policy makers as to differentiating real value – there are no man-made quantity limits (political or technological) – from artificial value arising from quantity limits imposed by political or technological means. Such a discussion could begin to lead to the repeal of policies and practices that create artificial and ultimately unsustainable market values.

    1. Sprewell

      Interesting analogy to bitcoin, but one that breaks down upon further analysis. Yes, the creators of bitcoin chose to cap the amount created and that creates an artificial limit, just like NYC’s limit on medallions. But the key difference is that the creators of bitcoin are not the govt and so don’t have a monopoly. Think bitcoin is overvalued? There are dozens of other crypto-currencies available for purchase. Good luck finding taxis without the overpriced medallions. The difference is that the NYC govt is setting a limit on the number of taxis for everyone in NYC, while the creators of bitcoin have no control on how many other crypto-currencies spring up.

      1. Bert Ely

        If the world is flooded with crypto currencies, why will any of them, including Bitcoin, have any value? What assets will these “currencies” have a legal, enforceable claim on? Likewise, if the New York City government did not restrict the number of cabs operating on the streets of New York, taxi cab medallions would be worthless. In both cases — crypto currencies and taxi medallions — there is no there there — there ultimately is no substance to them.

        1. Sprewell

          If the world is flooded with crypto currencies, why will any of them, including Bitcoin, have any value?

          The world is “flooded” with national currencies now, why do any of them have any value?

          What assets will these “currencies” have a legal, enforceable claim on?

          What “assets” do current national currencies “have a legal, enforceable claim on?” :)

          Currencies have value because people think they have value, nothing more or less. People were only willing to pay $2-300 for an ounce of gold during the dot.com boom, now they’re willing to pay six times that. Crypto-currencies have value because buyers believe others will trade for them and because their limits mean they are more likely to appreciate than depreciate.

          Likewise, if the New York City government did not restrict the number of cabs operating on the streets of New York, taxi cab medallions would be worthless.

          They would be worth less, not worthless. :) Frankly, I’m not sure it makes sense to trade medallions if they weren’t so artificially valuable as they are now, or how it even makes sense legally: if you sell it to a new driver or car, wouldn’t that invalidate the certification? This shows how the limit on medallions is not about “regulation,” but about the govt paying off its cronies.

          In both cases — crypto currencies and taxi medallions — there is no there there — there ultimately is no substance to them.

          To a certain extent that’s true, but then that’s true for national currencies also. :) But the definition of “valuable” is that everybody else wants it, and people want crypto-currencies despite their not having any govt help. In the case of any currency, that’s the natural state: any currency is merely a token agreed upon for trade. One can come up with all kinds of reasoning for why one token is better than another token, why gold coins are better than clamshells, but ultimately all that matters is how many people want one token versus the other.

        2. morganovich

          bert-

          and banks all used to issue their own currencies too. yet they were accepted.

          digital money is currently at that stage.

          one could certainly make the argument that bitcoin will wind up being the “friendster” of crypto currency, but somehting is going to emerge as big and effective.

          the incentives around it are too strong for it not to.

          secure, anonymous, and non inflationary are big issues, particularly the last one.

          national governments have proven themselves to be AWFUL stewards of fiat currencies.

          that dollar has lost 86% of it’s value since 1970 and roughly 97% since 1900.

          that is some seriously awful performance and given the incentives for governments to try to print their way out of the unpayable unfunded health and retirement liabilities they have run up, there is every reason to expect it to get worse.

          i suspect digital currencies to be one of the biggest trends for the next 10-20 years.

          they are still very much in their infancy, but given the accelerated nature of their evolution and the speed at which modern financial structures can be assembled (depositor insurance, trading, secure depositories, etc) i suspect they can do in under a decade what took 100 years in traditional currencies.

  3. Citizen Buddy

    Many investors want alternative assets to bonds and stocks. The medallion market is down ~ 10% So, if you want to invest in NYC taxi medallionshere is a listing of the twenty-four medallion brokers.

    The leftist mayor forcing the levers in Gotham guv would seem to be anti-competition in the for-hire market, but maybe much higher tax generation could be as simple as an app.

  4. Bert Ely

    In response to Robert Puharic, granted that there are legitimate reasons to license taxis (liability, safety, etc.). However, those reasons are not a rationale for limiting the number of taxis. Further, investors need a return on their investment in a taxi medallion (whether a taxi owner/operator or a lessor of taxis) that has to be passed through to taxi passengers in the form of higher fares.

    1. So in cities where there is local initiative get up a petition to change the rules so it is no longer a certificate of convenience and necessity to merely a certificate of convenience, i.e. as many taxi/ride medallions are issued as folks who want them. Interestingly initiative was part of the program of the progressives 100 years ago, to bypass the bought and paid for legislative bodies (130 years ago the Pa state legislature was called the best legislature money could buy and the only bad behavior was to take money from both sides of an issue). It appears that NYS does not have initative nor does NYC, but other cities do. The success of such an initiative in a few cities would change the political landscape.

      1. Checking further it appears that 50,000 voters in NYC can force a charter amendment that could remove the necessity requirement.

        1. Make that an election on the issue.

  5. Steve Owen

    Has anyone else had a look around the AEI site to see what other stuff is on it. I find carpe diem along side stories like this pretty shocking:

    http://www.aei-ideas.org/2014/04/the-impact-of-trade-is-competition-good/#mbl

    And for punch line check out the comment!

  6. Steve Owen

    I posted this over in the defense section where I’m having a heated debate, does anyone over here have an opinion.

    In the conventional division of left and right one thing I find baffling is the association of military aggression and nationalism with the policies of fiscal responsibility, free trade and individual liberty. The idea of an adequate deterrent appeals to everyone but military action clearly robs many people of their liberty, even their lives, costs a great deal and creates marvelous opportunities for the politically connected to snag fat government contracts.

    Nationalist thinking is not something I understand, and it’s a device I associate with the left. Free trade is an international phenomenon it brings us closer together and enriches us. A world without borders would lift millions if not billions of people out of poverty as they migrated from corrupt indolent regimes to well managed free markets, it would bring these people into an environment that allowed them to create wealth for themselves and for others. Surely for those who support free trade, freedom of movement is a natural corollary; it simply represents the freedom to sell our own labor to whomever and wherever we wish.

    The frame that encloses the modern welfare state deliberately excludes the majority of the world; if you ever doubted these programs are simply buying votes ask yourself what possible moral justification there could be for providing unearned benefits to low income Americans or Europeans while 100s of millions struggle to put food on the table in the developing world. It goes without saying that these programs don’t exist to strengthen the economy.

    Nationalism has to be the greatest wealth destroyer in the world today, second to none. It’s so firmly entrenched people can’t even see it. If you accept redistribution how could you think you’re arriving at an equitable distribution of wealth by redistributing simply within the borders of modern wealthy countries? If you believe in global free trade how could you exclude the single most valuable asset most people in the world possess, their own labor?

  7. Lyft just got $250M in VC funding (Uber got $350M a few months ago), so the VC are apparently confident that the government suppression will not win.

    I think the govt. is getting overwhelmed with too many requests to whack-a-mole.

    1) Taxicabs want Lyft and Uber banned.
    2) Hotels want AirBnB banned.
    3) Universities was Coursera and Udacity banned
    4) Restaurants want lunch trucks *and* dinner-party invite websites banned.
    5) Auto dealers want Tesla banned
    6) Comcast wants Google Fiber and Webpass banned.

    I think there are too many disruptions for the govt. to halt, increasing the price that the govt. hitman charges from those seeking hits, which eventually means the disruption cannot be halted.

    Good. As the price of halting a technological disruption via government fiat trends towards infinity, the cracks in the dam become unsealable…

    1. Sprewell

      “3) Universities was Coursera and Udacity banned”

      Really? That’s news to me. Under what statute?

      1. It should be ‘Universities *want*’. Not ‘was’ but ‘want’.

        For the same reason that the other examples of incumbents don’t want technological disruption..

        Whether a current statute exists or not for this or any of the other examples provided or not, the incumbents are going to the govt. to preserve their status quo (which is always futile over time).

        1. Sprewell

          Hmm, I posted a reply to this comment a day ago, but it appears to have been eaten, posting again:

          Right, my point was that you don’t have evidence that they want a ban, because they likely haven’t asked for it. Googling for bans on those two, the only item I see is that some overly aggressive govt agency in Minnesota (Mark’s old stomping grounds!), briefly banned online courses little more than a year ago, before running away from the ban and the ridicule they received.

  8. It is pretty clear that the ~40% rise in the last 15 months is what even made Uber and Lyft come out of nowhere.

    The thing is, Uber and Lyft are not even that innovative. They are just a cost-arbitrage over the taxi cartel.

    A real killer app would be when Google’s self-driving cars pick up people based on a phone app, and combine 2-3 people’s rides (based on similar origin and destinations at the same time, as calculated by the analytics of the apps) to drive down costs further.

    Self-driving minivans with 2-5 passengers at any given time, with very little wait or redundant driving. That kills not just taxis but most intra-city public transportation…

  9. An always-running small in-car videocam would remove the supposed ‘liability and safety’ concerns that a taxicab supposedly provides.

    A self-driving Google minivan combined with a Lyft-like app, with in-car videocam gets around all these issues.

  10. chuck martel

    At the Minneapolis-St. Paul airport licensed cabs also need an airport license in order to make pick-ups. If you want a cab, a cab starter points out the cab you’re to use. I resent not being able to make my own choice.

    1. If an airport were run by a private company would it be a problem if they said you need a license? It turns out the airport at MSP is run by the Metropolitian airports commission a public corporation, not by any city or county. The board is appointed by the Gov of Mn and the mayors of Minneapolis and Saint Paul. So here is the question, since if it were truly private restrictions on activity and the requirement to follow the starter would be ok, when does an entity loose that right?

      1. chuck martel

        Huh?

  11. Ridesharing services like Uber, UberX, Lyft and Sidecar are violating laws and regulations. One can’t gain a competitive advantage by actively refusing regulations and claiming to be above laws that govern all other transportation businesses in the same exact industry.

    Also – calling a collection of thousands of small business owners are cartel is misguided. The real CARTEL is in Uber-Lyft-Sidecar alliance. Each one of these companies already valued in BILLIONS. And they admittedly have already met in closed doors to establish a common policy. This is a definition of cartel. Links provided:
    http://pando.com/2014/02/25/ridesharing-companies-meet-to-discuss-public-liability-insurance-wont-share-details-with-the-public/

    http://www.bizjournals.com/sanjose/news/2014/01/24/uber-admits-to-dirty-tricks-in-nyc.html

  12. Cab Owner

    Cartels sell drugs and kill people. I haven’t seen too many NYC medallion owners go to jail for selling drugs and killing people.
    NYC taxi medallion owners paid close to half a billion dollars in taxes and usage fees to the city & state in 2013 and are on track to raise more for city & state coffers in 2014.
    NYC taxi medallion owners pay for the NYPD to protect you, the sanitation dept to clean your streets and pick up your garbage, and for teachers to teach your kids. What other industry put half a billion dollars in gov’t coffers? The answer is no other industry. You’re all a bunch of clueless clowns.
    New Yorkers should be thanking medallion owners instead of criticizing them. If it weren’t for these medallion owners, the city would have a $2 Billion deficit.
    Furthermore, NYC medallion owners were the first to implement credit card machines in every cab plus giving passengers the ability to pay through their smartphones. This ‘disruptive’ technology is nothing new or proprietary. This is just another form of Napster- it’s theft. In addition, these apps profile their customers: good luck to you morons when a driver gives you a bad rating and you order a car and nobody shows up and you end up paying a $10 cancellation fee. You’ll be back in a yellow cab in no time at all. Yellow cabs are not allowed to refuse fares for any reason whatsoever. Yellow cabs don’t profile or rate their passengers.
    You should be grateful for the NYC Yellowcab.

  13. Did you ever think about the families who own these medallions and rely on them to support families? If the value of the medallions fell, my family would not be able to help out my two children and myself. My uber geek ex-husband who we put through Carnegie Mellon for his 3 degrees, pays peanuts in child support and would be all too happy to take my precious babies away if i cannot give them the kind of life, financially, that he could. Ironically, he too resides in San Francisco, where this computer dork who founded uber lives and runs his company who I curse. Before you talking heads analyze this situation ad nauseam, please know there are real families and fates surrounding these medallions. My parents came here almost 40 years ago, from the former Soviet Union and this is their legacy to their grandchildren. Shame on all of you who disparage Medallion Taxi Cab Owners, the majority of who are hardworking immigrants who came here for the American Dream. Shame on you!!!!!!!!

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