Terrors of the managed economy: Taxicabs

Reason‘s A. Barton Hinkle has a nice piece about one of the clearest examples of what goes wrong when the government steps in to manage a market that should be free:

A decade or so ago, Minneapolis (population 300,000-plus) allowed a grand total of 343 taxis to operate until Luis Paucar, an immigrant, filed suit. The city council decided to allow another 45 cabs. Then the existing cab companies sued, using the creative legal theory that they had a constitutional right not to face competition. (They lost.)

Now it’s the District of Columbia’s turn. Four members of the D.C. City Council have introduced a bill that would create a medallion system for the nation’s capital. Medallion prices would start at $250 for the most established taxi companies and, for the newer entrants, run as high as $10,000. At least initially. As time wore on, it’s likely that the price of a medallion would go up for everyone. That’s what has happened in places such as New York, where a government permission slip to drive a cab costs about $600,000. In Boston, which initially capped medallions at 1,525 in the 1930s—and more than a half-century later had added only 250 more—a medallion will cost you $400,000.

The medallions are so valuable because they create artificial restrictions on competition, allowing their owners to rake in huge profits. The medallion owners aren’t the cab drivers, of course. Sometimes they aren’t even the cab companies any more: They’re investors who bought medallions so they could rent them out to the people who do all the actual work. And of course they lobby heavily to keep it that way, which is why cities that have medallion systems stay stuck that way for decades.

Read the whole thing.

About Mark:
Mark is a computer programmer, website builder, photographer, and sometimes journalist in Chicago, where he also writes the long-running Windypundit blog.
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2 Comments

  1. Jozef
    Posted June 1, 2011 at 9:57 am | Permalink

    I often travel to Dublin, Ireland, where all artificial restrictions on cabs were lifted a few years back. Currently, Dublin has more cabs than NYC, even though it’s got only a fraction of the population. The service is by far the best I’ve experienced in any city – hailing a cab in the street or walking a block to a taxi stand almost always yields a cab within a few short minutes. And the cab drivers I spoke to didn’t complain, either: after a few years the market stabilized, and the supply and demand is on a balanced level that lets them make a living while keeping the services accessible.

  2. Posted June 1, 2011 at 11:13 am | Permalink

    Thank you for an excellent example of a successful change back to a market system. I’m guessing that the cab drivers didn’t mind so much because they probably weren’t the ones who owned the right to operate the taxi. They probably rented it from someone else on a daily basis. With more cabs in the streets, they can’t charge as much as they used to, but they don’t have to pay the rights owner either, which was probably a huge part of their operating cost.

    By the way, as I side effect, I’d expect a free market to also eliminate the problem we have of black guys not being able to get cabs. With fierce competition for customers, if some cabbies didn’t want to pick up black guys, other cabbies would specialize in it to get the extra fares.