Occupational Licensing

Political Hacks

How taxi licensing drives up costs while enriching special interests

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Suppose you're the owner of a taxicab company in a largish metropolitan area. One day you notice some taxis tooling around town—and they're not yours. They belong to an upstart competitor. His cars are newer, his drivers are nicer, and his fares are lower. Pretty soon your profits start shrinking. What are you going to do about it?

You have a couple of choices. Option A: Invest a lot of money in new vehicles, customer-service training for your drivers, GPS systems to map faster routes and so on. A lot of expense. A lot of effort.

So you go for Option B: Invest a little money in a few politicians, who adopt a medallion law: Only licensed operators with city-issued taxi medallions may operate cabs. The oldest cab companies get first dibs on the medallions, at the lowest rates. Only a few medallions are left over for the new guy, and he can't afford them anyway. Bingo—your competition problem is solved. The customers might not like it, but what are they going to do—walk?

That story has played out in many cities across the United States, with sometimes amusing variations. 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.

At present the District has more than 10,000 licensed taxi drivers; the proposed legislation would establish only 4,000 medallions. Needless to say, such artificially imposed scarcity also drives up prices. A study by Natwar Gandhi, the District's chief financial officer, found that fares in cities with medallion systems are 25 percent higher than in cities with open taxi markets.

By the way: According to The Washington Post, one of the measure's sponsors is former D.C. mayor Marion Barry, who told the newspaper the bill "was written by John Ray, a former council member representing a coalition of cab owners and drivers." Surprised? (Ray also represents another of the bill's sponsors "in the separate matter of still-unresolved questions about his nonprofit.")

Believe it or not, D.C.'s current system represents an improvement over the old zoned system, created in 1933, whose zones consisted of concentric circles around central D.C. Zone 1 encompassed the White House, Capitol Hill, and Union Station. The old system was written by—here's another surprise—Congress.

By the time Michigan Sen. Carl Levin grew weary of the system in 2006, the District had 23 flat-fee zones that were both confusing and convoluted: A trip of several miles within one zone could cost less than a trip of just a few blocks that crossed zone boundaries. Passengers understandably worried a driver might take them for a ride figuratively as well as literally by driving across zone boundaries when it wasn't necessary. The shift to a metered system occasioned a great deal of hand-wringing over what rates should be, where to set the drop fee (i.e., the minimum initial charge), and so on.

Given the concentration of government power in the District, it should not be surprising that apparently no one has even considered adopting a laissez-faire approach. Under such a system cabbies would offer a range of services and prices—offering pristine limo rides at exorbitant rates at the high end, buck-a-seat trips in crowded Econoline vans at the low end, and everything else in between. The District would ensure that the vehicles are safe and the meters aren't being tampered with to defraud customers—and let the market sort out everything else.

For that to happen, politicians would have to recognize they don't need to run absolutely everything. Try selling that idea in the District, and you might get a free ride—to a padded cell.

A. Barton Hinkle is a columnist at the Richmond Times-Dispatch. This article originally appeared at the Richmond Times-Dispatch.

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  1. I don’t have a constitutional right to not face competition? Clearly I’m not a utility company then.

    1. A. Barton Hinkle Heimer-Schmidt
      His name is my name, too
      Whenever we go out
      The people always shout
      There goes A. Barton Hinkle Heimer Schmidt
      FALALALALALALA

  2. What? Creating scarcity raises prices? Good thing the laws of economics will be suspended for LobbyCare (aka ObamaCare)…

  3. Pretty soon your profits start shrinking. What are you going to do about it?

    Clean up your vehicles, retrain your drivers, lower prices and improve service; you know, compete.

    Haha, just kidding.

    1. He actually made that joke in the paragraph immediately following the one you quoted, you know.

      1. Yeh, but surely a little competition never hurt.

  4. Medallion prices would start at $250 for the most established taxi companies and, for the newer entrants, run as high as $10,000.

    Equal protection, anyone?

    1. Equal protection only matter when it is an issue of race, religion or sexual preference.

      Otherwise the law can be applied unequally and it doesn’t matter.

      1. So all people are created equal, but some corporations are more equal than others?

        1. Does that really work?
          I see these angry uberlibs crying “It’s the coooo-poooo-raaaaay-shuuuns! It’s the coooo-poooo-raaaaay-shuuuns!” as if it’s a mating call or something.

          Does that really help you get chicks?
          And if so do they shave their legs?

          1. Yes, yes, no.

      2. Not technically true, but the standard of proof is much higher for a 14th Amendment “comparative treatment” case not involving a protected class of people.

        In practice, regulations like this can survive equal-protection scrutiny if they have even the flimsiest of reasons behind them. In this case, it would be “limiting the number of cabs on the road, so as to reduce traffic congestion.” Like I said, even the flimsy arguments are good enough.

    2. rights != privileges

      You do not own the road; your ability to drive on it is not a right. No medallion for you!

  5. That doesnt make a lot of sense dude. WOw.
    http://www.privacy-web.no.tc

  6. Like a lot of people, I at one time contemplated getting a short-term job as a cab driver. That movie made it look totally glamorous, eh?

    Anyway, after looking at the way the financial deal was structured (not even the back of an envelope was necessary); the owner of the cab gets all the money, while the driver pays all the expenses and maybe gets to keep the tips, I said to myself, “You’d have to be an idiot to take that job.”

    Being a landscape laborer was more enjoyable, and it paid better.

  7. I’d like to see the part of Minnesota’s and New York’s constitutions that grants government the power to regulate transportation in any way whatsoever.

  8. Classic example of a gov’t being pro-business yet anti-market. These are two very distinctly different approaches and usually indicates corruption.

    1. I have friends on both sides of the aisle.

      The trick is selling the corrupt anti-competition legislation / regulation as somehow protecting the citizens, even if it appears to be protecting them from me.
      I don’t mind looking like the bad guy if the government outlaws my competition, allowing me to jack up prices and protecting me from the need to innovate.
      Democrats and Republicans just have different tactics for selling the very same anti free market government action.
      Truth is that both parties hate free markets.

    2. But, but, but…Gypsy Cabs! Kidnapping! Hypodermic needles sticking out of the seats! All this and more without government licensing!

      1. Yes, but how does licensing stop any of those things?

        Criminals don’t respect laws–not even licensing laws.

        1. Laws are magic, that’s how.

  9. Option A: Invest a lot of money in new vehicles, customer-service training for your drivers, GPS systems to map faster routes and so on. A lot of expense. A lot of effort.

    RACE TO THE BOTTOM!!!!!

  10. Dude… Is that the dad from Meet the Fockers in that picture???

    1. He was undercover at the time.

  11. Taxis are one of those areas where I bend a little to the regulatory state. As a consumer, I appreciate having advance knowledge of the price structure. It seems impractical to have a truly free market in cabs.

    As for the need for license caps, I don’t see that at all.

    1. “As a consumer, I appreciate having advance knowledge of the price structure. It seems impractical to have a truly free market in cabs.”

      Spoof?
      Gotta be.

    2. As a consumer, I appreciate having a choice of who I do business with, and if I prefer advance knowledge of the pricing structure (which is a really stupid objection to the free market: Do you think companies wouldn’t advertise their prices while they are competing?) than I can choose a company that has a website or something that explains their price structure before I get in one of their cabs, or I can choose a company that offers the best combination of cleanliness, safety, service and price without forcing everyone else to suffer for my convenience.

      1. I think that evaluating pricing while trying to hail a cab at Midnight on 8th and 34th is ludicrous.

        1. In that case you would be paying a premium for not planning ahead. Also, why don’t you have a smartphone yet? It’s 2011!

        2. I think your ludicrously contrived example is a ludicrous argument for government price controls. (Ludicrous.)

        3. MP|5.31.11 @ 2:43PM|#
          “I think that evaluating pricing while trying to hail a cab at Midnight on 8th and 34th is ludicrous.”
          I think strawmen posing as arguments are stupid.

    3. Cabs can easily print their rates on each car door. Smarter companies/drivers would simply invest in small, conspicuous displays.

      Or better yet, you’re coming out of the airport. There’s a line of cabs. You shout out “going to Locust!”

      Then you get to sit back and relax as four cabbies try to outbid each other to take you there. You pick your favored bid after ten seconds or so and get on with life.

    4. Taxis are one of those areas where I bend a little to the regulatory state. As a consumer, I appreciate having advance knowledge of the price structure. It seems impractical to have a truly free market in cabs.

      If you were saying that anyone could turn a car into a cab by painting “taxi” on the side, and cabs would be required to have their prices prominently posted so you couldn’t get ripped off, then I could see your point, though that would still be a free market.

      I suspect, though, that what you want is political price-fixing combined with licenses that severely limit supply, which isn’t much of a deal for consumers.

    5. You can have advance notice of the price structure without the government. If the price isn’t posted on the door, don’t get in the cab. Pretty much every other business works this way.

      1. Yeah, that’s real practical.

        You’ve never actually hailed a cab, have you?

        1. MP|5.31.11 @ 4:22PM|#
          “Yeah, that’s real practical.
          You’ve never actually hailed a cab, have you?”

          Yes, I have and you’re a stupid shit.

          1. MP would also like government to provide a softness rating on toilet paper before he wipes his @ss.

  12. That companies pay a staggering $400,000-$600,000 for the medallion tells you just how badly the consumer is getting screwed. Profits must be astronical to justify that kind of capital investment.

    1. astronomical, even

      1. Exit, Stage Left!

        1. That’s the voice in my head when I typed that.

    2. That companies pay a staggering $400,000-$600,000 for the medallion tells you just how badly the consumer is getting screwed. Profits must be astronical to justify that kind of capital investment.

      It’s not profit if the money winds up being stolen by the state. Profit is what you get to keep.

      What you are trying to say is that the fares must be grossly overpriced to pay for those medallions.

  13. Here in NYC the stupid is truly staggering. We have Yellow Cabs, they have medallions and may pick up street hails. We also have Car Services, generally less expensive (especially for distances over a mile) than taxis but forbidden to pick up street hails (one must telephone for a pickup). The problem – Manhattan is full of taxis but the outer boroughs have none. Taxis can only be found in Brooklyn & Queens if they have a fare in Manhattan who needs to go there. Taxi companies say they stick to Manhattan because there is not enough business to cruise outer boroughs. Mayor’s solution, allow car services to pick up street hails in outer boroughs only. Taxi companies throw a tantrum so plan is shelved. So a state granted monopoly that refuses to serve the geographical majority of the state gets to veto a small reduction in their state granted monopoly that would allow others to serve customers that the state granted monopoly refuses to serve in the first place. Hooray for city politics.

    1. A few years back NYC had this fellow, a retired cabby I believe, he had one of the old mid-20th century Checker Cabs restored with which he would pick up street hails and deliver them to their destination for free, often accompanied by a wonderful lecture on the history of the route along which one traveled. Well the taxi companies threw a tantrum and finally got rid of the guy through a taxi police sting operation wherein an undercover agent of Leviathan got the driver to accept a tip for the ride. Fuck the medallion owners of NYC!

    2. Car services in Manhattan will pick up street hails, based on my personal experience. Especially around 2am, when it is tough to find an empty cab. It won’t be cheaper than a cab in that case, however.

      1. Indeed, they often do so but (IIRC) it puts their hack license in jeopardy if they are caught. We also have, at least in Brooklyn, these delightful dollar vans cruising certain parts of town, picking up fares on the DL.

        1. F NY. You elected those aholes, you live with em.

  14. Option C: Dat’s a nice cab you got dare. Be ‘shame if somethin’ happened to it you know.

  15. I blogged about taxis just yesterday. There’s no need to even pay attention to the government on this anymore. Get a smartphone, visit avego.com, download the rideshare app, and bust this cartel!

    1. Until the government steps in and regulates your app usage.

  16. Best example of nearly free-market mass transit that I’ve seen is the mini-buses in Hong Kong. Some are operated by big corporations. Some are operated by individuals. All pretty much set their own routes and rates. They are cheap, safe and dependable. Any city could really benefit from allowing a similar system.

    1. It really is disgusting the way they run the monopolies here in NYC. ‘Dollar vans’ for example are routinely hassled, outlawed, then occasionally allowed (but don’t dare interfere in the bus and/or taxi monopoly), etc. etc. Who would risk even trying to compete?

      The potential rider is the last recipient of any sort of consideration in any of this.

  17. I feel bad pointing out the PAINFULLY OBIVOUS but the reason that the number of taxis in Manhattan have to be limited is because OTHERWISE THE STREETS WOULD BE EVEN MORE PACKED THAN THEY ALREADY ARE AND NOBODY WOULD BE ABLE TO GET ANYWHERE AT ALL.

    1. NOT TRUE. THAT IS ALL.

    2. Meta_Man|5.31.11 @ 4:49PM|#
      “I feel bad pointing out the PAINFULLY OBIVOUS but the reason…”

      Shorter M-M:
      “SCREAM! THE FREE MARKET CAN’T WORK!”
      Thanks, but your full of shit.

      1. Your?

        Oh, Cletus. You still haven’t learned which word form to use?

        See what happens when public education is underfunded?

        1. Oh, shucks! Brain-dead spelling nazi attack!
          Shithead (and that’s the way it’s spelled)

  18. It doesn’t work that way Meta_man, if the streets are over crowed then no movement, no movement no fairs, no fairs no cab company. It’s like saying you will have fast food places pushing out all business if you do not cap it, but we see in reality it caps itself… The FREE MARKET ALWAYS works itself out better than any politicians can. We have free and open cab market here in a very busy city that is rather congested yet we are not over ran by cabs… Government should never pick winners and loser in the markets…

  19. In Calgary, a guy tried to get around the cab-licence cap by operating a car-pool van for money. The city dou.chebags nailed him for operating a bus service in violation of the city’s bylaw guaranteeing its own monopoly.
    Government sucks donkey ass.

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  22. ty rights, etc. seem like a more accurate measure of freedom than democracy.

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