Massachusetts Will Tax Uber to Subsidize Taxi Industry. That's Absurd.

Paging long-dead French economist Frederic Bastiat.


Jaap Arriens/NurPhoto/Sipa USA/Newscom

Uber and other ride-sharing apps are out-competing taxis by offering a better service. And the government doesn't like that one bit.

Take the state of Massachusetts, which has decided to levy a 5 cent fee on every single trip arranged by a ride-sharing service. That would be annoying on its own, but it gets much worse: the government will take the money generated from the fee and create a sort of bailout or subsidy for the failing taxi industry. Massachusetts is robbing Peter to pay Paul, who also happens to be Peter's direct competitor.

The irony is not lost on ride-sharing companies.

"I don't think we should be in the business of subsidizing potential competitors," said Kirill Evdakov, the chief executive of Fasten, a Boston-area ride-sharing service, according to Reuters.

The fee was signed into law by Gov. Charlie Baker, another Republican politician with a shaky understanding of what constitutes a truly free market.

The state's "MassDevelopment" agency—a crony-corporatist sinkhole of misappropriated funds, if ever there was one—will be responsible for figuring out how to spend the money to best help the taxi industry. One idea is to help taxis "adopt new technologies," which probably means using an app to hail a cab. So Massachusetts is robbing Peter to pay Paul so that Paul can learn how to do the thing Peter already does.

Ride-sharing services have little choice but to accept the fee: indeed, they practically have to thank the government for going easy on them. The new law is apparently some sort of compromise—taxi lobbyists wanted Uber banned outright.

Fees like this one are always and immediately passed on to the customer. Lawmakers, in their infinite wisdom, thought they could prevent this by prohibiting ride-sharing companies from charging customers the 5 cent fee. Instead, the companies will pay the government directly. Of course, this will never work in practice. Uber et al will simply find some other excuse to adjust their prices in order to absorb the fee.

Taxing Uber to save taxis is economic idiocy, plain and simple. There's just no good reason for the government to prop up firms that can't succeed in the marketplace on their own: particularly if the government is going to sabotage more successful firms in order to protect the outdated ones. That's something the 19th century French economist Frederic Bastiat understood when he wrote the "Petition of the Candlemakers," a satire of the exact kind of rent-seeking behavior now being employed by taxi companies. The petition concerns a fictitious group of candlemakers who are asking the French government to block out the sun on grounds that it provides unfair competition. The economy would be improved, the candlemakers argued, if the sun could no longer provide light to everyone free of charge—this would create more customers for candlemakers, and thus generate more economic activity.

The argument is nonsense, as Bastiat well understood, because even though the sun's light injures the economic prospects of one rival industry, it increases the economic opportunities for everyone else by liberating them from the financial burden of buying so many candles.

If Bastiat were alive today, he might very well have written "The Taxi Driver's Petition Against the Ride-Sharing App." Nearly 200 years later, governments are still committing the same basic errors of economic reasoning.