Uber: Or How to Stop Fearing Crony Capitalism and Learn to Love the Market

The other morning, I was looking at the New York Post’s website. On the homepage was an article with the following headline:

Without Uber, I’d be destitute — Is that what the City Council Wants?

     Without even reading the story, I can say the answer is yes. Yes, the City Council of New York wants you, Mr. Uber Driver, to be destitute. Not only you, but also your pal, Mr. Lyft Driver. Because the last thing the City of New York, or any government for that fact, wants is for its citizens to be able to earn a living without the input of the government. Actually, the last thing the government wants is for anyone to live without the government telling you what you can and cannot do. Imagine a world where you go wake up, eat cereal with raw milk, go to work, have lunch from a food truck or maybe stop by the local kid’s lemonade stand for a small cup of sugary lemon water. Then when the day is done, watch the sunset while sitting at an outdoor table, sipping a beer with a picture of a baby on the bottle. A world with such an unfettered free market is a nightmare, one where the living envy the dead. Well, it is for the ruling class at least. Because in such a world, where is the quid pro quo favors government officials can hand out to their “friends”?

Politicians, in other words, love the status quo. And the status quo is Crony Capitalism. What is Crony Capitalism? In its most basic form, Crony Capitalism is when a business interests uses its money and resources to build close relationships with government officials in order to obtain economic benefits through regulatory schemes. Those schemes, while supposedly benefiting the public, are written in such a way that benefits of the regulations actually goes to the business interests being regulated by reducing competition and increasing the hurdles outsiders have to jump in order to compete. That reduces competition and hurts the consumer. It is a form of “Rent-Seeking”. This is not a new idea or concept (thought the term “Crony Capitalism” is probably only five years old). Adam Smith, in The Wealth of Nations, warned of the dangers of Crony Capitalism:

The proposal of any new law or regulation of commerce which comes from this order [i.e. “rent-seekers”], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

Taxis are probably the most obvious example of Crony Capitalism and Rent-Seeking. In virtually every City, there is some form of taxi commission that regulates and licenses taxi operators. That is what we are told a taxi medallion is: a license. Ostensibly the purpose of taxi medallions is to ensure the taxi and the driver are safe and competent. It’s a license. Right, TLC?

A taxicab medallion is not only a valuable asset, it is also a license from the Taxi and Limousine Commission to operate a New York City taxicab.  Any change in the ownership of a taxicab medallion must be approved by the TLC, and any new owner must apply and be approved for licensure before assuming an ownership interest in a medallion.

So no, It’s not a license, but an asset. A government manufactured asset. The government creates a cartel and then sells the right to buy into that cartel. If it was just a license, then a medallion owner would have no property rights and couldn’t sell it. That’s right: the medallion is transferable. At the high point, a taxi medallion cost over a million dollars in New York City.

Look, not only do I have a license to drive a motor vehicle, but I also have one to practice law. Neither of those licenses are transferable or create a property interest in them. I can’t sell my license to practice law for a tidy sum. But a taxi medallion a/ka/ the license to own a taxi, that’s sellable.  Taxis are probably the most odious of government sanctioned oligarchies. Here’s the introduction to  TLC Mission Statement:

The mission of the Taxi and Limousine Commission is to ensure that New Yorkers and visitors to the City have access to taxicabs, car services, and commuter van services that are safe, efficient, sufficiently plentiful, and provide a good passenger experience. We understand that private transportation services are an essential component of the City’s transit network, alongside publicly operated mass transit. We believe both in the power of market forces to ensure that supply meets demand, and in the need for intelligent regulation to set the rules of competition, ensure safety, provide transparency to market participants, and reduce unwanted externalities such as pollution.

As Supreme Court Justice Antonin Scalia might say, “Wait? What?” Belief in the market so supply meets demand AND regulation to create rules for competition that limit the number of taxis are mutually exclusive concepts. The minute you cap the number of taxis that can be licensed and operated, you have removed market forces from the picture. No longer is the market determining whether the supply is sufficient to meet demand. As Scalia recently observed in his dissent in Obergefell v. Hodges, “The world does not expect logic and precision in poetry or inspirational pop philosophy; it demands them in the law.” TLC’s mission state is inherently illogical.

But, if you are inside that catel, who cares? Sure you might quibble when the TLC demands credit card machines be in the cabs. (After all a credit card records the actual amount of money made as opposed to being handed cash, 100% of which may not get reported). But that’s just a debate about profit margins, nothing serious. What’s a little quibbling between crony-capitalist?

So what if the taxis might not be as nice as they could be? Or the taxis aren’t available where they are really needed, such as the Bronx or Staten Island, but instead concentrated in Manhattan between Battery Park and Central Park. The interest of the riders aren’t important. After all, what other choice do they have?

And this is exactly the danger Uber and Lyft pose to Taxi Cartels. It gives consumers choices. You don’t have to wait in the pouring rain to hail a cab to take you from 125th Street to Grand Concourse. You can order one online to meet you where you are and take you to where you want to go. With Uber and Lyft, the rider has the power, not the Cartel. (In fact, thanks to Uber,the citizens of Long Beach, California have seen the cost of a taxi ride decrease. The cost of a ride in a medallion taxi is still not reflective of market rates, but it’s a step in the right direction.).

The amazing thing is New York City should have anticipated the rise of Uber. It had plenty of notice that people were unhappy with the status quo. The first warning shots were fired about 4 years ago with the creation of Green Cabs. Despite the name, Green Cabs are not some sort of hippy-dippy. flower power taxis. They are in fact, taxis that operate outside of Manhattan and the airports. (Technically, they operate in Harlem as well). Why does NYC have two different sets of taxis? Well, mainly because the Cartel’s drivers didn’t want to have to drive to the Bronx or Brooklyn or Staten Island with fares. They only wanted to operate in Midtown and points south where they could make a lot of money with high volume. A trip from Midtown to Far Rockaway? A lot of travel time with no fare.

And so, despite the law saying taxis had to drive fares to the outer boroughs, most refused. And the TLC did next to nothing to enforce the law. Rarely,if ever, did it revoke a medallion and only occasionally stripped a driver of his right to drive a taxi. As a result, a grey market emerged to fill the vacuum in the form of Livery cabs, which are not supposed to pick up fares on the street. In response, the TLC tried to crack down on livery cabs for offering the services that taxis were not. Only after the murmurings of Civil Rights actions and lawsuits grew louder and louder did New York State step in and the Street Hail Livery, i.e. the Green cabs, was created. While it solved the immediate problem, it did so at the price of a second oligarchy.

Uber and Lyft are not part of the oligarchy. They operate outside of those confines. They give people what they want in real-time, not bureaucratic time. The market dictates Uber’s success, not the government’s competition regulations. That’s why the City Council wants the Uber driver to be destitute. Those New York City taxi medallions that were worth a cool million? They are now worth only $870,000.00. Why the decrease? Because Uber is correcting the supply deficiency the taxi oligarchy created. Increase the supply to meet the demand and the value of being in the cartel decreases. The price of the medallions will continue to fall until ultimately the cost of the medallion will no longer be based on it being an asset, but just another licensing scheme by the government. Once a taxi medallion is just a license, then its cache as something special is lost. And the New York City Council then becomes powerless to force taxi owners and drivers from having to participate in dumb ideas such as the “Taxi of Tomorrow”.

That’s why they hate Uber. That’s why they are trying to destroy the company through endless regulations. Because to politicians, the alternative is too frightening to consider: A world where consumers, not the government, has the to power to choose.

(The reaction of the New York City Council to the popularity of Uber and Lyft)
(The reaction of the New York City Council to the popularity of Uber and Lyft)
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