By Request: Taxies
Sam L writes:
As a former New Yorker, do you have any insights as to why NYC maintains a command economy for taxi service? I understand the desire to have some kind of licensing system and to protect consumers and especially tourists from egregious rip-offs. What I don’t understand is why they have decided the best way to accomplish this is to have the city government arbitrarily set the supply, prices, and wages for the entire industry.
Well, I don’t think this is too hard to understand. On the one hand, the case for regulation of cabs is compelling. On the other hand, once a regulatory scheme is in place you wind up with regulatory capture and rules that serve narrow interests rather than the public interest. Ryan Avent has a detailed discussion of the issue. I some ways the interesting question is why taxi regulations aren’t worse than they are. I suspect the fact that the consumers of cab rides are, in cities like New York, a disproportionately upscale group to whose interests politicians are unusually responsive. Conversely you have cases like Las Vegas where the customers are all short-term tourists and it becomes about balancing the interests of the cab companies and the interests of the casinos.
32 Responses to “By Request: Taxies”
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January 10th, 2009 at 9:26 am
Anecdotal data point: Illegal car services proliferate in Brooklyn and Queens and I imagine the Bronx. I used to take illegal car services all the time in QNS. You just flag down the car, tell them where you are going, and negotiate a fare up front. If you get a phone number from the driver, you can call him up just like you call a taxi.
January 10th, 2009 at 9:47 am
The most important thing about the economics of NY City taxis is that the public license has become private property and is stupendously expensive and a huge barrier to entry into the market. A quick Google says a license recently sold for $600K.
The buyer now owns that license and perhaps stupidly thinks he might sell it some day for a profit. None of which has anything to do with providing transportation to anyone. All such public licenses should not be transferable, be allowed to be auctioned by the licensee. Let the city sell the license, even auction it but don’t let the holder resell it. Instantly the cost of entry into the market drops a half a million dollars.
It’s too late for NYC. Revoking the right to sell would immediately bankrupt every operator in town. A political impossibility. Most places issue a license for a one time or annual fee. That is the only model that makes sense. As a matter of principal no private party should be allowed to profit from the sale of a publicly issued license or right.
None of which has anything to do with regulation. Regulation is almost irrelevant when it costs hundreds of thousands of dollars to put a cab on the street.
January 10th, 2009 at 9:55 am
Addendum. Liquor licenses are another place where this ownership model often plays out in localities across the country. Again making entry into the bar or restaurant business very expensive. Ownership of said licenses has lead to much murder and mayhem over history. Thus proving what a disastrous public policy it is.
I suppose NYC uses this model for liquor too.
January 10th, 2009 at 10:09 am
Taxi regulation in NYC certainly is not pegged to the drivers’ welfare — but that is typical of the plight of labor across the wage depressed American labor market. Up until 2006 the NY meter was $1.50/mile — down from $2.25/mile in the 2006 dollars in 1974; 66% increase in average income later; while serving the only place on earth (in history!) where wealth is a plateau no a pinnacle, Manhattan below 110th St.
Ditto for taxi regulation in Chicago where we had one 30 increase in the meter between 1981 and early 1997 (at which point I was beginning to hack in S.F.), at which 1990 midpoint Chicago made livery unlimited, began buidling subways to both airports, proliferating free trolleys between all the downtown hot spots and, oh, began putting on 40% MORE taxis in a town where the business was always comparatively sleepy (compared to NYC anyway) to start with.
Both cities regulations producing what I call “whole segment unemployment”: no American born workers will apply (like McDonalds as the fed minimum wage gradually sunk to 1939 levels over ten years). Since the Illinois minimum wage rose to $8/hr (catching up with Ike’s 1956 min) I joke that you wont see any Pakistani cab drivers in Chicago anymore — only drivers from the poorest African countries (mostly true I think).
Sam L just represents the standard American Rent-A-Center level knowledge on economics — cannot blame him much for being sucked under by the lack of knowledge surrounding him.
January 10th, 2009 at 12:21 pm
Rapier is 100% right on regarding taxis.
In addition to what rapier says: I don’t know the precise details, but it’s worth noting that the cost of a license (called a “medallion”) is so high, I believe, that individuals can’t generally afford one and are forced to lease them at punitive rates from the actual holder. Before this practice was enacted (1970s?), it was possible to make a decent living driving a cab in New York; now, it is not.
January 10th, 2009 at 12:36 pm
I don’t know if bans on reselling are very good ideas, but frankly, I don’t see why we should be auctioning off medallions in the first place.
Why not just allow any person with a good commercial driving license willing to buy the equipment and follow regulations drive?
January 10th, 2009 at 1:05 pm
Last time I was in India, I noticed that the city of Chennai was trying to introduce meters to the taxis. The deal was this: when you got into the taxi (auto-rickshaw version), you agreed on a price. Then the taxi driver would explain that he would turn the meter on, but it didn’t mean anything. The only thing he asked was that if we had to talk to the police, you would say that he was using the meter. What was interesting was that the meter price had no consistent relationship to the quoted price. Sometimes it was more, sometimes it was less. They weren’t just ripping me off by not using the meter. They just didn’t want the government involved.
January 10th, 2009 at 1:24 pm
Where are the libertarians? I’m sure they would decry any and all regulation of taxis but love the ownership of the license thing. Maybe not. Most conservatives, some libertarians also decry the regulation of broadcast spectrum ownership too. Sometimes going so far as to say the government has no right to regulate it. To which I say fine. Let anyone use any damn frequency they want. I’d love to step all over Rush locally every day with Coltrane’s A Love Supreme. Every day. I highly recommend it anyway.
A deeper point is that government law and regulation is what often creates value. Government creates corporations. They don’t spring from a womb nor are part of God’s creation. And on and on and on……………
Taxis would have little value if every car was a taxi. Licensing and regulation as often as not limits competition and increases price and profit. The entire jihad against regulation is against tiny corners of it.
January 10th, 2009 at 1:56 pm
Sure, but the medallion system in NYC is just a horrible joke. The world’s most important city does not have enough taxis due to barriers to entry. That is a problem, and it needs to be solved. For the love of God, it is easier to get a taxi in almost any other major global city.
January 10th, 2009 at 2:02 pm
“Where are the libertarians?”
In Asia.
January 10th, 2009 at 3:34 pm
fostert, that dynamic will change dramatically when Chennai taxi drivers go from being independent owner-operators to employees of a larger cab company. What meters do is allow someone from the outside to audit the cab driver. Without meters, this is impossible, and cab companies could easily have their employees skim off fares.
That and I did have an experience where a cab driver in China tried to dispute the agreed-upon price once our trip was over.
January 10th, 2009 at 3:38 pm
Sure, but the medallion system in NYC is just a horrible joke. The world’s most important city does not have enough taxis due to barriers to entry.
While I’m sure that this might be true for people in the outer boroughs (where illegal cabs proliferate), generally Manhattanites are extremely well-served by the system, and cabs are much more widely available there in comparison to the situation you will find in other cities.
Unfair? Sure. A horrible joke? Not at all. Cabs in Manhattan, downtown Brooklyn, and downtown Queens are some of the few systems where you can be assured of a large number being at your service at any moment.
January 10th, 2009 at 3:43 pm
Just as a matter of trivia, perhaps, “short term travel for hire” is one of the first truly free markets ever, in the modern sense, and the first to require the heavy hand of government regulation to re-rationalize it.
The first Hackney Carriage laws in London date back to the 1300s if memory serves.
January 10th, 2009 at 4:34 pm
The world’s most important city does not have enough taxis due to barriers to entry.
If you mean shortage in the outer boroughs that is caused by low density not attracting enough service.
As I used to try to explain to minority customers who demanded more taxi service on the south and west sides of Chicago: from the Bronx down to 110th street (southern border of Harlem) when I was driving there you had as high crime and low income as could be and so many cabs they tempted you (competing cab driver anyway) to reach for a can of Raid: high density.
On the other hand, out on both sides of Golden Gate Park in San Francisco (Richmond and Sunset) you have high income and (to a former New Yorker) no crime at all and no cabs at all (hard to get even on the phone: low density.
Adding more cabs will just have more cabs chasing each others tails around the same 10% of NYC — as they do, now, after midnight when 14,000 yellow sharks prowl the streets below 110th Street looking for that one last victim. (They didn’t used to stay out until the bitter end when I was driving there in the late 70s — that was before the lease got sky high to cover the price of medallions.)
January 10th, 2009 at 5:01 pm
Denis, so am I to understand that you drive a cab in SF? If NYC is such a terrible place for cabis to make money, why doesn’t that drive down the pool of people willing to be drivers? Wouldn’t that bring the value of a medallion down to the point where you could make as much money as a cabdriver in NYC as anywhere else?
January 10th, 2009 at 5:06 pm
In my limited travels in Manhattan, I’ve never had trouble hailing a cab from any part of town. Now, in San Francisco, I’ve stood on the corner for 20 minutes before giving up on catching a cab. That’s a town with too few “medallions.”
Speaking of Vegas, the taxi drivers are a powerful enough lobby there that the brand new monorail doesn’t go to the airport, even though the airport is right off of the strip. Instead, you have to pay for a $12 or $14 cab ride to your hotel.
January 10th, 2009 at 9:17 pm
The only time you can’t get a cab in Manhattan is during a shift change. This can be seriously inconvenient if you want one right after work, though fighting rush hour traffic is a fool’s game anyway.
January 11th, 2009 at 12:06 am
mpowell,
Why? Because American labor has let itself become so under-priced, it allows what I call “whole segment unemployment”. That is when the price of labor drops to how little it takes to attract employees who are desperate enough to keep from going back to dollar-a-day labor markets (e.g., Pakistan) to work for a price (spoiled?) American born workers will no longer show up for.
Another example of “whole segment unemployment” is fast food in Chicago and S.F. where only Mexicans (and in S.F. some Chinese) born workers will show up for the minimum wage. That abated some since the Illinois minimum wage rose to $8/hr (thanks to our great governor!) and a few minority faces now show up behind the counters. Don’t know about S.F. lately since the city minimum rose to $10/hr (catching up with LBJ’s 1968 min).
January 11th, 2009 at 12:27 am
too many steves,
Adding more cabs in S.F. may only make things worse outside the immediate downtown. That is because the business is spread around 40-50% of the geography in S.F., not 90% of the business in in 10% of the area like in NY and Chicago.
In S.F. it takes a driver a year and a half — not a half a year as in the other two — just to learn his way around S.F.’s Escher Staircase on drugs geography. Then, the driver has to learn where the business is at what time, on what day, in what week, etc., etc.
Put anymore cabs on in S.F. (they added 40% during the dot com boom) and you will dilute driver pay until you begin to have high turnover drivers who wont have developed “the knowledge” to know where to look for riders, at what time, etc. They’ll probably all be downtown, or at least in the wrong place.
The only solution to low service in outlying areas in S.F. or Chicago is common dispatch in low service areas — which should be very easy to program into the automated dispatch systems coming more and more into use. There is always some cab traveling through your area (back downtown?) — but probably not the company you call. The system could be rigged to check your favorite firm first (keeping competition up — some companies really try) and then switch off of to whatever is available.
Don’t try to suggest this in Chicago, anyone. Chicago’s (typically tyrannical) answer to under served areas was to mandate, several years go, that every driver pick up one under served area radio call every shift — or you lose your chauffeur’s license, not exceptions, strictly enforced. Only problem might be there were historically only 15,000 radio calls a week in Chicago and there are as many as 60,000 shifts a week. You can only guess how Chicago taxi drivers fulfilled the unshakable requirement.
January 12th, 2009 at 3:50 am
A taxi in New York? That’s messed up. Sure, you can always get a taxi at 11 p.m. on a weeknight. Try getting one during morning or evening rush hour, or on a rainy afternoon outside Grand Central.. fagettaboutit buster. Then when you do get one the driver has limited English and the social skills of a serial killer. When I’m in NYC and need a car, I call a car service. Better yet just take the subway.
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