Sunday, January 16, 2011

The Economics of Anti-Consumer, Protectionist Taxi Cartels: $624-850,000 for a NYC Medallion

The "priciest piece of aluminum in NYC" - a taxi medallion that is required to operate a single cab in NYC - reached a new record-high of $624,000 in December for an individual medallion (see chart above, data here), more than double the average price for a medallion in 2004. The average price for a corporate-owned taxi medallion reached a new record high of $850,000 at the end of last year. Here's a classic article about taxi regulation from Jeff Jacoby, written back in 1995 when the NYC medallions were selling for only $140,000:
The taxi business, after all, ought to be a model of free enterprise. There are plenty of buyers (passengers), plenty of sellers (drivers), and no barriers to entry beyond the price of a car. If it weren’t for government interference, the laws of supply and demand would govern the taxi trade with almost frictionless efficiency: Cabs would be plentiful, fares would be reasonable, and service would be available nearly everywhere it was wanted.

But governments do interfere. Taxi owners routinely get the state to kill their competition. “London’s first recorded taxi war, in 1636, did just that,” the Economist recalled some years ago. “Sparked by the resentment of Thames water taxis at growing competition from coaches on land, it led to a proclamation from King Charles I restricting the number of coaches to 50. Lucky coachmen were happy. Watermen were happy.” But customers got gypped.

A lot of medieval practices have been junked since 1636, but protectionist taxi regulations aren’t among them. Nearly every major US city (and thousands of smaller ones) chokes off access to the taxicab market. Exactly 11,797 taxicabs, for example, are permitted to operate in New York City — a figure that hasn’t budged since World War II. FDR was in his first term as president when Boston decreed that only 1,525 cabs would be permitted on its streets. Other than a few new medallions for wheelchair taxis, 1,525 remains the limit.

The results? Right out of Econ 101: The supply of taxi medallions is far lower than the demand, so their value long ago exploded to obscene levels. Today, the going rate is about $140,000 in New York; about $90,000 in Boston. Those who got medallions when the getting was cheap grew rich. Everyone else got shafted. Would-be cabbies are forced to choose between going deeply into debt to buy a medallion or paying murderous lease rates to somebody who owns one. “In essence,” write Chip Mellor and John Kramer of the Institute for Justice, “cab drivers become urban sharecroppers.”


At 1/16/2011 3:07 PM, Blogger Willaim said...

The situation is even worse than your report. Currently NYC taxis owners incorporate each cab as a separate corporation under NYS law. The political class has arranged for the taxi liability to be limited per person to $75,000; and incredible insurance subsidy in a city where six figure salaries are very normal; this limit on liability is arranged by the political class for the exclusive benefit of taxi owners and the detriment of the ridding public. Of course a major source of campaign contributions and other favors to the NYC & NYS state political class come from the taxi owners. The taxi liability insurance is provide through a few special insurance companies who stall payments and engage in tactics that no major auto insurance company would be able to engage in. I know this first hand because I’m the administrator for the estate of a young woman killed by a cab 2+ years ago and still we’ve not reached the end of the process.

At 1/16/2011 5:23 PM, Blogger juandos said...

The citizens of New York city deserve everything that their city government foists off on them...

I mean who else votes these parasites into office other than the citizens in the city?

At 1/16/2011 11:06 PM, Blogger Dangerous Dan said...

You echo my thoughts to a tee, juandos. That whole medallion business personifies the adage that, "You get the government you deserve."

At 1/19/2011 12:03 AM, Blogger Willaim said...

You’re absolutely correct about the people as a whole in NYC deserve the consequences of the political choices made at the ballot box. However, we live in a republic with rights and limited government; there is a minority that has not drunk the socialist Kool Aid and I believe that we’ve been abandoned by the Federal Courts. One simple observation is that it’s almost impossible for anyone to buy a handgun in NYC; the Federal Courts have abandoned us. Rent control is permitted by the federal courts even those it violates the Fifth Amendment to the Bill of Rights and is a constructive taking. My point is simple each one of these and many more “Progressive tyrannies” has been permitted by everyone’s acquiescence in this withdrawal of Constitutional protection.

At 3/25/2011 9:11 PM, Blogger Jack Diederich said...

I live in Boston, and from chatting with cabbies the price of a medallion has more than doubled since that 1995 article to $200k+.

The state gets involved in other ways. Taxis licensed in one town are only allowed to drop off passengers in another - they have to drive back home in an empty cab. Boston proper has a dedicated police "hack unit" to bust cabbies from next door Cambridge or Somerville picking up return fares, but Somerville has just one part time officer to do the same.

So we all pay more because not only do cabs drive around empty to get back to home base but because as taxpayers we pay for extra police to ensure they do so.


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