Thursday, July 07, 2011

The D.C. Taxi Hobgoblin and Government "Solution" to a "Non-Problem": Create a D.C. Taxicab Cartel

Is a Taxi Cartel Like This Coming to D.C.?

In the 1920s, H.L. Mencken said "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary."   

Exhibit A: 

Taxicabs in Washington, D.C. are plentiful (estimated to number as high as 10,000), accessible and easy to find almost any time or day, and with fares cheaper by 20-25% than regulated, limited entry markets ("cartels") like NYC and Boston.  From my personal experience, most D.C. taxi drivers are owner-operators who enjoy working for themselves and being able to set their own hours.  As a group, the drivers are generally friendly and courteous.  In other words, it's a consumer-driven, market-based  industry with affordable fares and great service, and both the D.C. taxi drivers and D.C. customers are perfectly happy with the current system. 

So what's the problem?  There really is no problem, unless apparently you're an over-zealous, anti-market, meddling bureaucrat, and/or a large, anti-competitive taxi company with a self-interest in controlling a large share of a restricted market with high barriers to entry.  In that case, the government "solution" to D.C.'s "non-problem" with its taxicab industry is to create a "taxi cartel," by artificially restricting the number of DC taxicabs to only 4,000 (putting thousands of taxi drivers out of work), and charging a $10,000 cartel membership fee to purchase a special license called a "medallion." 

It's pretty easy to predict what will happen with a DC taxi cartel: There will be fewer cabs, the taxi fares will be higher, it will be more difficult to get a cab during peak demand, and customer satisfaction will deteriorate.   

And what will happen to D.C. medallion prices over time?  We can look to NYC to get an idea.  When NYC capped the number of taxis at about 12,000 in the 1930s, the first medallions sold for only $10 (about $157 in today's dollars). Medallions for individuals are now selling for $673,000 as of June 2011, an all-time record high (see chart above).  That's an annual return of 12.65% for owning NYC taxi medallions since 1937, more than double the 5.9% annual return for the Dow Jones Industrial Average over that same period, clearly demonstrating that "cartel membership has its privileges."

For more background and a video, see "D.C. Taxi Heist: How a new law would screw drivers and riders." 


At 7/07/2011 5:42 PM, Blogger Benjamin Cole said...

Seems to me, all jitneys should be legalized.

In Thailand, guys with pick-up trucks put slats over the wheelwells, and a roof.

That's the way to do it.

At 7/07/2011 6:07 PM, Blogger Methinks said...

Ever notice that the only solutions government finds are to non-problems? Always seems to end in perversion. Damndest thing.

At 7/07/2011 11:44 PM, Blogger Willaim said...

The reality behind the push by the DC politicians for a taxi concession monopoly is far more sinister. The political class realizes that the government regulation of the medallion taxi monopoly will open up whole new horizons for campaign contributions, jobs for the politically connected and shockingly yes bribes, yes outright bribes. Take the case of NYC currently there are 10,000+ medallion taxis, each medallion sells for approximately $675,000 x 10,000 = $6,750,000,000 in total market value or in English nearly 7 Billion Dollars! If the holders of the monopoly only spend 1% per year defending and protecting this politically granted monopoly that is $67,500,000 or in English nearly 68 million dollars to be given to the political class. If you owned an investment that went from $10 to $675,000 over the last 80+ years or increased at an annual rate of 12.65% I’m quite sure you would be more than willing to share your bounty at a rate of at least 1% per year, and probably more since if the monopoly vanished at the stroke of the legislative pen you would have nothing! Furthermore you can probably gain additional leverage with each new payment, just to give you one simple advantage that NYC taxis have their liability for a wrongful death, or a maiming or other injury is capped at $75,000 per person! This in a city where six figure annual incomes are commonplace, and greedy Wall Street bankers routinely earn 7 figures. Of course this whole monopolistic system holds up prices and holds down supply; just try to get a taxi at theater curtain time in the rain. Even more fundamental the mentality of getting our piece, the corruption and sense of entitlement this monopoly creates in politicians spreads to all areas of the NYC political economy. NYC politicians routinely expect to be paid for all kinds of business “favors”. This mentality also then becomes a problem with the civil service seeking bribes, when they see the vast benefits their political masters reap. If one is reminded that Marion Berry a corrupted politician disgraced as mayor today sits on the DC city council as member one can soon see where this idea medallion taxis will drive civil society DC too.


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