In order to for New York City taxi drivers to operate legally, the drivers of the iconic yellow taxis must have a medallion issued by the city’s Taxi and Limousine Commission—the going rate for one is a cool $750,000. That's more money than the combined debt loads of a legal and dental student in New York. That would cover more than 1,500 permits to have a microbrewery in the same city. What's the deal with the insane cost just to be permitted to operate a legal taxi?
The medallions were intended to be more than operating permits from the start. New York City officials defended the policy of limiting the number of taxis (put in place in 1937) as an effort to improve the quality of service and safety of the industry. The FTC found that even though they have to go through this inspection process, safety isn't necessarily improved, and the rationale for such a limit doesn't pass the FTC's muster. The report issued by the FTC found that not only are there are lower-cost methods of regulating quality of service and vehicle safety preventing new drivers or firms from entering the market, “wastes resources and places a disproportionate burden on low-income people.” (Who would have expected a federal agency to criticize government waste?)
This waste comes from the limited number of medallions, which gives the taxi firms unfair market power. In 1931 there were around 20,000 taxi permits in use in New York. This number dropped, after the institution of the medallion system, to under 12,000 by 1947, and the Commission has kept it low—today there are fewer than 14,000. This artificial restriction of supply allows medallion-owning firms to behave like monopolists in the absence of competition: fewer than the efficient number of rides are traded, pressure to improve quality of service is removed or lessened, and abnormal profits become possible. It's almost as though the mob bosses are running the regulatory business. While we're at it, why don't we just bring Tamney Hall back?
But even with the supply of medallions artificially low, the price should at least mimic changes in demand, right? Not so, says Dan Cummings of Illinois Wesleyan University. He found that unemployment and medallion prices are inversely correlated—as more people are employed, they buy more taxi rides, creating more profits for taxi owners, and the price of medallions goes up. Cummings also found that dips in the stock market, which often accompany depressed demand, are correlated with higher medallion prices. So no matter what happens in the demand for taxi rides, the price always go up.
As bizarre as it is to have an ever increasing price of a commodity, like gold, up 181% since 1979, the growth of that "intrinsically valuable" commodity seems to follow a natural ebb and flow. Since 1979, medallions have been increasingly traded as commodities. This is likely because that year, the city allowed owners to lease their medallions to contracted drivers. Owning a medallion provided a steady stream of profit, along with capital gains when sold. They have since been viewed as a safe-haven commodity, which explains why medallion prices rise when the stock market is down. Returns are enormous: Bloomberg reported on Aug. 31st that medallions are up 1030% since 1980.
With only a few medallions issued each year and medallion price nearing a million dollars, it is increasingly difficult for new individuals and firms to enter the market. With very few firms entering the market, the incentive to innovate and benefit the customer is dramatically reduced. Officials are unlikely to risk policy changes, fearing the incumbent taxi firms as well as investors; not to mention the adrenaline rush that comes with that kind of power. The one sector of New York’s public transportation that had the potential to be market driven and find quick solutions to its problems will most likely continue to be subjected to the mafia's way of doing business and corrupt public officials, ever needful of someone else's money. Instead of alleviating the MTA's issues of overcrowding, the inefficient medallion system compounds and complicates the problem. Once again the big government solution helps the fat cat investors, hurts the average New Yorker, and brutalizes the lower income workers who depend on public transit. Isn't it nice to know that a big, friendly government can take care of us so well?
Taylor Adams, guest contributor
No comments:
Post a Comment