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The Tyranny of Taxi Medallions
- pg 14y agoStructurally this practice is a lot like the preindustrial precursor of taxation, when governments would sell monopolies on the import or production of things in exchange for a lump sum. When obsolete government practices persist, they tend to be pretty sinister.
- ajju 14y agoExactly. A majority of taxi drivers do not own medallions. But decades of being on a "wait list" for the right to buy one and FUD by taxi companies causes a lot of them to dislike ride sharing, when, in reality, it's a huge net win for them.
- arjunnarayan 14y agoI never made the connection to selling monopoly import licenses, but that's exactly it.
- mattmanser 14y agoHonest question, why sinister? What has happened? Another poster is claiming the unregulated Amsterdam market has been taken over by organised crime. That actually sounds sinister.
- argumentum 14y agoIt's sinister because it pretends to be altruistic while simultaneously serving the interest of a small faction.
- drakeandrews 14y agoIsn't it sinister because it's serving organised crime? Would you feel it similarly sinister if the market had been cornered by a startup (or three) with some silly name and a pile of VC debt?
- argumentum 14y agoWhen obsolete government practices persist, they tend to be pretty sinister. Why is this true? Perhaps keeping these practices around, despite them being obsolete, implies ulterior motives?
- vacri 14y agoIt's something of a meaningless statement. A long-term government practice that is seen as good is not seen as obsolete.
- argumentum 14y agolong-term government practice that is seen as good I've never heard of one, asides from the practices that define government itself (laws, courts, police, voting, congress etc), but these are more necessary than good.
- vacri 14y agoSeparation of Powers isn't necessary for government, but it is a good practice, for example. Would anyone serious call that obsolete?
- argumentum 14y agoI agree, it's a good practice, intended to prevent government from assuming a whole bunch of bad practices that (unopposed) it tends to assume. But to take your point to the extreme, democracy, courts, etc are also therefore not necessary functions of government. I'd argue that they are necessary components of a good government. All the best parts of government limit the scope of government .. that says something.
- vacri 14y agoSo take voting. Just saying 'the vote' is way too simplistic. Allowing women to vote? Good, not obsolete. Allowing minorities to vote? Good, not obsolete. Electoral college method? Facilitates sinister behaviour, obsolete. Districting rules that allow for relatively easy gerrymandering? Obsolete, and definitively sinister. Promotional materials encouraging people to exercise their rights by voting? Good, not obsolete. All the best parts of government limit the scope of government .. that says something. No it doesn't. That's an overly simplistic slogan. Provision of universal healthcare is a clear and topical example.
- seanalltogether 14y agoI've brought this up in another thread, but over in the UK, due to a lack of property taxes, its possible to purchase a home, yet stil have to pay a yearly ground rent to a private party. The cost to own land in nothing, so there's little incentive to ever sell it, and instead lease it out. People may complain about property taxes in the USA, but it prevents this very practice from happening. It would be better for everyone if the medallion system switched over to a yearly taxation/bidding system. You would lose all these middleman renters.
- argumentum 14y agoI don't understand .. why would you purchase a home without the land it rests on? In a free market, perhaps there is some lower price where you would do this, but there is also a higher price where you could purchase the land as well.
- bcgraham 14y agoBecause that's the only type of home on the market!
- aetherson 14y agoWell, argumentum's point is that presumably there is some cost at which the ground holder would sell the land. Like, if the ground rental brings in $10,000 per year to the owner of the title, and I came along and said, "I will pay your $1,000,000 for the title," well... I'm offering you one century's worth of ground-use fees up-front. Presumably all but the most irrational actors would sell their ground.
- larrys 14y ago"When obsolete government practices persist, they tend to be pretty sinister." How might you propose to compensate people who, in good faith, bought taxi medallions (a legal practice)? (Or do you feel that's not necessary?)
- rhizome 14y agoHere in SF they are illegal to sell and must be issued to a person (not a company). People get on the waiting list, get their turn, then rent them to taxi companies for (I believe) ~$100K/yr. Many medallion owners have not driven a cab in years, or never have.
- schiffern 14y agoThe article said it pretty well. >So, medallion holders speculated in holding a government asset and lost. Some of these people are also taxi drivers or operators of taxi dispatch companies. Like Greek bondholders, they gambled and lost big.
- larrys 14y ago"So, medallion holders speculated" Don't agree with that at all that is what the article says. (It doesn't match up with my definition either based on my years of business experience either.) Definition of "speculation" from investopedia: "The act of trading in an asset, or conducting a financial transaction, that has a significant risk of losing most or all of the initial outlay, in expectation of a substantial gain." Based on history there is no reason to believe that the purchase of a taxi medallion could result reasonably in losing "most or all" of the initial outlay. (Unless of course you decided to buy one while ignoring the current events going on of course). http://www.investopedia.com/terms/s/speculation.asp http://www.investopedia.com/terms/s/speculation.asp Of course you can make any investment or purchase speculative depending on how much of a chance you want to take. If you decide to get in on an up and coming area in real estate (a run down area that you hope will change over the course of many years) that could easily be seen as speculation. Otoh, buying a condo in a well established neighborhood that has a history would not be seen as speculation which is not the same as saying that you bought because you felt that the value could double and if that doesn't happen you may feel you have "lost" something (the high gain you expected). Even in the case of eminent domain taking of property for public good the property owners are compensated somewhat fairly for the loss of value of their property. The government doesn't come along and say "hey we need this area for a road sorry guys to bad it happened to you". I would go further to say that these medallion owners would band together and at least attempt to do whatever they could legally to find a way to prevent something like this from happening if they could. Why? There is enough money involved to pay lawyers to muck up the process or delay it (just like with eminent domain, people even if there is compensation, will do that.)
- jonnathanson 14y agoSee also: liquor licenses, various types of zoning permits, etc. In certain states and cities with especially draconian licensing systems and quotas, the aftermarkets for permits and licenses tend to get ridiculous. Not quite as ridiculous as taxi medallions, but pretty ridiculous nonetheless. (Liquor licenses in certain parts of California have broken the $200,000 mark at auction, for instance).
- jcampbell1 14y agoIn healthcare many states require "Certificates of Need", before building any healthcare facilities or even buying equipment. I think it is cost control by granting monopolies. If you eliminate competition, the providers will be able to operate more efficiently and lower costs... I kid you not, this is the explanation.
- meric 14y ago"governments would sell monopolies on the import or production of things in exchange for a lump sum" Still happens: http://www.smh.com.au/nsw/port-leases-garner-5-billion-windfall-for-state-government-20130412-2hq7k.html http://www.smh.com.au/nsw/port-leases-garner-5-billion-windf...
- tptacek 14y agoApart from all the obvious externalities of cab driving operations, the extremely high probability of fraud, and the fact that policing cabs is extraordinarily expensive, there's another problem a lot of these analyses miss about why cabs are regulated the way they are. In many large cities, the taxi system is a fundamental component of the transport infrastructure. There are locations in most cities that are not efficiently or safely reachable via bus. Visitors to cities also tend to need point-to-point transit; it takes some know-how and a lot of flexibility to get from an airport to a business meeting in a near suburb, for instance. Taxicabs are effectively a privatized component of metro transport systems. Cities therefore have a powerful interest in making sure that whatever else happens, there is a strata of taxi service available to all residents of the city at some predictable rate.
- dantheman 14y agoI don't know what taxis you ride in, but i routinely ride in medallion taxis that either use GPS or their iphone to figure out where to go. I've also had some claim that they're at the destination until I pull out my phone and point to them on the map where to go. If you want to regulate taxis, you can still do that - but there is no reason to limit the supply of taxis.
- dominicmauro 14y agoThe guy you're replying to just gave you a reason to limit the supply of taxis: regulating them is expensive.
- aetherson 14y agoThat's not a reason to limit the supply of taxis. That's a reason to charge a fee for a taxi license that defrays the cost of regulating them.
- mindcrime 14y agoSounds like a reason to stop regulating taxis to me. If some sort of independent "certification" is needed, there's no reason the free market can't provide such a service. In fact, it such a service is actually valuable, it's almost inevitable that it would emerge.
- hayksaakian 14y agoannoyingly this link goes to the home page, not the actual article -- otherwise a good read.
- ajju 14y agoFixed. Sorry about that.
- onemorepassword 14y agoThere is a flipside however, for those who think deregulation is the answer. In Amsterdam, the taxi market has been completely deregulated. You do not want to get a taxi there unless you order it from a trusted source, and even then it's ridiculously expensive. And you don't want to try to disrupt that market unless you have good organized crime connections...
- jameshsi 14y agoyeah, i'd be interested in comparisons of urban transportation across the globe. beyond taxis, an analysis with comparisons like underground use vs. taxi etc would be a great follow up to this article.
- bhb916 14y agoThat seems more like a failure with "regulating" organized crime than a call for regulating taxi cabs.
- zalew 14y agowhat it means is you changed one monopoly for another.
- learc83 14y ago>And you don't want to try to disrupt that market unless you have good organized crime connections... How much of that is caused by decriminalization of drug use without decriminalization of large scale drug supply?
- adventured 14y agoIf organized crime is involved (or similar), then it's a failure of government.
- arikrak 14y agoBy the time they get around to de-regulating the medallion system, self-driving cars will be available, which will put taxi drivers out of business. (Unless they block that too.)
- r00fus 14y agoSelf-driving taxis will put themselves out of business once they either a) crash, killing/injuring someone, b) are regularly used for illegal activities, or c) deliver someone into a dangerous situation. If that doesn't happen, the existing taxi industry will surely get into the game to make one of those happen, tout-de-suite.
- coldtea 14y ago>The reason taxi drivers have to pay for the right to work is that they need access to a taxi medallion to do their job. A medallion is a permit issued by the government that is required to drive a cab in most cities in America. If you don’t use the medallion yourself, you can rent it out to other drivers on your own or, more commonly, through a taxi company. Taxi companies that rent out access to the medallions have immense economic power over the drivers. If you’re not willing to basically become an indentured servant to get medallion access, well, you’re out of luck. I don't see how the medallion itself (a permit issued by the government) is the problem here. The problem is that the taxi drivers are not allowed to get it directly for themselves, but have to rent it. And another problem is that this "indentured servant" renting is allowed to take place. Fix that, not the requirement to have a permit to drive a cab (which is useful, as it acts as a filter for all kinds of scum drivers if enforced properly).
- enoch_r 14y agoTaxi drivers are allowed to get medallions. But since the supply is so low, they usually cost a few hundred thousand dollars. So people rent instead. Fixing that by outlawing medallion-rental is like trying to make housing costs cheaper by outlawing apartments. A much better solution would be to eliminate medallions, which could be done without removing the licensing system filter.
- macspoofing 14y ago>I don't see how the medallion itself (a permit issued by the government) Well... now you're playing word games. A medallion, as commonly understood, is a very specific type of government-issued permit, with special properties (like being transferable and severely limited in supply).
- brador 14y agoTaxi drivers significantly under report earnings for tax purposes. They always claim close to minimum wage. You'll find the same in every cash business.
- macspoofing 14y agoProbably, but I can guarantee you that the vast majority don't make a lot of money.
- JackFr 14y agoPresumably they're making more than their next best alternative.
- ajays 14y agoI once asked a cab driver how much he made (in SF), and after humming and hawing, he implied that he made close to $90K/year, mostly tax-free. Take it for what it's worth (sample size == 1), but there are a lot of people who would love to be driving a cab in SF. Cab drivers who rent the cabs pay $300 for an 8-hour shift on weekends (Friday evening - Saturday morning), and still manage to make enough money to make it worth their while.
- untog 14y agoTaxis (in New York at least) are definitely not cash businesses these days. A lot pay by card.
- warfangle 14y ago>After the customer leaves the car, there is no record of their behavior in the taxi. Really? I haven't looked hard for them in NYC Yellow Cabs, but every livery car I've hired has had a security camera inside.
- ilamont 14y agoI drove a taxi as a summer job in college in my hometown (small city near Boston). I thought I would share a few observations. In our city, there were three companies that owned the medallions. An unwritten rule: The city was divided into territories, and we weren't supposed to pick up in the other territories unless we were flagged down. If someone from another territory called our company, they were told to call one of the others and arrange for the pickup. 75% of our business was call-ins or pre-arranged pickups (students, travellers, sometimes people with revoked licenses). Another 20% was pickups at the taxi stands outside the subways stations or hotels. There were a very small number of people flagging us down on the street. In Boston, there are many more street pickups. Note that this was all before the cellphone era. We also couldn't pick up in Boston, unless someone called us in advance. Even if we were flagged while driving through the city (for instance, coming back from a drop-off), we had to ignore. This was by law, to prevent cabs from Cambridge or other towns from taking business away from the Boston cabs (and Boston cabs from taking business from Cambridge and the 'burbs, etc.). It made airport runs a bit of a risk -- while the fare was higher, since it was almost impossible to be able to pick someone up after dropping off someone at Logan, we were basically losing the opportunity to take other passengers for 30 minutes (or longer, depending on the traffic). I should also add that rates in Boston were cheaper than other nearby cities and towns. This would make some passengers angry -- "it only cost me $X to come from the airport. Why is it $X + $20 now?" We got a cut of proceeds off the meter, plus tips. Part-timers had to take the worst shifts, and the worst cars -- old LTDs and Ford Fairmonts that often had major mechanical problems. It was a poor way to make extra money -- unless you had a busy shift (rush hour, or rainy days) there was lots of down-time, which meant fewer receipts.
- VLM 14y agoAn excellent current and historical comparison can be made to the ambulance medallion system. Oh wait, there isn't one...
- sixQuarks 14y agoDoes anyone here actually use Priceonomics to look up prices on things? I find it almost completely useless, is it just me?
- mathattack 14y agoTaxis seem to keep their status by being a very focused interest group. In NYC there are never enough. Why not just sell more medallions? I don't buy the "There's too much traffic" argument. Or why not sell regional ones? Try getting a taxi in Harlem. The city's approach has been to look the other way on private cars. I would rather see Bloomberg allow disrupters to break the system. What's he have to lose? He can't get elected anyway...
- untog 14y agoIn NYC there are never enough. Depends very much on where you are in the city. Aside from shift changeover periods, I'd say that there are plenty of cabs in Manhattan. In the outer boroughs, less so- Bloomberg proposed a plan to allow 'green cabs' that could pick up passengers in the outer boroughs only. It was swiftly beaten in the courts by the taxi industry.
- malandrew 14y agoThis article makes one awesome point for regulation that would be beneficial: exchange of data on passengers and drivers. Even if opt-in (for privacy reasons) this would be awesome. As a customer, I would love for my reputation on Lyft to be usable on SideCar and vice versa. On top of that, I'd love to be able to call a car from both companies simultaneously and whichever company gets met a driver first wins my money. Requesting a car needs to look more like the financial system where your broker puts out a buy order and a broker representing the driver takes that buy order.
- codex 14y agoMedallions exist for a very good reason: they prevent a tragedy of the commons from creating gridlock and pollution in major cities by limiting the number of cars circling around doing nothing on city streets. Most of the time, cabs just drive around waiting for a fare. This is because cabs are often hailed when they are seen, but even if a cab is summoned by a phone call (or smartphone) the closet cab to the fare is chosen, and it's hard to get close to fares without driving around, because parking the cab downtown is expensive and slow. So, cabs use the city's public streets as mobile parking lots, hovering close to potential fares, snarling traffic, and emitting greenhouse gasses until they snag one. Increase the number of medallions, and you have a corresponding increase in the amount of traffic in a city as cabs wander around fishing. Cab drivers don't care if they're slowing everyone else down. They just want to earn a living. So it's better to have fewer cabs busy 100% of the time than more cabs which aren't always busy. Thus, medallions are scarce. Recently NYC decided not to issue more medallions, because the increased availability of cabs would be more then offset by increased time to get from point A to point B due to more traffic congestion. This is a strong argument for regulating this new breed of unlicensed cab services. They must not be permitted to loiter around in traffic hoping to be the car closest to the next fare. They must either have a medallion or be parked when not actively on a call.
- jstanley 14y ago"they prevent a tragedy of the commons from creating gridlock and pollution in major cities by limiting the number of cars circling around doing nothing on city streets." Why would a free market not prevent this? if there are excess taxis, taxi-driving is not profitable. If taxi-driving is profitable and there is still gridlock, that is a different problem. Avoiding gridlock by creating an artificial shortage of transport is not an appropriate solution IMO.
- vacri 14y agoWhat about other industries that need the streets? What you're saying is akin to saying "Who cares if the creek is poisoned downstream, I need to dump into it to maximise profits!"
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- adventured 14y ago"In the last half decade, two trends conspired to end the taxi medallion regime. First, people are more comfortable with trusting strangers." This isn't true. When I was growing up, hitch hiking was still very common. I'd argue that people used to trust strangers to a radically higher degree before the prohibition based crime wave (the one that makes swaths of every city in the US more dangerous than Afghanistan) that began in the 1960s.
- adg 14y agoI agree. But as the article goes on to point out, we are not more trusting of complete strangers, but rather strangers who've been vetted by many AirBnb reviews, background checked by Uber, etc. Technology has changed the definition of a 'stranger'.
- elchief 14y agoOdd, no mention of driverless cars, which are sure to wipe out the taxi industry entirely.
- evv 14y agoThe last sentence of the article: > Ride-sharing apps should be allowed to take over the market - until they too are disrupted by self-driving cars. And so it goes. There are a large number of technical and political hurdles before driverless taxis will be possible. We will need autonomous vehicles on the road for many years for legislation to adapt and for people to become comfortable with the driverless concept from a safety and liability standpoint. Still, I'm with you that it is inevitable, and very exciting.
- damian2000 14y agoGreat article. I'm interested as to what the effects would be on the taxi industry from these ride sharing apps combined with self driving cars. I think it would likely result in a further more efficient transport system - less people having to own cars, a decreased need for car parking.
- ajays 14y agoPeople are bringing up "market forces", etc. The solution that I think would work in SF is as follows. Charge a flat rate (say, $50K/year; though a Dutch Auction might be reasonable too) for leasing out a permit to qualified drivers. You qualify drivers by running background checks, and testing them on the knowledge of the city. Pass a law that makes illegally running a cab a serious offence. This will automatically solve the "tragedy of the commons" or "too many cabs" problem, because if there are too many cabs, they won't be able to make the $50K/year needed to break even. If 2000 cabs (a number 20% larger than the current fleet size) enroll in this, you're looking at an additional $100M/year. To run the program, have a small enforcement wing of SFMTA (instead of the current gigantic bureaucracy that micromanages everything). Offer up an open API so people can build apps that track cabs, hail cabs, etc. The medallion system is 19th century. We need a 21st century system.
- rdl 14y agoI wish all the cab-alternative companies using unlicensed drivers would get together and form some kind of industry association. Standardize a background check, safety check on the vehicle, incident reporting, etc., through this independent non-profit. Essentially they could neutralize the moral argument for licensing ("safety! think of the children") at minimal cost, then get back to innovating.
- minikomi 14y agoI'm cashing in all my bitcoins and investing in NY taxi medallions
- smutticus 14y agoIn 20 years all taxi drivers will be unemployed due to self-driving cars. So who cares? Robots don't need health insurance and never strike.
- sstrudeau 14y agoThe medallion system is certainly far from optimal and a different regulatory regime that allows for innovation while still addressing concerns around impact on traffic (public roads=classic tragedy of the commons case) and passenger safety would be widely welcome. It could certainly improve the customer experience on many axes (quality, availability, timeliness, cost, etc) though I'm skeptical it would do much to improve the lot of the average driver. Taxi driving is a relatively low skill field, so there wouldn't be much incentive for these new ride sharing companies to treat drivers any more fairly than they are currently treated, since drivers will need to work for whichever companies have the largest market share of potential fares.