Megan McArdle‘s latest Atlantic feature (not yet posted online) focuses on Uber, an “upstart company” offering an alternative to traditional taxicab service in a growing number of major metropolitan cities. McArdle uses Uber’s story to tell the tale of regulation’s unintended consequences.
Many defenders of regulations argue that restrictions are necessary because cabdrivers make so little money as it is. But there’s very little evidence that restricting the number of cabs improves the lost of the people who drive them, rather than the lot of the companies that, by and large, own the licenses. It’s simply too easy for new would-be drivers to show up at a taxi service and compete cabbies’ earnings down — in these days of GPS, you don’t even need to be familiar with the area. So any excess profits from restricting entry tend to accrue not to the drivers, but to the people who own the right to drive. Last October, two New York City taxi medallions sold for $1 million apiece.
“In New Haven, nearly every taxi is owned or controlled by [the same] person,” Robert McNamara, an attorney at the Institute for Justice, which litigates against these sorts of rules, told me. Restricting entry “hasn’t made the drivers better off.”
Nonetheless, the public fights usually get framed as consumers-against-drivers. And regulators respond with a patchwork of policies to pay off various constituencies — entry restrictions in exchange for lower fares, “fuel surcharges” in exchange for laws requiring drivers to take you anywhere in the city.
Almost all the everyday complaints about cabs trace back to this regulatory cocktail. Drivers won’t take you to the outer reaches of your metropolitan area? The regulated fares won’t let them charge you more to recover the cost of dead-heading back without a return customer. Cabs are poorly maintained? Blame restricted competition, and the inability to charge for better quality. Cabbies drive like maniacs? With high fixed costs for cars and gas, and no way to increase their earnings except by finding another fare, is it any wonder that they try to get from place to place as fast as possible?