Medallions: individuals are now suffering the result of yet another Government distortion of the Free Marketplace

by Skip

NYC cab medallionNo, not the kind that goes around your neck or on the wall.  No, this is all about NYC cab medallions – and why? Gosh, doesn’t this resemble the housing crash of 2008? Or in similar ways, the problem with the healthcare marketplace being taken over by Government? Or what Government did with “restructuring” the auto market industry?  Or…..well, you get the picture of where I could go with this as it seems that Government has inserted itself everywhere (emphasis mine, reformatted):

Ride Hailing Is Being Blamed For Taking Down Credit Unions In New York City

It was always obvious that ride hailing (or ride sharing) apps such as Uber and Lyft were going to cause big problems for the cab companies. The traditional taxi operations (and their unions) were either going to have to up their game and offer better service or they would go the way of the dinosaur. But in New York City, the rise of this new business model is being blamed for the downfall of some lenders who specialize in catering to the cab industry. The Associated Press has the details.

Ride-hailing apps such as Uber and Lyft have been so disruptive to New York City’s taxi industry, they are causing lenders to fail. Three New York-based credit unions that specialized in loaning money against taxi cab medallions, the hard-to-get licenses that allow the city’s traditional cab fleet to operate, have been placed into conservatorship as the value of those medallions has plummeted.  Just three years ago, cab owners and investors were paying as much as $1.3 million for a medallion. Now they are worth less than half that, and some medallion owners owe more on their loans than the medallions are worth.

But it’s not Uber or Lyft causing this damage. It’s the existence of the extremely corrupt medallion system itself which set them up for failure. For those not familiar, the medallion system in the Big Apple is a toxic holdover of the Tammany Hall mentality which has infected urban politics for as long as anyone can remember. Here’s how this poisonous mess came about.

In a mythical world which supported an open, capitalist, democratic free market, becoming a cab driver would be relatively simple. Anyone who wished to get into the business could apply, demonstrating that they had the proper level of drivers license (most likely a chauffeur license, indicating the required amount of training), a properly operating vehicle which was safe for occupants and some form of background check to eliminate felons from the system. Then, perhaps after paying a reasonable fee to cover the background check and processing, the applicant could get to work.

But in New York City, officials who have always been in the pockets of the cab companies and their unions declared a limit on the number of cabs that could be in operation. In order to participate you would need to obtain a “medallion” from the municipal government. This was a horrid idea to begin with because in a true free market system the number of cabs would be limited to the amount which could profitably operate. Competition would keep prices at a minimum and service quality high as the individual drivers and companies strove for the biggest possible share of the market. But in New York, all of that was eliminated by the artificial cap. To make matters worse, they made the medallions transferable, immediately creating a marketplace for the buying and selling of this item which had zero intrinsic value except the “worth” artificially created by government mandate. (In that regard it’s pretty much identical to the massive scam currently going on with RIN credits under the Renewable Fuel Standard system.)

With only a finite “supply” of medallions, the price for them quickly became astronomical, sometimes exceeding a million dollars just for the “privilege” of operating a business. The artificial “value” of the medallions was then traded upon by owners with the credit unions (which were set up by the taxi industry to begin with) so when the market essentially collapsed after Uber came to town the entire house of cards began collapsing.

If you’re looking for someone to blame here, don’t point your finger at Uber and Lyft. This corrupt system was put in place by an unholy alliance between the municipal government, the cab companies who wanted to eliminate competition and their unions. Uber didn’t destroy the value of the medallions because they had no actual value to begin with. And if the credit unions were foolish enough to accept them as collateral in lending transactions, the blame for that should land a their own doorstep as well.

Jazz is right – it should be easy to “set up shop” and get into business. We oft use the phrase “Land of the Free and home of the brave”, right?  How can that be if Government is limiting the choices we can make on our own (for Freedom is quantifiable by the number of choices we are allowed to make – and those that we cannot).  It is clear that in NYC, the local government for years has decided that it would micromanage part of the transportation marketplace there – and now the chickens have come home to roost (at least in NYC).  A marketplace that is patently sustainable only by dint of Government distortion is no marketplace at all.

Too often, we talk about Rights with respect to the Bill of Rights – what Government CAN’T do to us in terms of free speech, freedom of religion, to be able to freely associate, to bear and keep arms, to have our homes and papers free from unwarranted search and seizure, and the like.  You know, civil rights.

But what about our Economic Rights – the Freedom to do what want to be able to earn a living?  Sadly, the answer to that is why America is sliding down the economic studies positions as Government makes it harder and harder to simply set up a way to make money and support one’s families.  Just look at the zoning laws at the local area for a taste of that to the point o what kind of a sign (or none at all) you are allowed to have.  Go up to the State level and it is clear that just the mass myriad of “outside boards and commissions” set all kinds of rules and carve outs that keep a lot of people from starting up a start up (e.g., really, you need over 2.000 hours of cosmetology training simply to braid hair or pluck eyebrows??).  And the regs and laws at the Federal level just exacerbate the mental torture of setting up and then the effort of compliance to just to stay in business.  More and more I hear small biz owners ranting that they spend more time on satisfying the government than they do on, you know, competing in the marketplace and keeping their customers delighted.

Land of the Free.  If you have to ask “Daddy, may I?” or depend on Daddy Government to keep you afloat by artificially restricting others like with the NYC medallions or other rent-seeking techniques, how free are we?

(H/T: Hot Air)

 

 

 

 

(H/T: Hot Air)

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  • The pyramid collapses due to the shifting sands.
    All I can say is, after dark, thank goodness for gypsy cabs North of 100th, and south of NYU in Manhattan. (When I HAD “extra” money for a cab)
    Well, 35 years ago.

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