The image of the yellow taxi is inextricably linked with New York City. In a city long averse to car ownership (77% of Manhattan households are car-free) yellow cabs were the primary alternative to the subway for most of the twentieth century.
Through the yellow cab (and, later, green cab) program, the city made sure that drivers and vehicles conformed to minimum safety standards, ensuring a relatively reliable service. While there have always been black cars, unlicensed cabs, dollar vans, and other transportation providers, yellow cabs enjoyed a virtual monopoly over a public looking for a ride for nearly a century..
Along with the licensing of cab drivers, the city also caps the number of cabs available in the city. In order to drive a cab in New York City, drivers must own or rent one of a fixed number of taxi medallions (currently, there is a cap of just under 13,600 taxi medallions). The medallion program, dating back to the 1930s, arose thanks to an enormous number of taxi cabs flooding the streets, inducing congestion, intense fare competition, and reckless driving. Limiting the number of cabs on the street, of course, meant that the market was supplying fewer taxis than it would have absent the action by the city.
Our Econ 101 tells us a few things about what happens when there’s an artificial supply restrictions:
- Most obviously, prices go up. When lots of people want something of which there’s a limited supply, the limited supply goes to the people willing to pay the most. Currently, there’s a lower oil supply in the United States thanks to Hurricane Harvey; as such, gas prices are higher than they were a few weeks ago (or so I’m told). This price increase can have mixed social impacts. The Carrie Bradshaws of the world take cabs. The Cosmo Kramer’s pick up horse-racing tips on an uptown IRT train. On the other hand, taxi drivers (who are overwhelmingly immigrants) receive higher wages than they would otherwise. On net, higher prices for cabs are a good thing. The high prices support living wages for drivers, while also making the subway and bus systems more attractive than they would be otherwise.
- There are fewer cabs on the street at any one time. This is a good thing. Pedestrians, bikers, and drivers alike all benefit from fewer cars on the road.
- The price of the medallions went up. Like, way up. Because medallion purchasers were part owners of a city-protected monopoly, they were assured of a steady stream of income. In good economic times and in bad, people in New York take cabs. In 2014, the last time the city issued new medallions at auction, they went for as high as $1.3 million dollars.
I don’t think that the city was wrong to artificially constrict the supply of taxi medallions in the city. Although the increased prices meant lower income folks were less likely to take cabs than if the city didn’t limit cabs, this potential equity issue is mitigated both by the ubiquity of the public transportation system in the city and by the $0.50 tax on each taxi fare paid to the MTA. It was a system that worked. The city circumvented the free market for taxis, but in return received concrete public benefits.
And then the city gave up. You can hardly read the news these days without coming across the sins of Uber. Though it isn’t much discussed outside of cities with big taxi industries, the impact that Uber and its brethren have had on the delicate balance between public benefits and supply constriction in cities has been enormous. In New York, the new app-hail taxis are treated completely differently from the traditional street-hail yellows. Ostensibly, the city treats the two modes of transportation differently because Uber, Lyft, and others perform background checks on their own drivers and maintain minimum standards for the vehicles in use. Because these companies are classified as “for-hire vehicles” (the same classification as limousines) rather than “taxicabs”, however, they are not subject to the same supply restrictions as the taxi cabs. On the ground, of course, this distinction between Ubers and taxis disappears. To the average resident, there’s no meaningful distinction between taxis and app-based systems. Despite the taxi and limousine commission’s claims to the contrary, by imposing no limits on app-based companies the city has effectively removed the cap for all cabs in the city. In the past, drivers unable to secure a taxi medallion were unable to drive passengers for fares; now, all they have to is sign up with Uber.
Predictably, this has led to an undoing of the public benefits of supply restriction we looked at earlier. These new companies are cheaper than taxis because the competition between the entrants is fierce. This price decrease means that more people are leaving buses and subways for private vehicles, leading to a significant increase in average travel times in Manhattan as congestion has grown even worse. And, as an article in the Times this week points out, the value of the taxi medallion has been absolutely decimated.
The increased congestion associated with the effective removal of caps on NYC cabs is a policy issue, and as such can be debated in terms of benefits and costs. More people have access to faster transportation, which is good, but the increased traffic is bad. Reasonable people can disagree on whether or not the trade-off is worth it. The treatment of medallion owners, however, is not an issue of policy. It’s an issue of justice, and the city ought to be ashamed of how it has acted – or, rather, failed to act.
- Should New York City be ashamed of the way it has acted in the taxi/FHV-policy?