Big yellow taxi took government-controlled markets away?

posted at 2:41 pm on July 29, 2016 by Ed Morrissey

It’s time to play Confess Your Old-Guy Habits, and perhaps also What Was My Line, too. Despite the booming expansion and popularity of Uber, Lyft, and other decentralized ride-hire services, I only began using them a month ago, while in Chicago for a family wedding. I live in the suburbs and enjoy driving in most instances, so I rarely have need of a taxi — but when I do, it’s almost always a pain to get, and receipts are even worse, which is a problem if you need them for expense reporting.

Still, until recently I’d never tried anything else, perhaps in part because I briefly worked as a cab driver myself. During one of two spells of unemployment in my life (this one in 1988), I drove a Yellow Cab taxi in Southern California for two months, putting off a low-paying call-center job to earn more money. Had I been a more disciplined writer at that time, I could have written a book just off the experiences I had over that nine-week period, most of which were … not pleasant. It’s a tough job, and I have a lot of respect for the men and women who do it and do it well. After two months driving the cab, and at one point being held at knifepoint (which oddly wasn’t the catalyst for my quitting), I took the call-center graveyard job to tide me over. That “temporary” job became my career; I spent the next 19 years running call centers, until transitioning to a full-time New Media career in 2007.

That’s one reason an analysis of the nation’s most intense taxi market from Yahoo’s Rick Newman caught my eye two weeks ago. Uber, Lyft, and other decentralized ride services first entered the New York City market a few years ago, to much hand-wringing and demands for further government intervention into an already tightly controlled market. Did the predictions of doom, market collapse, and consumer exploitation come to pass? Not at all:

Taxis remain the dominant way of getting around for people who pay for rides in New York City, according to a new analysis of the city’s for-hire-vehicle traffic by Morgan Stanley (MS). Uber, the ride-sharing goliath, is obviously a new force on the city’s streets. But reports of the death of the taxi industry have been greatly exaggerated, a trend that most likely holds in other big cities as well. …

New York apparently gathers far more data on taxis and their competitors than other cities, which is why Morgan Stanley began digging for insights into how the startups are doing. They’ve clearly taken some business from taxis, but they’ve also benefited from growing demand for rides. In April, taxis and ride-sharing services together provided nearly 614,000 trips per day to people in New York City. That’s 25% more than five years ago. An improving economy may explain part of the that, but automakers – and their shareholders – also worry about young people moving to cities and foregoing cars completely, since app-based services allow them to get a ride virtually anywhere, any time.

Uber and Lyft continue to be staffed by part-time drivers, according to Morgan Stanley, with the Uber drivers completing an average of 44 trips per week, and Lyft driver 23 trips. A typical taxi driver does twice as much business, performing 91 trips per week. So thousands of people still driving a cab feel the job is lucrative enough to do it full-time.

The use of new technology to disrupt controlled markets has a long and glorious history, especially over the last 50 years. As I argue in my column at The Fiscal Times this week, disruption of overly regulated markets creates new markets and new resources — which should serve as a lesson to policymakers:

The costs of licensing – imposed by governments and supported by the major players – and the artificial shortage of medallions made it nearly impossible for drivers to act as free agents. Taxi companies controlled the dispatching, thanks to their economies of scale. Drivers couldn’t access information about consumers and consumers had to trust the license of the driver. For consumers, access to services outside of high-density urban areas is limited and usually costly. Almost all of these shortcomings are resolved through the new technology used by Uber. …

In other words, breaking down artificial barriers to markets does not create chaos – it creates opportunities. Would the transportation business in New York City have grown 25 percent in five years if still restricted to the medallion operations? Would we even have known of that pent-up demand without new-technology entrants Uber and Lyft?

Time and time again, we have discovered that reducing regulation and intervention in markets and allowing providers to innovate increases consumer choice, lowers cost, and expands markets. Local governments may belatedly learn this when it comes to taxis – and we can only hope that the federal government will figure it out soon when it comes to health insurance, energy, and any number of other over-regulated markets.

My friend Nick Gillespie at Reason responds, “Sing it, brother Ed”:

Morrissey’s Fiscal Times column is actually about “How iPhones and Uber cut the red tape and expanded the economy” and is absolutely essential reading after both the Republican and Democratic National Conventions, where speakers of both parties took for granted zero-sum economic thinking. Hillary Clinton and Donald Trump proceed from the assumption of a fixed pie of goods and services and thus their solutions to almost everything is about squeezing out better deals for America at the expense of other parties. This is not wrong in a small way but a spectacular way and it leads to policies that try to freeze innovation that seems to take things away from established interests. Both Hillary Clinton and Bernie Sanders are outspoken critics of Uber and other “sharing economy” services, claiming they exploit workers. Donald Trump is simply seemingly oblivious to any sort of economic activity that doesn’t take advantage of political connections. That’s not the sort of leadership we need in the 21st century. …

Technological innovation, combined with wise public policy that reduces regulatory costs and lowers barriers to entry, is absolutely the path to an expanding economy and more opportunities and higher standards of living. Yet we live in a weird moment in which the leaders (and increasingly, the rank and file) of both major parties refuse to believe in growth as a possibility. Instead, they posit protectionist trade barriers as a way to “secure” current job levels and they talk about punishing American employers who move jobs overseas or seek better deals that result in lower costs for customers. Like Sens. Bob Casey, Jr. and Sherrod Brown at the DNC, they bitch and moan that employers have forsaken the Rust Belt for cheaper, better places domestically and abroad to make stuff. They are arguing over crumbs left behind rather than thinking about how to move into the future.

Not long ago, I spent a few days in New York City making appearances on Morning Joe and other media for Hot Air and Going Red, and saw just how far this market innovation has pushed change. Taxi companies in the Big Apple have adopted the smartphone technology with their own apps, which allow consumers to call for rides, rate drivers, and pay through their own devices and get e-mailed receipts instead of small strips of thermal paper that disappear. I downloaded the Arro app before I downloaded Uber and Lyft apps, in fact, and still have it on my phone, although it only works in NYC.

Would consumers have gotten that innovation from New York City’s established providers without the impact of the market disruption from competitors who seized on that technology? Would those providers have ever spent the money to service that 25% increase in demand, or simply raised prices on an artificially scarce resource and stuck it to the consumer?

That’s the power of free markets and the innovation that results from them. We need to stop acting from a zero-sum scarcity approach, and retool our regulatory approach to encourage abundance.

 


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