Last week, freshman Democrat Alexandria Ocasio-Cortz (a.k.a. AOC) decided to jump into the issue of New York City taxi drivers and the financial problems they’ve been facing in the era of the gig economy. Even though she’s a federal elected official, I don’t knock her for entering the debate since many of her constituents are directly affected. Her solution, however, leaves much to be desired. She’s calling for a joint federal-municipal bailout for the drivers who have been drowning in debt since the value of their medallions totally collapsed. (Daily Wire)
On Thursday, Rep. Alexandria Ocasio-Cortez (D-NY) demanded that American taxpayers foot the bill to bail out New York City’s taxi cab drivers who took out loans in order to pay for taxi medallion costs that were artificially inflated by the Democrat-led city government.
“These taxi drivers need a bailout because this is not just about predatory collection practices … this is manufactured financial indentured servitude and it is wrong,” Ocasio-Cortez argued during a congressional hearing on lending. “We need to bailout these drivers, and I would like to invite my colleagues here on the federal level and our partners on the city level to make sure they get the job done.”
Taxi cab drivers in the Big Apple are required to obtain a medallion in order to operate in the city legally. Intending to prevent a surplus of cabs, the New York City government has been artificially limiting the number of medallions it will issue.
Taxi drivers in NYC are in crisis. They are trapped in a predatory lending scheme that steals their earnings and has led to a suicide crisis.
We must bail them out. Yesterday, we held a Congressional hearing to hear from drivers and advocates for reform ⬇ pic.twitter.com/6qSG66pdFN
— Rep. Alexandria Ocasio-Cortez (@RepAOC) September 27, 2019
What AOC is talking about is a very real issue and I’ve written about it at length here before as part of our coverage of Uber, Lyft and the gig economy. There are definitely taxi drivers in tremendous financial peril and the number of them that have committed suicide in the last couple of years is both tragic and alarming. But before we arrive at a solution we should identify who created the problem in the first place.
Spoiler alert: It wasn’t Uber or Lyft. The problem arose from the creation and continuation of the city’s highly corrupt medallion system for taxis. (Many cities have them and none of them are good.) Supposedly created to limit congestion, Gotham forced anyone who wanted to operate a taxi to purchase a “medallion” that’s the equivalent of a license. By limiting the number of medallions available, they created an artificial competitive “market” for them. The value of the medallions rose to more than a million dollars earlier in this decade.
Being so expensive, taxi owners wound up taking out ruinous loans to be able to afford one and many used the medallions as collateral for other loans like home mortgages. Then, when other options with better service than taxis offered arrived on the scene, ridership dropped and the value of the medallions crashed, leaving many bankrupt.
So whose fault is all of this? If we want to take the coldest, unemotional approach to the question, you can say it’s the fault of the drivers. Nobody forced them to take out those loans. They could have gone into a different line of business rather than buy into this scheme. But as I said, that’s a rather cruel analysis even if it’s true.
It’s also not the fault of the banks and credit unions who made the loans. AOC is calling this “predatory lending” but that’s not true. That’s what these institutions do. They evaluate risk and charge interest accordingly. And as long as the medallions were viewed as having real-world value, they could accept them as collateral. When their value disappeared, the loans went bad. That’s how the system works.
It’s certainly not the federal governent’s fault because Washington wasn’t involved in setting up this scheme. Why should the taxpayers of the entire nation take the fall for these debts? No, the problem was created out of whole cloth by the municipal government of New York City. And they maintained the scheme decade after decade. If someone is going to clean up this mess for the drivers, it needs to be the city. If they had let the free market determine how many taxis could profitably operate in the city there would have been more competition and probably better quality service. But they locked out the potential competition and tried to control the market. The result is on their shoulders.