Taxi Medallion Prices: Truth in a World of Lies

Whoo hoo, can you believe it? The price of taxi medallions is in free fall all over the United States. This represents a confirmation that the revolution in municipal cabs has already happened. Now it is just a matter of cleaning up.

The Taxi and Limousine Commission of New York has been in denial about this for most of the year. But then The New York Times pushed the Commission with a series of questions. Panicked, the Commission pulled phony data from its website and finally admitted the truth: prices are down 17% already, after a huge history of nothing but price increases.

This whole trend comes as a shock. It’s a bit like housing in the 2000s. For decades, people believed that prices could only go up. People accumulated medallions and became hugely rich as a result. The Times story tells of Larry Ionescu, for example, who owns 98 Chicago taxi medallions, which a year ago sold for $400K each. Now he admits that his financial fate is grim.

What does this mean? It means the end of a monopoly. It gives an indication of how power falls: not through the intention of planners but through the unavoidable consequences of unstoppable innovation and competition. It is a microcosmic archetype of how many institutions will fail and fall in the future.

In a world of lies, there is one signal that always tells the truth: prices. This is one reason that economics is such a glorious science. It focuses on a force of nature that no government and no one institution of any sort can finally control.

Supply and demand operate independently of any ideology or any power on earth. They reveal what everyone seems to want to cover up and do so with conviction and ultimate reliability. In that sense, economic forces constantly haunt the world, reminding mortals that there are certain realities that are impossible to ignore.

This is what is so inspiring about this latest trend toward collapsing prices of taxi medallions. This is happening despite every attempt to stop it. There’s no question that the approved monopolists would have been super happy to stop it. They’ve variously tried but it’s been like holding back the evening tide.

Thanks to technological change and the development of the app economy, the time for upheaval has finally arrived.

It makes you just want to stand up and cheer the death of these egregious monopolies. Finally, at long last, we are seeing the end of an exploitative system that has been doing damage for decade after decade.

It’s not only the right to drive that is falling in price. It’s the price of rides themselves that are dramatically down, as much as 50% in some places. Thanks to Uber, Lyft, and other P2P systems, we are starting to see market forces applied to this crucial sector of state monopolies.

And the legions of new drivers themselves are making money with new opportunities that have been artificially blocked for so long.

I’m particularly interested in the reform process that is taking place here.

I take it for granted that taxi monopolies are inherently stupid. Bad policy. A racket. It is a government privilege given to a few so that a cartel can charge higher prices than the market would bear. The whole system is exploitative for consumers and shuts out people who would like to enter the market from doing so.

Essentially, the monopolies are indefensible. But they have proven nearly impossible to reform from the top. Local politicians have shown very little interest in fixing an obviously broken system. It wouldn’t surprise me to discover that bribes and graft have been a factor here. Regardless, the advice of economists to implement competition has fallen on deaf ears.

A second method for reform has involved lawsuits on behalf of jitney cab drivers. The Institute for Justice has been the master of this domain, and they have experienced some success. But it has always been limited. The public relations benefit has been there but it has not translated to political reform.

So what has finally made the difference? Entrepreneurs in the app economy figured out a workaround. Using a distributed network for recruiting drivers and a decentralized method for paying them — collecting payment not physically but digitally through a third-party conduit — we’ve seen how services can emerge more quickly than politicians can stop them.

By the time the local officials got word of what was happening, consumers had already gotten hooked on the services. Politicians have seen pressure from below. Some have tried to regulate the P2P systems out of existence, but they have very little success.

And now, at last, we are seeing the evidence that the peer-to-peer trend can’t be stopped. The market is speaking and dooming the transportation cartels to the dustbin of history.

So take note reformers: the methods for reform have come from innovation from below. This has proven far more successful than pushes for reform from the top down. The intellectual arguments did not work. The lobbying didn’t work. The lawsuits were not decisive. But once the forces of economics get to work, there is no turning back.

This is an age of the gradual crumbling of cartels. They are being broken down because innovation is proceeding at a faster pace than existing elites can defend the status quo. It doesn’t matter how old, established, and powerful the monopoly is, it can be brought down under the right conditions.

Economic forces operate as if controlled by an invisible hand. This hand is gradually unlocking the prison of control that held us back for far too long.