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Taxi Medallions: New York's taxi system makes fares higher and drivers poorer (slate.com)
143 points by gruseom on June 9, 2012 | hide | past | web | favorite | 108 comments

What I don't understand is if the government is going to go to the trouble of creating a giant class of rent-seeking assets, why does it then sell them out permanently? If, for some reason, the government wanted to limit the market to just X cabs, it should auction out X medallions annually, and thereby accrue the producer surplus as rent, instead of the rent accruing to the medallion owners.

Obviously, I believe that there shouldn't be a limit without an obviously proven tragedy-of-the-commons scenario (which in this case is unclear if it even exists). But if it does, it's better for the government to accrue the rent.

Ugh. I can't wait for the Google cars to gut this entire industry to pieces.

This is just good old fashioned corruption. God knows why these cities initiated the system back in the 30s, but they probably did it at the behest of the cab owners - back then medallions were cheap and cab owners just assumed they would own their own medallion and use it to protect themselves from "excessive competition."

Now there is a group of investors that are very well connected in city politics that own the medallions, so nobody can even think about changing the system. Medallion owners will always set the rules in their favor.

Cab drivers and operators nowadays are usually poor immigrants. They have very little political power. So they suffer long hours and stress. The average citizens that have to suffer high prices usually tend to blame the immigrant drivers.

Even citizens that know about medallions are not likely to use that as a major voting issues. High cab prices are annoying, but there usually are many higher priority issues in a voters mind election time. Especially in a city like New York.

It is good that slate is shedding some light on this issue. At least makes it less likely that other cities will go down this road.

One alleged evil of "excessive competition" here is that with open competition you might get a "race to the bottom" wherein cabs that aren't well maintained or that overcharge customers make the most money. The initial apparent advantage of the medallion system is that it gives the regulators quite a lot of control over what cab operators do and it's easy to imagine that power might be used to do good. Standardizing cab appearance and fares so customers aren't confused, standardizing cab behavior in various ways, that sort of thing.

The downside of this system is that - like nearly every other regulatory system - it is subject to "regulatory capture". Over the years, the established players in any regulated industry have a huge incentive to convince the regulators to rule in ways that keep out competitors. Eventually market competition no longer serves as a check on bad behavior at all - all that matters is keeping the regulators happy. And the regulators are in the pocket of industry, so customers get screwed.

The initial apparent advantage of the medallion system is that it gives the regulators quite a lot of control over what cab operators do and it's easy to imagine that power might be used to do good.

We don't to limit competition for that. All we need to do is spend 50% of medallion fees on inspections (with the remainder going to general wasteful NYC spending, e.g. redistributing wealth based on random chance [1]).

In a comment on this topic a couple of years ago, I did some calculations showing that by spending only 50% of the yearly medallion fee, we could subject every taxi to an undercover inspection every single day.


[1] http://www.nyc.gov/html/hpd/html/apartment/lotteries.shtml

> redistributing wealth based on random chance

That's a little harsh - yes, a lottery is involved, but only because the supply falls far short of the demand. The lottery is conducted only among eligible people anyway (or at least, ineligible people are filtered out after the lottery), and only low-income people receive the apartments in the end.

Yes, but that sort of regulation doesn't require medallions.

Then what's to stop entities from outbidding everyone, buying up all the medallions every year and leasing them out?

What needs to happen is for passenger interests to be given weight. One way to do that might be to have the cities offer some short-term licenses for single shifts on a spot market, and some long-term (maybe quarterly or yearly) licenses with a fee inversely related to the driver's score over the last period (determined by average rating by his fares, and/or relative average tip amount for the route).

Applicants for long-term licenses with good ratings and relatively high tips for their routes for the previous period would get cheap licenses, those with poor scores would get more expensive licenses, and those without a track record or filed for the benefit of non-drivers would get exorbitant fees.

This would have the secondary benefit for municipalities of drivers being incentivized to declare their tips.

The market will stop somebody from doing that. There will be a price that if the bids go above, the bidder will not profit because the required shift leasing rate would not allow the driver to make a profit. If the driver cannot make ANY profit, they will realize quickly and not lease any shifts. The market obviously isnt that perfect, but still, it should protect people from bidding way too high to control the market.

If I completely misinterpreted your main point and instead you are saying that it wouldnt change the way things are currently run in practice, then you are probably right; HOWEVER [and I think this is what the parent comment was getting at], the local governments would be far, far better off, at least allowing for some good to come out of this system

Use a lottery. This is what lotteries are for. Allow only individual drivers to hold medallions, set a price or a profit sharing mechanism between city and drivers, rent medallions for five years instead of selling them, and award them according to a lottery.

A lottery would be terrible for this in my opinion, especially for individual drivers. Who would invest in buying a taxi if they could potentially lose their medallion the following year? Not to mention the rediculous position to put a driver in if he loses the lottery next year and then is forced to find a new form of income. Just imagine the implication for any other profession: tomorrow you may lose the programmer medallion lottery and be forced to learn something completely new from scratch. It would be bad for the industry too since churn would happen randomly vs organically, meaning unecessary amount of "green" new drivers who don't know the streets as well, etc.

I said "rent medallions for five years". Not one year. You can also have the medallion be for life, but not transferrable nor inheritable.

> what's to stop entities from outbidding everyone?

They can, but by doing so, they'll pay a lot and enrich the state rather than parasites. On one hand, auctions cost them money; OTOH, they can't charge more for the lease than what a taxi driver can earn. Those are conditions where free market regulation works: if they provide little service, they can only make little profit.

> [some] would get more cheap licenses, and [some] would get exorbitant fees.

As soon as you create a bureaucratic regulation body enforcing byzantine rules, you've created a weak point in terms of corruption resistance. Such an incomprehensible administration is exactly what lobbyists can successfully tune to fit their patrons' interests.

More to the point, the only reason why you might want to regulate the number of taxis is to make sure that every driver can earn decent wages without behaving recklessly. With this respect, the medallion system has been broken, seemingly beyond repair, by parasitic investors. Your proposal doesn't sound like a focused answer to the original problem "how to ensure that taxi drivers earn decent wages without having to behave recklessly?"

If they behave recklessly, then surely that would impact their performance score as they accumulate infractions, along with any ratings a passenger might give them, and probably the tips they receive.

It strikes me that only allowing individual drivers to buy the medallions might help with this problem. I.e. only allow a person who had bought the thing directly from the government to use it for driving a cab. Then the drivers could take out loans from someone to purchase a medallion, but that loan would be on the same terms as anyone else.

Why do you need medallions at all? The drivers already have licenses - just make the background check part of getting a license, and just charge 100$ for a license. Let as many people be taxi drivers as want to be.

We don't worry about reducing work to a living wage in any other field - we allow free entry into carpentry, construction, business & don't require them to buy medallions before starting to work.

It's a general problem of resource allocation - just like cancer. Some group or cell identifies a resource and starts diverting or blocking it for their own benefit, and this increased power/energy is enough to protect the problem from unmotivated defenders.

Or if you wanna keep the supply artificially low somehow, and provide some sort of barrier for entry, do like London does and require prospective drivers to pass a ridiculously stringent test of their understanding of local geography (The Knowledge). From wikipedia:

"It is the world's most demanding training course for taxicab-drivers, and applicants will usually need at least twelve 'appearances' (attempts at the final test), after preparation averaging 34 months, to pass the examination"

"In all some 25,000 streets within a six mile radius of Charing Cross are covered along with the major arterial routes through the rest of London.... The Knowledge includes such details as the order of theatres on Shaftesbury Avenue, or the names and order of the side streets and traffic signals passed on a route."

Overkill in the era of GPS? Probably. But pretty cool.

Not for the customers who will be paying artificially inflated prices and not for the aspiring drivers who have to pass ridiculous three-year hazing ceremony in order to be able to earn a honest living. Of course, once they passed, they have an incentive to make the others suffer as badly as they did.

Yeah, the flipside of this is that taxis in London are ridiculously expensive and anyone except tourists, the very rich and the very desperate will just wind up hiring a Minicab, which means getting into a filthy wreck of a car with a random stranger who inevitably looks like a rapist, which is precisely what taxi licencing schemes are designed to avoid in the first place.

I don't know. You end up wishing The Knowledge was compulsory in all cities outside of London, perhaps because it acts as a basic intelligence test.

London taxis make NYC taxis look like a complete bargain because of that stupid test.

So now the taxi driver has six/seven figures of debt that can't be secured by a transferrable asset? Doesn't sound economical to me.

Actually, New York already offers owner/operator medallions at a reduced rate. They are transferrable and leasable to a certain extent.

So one would have to get a $200K loan to become a taxi driver. And then if it doesn't work out for you after a year, you're toast since you can't re-sell it - no market for it, since everybody gets it directly from the government.

Now imagine you're a fresh aspiring immigrant just coming to New York. Who in his sane mind would loan you $200K with no collateral if you could just decide next year it's not for you and they couldn't even sue you - you have nothing. Who would drive the cabs then - bankers? There's not "anyone else" that could get a loan even of couple of thousands with no collateral and no way to recover it. The best you get is credit cards companies - they charge 20%+ APRs for a reason. Imagine having to pay off a $200K loan with 20% APR.

On the other hand, if you make the license cheap, the corruption potential would be overwhelming - if you have somebody distributing very limited supply of licenses costing $100 but allowing income of, say, $100K per year, an incentive for bribery and other trickery would be impossible to resist. Pretty soon the price would get close to the actual cost, only the difference will be pocketed by corrupt officials.

Something extremely similar to this, with a few other conditions, is going to come into effect in Calgary in the future.


Since we got these new computers and internet and all city could just auction medallions in digital form directly to cabbies daily.

I'm sorry, but this is yet another example of what happens when governments stick their paws into the economy. They interrupt the natural forces of a free market and everyone suffers for it. Nothing good ever comes out of their actions. What's worst, the laws they pass never have a sensible termination date or a built-in mechanism for sensible adaptation to changes.

The more fundamental question here is: Why does the government have the right to regulate and interfere with taxi services in this fashion? Imagine if you had to own a "medallion" to do whatever it is you do. And, imagine that the government tightly controlled these. Imagine that you have to lease medallions just to be able to work.

If you are in any tech related field your reaction is probably one of disgust. Virtually none of the innovation we have had over the last several decades would exist today. It would be nearly impossible for truly competitive forces to develop. Nothing would be the same.

Well, that's exactly what your government and, to be fair, the way some of you are voting, is doing to our country.

Do us all a favor: Stop voting as a tribe and start voting as individuals with brains. If we don't devolve out of our current path and evolve into a strong free-market, low taxes, low government, pro-business, low entitlement society you will live to see this country destroy itself from the inside out. Then what?

Use your brains.

"Why does the government have the right to regulate and interfere with taxi services in this fashion." Because taxis couldn't exist without the roadways which is paid for by public funds. A completely unregulated system would mean we end up with a bunch of gypsy cabs could rob riders, overcharge, refuse fares and clog the roads.

Government involvement doesn't necessarily make something a bad idea. In this case the implementation obviously leaves a lot to be desired.

Overcharging and refusing fares is what we get now in the regulated system. In practice, "gypsy cabs" often serve neighborhoods where the regulated cabs don't bother to go.

Regarding "rob riders", direct robbery is still illegal - you don't need industry-based regulation to accomplish that end. But if by "rob" you really mean "cheat", the market has evolved multiple mechanisms to make fares transparent. One of these is the "zone card", where the price of the trip depends on how many zones away your destination is from your source. Where jitney traffic is legal, the zone map and price list could even be printed in a sticker on the door so you can see the expected fare before you get in.

Regarding "clog the roads", a functioning jitney system makes it much less necessary for people to own personal cars. (and as a non-car-owning manhattanite, I'd love for the roads to be "clogged" with cabs if that meant I could reliably find one to go to Brooklyn or Queens). (And again, major roads like 42nd street "clogged" with cabs is something the current system produces in spades.)

No. Government meddling in a free economy is doomed to failure.

The only protections a free economy needs with the government is protection from cartels/monopolies and from market manipulators. Also said manipulators are likely foreign nations or atleast entities. Like when the US Steel industry was destroyed for us rebuilding Japan with better steel mills than our own country's and not introducing tariffs to make Japanese steel higher cost than American.

The part you are ignoring is that the customers, the public, are not sheep. Bad services can't survive. People would not make use of them.

All you need are reasonable laws. Cabs ought to be in good shape. Serviced regularly. That sort of thing. Other than that, yes, let the market evolve without interference. Do you really think that Manhattan would end-up clogged with bad cabs from curb to curb? No. Beyond a certain population of cabs it will become unprofitable. At some point some would exit the market and do something else. Others might dive for low pricing. Yet others might choose to offer premium services and convenience and vie for those willing to pay a little more. In the end you'd have competition which is good for everyone involved.

I sometimes find it ironic that liberals think they are helping the middle class and the poor by choosing to allow government to stick its paws into everything. In reality the result is exactly the opposite: The rules and regs keep entrepreneurs without lots of money out of some markets and the entitlement programs sap any drive to grow and succeed from the less fortunate. Eliminate those and you'll promote innovation, disruption and growth in some markets that have become "feudalized" through excessive government involvement and you'll see masses of people pull themselves out of poverty by working hard, going to school and generally competing for a better standing in life.

While I find some republican ideas are overly driven by repulsive (to me) religious beliefs (for example, their approach to homosexuals) I have to say that, today, the only choice we have to pull our country out of the steep (and it is steep) nose-dive it is in is to support their candidates and push for a quick 180 across the board. The reality is that libertarian candidates are not going to gain massive traction for a long, long time. We don't have time to waste. We've already wasted enough of it.

Obama? He wasn't even qualified to run a cookie baking operation when he was elected. Rewind to four years ago and imagine posting his resume on Monster.com to shop for a job. I'd be surprised if anyone would consider hiring him to run a cookie factory.

Yet, we handed him (yes, me too) our country because he spoke well, smiled a lot and was a hip candidate. Change. And, of course, idiot Hollywood actors were in love with him. You know, the guys who make twenty million dollars to make a movie, live in ten million dollar mansions and work a few weeks a year? What the hell is wrong with us?

Here we are. Lots of us regretting what we did. And we have the scars to show for it. The guy was a joke and is a joke. If this country doesn't do a fast 180 and re-align with free enterprise and capitalism we are done.

I find this line pretty interest: "Because Murstein's company owns a bank, it’s able to take advantage of the Fed’s low interest rates to borrow money for 0.35 percent and loan it out to striving young cabbies who want to own a medallion. The cabbie borrows at around 5.5 percent, with 25 percent down.

“If a borrower doesn’t pay, we send out somebody,” Murstein said. “Literally, they can pop the medallion off the hood of the car and bring it back to our office and, bingo, the guy is out of work.” "

He basically has no risk on his end. Looks like he found a pot of gold!

If it's really so risk-free, then others would provide competition with lower rates, less down, payment-free period, etc.

For that, they have first to get a supply of medallions. And current owners won't sell them unless they are given some serious money to replace that 5.5%-0.35% income stream. One of the reasons why the price of medallions skyrockets.

Of course, I imagine it's not completely risk-free. It is a strictly regulated business. Which means you need a lot of friends in key places - otherwise somebody who does have a lot of friends would put you out of the lucrative business and take it for himself.

And there's some measure of competition - 5.5% is not a super-high for a loan with a collateral. Higher than mortgage rates but substantially lower than unsecured loan rates. About 1% over common HELOC rates and about the same as home equity loan rates. Of course, repossessing a home is much harder than repossessing a medallion, so probably medallion business is better, but the rate is not totally outrageous compared to similar loans.

Is there somewhere where a government created scarcity of licenses actually works? The only things I can think of is resource specific activities (e.g. hunting licenses).

Well it makes sense to limit the number of NYC cabs -- except for the hour of handoff (~5pm) and in particular neighborhoods at night (Theater District, Greenwich Village, etc.), the number of cabs seems pretty good.

If anyone could drive a cab, the profession might only barely pay a living wage, as each driver would get less passengers, and you'd get a race to the bottom -- and the streets would be more congested too.

To me, the biggest question with taxis is scheduling and demand -- how to get extra cabs to the places/times people need to take cabs from, and the fact that this isn't really compatible with people who want to drive a cab on a predictable block schedule.

"If anyone could drive a cab, the profession might only barely pay a living wage, ..."

That isn't the case in London, widely thought to have the best taxi service in the world. There, anyone can pass a demanding standard examination and having done so can drive a cab. Anyone can build a vehicle that meets a standard inspection, and once passed that vehicle can be used as a cab. No limit on the number of drivers, no limit on the number of taxis, both inspected but not limited. The result is that different drivers work different convenient hours, some full time and some part time, with larger numbers of cabs available at rush hours and other times of heavy demand. All the drivers know how to drive well, all the taxis are clean and in perfect shape, and there's always one available when you need it. This is what makes it truly possible to live better in central London without a car than with one.

All the schemes to forbid more competitors simply hand profits to taxi operators and produce poor service for taxi users. As usual, government regulations are captured by the regulated industry to exclude competitors.

a demanding standard examination

This test is legendary. There was an interesting study done on the brains of the drivers who pass it:


I wonder if GPS has downplayed the role of having to memorize the streets of London.

Good question. It has not changed because of that. Drivers are supposed to be able to immediately choose routes without consulting any kind of map.

I would think that the experienced human driver will outperform GPS when it comes to selecting optimal routes and alternates at various times of day, dependent on moment-by-moment assessment of traffic conditions. That's just a gut feeling, no cite to back it up.

That's actually very interesting, I was unaware of that.

I wonder if the very difficult examination serves to act as a natural limit on the number of taxis?

Because my question is, what is the supply-and-demand reason that there are only 21,000 cabs in London, instead of, say, 50,000 or 200,000?

Isn't that just natural supply and demand at work? You will get the equilibrium when the price of the cab fare is equal to the real cost of it. There are not 50k cabs, because there are just so many guests that want a cab. Or do I misunderstood you?

I basically always assumed that, in huge cities like NYC and London, because streets are a fixed resource, the only way to prevent severe congestion by cabs was by limiting the number of cabs available. In other words, that the natural economic supply-and-demand of cabs would be a number too large for the streets (or at least annoyingly large), thus the necessity of limiting them. But perhaps my assumption is wrong, and the limited number of NYC taxicab medallions has nothing to do with fear of taxi congestion.

Just think through your original proposition: "too many" taxis hit the streets thus making the job not pay a living wage, the natural consequence of this would be many people giving up driving taxis for precisely this reason. Now there are less taxis, and thus the price increases. Continue this cycling and eventually you reach equilibrium -- that's precisely how it works. Notice we don't need a limit on plumbers to make sure they make a living wage.

I think the idea was more: "too many" taxis hit the streets, and while they make a living wage, traffic doesn't move. In fact, as a taxi driver, with a time-based meter, traffic congestion may not decrease wages at all. Given the density of Manhattan, it wouldn't surprise me if there was more demand for taxis than the road system could support (I'm not saying that's true, I don't have the data, just that it's a third factor besides supply and demand).

> as a taxi driver, with a time-based meter, traffic congestion may not decrease wages at all.

Um, no. The initial value on the meter is set in such a way that cabbies make more money from picking up lots of fares that from picking up one and getting it hopelessly stuck in traffic.

Incidentally, private jitneys (where legal or tolerated) evolved a different rate system that's even better for consumers - the "rate card". Instead of a big, expensive, complicated piece of machinery, there's a map of the city divided into "zones" and a flat rate to travel within one "zone" or to cross X number of zones. The map might be printed on a sticker on the door (so you see it before you enter the cab) or on a playing card or business card the driver displays or hands you.

As a passenger, you then know the cabbie has no incentive at all to waste time in traffic and you know what the fare will be at the time you get in.

Regulators don't like that system because they can't reliably tax unmetered trips.

good point, I wasn't aware that congestion might be a problem. But there must be a better way than the medallion system. how about a toll at peak times?

"If anyone could drive a cab, the profession might only barely pay a living wage"

According to the article, it hardly does that now:

shortly after the most recent fare raise in 2006 [...] an independent consulting company found that drivers’ take-home pay for a 12-hour shift averaged $158. (Last year the NYTWA calculated it at $96.) By all accounts, it’s slipped since.

So, something around $10 per hour.

I don't think that drivers' quality of life is motivating this policy.

Basically, all the surplus that was supposed to go to drivers via the license restriction has instead been sucked off by a rent-seeking financier class.

One small healthy sign is that the terms "rent-seeking" and "financialization" seem now to have entered the lexicon.

To me, the biggest question with taxis is scheduling and demand -- how to get extra cabs to the places/times people need to take cabs from, and the fact that this isn't really compatible with people who want to drive a cab on a predictable block schedule.

I agree. I've never successfully gotten a cab to take me to LGA, for example. (Someone is getting them, though, because I've never not gotten a cab from LGA.)

The distribution throughout the city is also strangely uneven. I used to live a 6th/27th and even at 3 am on a Tuesday, 6th Ave. was densely packed with cabs. But over in Brooklyn Heights where I live now, I think I've seen a cab once or twice. The one time I took a cab in Brooklyn, I had to explain to the driver how to get to a major through street. (The explanation was: "I never leave Manhattan.")

Overall, it doesn't work very well, and 99.99% of the time I take the train. Much cheaper anyway.

> I agree. I've never successfully gotten a cab to take me to LGA

You probably already know this, but always get in the cab first (if possible), then tell them you're going to LGA. Cabbies aren't allowed to turn down a fare in city limits once you're already in the cab. If they protest, snap a photo of their badge # and tell them you know the law - most will give up and take you where you want to go. It's a pain in the ass, but you gotta do it sometimes.

Yeah. Now that I live in the city, I am perfectly comfortable saving $35 and just take the bus. Slow, but I'd just be reading my book in the terminal anyway.

I'm pretty sure in auckland anyone can drive a cab. Seems to work.

Auckland has a different system to the medallion system, but still has restrictions:

  * The driver needs to have an endorsement on their drivers' license allowing them to operate a small passenger service vehicle. To get this, they need to pass a 'fit and proper person test' (which disqualifies many people with past convictions) and have completed a course.
  * The driver needs to be employed by an approved passenger service. It currently costs NZ$449.80 to apply to start a new one - the laws about when the government must grant them are here, http://www.legislation.govt.nz/act/public/1998/0110/latest/DLM434609.html and there are no direct limitations on the number of taxis.

New Mexico does the same thing with liquor licences. The worst part is that the state's biggest liquor distributor now owns the vast majority of the licenses. "You have to buy all your shit from me AND give me a percentage of your profits" - sounds like the mafia but it's every day business in NM.

That's actually a by-product of prohibition. When they reversed prohibition, a regulation was put into place that the manufacturer, distributor and seller of alcoholic beverages all had to be separate (not owned by the same company or individual).

The gov't decided to step in and do all three after prohibition and it's been a VERY slow move back into the private model since then.

Seems like a lot of people here are complaining about the system without giving much thought to it's actual effects.

There are a metric shit-tonne of cabs in NYC. We don't need more. Maybe we need regulation on how they have to be spread out, but we certainly do not need more. Also, compared to other US cities, cabs here are very reasonably priced. Also, they all take credit cards, have touch screens, and the new ones have outlets to charge your electronics.

It may be a bit corrupt, but it really is a good system for the consumer. And it's all completely standardized across the board. Your cab has to be up to code or it gets taken off the street.

This isn't corruption running wild. The Taxi system in NYC is very functional. None of the problems described in the article are solved by simply abolishing the medallion system. It would take intense regulation, with or without medallions, to make a lot of those things better.

Edit: What we really need to focus on is the MTA. Now theres a system rife with corruption and misspending that actually greatly effects consumers negatively.

Perhaps it's not worth mentioning, but it's not the first time I've seen a reporter made this same kind of math "error" because it helped make his case:

> taxi drivers have asked for a 20 percent hike in fares. How much would the MTBT like to increase lease rates? Why, it thinks 20 percent is only fair.

The author leaves the false impression that the poor drivers won't make any more money at all -- that all the extra revenue will be grabbed by the medallion owners. But if previously the driver made $100 a day and paid $50 for the lease, then after the fare increase he'll make $120 a day (assuming demand doesn't fall) and pay $60 for the lease. So his profit goes from $50 to $60.

One thing that's usually missing in discussions of New York taxi medallions is how congested the city is and how many of the vehicles on the street (especially in Manhattan) at any given time are taxis. Once a certain point is reached, adding taxis will increase the travel times of taxigoers.

There's been economic analyses of this. I don't recall too many details about the optimal number of taxis (it's probably higher than the current number), nor are taxi medallions a particularly effective way of regulating congestion, but surely bald deregulation is not optimal.

> surely bald deregulation is not optimal.

"optimal" is not one of our options. The relevant question is whether "bald deregulation" is better than what we've got now, and the answer to that is pretty obviously YES.

Sadly, "bald deregulation" is also not one of our options, but at least it's more likely than achieving something anywhere near "optimal".

The most irritating thing about the number of taxis on the streets is how many of them aren't allowed to pick up passengers at any given time. It's amazingly annoying to have empty-taxi after empty-taxi fly by without picking you up...

If the medallions are fixed to the hood of the cab what is to prevent the medallion from being stolen? Do the medallions represent permission and can be replaced easily? The option to "buy" them is making me question my assumption, are people in fact buying what they represent?

The physical object is not what matters. Same thing that prevents someone from stealing a license plate or counterfeiting one or putting a bogus health inspection cert in their restaurant window. Obviously if you were to affix a medallion (or license) to a vehicle at some point that would be discovered and you would be in hot water. Obviously.

You are not buying the medallion. You are buying the right to operate a taxi. The medallion is just an easy way for a) riders and b) enforcement to at least attempt to judge who is legit and who isn't.

And as the financial people noted they can remove the medallion if someone is in default. If all you had was a number painted on the side of a taxi that wouldn't work the same (someone could say "oops" and still pickup fares.)

"A Million Bucks Lying on the Ground! Not Exactly"


I think we should seriously rethink regulation within the cab market. Yes, we need to ensure some sort of standards for security reasons, but shouldn't the cab market be prime for the traditional free market theories?

I don't get this whole licensing deal, fixed tariffs and medallion system

It seems like the basic design problem is that one driver can only work 8 hrs a day but the medallions are valid 24 hours a day. This means that one driver can never bid himself for their worth unless he intends to hire two others to work in tandem with him. And if he is doing that, why not hire three drivers and just become a passive income generating medallion owner? And so that is what happens.

> All that began to change in 1979. That year, New York’s Taxi and Limousine Commission changed its rules to allow medallions to be leased out for 12-hour shifts.

The implication here is that the transferability of the medallions caused this big mess. We need a discussion of why medallions--which he says started simply as licenses--are being limited. This is the obvious question that is not addressed. After all, normal drivers' licenses and normal cars are not limited by the government in US.

We need a discussion of why medallions--which he says started simply as licenses--are being limited.

Manhattan's streets already heave with traffic. Allowing unlimited cabs would make that worse, and there's no free market trigger that would solve the problem.

I have always wondered about this. In San Francisco (aka "The City"), a driver typically pays $200+ for a 12-hour shift on weekends. Then they go around in a mad dash, trying to pick up as many lucrative passengers as possible; sometimes resulting in deaths[1]

There are 2 rent-seekers in this system. One is the City, which uses these taxis as a revenue stream. Why? We are all paying taxes anyways; why should we pay the City for the privilege to ride a car? And then there's the medallion owners. In the old days, the politically connected got these medallions for peanuts, and are just sitting on them, collecting rent (corruption, anyone?). And surrounding this system is a parasitic bureaucracy for "managing" everything: medallion rentals, credit card transactions, etc. (and we, the taxpayers, pay for this bureaucracy again).

A better solution, IMHO, is the following. Auction off 20% of the medallions every year, using a Dutch Auction. The participants in the auction must be licensed drivers with N years of experience, and must pass a test about familiarity with the City. A driver can get only 1 medallion. The City, as a favor to drivers, can bring banks to the table, who can finance drivers. Each medallion is for 5 years; after that period, the medallion goes up for auction again.

[1] There was a case recently where the driver was headed to the airport with passengers. He was speeding so he could get back there as quickly as possible (there's a weird rule that if a cab leaves the airport but comes back within 30(?) minutes, it can come back to the front of the line). He had a mechanical malfunction, and the cab caught fire. He survived, but his 2 passengers burnt to death. http://abclocal.go.com/kgo/story?section=news/local/san_fran...

I see so many "why don't they just do X, it would make more sense" arguments about all kinds of government programs. The reason that don't in every case is because from the government's perspective the program is working great! The existing medallion owners very much like being able to charge monopoly prices. The city politicians very much like that the medallion owners lobby them to keep the system in place and support their campaigns. Why would they want to mess with something that works just fine? You are not the government. It doesn't serve your interests. It serves it's own interests.

"why should we pay the City for the privilege to ride a car?"

To the government it's an indirect form of taxation that is more desirable than "raising taxes" which will prevent you from getting elected. Plus much of it (like hotel taxes) is paid by tourists or people who will not view it as a tax in the traditional sense.

The case you cited does not match what you claim.

The round time from SFO to Mark Hopkins San Francisco hotel (where the couple was travelling) is at least 40 minutes and the cab driver was driving from SFO, not to it.

It's been 2 years, but here's the gist of it: cab drivers at the airport are allowed to jump back to the head of the queue if they are gone for a short period. Is it 30 minutes, or 40? Not sure. But I was told this personally by a cab driver, and also read it in the papers when this incident happened. Once the cab driver leaves the airport, he has N minutes (where in is a short number like 30) to come back. So cab drivers drive fast to get to their destination and then head back quickly. In this particular incident, it came out that the cab driver was aware of the mechanical problem but didn't stop to examine it because he didn't want to waste time.

The 30 minutes bit may be true but in this case, the cab driver would not be rushing as there would be no way the driver could return to the airport in time to beat the queue.

The article does not state that the driver was aware of any mechanical problem but only that "he had smelled smoke".

This inarguably shows the fallacy of "central planning." The government cannot ever out smart a free economy. When the government refuses to allow the free economy: illegal black markets arise and legal fiefdoms are spawned both at the expense of the regular citizen. Who benefits from centralized planning? There's only 2 classes that benefit, the government class and the criminal class.

The simplest solution is just end absurdity like this. Let the free market dictate how many cabs should exist and what fares should exist. Might people become overzealous, overfill supply then strangle themselves from it? Sure. Is it that a bad thing? No. The market will correct, suppliers will leave and supply and demand will resolve the imbalance as it always does.

There's an NPR money episode on NYC cabs @ http://www.npr.org/blogs/money/2011/10/20/141546717/the-mill...

Previous submission (no comments):


I'm wondering why the duplicate detector isn't catching more of the recent series of duplicate submissions, and why searching for keywords on HN search isn't turning up more of the stories. (I usually use HN search before I post.) I found the previous submission of this story just now with a Google search site-restricted to news.ycombinator.com, after drawing a blank with HN search.

A little redundancy is a good thing. It compensates for the randomness with which many posts fall through the cracks. This article is an example. It's interesting and surprising (surprised me, at least) and deserves a discussion. Had it got one the first time around I wouldn't have reposted it.

It has fallen through the cracks again though (edit: or so it seemed). Perhaps somebody else will figure out how to repost it in a few days :)

The previous submission also never showed up in my RSS reader.

different URL

Yep. This article links to the paginated story, the previous one links to the single page article.

Just asking for disruption.... (P2P taxis, ride-sharing apps, etc.).

I think you're right. But you probably shouldn't call your disruptor a "taxi" and you certainly can't just pick up random people off the street without the license to do so.

Uber is in NY and they cost more than a cab, but I haven't heard how they're doing in that market. I think I'd pay the premium to hire an Uber driver over a random smelly cab any day.

My understanding is that Uber does 2 things at once:

(1) they create a legal business to compete with the current taxi one, which is corrupt beyond repair;

(2) they secure the high-end segment of that market to themselves.

Point #1 is quite brilliant, but could be expected from many groups of hackers at ease with statistics and software. Point #2 is pure genius, though: they cannot keep the whole market they create to themselves, because as soon as all legal challenges will have been removed and the business model will have been polished, there will be no way to prevent copycats from stealing their lunch. Instead of preparing to fight a lost battle, they firmly anchor themselves in the upper segment of the market, hoping that copycats will fight for the low margin entry level market.

Therefore, Uber's market share is much lower than it could be: they're after the patrons they'll be able to keep for the long term, not after every taxi patrons. I believe that copycats preying on the whole taxi industry's patronship will soon come and storm the market, though, unless lobbyists manage to kill the legal loopholes fast enough.

I think point 2 is the key. There likely will be increased competition once some of the initial regulatory battles have been fought. Having a lock on that premium market segment should allow them to be very competitive in a taxi-like market as well (They can afford to have really low margins on much of that market, where as their competitors won't).

There's really two parts to the business model. It's a balance between making sure drivers are making enough money for it to be worth their time/effort and ensuring that it's a pleasant experience for riders.

Uber is also in Chicago, offering both a black car and cab service. So there's definitely movement there to bring lower cost options. They're working through regulatory issues in a number of other cities. The taxi business is extremely over regulated. It will be interesting to see how companies like Uber start to disrupt it.

It also makes sure only the very wealthy companies survive there, and that there are no start-ups to threat them.

This article provides almost no support for the headline.

This is reminiscent of New York's abominably badly-structured rent control system, which costs the vast majority of New Yorkers an immense amount in increased rent, and will probably never go away because there's a powerful asshole lobby that works overtime to keep it in place.

The idea of rent control isn't so bad. If done properly and fairly, it could make New York a lot better, but the insane legacy system is an unmitigated disaster. Since RC rents aren't even allowed to go up with inflation, there are a lot of people paying ~$200 for apartments that would rent for 10-15 times that. Technically, RC can only be passed within families, but the rules are broken all the time, and there's a common (if morbid) practice whereby people seeking rent control stalk obituaries and try to get themselves named as relatives of the deceased, usually in an arrangement involving paying "key money" to non-NYC resident legitimate relatives of this person. It has created a class of parasitic, law-breaking New Yorkers who will never leave, because they're locked in to an arrangement strictly better than ownership (landlord pays maintenance costs and taxes, which are higher than RC rent) and even if they only visit the city for 4 weeks out of the year, holding on to their RC apartment is cheaper than a hotel-- especially because they can sublet their RC apartments at market rent, which is also illegal but happens all the time.

Now, here's the kicker. The system was developed in 1947 to benefit working-class people. In 2012, almost all of the rent-control holders are upper-middle to upper-class people who have no legitimate claim to needing it. Unfortunately, they're well-connected to the city council and therefore, like cockroaches, will never leave. Disgusting.

You’re conflating “Rent Control” and “Rent Stabilization”.

Rent Control applies to apartments built prior to 1947 and only to tenants and their descendants who have lived in the apartment continuously. There are no new rent controlled apartments in NYC. When you hear of $200 three bedroom apartments in Manhattan, it they exist at all they're likely Rent Controlled vs. Stabilized.

Rent stabilization applies to apartments built roughly between 1947 and the mid-1970s. Rents can only be increased by a percentage determined each year by the NYC Rent Guidelines Board (http://www.housingnyc.com/html/resources/dhcr/dhcr1.html).

Tenants can be evicted from either style of apartment if the landlord can demonstrate that the unit is not the tenant's primary residence, amongst other reasons. While it is almost unheard of for a rent controlled tenant to be evicted, stabilized tenants get evicted all of the time. It is by no means easy.

Stabilized apartments can be removed from the rent stabilization program if the rent exceeds a certain amount, or if the tenant's household income exceeds a certain amount.

Typically landlords would love to eliminate RC/RS entirely, while tenant groups would like to see Rent Stabilization expand. The current vacancy rate in NYC is less than 3.something percent (http://cityroom.blogs.nytimes.com/2012/03/26/decades-old-hou...) so stabilization is unlikely to end any time soon.

[I own in NYC, I don't rent. Calling the million plus people who live in rent stabilized apartments "cockroaches" is itself pretty disgusting.]

This. I agree that the original rent control program was badly structured, but today, true rent-controlled apartments only account for 1.8% of all rental units in NYC (http://furmancenter.org/files/publications/HVS_Rent_Stabiliz...). And as the parent says, this number can only fall.

Rent-stabilization, on the other hand, is being expanded (the 2011 Rent Act increased the minimum rent for deregulation to $2500/month). It's less drastic than rent control and seems to at least have some effect on keeping rents low(er, this is NYC) without being open to such gaming effects as rent control.

However, there are always loopholes. When I moved into my Manhattan apartment, I was told before lease-signing that the rent would be less than the $2000/month ceiling (at the time) for rent control. However, upon lease signing, the rent on the lease was $2050 and there was an attached rider saying I would be paying a lower, "preferential" rent - the originally agreed upon amount - presumably to avoid rent-stabilization. Who knows if that would stand up in court, but as long as management companies can make the tenants believe it's not rent-stabilized, it doesn't really matter...

The idea that stabilization is "having some effect on keeping rents low(er)" seems questionable. There are effects that push in the other direction too. For instance, the fact that "stabilization" exists at all makes being a landlord less attractive. If people could bargain freely to any mutually-agreeable rent terms, developing new housing would be less risky so more apartments would tend to get developed, which would drive down the average rent. Stabilization can hold down prices in a few apartments, but tends to do so at the expense of higher prices (and lower-quality apartments) everywhere else.

There's plenty of new development going on, both condo and rental apartments. New rentals are typically required to set aside some percentage of units for specific income levels (so-called affordable housing). Condos typically trade in 421-A tax credits (where new developments get very reduced property taxes for some period of time, in return the developer must build some number of "affordable housing" units, but not necessarily in the same building or even neighborhood).

Stabilization and Control have definitely warped the market, but to date no one, on either side of the tenant/landlord divide, nor in politics has come up with a workable way to deregulate the market. It was thought that eventually the Stabilization would go away because, as we all know, no one wants to live in New York City and eventually the vacancy rate would go to 5% or more.

In practice the highest it's been since 1974 is in the low 4% range in the 1980s and very early 1990s.

> New rentals are typically required to set aside some percentage of units for specific income levels (so-called affordable housing).

This happens, but it's different from rent stabilization - the program's separate and the rules function differently.

Actually, I was talking about rent control and, yes, I know the difference between rent control and rent stabilization. I don't have a huge problem with the latter; it's a much better system. If RS were made uniform across the city, I wouldn't consider that such a bad thing.

Only about 2% of apartments are rent controlled, but when the vacancy rate in Manhattan is regularly below 1%, that makes a huge difference.

There's a fallacious argument people make that, if only 2% of people have RC apartments, they're only responsible for a +2% markup on New York rents. That implicitly assumes the demand elasticity for housing is exactly 1. Not so. This is a bad assumption. Consider the oil crisis of 1973, which established that a 5% drop in oil supply can cause prices to go up 5x or worse. The same happens with housing in urban areas: small discrepancies in availability can have huge effects on price.

Rent stabilization is a lot better and fairer because normal people actually have a chance of getting it, and because it's a more reasonable system. It would be even better if whatever schema were applied to New York were applied uniformly, but RS is a much better and fairer system than RC.

I maintain the position that RC does an extreme amount of damage. If the demand-elasticity for New York housing were 1, it wouldn't, but it's much higher.

Also, I have no problem calling rich people who exploit a system that was designed to help working-class people, at the expense of everyone else who has to pay these insanely high rents, "cockroaches", especially given that they usually break the law in doing so. My problem isn't with legitimate RC beneficiaries who couldn't afford to live in New York otherwise, and who probably comprise a small fraction of 2012 RC-holders, but with well-connected marketing directors making $200,000 per year and alimony socialites who pay $350/month for prime apartments while the rest of the city gets shafted.

(For the record, New York landlords, as a class, would probably lose if RC were abolished, because it's quite likely that the free-market demand elasticity of housing is much greater than 1. Individual landlords who had RC tenants would gain, but landlords with no RC tenants would be getting less rental income, and the overall effect on landlords as a class would be reduced income because the artificially high rents paid by non-RC tenants would plummet.)

if vacancies are truly below or near 1% then the market is significantly underpriced. as a landlord, a vacancy rate below 5% typically means that you should increase your rent (with rent stabilization, its not that simple, obviously), so while removing rent control apts would have some impact on rents overall, it is highly unlikely that they would "plummet"

Just as an example, one of the rent controlled apartments was occupied by one Kofi Annan. Yes, that Kofi Annan. Some working class guy, right? http://www.nysun.com/national/mystery-surfaces-over-apartmen... Once Kofi Annan became "the Kofi Annan", he passed the apartment to his brother, Kobina Annan, a working-class ambassador of Ghana to Morocco.

Another example is Charles Rangel, a working-class congressman that had not one but four rent-stabilized apartments: http://www.nytimes.com/2008/07/11/nyregion/11rangel.html

If that doesn't convince you of the wisdom of the New York regulations, check out this one: http://www.nytimes.com/2011/02/06/realestate/06cov.html?page...

Why do you think rent control is a good idea? How could it possibly be done fairly?

Welllllll... I am NOT pro-rent-control/stabilization/etc, but I will point out that an existing landlord has some monopoly power over his tenant because the cost of a new apartment search and move is high (in terms of finances, effort, time, emotions, new neighborhoods, lost stability, etc). The free market is only efficient if transaction costs are low, among other things.

But then, on the other side of the equation, every place that has rent control also has the risk of foregone future rent increases baked into the price. They'll also have insane leases meant to minimize that risk. If there is an imbalance of power between the tenant and the landlord because of their relative conditions, the government really has very limited power to change that.

Landlords and tenants have a contract. That contract can specify a long term lease, with inflation-linked rent rises.

Most places have rules for what can go into a rental contract. As you say, it should strike a balance, otherwise no-one will offer cheap rentals.

Hate to be that guy but citation needed?

It's a legitimate request, but quoting stats for something that is illegal and widely occurring yet rarely enforced would seem to be difficult.

From personal interactions with NYC residents, I feel pretty confident that asking any of them about rent controlled apartments would elicit rants against the system for the reasons specified.

Can I cite an economics professor whose name I've forgotten?

He discussed how rent controls prevent both raising prices and selling the controlled property, so the owners can't make money from the property in any way.

Thus, many of these buildings stand abandoned and unsafe for decades.

Here's one quote: http://gregmankiw.blogspot.com/2009/02/news-flash-economists... 93% of economists agree that: "A ceiling on rents reduces the quantity and quality of housing available."

"He discussed how rent controls prevent both raising prices and selling the controlled property, so the owners can't make money from the property in any way."

That's basically the position of every economics instructor I've ever had - at least in 1xx and 2xx economics. I didn't go any further in economics, but I have been told that the basic jist of 3xx and 4xx economics is to demonstrate how everything we learned in 1xx and 2xx models is pretty much demonstrably incorrect in the real world, and why.

I have a relative who owns a townhouse in Brooklyn. When they bought their place, they got a substantial discount because it came with a couple of un-evictable tenants who were paying under $100/mo in an area that would have bore $1500/mo otherwise for those apartments. They literally spent more on utilities for that apartment than they received in rent.

In looking for apartments in NYC, I ran across at least one other that was rent controlled and was absurdly cheap, and the person living there was subletting from the person to whom the rent controlled place was passed down to for more than he was paying, but still less than market rent.

I don't think it's a defensible system, at all, and I'm normally relatively in favor of welfare programs. This one is just completely broken.

It seems most people here accept that NYC should, or has the right to, limit the activities of consenting private parties. Why should the government keep a couple from paying me a fwe bucks to shuffle them down the road?

Oh ya, NYC and select parties don't get millions of dollars in fees.

Every time I think about NYC, I think of Tammany Hall, and wonder how little has changed.

Really? Is it any surprise that any system that creates artificial offering scarcity instead of quality control of offerings is corrupt to the core?

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