If too many cabs start running because it seems lucrative, it'll very rapidly become less lucrative. There are only so many people who want a ride, and taxis are only profitable if they handle a certain number of those rides per day, so there's already a natural limit on the number of taxis.
Yeah, but that limit doesn't take into account the full costs to the system.
Your argument is like saying that common grazing land is okay because there's a natural limit to how many cows can be on it; the number of cows that can fit, or that can be watched by the available farmers, or any other limit that doesn't take into account how many cows the field can actually handle.
