Artificial Government Controls…

Our public officials sometimes seem to think that more government intervention is better than less; that somehow central planning creates better results than free markets. Apparently we didn’t learn from the Soviet experience… There are probably a million different examples I could use to illustrate this point, but one specific local situation has been in the news recently.

In the city where I live, the municipal government decided 3 decades ago that it should license and regulate the taxi business. Fine, we wouldn’t want convicted felons driving taxis, right? But as part of this process, they also decided to cap the number of licenses they would issue. Hmm… Maybe someone thought having too many cabs would be a nuisance, or maybe it was the cabbies that wanted some guaranteed job security. Either way, it was a really bad decision that has led to a number of predictable and undesirable consequences:

1. Since licenses are scarce, people sell them for $100,000+, even though they’re not technically worth anything
2. Since the licenses are worth so much, the city can’t issue more without destroying some of that value and thus making the existing license holders irate
3. The service is generally mediocre because there’s no incentive to improve and no risk of competition
4. The service is slow, especially at peak times, because there’s artificially too few cabs

Wouldn’t it make sense if the city issued as many licenses as the free market demanded? Then if we needed more cabs because, say, the city grew, more people could get licenses. If we had too many cabs, some people wouldn’t be able to make a living and would find other jobs. Better yet, maybe some people would decide to drive cabs part-time. That way, they could choose only to work on the busiest nights, to make a little extra cash on the side. These part-time drivers would also be available to help increase service in situations like transit strikes, as we happen to have just survived.

But as with most situations of goofy government intervention, the free market finds a way to fill the void anyway. In the case of our local taxi service, we now have so called ‘bandit taxis’, which run completely outside of the regulations. Despite being illegal, the need is so great that drivers and passengers are still willing to take the risk. Since unlicensed cabs are obviously not the best solution, maybe city officials should take a hint, although so far they claim to be ‘perplexed’ by the situation…

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