The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Hailing for Change: Medallions vs. the Marketplace

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


In the digital age, the monetization of personal assets has become a new phenomenon.  Whether it is renting out the spare bedroom in your house through Airbnb, using your personal vehicle to earn money by transporting people via Uber or Lyft, or even booking a luxury private jet at a fraction of the cost through JetSmarter.

Of course, such disruptive technologies become a target for bureaucrats who seek to erect barriers that dampen the dreams of intrepid entrepreneurs. But the so-called “sharing economy” is nothing new; indeed, the merchants on “Main Street” have always “shared” their inventories and distribution networks with customers for their mutual benefit. The contemporary economy has merely adopted technology to transform centralized commodities into more accessible goods and services.

On the cusp of this new age, it is imperative for policy makers to facilitate and guide the modern economy into unfettered prosperity, rather than relying on outdated regimes.

Ironically, Austin, Texas, a high-tech community that has long prided itself on its progressive vision for the future, is being held hostage by the entrenched interests of the past (in this case, the traditional taxicab companies).  On May 21, 2016, Austinites voted 56 percent to 44 percent against Proposition 1, which would have allowed ride-sharing companies to continue using their own background check systems.  With the defeat of Proposition 1, the city will now impose fingerprint background checks and other burdensome regulations on ride-sharing companies like Uber and Lyft.

After the loss at the ballot box, the two ride-sharing companies announced that they will be pausing operations in Austin until they can reach a reasonable agreement with the City Council.  In other cities, Uber and Lyft have encountered similar regulatory obstacles; they followed through with their threats to leave and returned only when the rules were changed.

The purported sticking point in Austin was the impression that these (non-taxi) drivers were somehow suspect operators, not having been vetted by the same government entity that oversees the licensing of taxi drivers.  This perception failed to account for the fact that the companies themselves performed their own “due diligence” background checks before putting their companies’ imprimatur on the drivers.  Private sector employers have as much incentive, if not more, to ensure that their brand is as free from potential liability as possible.

Moreover, the fingerprint background checks demanded by opponents of the ride-sharing companies are far from infallible themselves.  In 2013, the National Employment Law Project published a report indicating that inaccuracies within the FBI’s databases are blocking some 600,000 Americans annually from “jobs for which they may be perfectly qualified.”  The Department of Justice indicated that roughly half of the FBI’s databases are incomplete or inaccurate, largely because the agency fails to input the final outcomes of arrests.

The conflict in Austin may seem to some like a victory for public safety, but for most consumers, it ultimately limits choice, while protecting legacy taxicab operators from competition.  If more municipalities or even states, begin mirroring the actions in Austin, fights like this are going to become more frequent.  Ride-sharing companies, which have already been sued in San Francisco and Los Angeles, California and have announced plans to leave Houston, Texas, over the same fingerprint requirement.

Consumers love the freedom and convenience to choose when, where, and how they get from point A to B.  Uber and Lyft have loyal consumer bases, which could be a vital lifeline in the battle over burdensome regulations.  All other things being equal, the market should be the deciding factor for a business’s success, not the government.

The anti-competitive narrative that is percolating in cities and states begs the question:  why protect the greedy taxi cartels more than consumers?  The answer lies with the cronies of “big government” mayors and governors, who may be easily influenced by the political power of the taxi cartel, with its infamous medallion system.

During the Great Depression, New York City had between 15,000 to 25,000 cab drivers on the road.  With the amount of cabs outnumbering the number of passengers, cab drivers were forced to work longer hours in order to make the same money they had made before the cab market became so saturated.  In 1937, to resolve the issue, New York City Alderman Lew Haas decided to introduce legislation that would: limit the amount of cab licenses (or “medallions”) to 13,595; make medallions automatically renewable; and allow the owners to treat their medallions as tradeable assets.  The Haas Act was signed into law later that year by Mayor Fiorello LaGuardia, ushering in the era of the medallion system that remains in place today.

Under the current medallion regime, taxi cartels are making millions of dollars.  Medallions were first sold for around $10; now they can sell for over one million dollars.  And this artificial price rigging will not end any time soon.  Medallion owners are very politically active and can be quite generous with their campaign donations to those willing to block reforms that might threaten their financial interests.

Michael Bloomberg, Former New York City Mayor, was a bit skeptical of the Big Apple’s taxi medallion system.  In a 2012 interview, Mayor Bloomberg said, “The cab industry’s a funny industry. I don’t know of any other place in the world where the city gives a license and the people that have that license can then trade it and resell it and the city doesn’t have any interest and any ability to share in the value going up.”

Bloomberg went on to say, “A normal market, you’d say, ‘well, just issue more taxi licenses,’ wrong. Because they have bought the legislatures and stopped the ability to do that. It is one of the great rip-offs of the public any place I’ve ever seen.”

The introduction of Uber and Lyft into the market has cut the average medallion prices by approximately 50 percent, with the highest medallion now costing a little more than $650,000.

This price cut has caused financial problems for some of the largest medallion owners, compelling a few to beg the city for a taxpayer bailout, despite having forced consumers to pay higher prices for fewer options for decades.  Competition and consumer demand will continue to reverse the effects of the onerous medallion system for New Yorkers.  Hopefully, these same market forces will eradicate new regulatory hurdles where state and local governments are trying to stifle ride-sharing companies.

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