We’ve written before on the inefficiencies, corruption, and social costs of taxi regulation, but we can finally put a number on some of the total social costs thanks to the blatantly anticompetitive policies of New York City: $1 million per license. The New York Times is reporting that two medallions, the tin plates that indicate someone has permission to operate a taxi in New York City, were sold for $1 million a piece. As the Times reports:
“The sale was the culmination of decades of astonishing growth for the humble medallion, which is literally nailed to the hood of every yellow cab in the city. When New York issued its first batch of medallions in 1937, the going price was $10 even, or $157.50 in today’s dollars.
“Some perspective: The Dow Jones industrial average has risen 1,100 percent in the last 30 years. In the same period, the value of a taxi medallion is up 1,900 percent. That return beats gold, oil and the American house.
“Sky-high prices and million-dollar deals seem a far cry from the medallion’s early days; when World War II came around and demand for taxis dropped, many drivers simply returned their medallions to the city to avoid the annual $10 renewal fee.”
These prices are what economists would call monopoly profits; they are a windfall to owners of the medallions because they are completely unconnected to the economic activity of meeting consumer demand. This market “value” is solely a result of government restrictions on the supply of taxis well below demand, pushing their market value beyond what would be sustainable in a real market. In taxi markets with free entry, licenses and permits usually are a couple of hundreds bucks. So, since 13,237 taxis are licensed to operate in the Big Apple, the New York Taxi and Limousine Commission has manipulated the market to create faux wealth of $13 billion (at the going rate). This is not market-created wealth; it’s artificial wealth that only benefits those with the connections and resources capable of enough securing a medallion.
Since this is not wealth created by suppliers productivity deploying their resources to meet consumer demand, it’s also represents a deadweight loss to society. So, in round numbers, the social cost of taxi regulation in New York is upwards of $13 billion even without counting the inconveniences created by the shortage of taxis, the lack of innovation in service delivery, and other ills associated with this highly regulated industry.