Why Taxi Medallion Owners Don’t Deserve a Government Bailout

Who’s going to shed a tear for Andrew
Murstein, the wealthy founder and president of the investment
firm Medallion Financial, if
his net worth plummets because the high-tech car services Uber,
Lyft, and Sidecar obliterate the traditional taxi industry? Among
other things, Murstein’s firm is a holding company for
taxi medallions—transferable licenses to operate cabs that in
New York City sell for over $1 million a piece. Mediallions
are now losing value because Uber and its competitors—whose drivers
don’t pick up hail passengers off the street and therefore aren’t
required to hold medallions—are luring drivers and passengers
from the traditional cab industry.

But how about New York City’s independent cabbies whose
retirement savings are tied up in medallions they borrowed to
purchase and have spent years paying off? Or the “40 young Ghanaian
men” featured in Emily Badger’s
recent story on Chicago’s taxi industry, “mostly in their
20s,” who in the past two years bought medallions in the Windy City
with “little or no money down?” As Badger notes, these
investments are probably already underwater, since a recent city
auction of medallions apparently drew no bidders.

In
an article in
Truthout, economist Dean Baker recounts how he caught a
ride from a worried Pakistani driver in San Francisco who saved for
years to buy a medallion, and is now spending $2,300 in monthly
mortgage payments on the purchase. Baker argues that his driver’s
losses should be viewed “in light of the larger issue of…growing
inequality:”

On the current path, these medallion owners will just be out of
luck. Their life savings will be made worthless by young kids who
are better at evading regulations than immigrant cab drivers; so
much for the American Dream.

In last
week’s episode of Russ Roberts’ podcast EconTalk,
Duke University political scientist Mike Munger mused about whether
medallion holders deserve a government bailout:

Suppose that we don’t take any action and the value of these
medallions falls to zero. Are we obliged to offer compensation,
because we in effect made a regulatory decision that is a taking?
This property right, this medallion, had significant value. We made
a choice, without due process, that said we are going to reduce the
value of this medallion to zero…There is a
difference between private property
and…rent-seeking…[But] I’m not as sure as
I was that the difference is as clear as I
thought.

Here’s why medallion owners shouldn’t get a bailout, and why the
issue is far more clear-cut than how Munger and Baker frame
it: As I mentioned above, medallions are only for
cars that pick up hail passengers, not for car services, which were
never required to hold these exclusive permits. Uber, Lyft, and
Sidecar aren’t  “evading regulations.” Several states have
enacted new laws to insure that their drivers carry commercial
insurance, but medallioned cabbies still hold a monopoly on picking
up hail passengers off the street.

By introducing great mobile apps, Uber and its competitors
simply made car services more convenient for many customers than
stepping off the sidewalk and sticking an arm in the air. In other
words, it’s technological innovation not a policy change that’s
transforming the cab industry.

As Emily Badger notes, taxi medallions have “been the best
investment in America for years,” outpacing the S&P 500 by
a longshot (see her chart above); with great reward comes great
risk. Even small investors shouldn’t be protected from the
consequences of their investment decisions.

In this recent Reason TV video, I looked at how Lyft is
transforming D.C.’s taxi market: