IEA Thinks Taxis Are Not A Public Good

Over on the IEA Blog, Eric Masaba asks the question: Why do black cabs cost more than Concorde?

I couldn’t point out ALL the holes in this article, because the IEA blog limits the number of characters per comment. I find the argument for the virtue of brevity a ‘cute’ one because affirmations are the most brief of comments, while refutations are the longest.

The state subsidizes the ‘Black Cabs’ of London.

Hackney cab drivers inexplicably enjoy a rule stating that no one else can describe a taxi service as a “taxi” in their marketing, and the important restriction that no one else can pick up passengers on the street. These regulations have deep historical foundations, dating back to the days of Dick Turpin. In today’s world, they are anachronistic, anti-competitive and pointless.

London cab drivers are a pleasure to deal with. They are an intrinsic part of the tourist trade. The Danes pay an entire social class to stay home so that the average clerk in a train station is educated, literate, well mannered, and a pleasure to deal with.

When there are price comparison sites for insurance, airlines, hotels, holidays and office supplies, where we can buy the same product from a myriad of suppliers at different prices, how is it that there are very strict rules requiring that Hackney drivers receive a minimum wage for every mile driven yet private hire drivers do not?

Because the market is an unlimited physical space and the streets of London are a limited physical space (and the tube is a monopolized space. And therefore Cabs require a very simple set of regulations in order to maintain quality.

Why is it good for certain stripes of taxi driver to be able to oblige people in London to pay higher rates than the market would support if such a law was not in place?

Why is it a good for the state to regulate any kind of competition?

Why do the same drivers, who expect to be able to choose what clothes they wear (and how much they pay for them) and which airlines and car insurance firms they use, want to deny travellers in London the basic freedom to choose another vehicle service they can hail at the airport or on the street?

They don’t. You can hire a car from the airport. You just can’t pick someone up on the street.

If people want to pay for the superior knowledge that the Hackney drivers clearly possess, they will do so. If they do not care, they will find cheaper alternatives until the market has informed the black-cab community what customers really think and what price they are willing to pay.

They are not paying for the knowledge. The state is using a knowledge criteria to create a hurdle for market entry. Just like they do for just about every kind of specialist.

Many people are disgusted with the special treatment bankers received, but through the price controls and regulations on taxis in London, transport markets are being distorted to favour one type of vehicle provider.

Bankers recieved special treatment because the state printed money without regulating it and forced banks either to compete for profits or to go out of business. This process of moral hazard created large banks that are pseudo governmental agencies, that were so responsible for subsidizing the national payroll and cash disribution and management system that if they were not rescued then the crash would have been worse. On the other hand, the state CREATED the moral hazard. But it did not have to. The problem has been that creating the ‘rules’ of the fair game in banking (defining the properties of property and it’s rules of transfer) has become extraordinarily complex because the object of definition has become exceedingly plastic. Derivatives and new financial instruments were a new form of property that many of us decried at the time, but that was unregulated because both the state and the purveyors of these new devices foolishly bought the argument that it was possible to insure that kind of risk, and secondly, because

So, I have to disagree with the IEA’s position. Travel to NYC, Chicago, LA and ask yourself if the London policy is better or worse for everyone involved. And if we subsidize transportation like subways why cant we subsidize Cabs. If price is a concern, then If you want another choice, call a less expensive cab company on your cell phone. Prices aren’t everything. In fact, low prices and full competition in a market often accomplishes the lowest cost service at the lowest quality that is tolerable by consumers, and bars quality from availability within a geography. (Home Depot and Walmart in the US, and superstores versus butchers, bakers and the like in Europe). I am happy that superstores exist to provide additional choice, but only if there is a replacement ‘tax’ for using them by distancing them.

From this simple analogy of taxis and tubes versus superstores and specialty stores, we can illustrate that reduced prices and a free market within geographic boundaries produce commodities, and thereby prevent societies from capitalizing long term values of aesthetics, choice, and the ‘special’ environments we adore across all of europe in favor of a bland, disposable environment.

We restrain competition in order to raise prices and therefore concentrate capital and we do it in many ways: political subsidy (money transfers like taxation, redistribution, and outright subsidy) constraining the market by qualification (lawyers, doctors and london cabbies), and constraining the market with monopolies (public transportation like Tubes and Buses).

We unrestrain the market to reverse the concentration of capital and to reduce prices, and we do it in many ways: political subsidy of

The natural order of man is to attempt to circumvent the market. The free market is a byproduct of the civic republican tradition’s advocacy of meritocratic equality. It is a rebellious movement against the control of markets and the expropriation of wealth by the state. Markets are a solution to corruption that asks us to create fair competition among equals and to maintain that set of ‘rules’ we call “competition in the market”.

However, the natural behavior of man is to circumvent that market. The means by which he circumvents it are those tools we consider fair market competition: reducing prices, increasing choices, advertising and marketing. Not all cultures have taken this route. In fact, in history, the free market is an exception that concentrates wealth in hte hands of the monied, productive and creative minority. THis concentration benefits all by decreasing prices for nearly everyone. It limits the power of capitalists as long as there is enough money in circulation to create inexpensive competition.

But since the culture or state determines the definitions of property (the means of calculating the use of opportunities to act) the rules for any ‘game’ are particular to that game. Rules are not universal to all games. They are plastic. And this comparison of Taxis to Tubes is perhaps one of the best ways to illustrate that these rules are inconsistent.

But what may not be obvious is the DISTORTION that is created by the myth that rules must be equal for some things and unequal for others. Or, that lowest prices are the ultimate virtue to be sought by economsts and political economists.

As a libertarian, I care that the choices available to me are not constrained by

Concentrating capital attracts talent to the private sector where it is skimmed by private individuals, and those who lack talent to the public sector where it is skimmed by bureaucracy. Yet this is what most cultures seek to impose: expropriation by the bureaucracy.

WE also constrain capitalists, and unconstrain capitalists. Capitalists can temporarily distort a market by applying capital that profits one company or anotther, requiring competitors to rely upon capital or depart. They can do this by simply extending debt, so that prices may be decreased in the anticipation of driving competition out of the market, and later increasing their share of the market as these competitors disappear. the problem with this technique is that talent accumulated in the industry is sometimes forced out. Niches are abandoned (the wall mart and home depot effect).

The state acts like a disruptive capitalist creating temporary price decreases in return for decreased niche services, and in doing so makes it impossible to concentrate capital in niche excellences. It makes it impossible to subsidize a public good: choice of the more expensive, better, prettier.

The purpose of the London cabbie is largely to create a public ‘good’. It enforces quality so that quality personnel can afford to work in the industry (rather than the horrid service, delivered by the filthy, ignorant and incompetent in US cities).

Prices would drive down quality, and all that will happen is that you will need additional regulation to managed an impoverished and corrupt network of marginal businesses that deliver cheap but intolerable service that prevents quality competition from competing in the market.

If you are willing to spend money on the tube. You have no argument against spending money to maintain a quality system of taxis. Just because market mechanics are POSSIBLE for taxis and IMPOSSIBLE for tubes, that doesn’t mean that taxis are not serving the same function as tubes.

Lowest costs does not generally create a good. It creates a marginal enterprise.

Aesthetics are forms of capital that are perhaps, the best investment that any civilization can make.

For a country like the UK, whose history is an industry, you’d think that such a principle would be better understood. For a country that is creating demand through immigration, cash by selling off it’s assets, and the illusion of prosperity by dilution, inflation and redistribution, rather than by increases in productivity, it is understandable why a myth of exceptionalism would be a useful distraction from the fact that the UK is selling off its exceptionalism and it’s heritage, and would do even more so along with it’s taxi subsidies.

Prices alone do not a world make. The purpose of the market is exploration. The purpose of unbridled market is prevent government exploitation. THe purpose of the regulated market is to capitalize SOMETHING for a social good. And not all social goods are consumables. Some social goods capitalize distortions to create beauty, which is a high return for a society, as all monuments, arts and architecture demonstrate.

So, instead of universally pursuing consumption as an ultimate good. Instead of the keynesian virtue of spending. Perhaps we should balance our capitalist strategy with the art of saving. It took english civilization a very long time to create a culture of saving, and the institution of interest, so that the middle aged could save until they were old, and the old could lend to the young, in a virtuous cycle of investment that distributed the risk of long term calculation across a vast number of people, and wherein retirement security was an insurance scheme for the underclass rather than a mandate of the majority. This virtuous cycle was undermined. Perhaps we should return to it, and to other forms of capitalizing our civilization, so that we leave something behind for our heirs rather than the record of a visitation by locusts.

Subsidizing quality is the entire point of aesthetics and the arts. And capitalizing everything from street signs, to cabbies to historic buildings to libraries and museums is an antidote to anti-historicism.

3 responses to “IEA Thinks Taxis Are Not A Public Good”

  1. Philip Says:
    April 18th, 2010 at 9:27 pm
    Curt – not sure that I completely understand your point: maybe a few typos. But what you say does not happen in Dublin – indeed precisely the opposite happened. If you are going to assume that quality will be driven down you at least need an a priori argument to demonstrate why. What is the argument?

    Curt Doolittle Says:
    April 19th, 2010 at 1:01 am

    My point is that we subsidize transportation in multiple ways for multiple reasons. Due to the character limit of this blog, it’s not possible to answer a question such as this sufficiently because there you are making too many assumptions (I think).

    Aristotle would have surveyed all the major cities before pronouncing the opinion you offer. Such a survey would indicate that Dublin is an outlier. Since Dublin is an outlier, why is it that such a thing has NOT happened in Dublin?

    Induction is a very error-prone technology.

    (RE: typos. iphone/ipad auto correction and screen size make the confusion between a period and comma an easy one. Apologies.)

    I’ll post a reply elsewhere.

  2. Argument By Analogy:
    The majority of cities that to not subsidize cabs (like does london through exclusive rights) have unpleasant, dirty, incompetent, time consuming service that is a source of ridicule in their host countries. Cabs are a part of the social order. Bad cab service is a reflection of the society’s mores, ethics and values.

    How about an analytical argument rather than a more suspect a priori argument?
    Limiting a market increases capital concentration in a system, and consequently increases prices.
    Expanding a market decreases capital concentration in a system, and consequently decreases prices.
    Decreasing prices decrease capital in the system.
    Talent makes marginal decisions in job (sector) participation based upon anticipated reward.
    Decreasing capital decreases the quality of the talent pool.
    Decreasing the quality of talent decreases the quality of product.

    As Aristotle warned us in his survey of Greek Constitutions, social science depends upon surveying all the permutations and deducing basic principles. Induction from a minority of examples is a heretical process borrowed from the physical sciences, and a contra-indicator. (Hence the Misesian failure of Praxeology which intentionally or not is an artifice for ignoring the cost of forgone actions – forgone opportunities.)

    An explanation as to causes:
    London is not Dublin (demographically) and therefore the result in London would not be the same as the result in Dublin. It would produce the same result as NYC (Or Toronto). Because demographically london and NYC are the most similar. Ireland is a homogenous but poor country with a polish minority. Social status criteria and competition puts downward pressure on the size of cooperative groups. The craftsman class is a dominant social class. Unemployment creates a ready pool of craftsmen class unable to find a job. Being a cabbie is still a decent man’s occupation for a member of the craftsman class. This is not true of london, where it would become an occupation of the underclass. If you want to create an underclass cab system you will simply deprive the middle class cab system of capital by subsidizing availabilty. If you regulate availabilty (keep the market closed so that both types of cabs are available, and tehrefore a status symbol, then such a solution might be possible. THis availabilty is already existent – you can call cheaper cabs. Keeping cheap cabs artificially scarce and regulating prices might achieve the goal that you are looking for while preserving choice and continuing to capitalize the public good of ‘black cabs’. (Although cab drivers notoriously say that the future looks bleak to them.)

    People currently have a choice. Either take the tube or call an off-brand cab. Otherwise, pay the cost of quality cab experience. We could reverse that choice so that others would call a quality cab or limo, and the average cab would be less expensive. Since TIME is the unanswered question in your proposition, and since all costs are opportunity costs, and since the people with less money have more time and the people with more money have less time, the secondary costs of your hypothesis would be an excess burden on those more productive classes in exchange for a reduced burden on your less productive classes.

    The difference is simply a choice of which environment we wish to subsidize by which means. Since we are subsidizing both in one way or another, I would prefer to subsidize excellence rather than price, and manage the scarcity of money rather than the scarcity of quality.

    And that is why politics is a venue for resolving differences in preferences. Preferences are almost universally differences in time preferences. Which are almost universally differences in capitalization versus consumption. These preferences have material impact on a society. But they are preferences not truths. Choices, not ‘goods and bads’.

  3. The problem for policy makers is to create price-diversity and selection. Not lowest overall prices. Do that each social class has price choices. Not so that there is one set of price choices. The same is true for zoning. We should have nice areas and not-so-nice areas, not areas all equally almost-nice. The vast rings around our major cities are slums because of these policies.

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