A recent New York Times article highlights the plight of one plucky New York taxi mogul caught between flawed governmental policy and the process of creative destruction. Evgeny Friedman is asking the city government to bail out his troubled cabbie business after he was unable to make good on loans he took out in order to pay for the sky-high price of dozens of New York City taxi medallions.
In New York, the issuance of a taxi medallion is analogous to owning a “deed” to a taxi. In order to operate a taxi, you must possess or work for someone who possesses one of these medallions, the supply of which is capped at about 6,000. Unsurprisingly, as both the population and demand for taxi services have increased over the years, the price of these medallions has skyrocketed, reaching a peak in 2013 of $1.2 million. Under this scheme, the cost of owning and operating one taxi in the Big Apple is about the same as buying three new 2015 Rolls Royce Phantoms.
This is where Mr. Friedman comes in. As inefficient as this system is, it worked out pretty well for him – until recently. With the onset of new services like New York’s green cab system, and most notably Uber, demand for yellow taxi services (and therefore the price of medallions) is plummeting. Not unlike the inflated housing bubble of 2008, to which Friedman personally likens his situation, the inflated taxi medallion bubble has finally been popped. Now Friedman is asking the city to cover his losses, contending he has “a little bit of standing to say there should be support from that institution that I delivered, personally, $300 million to.”
But New York City would do well to deny Friedman the money to which he thinks he is entitled. The point here is simple: In a competitive free market, resources are used to produce goods and services people value, and forcibly siphoning money from taxpayers’ wallets into a failing business is not just a futile endeavor in itself, but diverts those resources away from more profitable, and therefore more valuable endeavors. The best way for New York City to grow its transportation sector is not to dole out hard-earned taxpayer money to people like Friedman, but to allow entrepreneurs and new services to serve customers directly.