Government Misunderstands Ride Hailing Apps

Uber Is Blamed for the Mistakes of New York’s Leaders
Failing to understand market forces will make matters worse.
Bloomberg, August 6, 2018




The New York City Council has floated a bill to cap for one year the number of Uber and Lyft licensed cars allowed in the city. The effort springs from a deeply misguided and flawed understanding of markets, technology, venture capital and local politics.

A few words on this topic might offer some insight. If Council members were to better understand the history of New York’s horrible taxi service — and the Council’s own role in creating this mess — they might see why attempts to thwart market forces will only make things worse.

As I noted before, Uber NYC launched on May 4, 2011. It became wildly successful for a few simple reasons we discussed last time:

“I blame the artificially low numbers of medallions for almost all of New York’s taxi industry’s woes. The credit for that — and for creating a market opportunity for Uber — belongs to the TLC (Taxi & Limousine Commission) and the medallion owners. Consider, the number of licensed cabs was about 16,900 in 1937, when the city’s population was more than 1 million lower than it is today. Today, there are fewer medallions than 80 years ago. There have been only about 1,800 new medallions issued since 1996.”

Much of the Council’s confused thinking about for-hire cars services was summed up in a New York Times op-ed last week. Council member Adrienne Adams made a number of claims, many of which amount to little more than advocating on behalf of medallion owners and Yellow Cab drivers and against the ride-hailing apps:

“In recent years these cars have flooded New York, clogging our streets and driving down fares and with them, income for tens of thousands of drivers. Professional drivers, more than 90 percent of whom are immigrants of color, once earned a middle-class living but now face eviction, bankruptcy and even hunger. In the last year six of them have committed suicide.”

This is simply an emotional set of claims, rife with denominator blindness, and lacking any sort of rational basis for evaluation. Perhaps we can change her perspective with some context.

Where some people see a flood of cars “clogging our streets,” other see a huge improvement in car availability. Hailing a car was previously a challenge even under the best of circumstances. Let it rain, or be near the time when cab drivers change shifts, and availability plummeted to zero.

Adams argues that declining fares is a bad thing; others see lower costs of transportation for millions of New Yorkers. She laments the decline in wages for drivers; I see that as proof of the artificial monopoly that the T&LC created for drivers and medallion owners, limiting the supply of cars in the face of overwhelming market demand.

Indeed, many of those drivers determined that the deal the medallion owners offer them was actually a bad one, and they have migrated to Uber and  Lyft to take greater control of their own financial destinies and working conditions. The Council should be encouraging this sort of entrepreneurship, not penalizing it.

Adams, an African-American, also acknowledges that people of color are frequently ignored by Yellow Cabs. But she offers a bizarre explanation for this crime, claiming that “racism against blacks is often one of the first things that immigrants learn when they arrive in America.” App-based ride hailing services radically improves availability of cabs for those people who otherwise have been discriminated against when they try to hail a cab from the curbside.

Last, it is a tragedy when anyone takes their own life. The U.S., with a population of about 325 million people, has a distressing 45,000 suicides a year (0.014 percent of the population). It is tragic that six drivers out of 50,000 with Yellow Cab licenses ended their own lives — but the fact is this is about the same rate as the general population (0.012 percent). Using this tragedy to fabricate an emotional plea doesn’t move the argument forward.

Uber says it doesn’t charge a service fee if a customer tips a driver via the app. Numerous drivers have claimed otherwise. If the New York City Council wants to protect the incomes of drivers, it should mandate that 100 percent of tips given by passengers actually go to the driver.

Among the remedies the city is turning to is a temporary cap on the number of hide-hail app cars, which will give the city time to study how many cars are really need to meet consumer demand while setting minimum pay for maintaining full-time driver incomes. I suppose some of this is not objectionable: Statisticians will tell you that more data — not less — makes for better studies and analyses.

Yet here is the grim reality: at some date in the future, and perhaps not that far off, there will be no more cab drivers. You will hail a self-driving car via an app, and safely and efficiently be taken to your destination. Accidents caused by human error, drowsiness and driving while drunk, will be reduced or eliminated.

The focus on the short-term well-being of a small group of workers — at the expense of the rest of the public — misses the bigger picture.


I published this at Bloomberg on August 6, 2018.


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