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Wednesday, July 8, 2009

State Licensing Requirements Externalize Monopoly Maintainance Costs

I saw a really interesting story on the CBS 5 o'clock comedy show. Someone was operating an unlicensed taxi. They picked up passengers at an airport. Police spotted the unlicensed taxi. A police chase ensued. The passengers were injured as the unlicensed taxi driver attempted to escape the police/terrorists.

The comedian said "Those unlicensed taxi drivers are evil!" In my eyes, the police were the evil ones. If they didn't attempt to arrest the taxi driver, then he probably would have delivered the passengers to their destination without incident.

Who pays the cost of these police that track down unlicensed taxi drivers? I pay the cost, via taxes. Who benefits? The people who own State taxi licenses are the ones who benefit. They don't pay the cost of enforcing their monopoly. The cost is passed on to everyone else via taxes.

Also notice that an agorist taxi driver wouldn't have this problem. An agorist taxi driver would not pick up complete strangers, unless some agorist credit rating agency certified their trustworthiness. If asked by the police, the agorist taxi driver and passengers would say "I'm just giving my friend a ride. There's nothing to see here."

A NYC taxi medallion license is worth $1M+. They can be bought and sold. There is a cap on the number of licenses. The only way to get a license is to buy or rent one. There is occasionally talk of increasing the number of medallion licenses. However, current medallion owners can always profitably lobby to block reform. They collectively own a monopoly worth $10B+. As a non-medallion-owner, it doesn't pay for me to lobby for laws affecting taxis.

If the taxi medallion owners had to hire their own police force to maintain their monopoly, then it would not be profitable. They externalize the cost to everyone else via government. This is the essence of Distributed Costs and Concentrated Benefits.

The taxi medallion monopoly keeps prices high. It also guarantees that you can only get a taxi in downtown Manhattan or other busy areas. In other parts of the city, you can't hail a cab on the street. Instead, you can call a "car service" to pick you up. Only people with taxi medallions may pick up strangers on the street.

A pro-State troll says "State licensing requirements protect customers!" The reality is that State licensing requirements protect the people who currently own a license. Licensing cartels reduce the quality of service and raise prices. Licensing requirements impose a barrier to entry for people who want to start their own business. The people who own licenses can always profitably lobby the State for favors. The cost of police enforcement of the licensing cartel is paid for everyone via taxes.

For example, someone who owns a car can't say "I'll experiment with driving a taxi for 10 hours a week for some extra money. I'll see if that's profitable." The State licensing requirement makes it impossible to bootstrap and start a new business. The State licensing requirement makes it hard for poor people to earn some extra money via self-employment.

A State-licensed industry usually suffers from high prices and low quality service. Nearly every profession requires a State license! This includes doctors, lawyers, accountants, psychiatrists, taxis, plumbers, electricians, construction work, etc. All of these services are very expensive compared to the true free market price.

Via State licensing requirements, people with a monopoly externalize the cost of enforcement to the rest of society. Via taxes, I pay the cost of enforcing monopolies that cause me to pay higher prices for goods and services, and receive a lower quality product.

2 comments:

No Gods Required said...

Due to this comment:

"I considered writing a longer response, but your connection to reality has timed out. It suffices to say that you are pro-State trolling (based also on your previous comment on the same post)."

After which you proceeded to agree with me that morality is not based on opinion, I can only conclude that the insulted I quoted was only aimed at hurting another person. Consider my readership removed. You don't have to worry about me "trolling" any longer.

rom said...

Here in the UK I said to a police woman that her job leeched on taxes, and cops look for crime and exaggerate it so that they can justify their jobs and increase police numbers.

She replied: "we pay taxes as well".

I said: "yes but the police do not produce anything, they simply consume the public goods".

I suppose she could have retorted that the police allow the rest of society to produce goods by reducing and preventing crime.

I would have replied: The police claim their numbers need increasing because there is more crime so they are not reducing crime.

They enforce a corrupt statist system which robs everyone and create crime through state theft and police actions.

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