Capping Ubers Won’t Fix New York’s Problems

Decision prevents new drivers from making money and protects taxi cartel
By Max Gulker, American Institute for Economic Research

During his contentious 1987 confirmation hearings for the U.S. Supreme Court, Judge Robert Bork told senators that being on the court would be an “intellectual feast.”

That’s how I feel sometimes about the phenomenon of Uber, Lyft, Airbnb, and the other platforms—labeled “the sharing economy”— that are powered by the extraordinary matching capabilities of the internet. They’re a feast of what I love about economics: markets, competition, technology, and governance—my cup runneth over.

Last week, New York City capped the number of for-hire vehicles at the current level for a year, becoming the first major city to attempt to limit the number of Ubers on its streets. There are reasons to oppose out-of-hand hard caps that both work to the advantage of New York’s government-sponsored taxi cartel and act as occupational licenses to both incumbent taxi and Uber drivers. But the feast of economic issues raised by this battle is too important to ignore.

There are two groups potentially exposed to real harm when more Ubers take to the streets. One is New York residents and visitors already exposed to grinding traffic, high population density, and, by American standards, old infrastructure. The other is existing drivers, both taxi and Uber, who face greater competition.

Hard caps can seem like a tantalizingly easy way to “protect” both groups. But a close look at those caps raises questions about just how effective they can be at their stated goals, as well as the underlying issues facing both groups, with no easy regulatory fix.

Stuck in Traffic

New York is appallingly crowded. Videos of the crush to board subway trains at rush hour might be mistaken for Black Friday at Walmart. And New Yorkers are well aware of the futility of trying to reach an open taxi more than 10 feet away before a fellow citizen beats them to the punch. It’s near the top of the list of reasons I’m glad I no longer live there.

That’s why Uber and Lyft have been a godsend to many New Yorkers—the ability via matching technology to tell a driver “I am right here on this corner” cuts through much of the chaos. But when considering the possibility of more Ubers on the street, the average New Yorker faces a tradeoff that is not easy to pin down. More Ubers should cut wait times and prices, but once you’re actually in the car, it can foster more gridlock.

But let’s unpack this idea that a hard cap on new vehicle licenses will lead to an equal reduction in traffic. Uber, and to some extent yellow taxi drivers, have control not just over whether they are on the road, but how much they are on the road. With fewer competing newly licensed vehicles, current drivers will take advantage of higher prices and quicker turnaround times and stay on the road longer. The result? You guessed it: more traffic.

And we haven’t gotten to the black market yet. Car service (or “black car”) drivers quietly pick up travelers on crowded streets. Fewer Ubers, more black cars looking for passengers. More black cars, more traffic.

It’s not that the cap wouldn’t reduce traffic at all—especially at rush hour when everyone is out already—but like any regulation, the devil is in the details. There’s money to be made in getting around this license cap, and cabs of all colors will line up to do so, bringing more traffic with them.

Underlying all this is the fact that there’s no good solution to New York City’s transportation woes. Congestion pricing on bridges has its beneficiaries and detractors. And the inescapable facts of population density and century-old infrastructure make it very hard to expand the subway. Manhattan Island was a great place to put a trading post, but a lousy spot for a global commercial and financial center that just wants to keep growing.

Is There a ‘Perfect Job’?

Existing taxi and Uber drivers may behave like Montagues and Capulets on the road in major cities, but they’ve been united in supporting New York’s vehicle cap (to the chagrin of Uber and Lyft corporate HQ). The answer is quite understandable—less competition.

A cap on for-hire vehicles acts as a de facto occupational license for incumbent drivers of all varieties, raising the cost of entry for potential new competitors. It has the odd feature that the instant before you receive one, you vehemently oppose them, while the instant after, you’re a proud supporter (economic theorists would call that a “discontinuity” in workers’ support).

Let’s be clear: taxi and Uber drivers do not have it good in 2018. The value of a New York taxi medallion (another layer of occupational licensing) has fallen to $200,000 from $1 million. Many Uber drivers struggle to make ends meet or obtain important benefits like health insurance. The chief stated motivation of New York’s politicians in enacting the cap, traffic considerations notwithstanding, appears to be ensuring these driving gigs are “good jobs.”

It’s right to be concerned about how working people are doing. But where is the concern for the people who are doing badly enough to be lining up for the jobs we’re already concerned about?

Like the traffic issue, there are underlying problems. One is that, due in part to all of this technology, the nature of work is changing. We have an outdated model of what a “good job” is: a single, full-time job that lasts for decades and is the source of such essentials as health insurance and retirement savings.

Today, information technology and markets (along with some health-insurance deregulation, if we can get it) go a long way in decoupling this paternalistic model. Perhaps driving jobs are now meant to be part of a wider array of how a worker earns a living, rather than being stretched to fit an older model where everyone has a single vocation.

Again, like the traffic problem, there isn’t an easy fix, but an unfortunately long and painful process of adjusting to a new normal. But, at the very least, our discussions should focus on a sustainable way forward for workers in 2018, not 1950.

New York politicians may get to pat themselves on the back for ostensibly helping both residents and drivers, but we’ll see what things look like once the cap has been in place for a year. And I’ll be there with the data, ready to feast.

Max Gulker is a senior research fellow at the American Institute for Economic Research. Gulker holds a doctorate in economics from Stanford University and a bachelor’s in economics from the University of Michigan. 

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

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