Congressional Consumers Uber Alles
By David Henderson
Celebratory Note: This is my 2,000th blog post. It has been and, I predict, will continue to be, a fun ride.
Usually in every microeconomics course I teach, there comes a time when I make the point that there is a fundamental difference between taxicab regulation in Washington, D.C. and taxicab regulation in virtually every other American city. In the latter, local governments restrict the number of taxicabs, creating rents for those who have the permits. The cost is borne by consumers who, individually, pay only at most a few hundred dollars a year more. This cost is dispersed. The gains go to a relatively small number of holders of permits. The costs outweigh the benefits–monopoly creates a deadweight loss. It’s a classic example of Anthony Downs’s public choice point, made in the 1950s, about how a concentrated group can benefit at the expense of a dispersed group. The concentrated group, with a lot at stake per person, has a LOUD voice in the process and pays attention. The much larger dispersed group of consumers, with less at stake per person, has only a whisper, if that.
But, I tell my students, there is one big counterexample: Washington, D.C. Why? Because Congress has a lot of say over the running of the D.C. government. So here the consumers, whose ranks include Congress and Congressional staffers, have a great deal of leverage over the regulators. Result: No way will Congress cooperate in artificially restricting supply and driving up cab fares that they themselves pay. That’s why cab fares in D.C. have traditionally been so low compared to fares for a given distance and time in other U.S. cities.
So what would this basic public choice model predict about Uber, which competes with cabs on price, convenience, and quality? It would predict that Congress will not cooperate in heavily restricting Uber in D.C.
Here’s my economic forecast for the transportation industry: Expect continued and very strong hurricane-strength Schumpeterian gales of creative destruction, with a high likelihood of market disruption for Big Taxi, accompanied by huge tsunami-level tidal waves of increased benefits and savings for consumers.
I think this is too strong a prediction (to the extent it’s based on Congressional clout) because regulation of cabs, Uber, Lyft, etc. tends to be a local government issue and Congressional staffs have little leverage over most local governments. But, as noted above, they have a lot of power over regulation in D.C. So, for the public choice model to earn its wings yet again, the outcome will have to be that Uber is relatively unregulated in D.C.
HT2 Arnold Kling.