Congressional Consumers Uber Alles
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.
Mark Perry, noticing the same thing, based on a report by Washington Post reporter Emily Badger, predicts the following:
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.
Nov 16 2014 at 10:14am
But doesn’t this model require that the people who make regulatory decisions in DC be more directly exposed to the consequences than those in, say, New York City? I would have thought that De Blasio, or at least the people who work under him, would be riding taxis, too.
Nov 16 2014 at 11:00am
De Blasio almost certainly has a private driver, and his administration has much more to gain from the taxi cab lobbying that does congress.
National-level politicians together need billions in donations, not the millions the tax industry can supply.
Nov 16 2014 at 11:53am
Congratulations on the 2000th post!
Nov 16 2014 at 12:25pm
This is an interesting speculation but not well informed.
I’m a resident and have attended City Council and Planning Commission meetings and testified on transportation issues, and I’ve observed no influence of the “wonder what Congress will say” sort. The Taxicab commission tried to block Uber (regulatory capture works here) but the more progressive members of the City council pushed back.
Congress is only interested in “important” things like blocking needle exchanges and marijuana criminalization.
Nov 16 2014 at 1:27pm
The argument that concentrated interests win out over diffuse interests in the political market place has too many counter examples and too many holes in its logic to be treated as a general theory of political economy. Let me start with the empirical (focusing mainly on issues that have recently been discussed by you and your fellow bloggers). Tobacco growers and firms are concentrated interests (and so are the smokers in comparison to non-smokers) but cigarettes are highly taxed and smoking is highly regulated. Progressive taxes slightly benefit each of the many people with lower incomes at the expense of the much fewer people with high incomes. I suspect that you might argue that progressive taxes don’t even benefit the poor. Yet, US federal taxes are progressive not flat. Uber is an interesting case. The benefits to Uber’s owners are more concentrated than the costs to taxi cab owners and drivers, but there are mixed results worldwide. Some times Uber wins and sometimes it loses. Finally, let us consider sugar tariffs in the US. This is certainly a political failure and is often used as an example of concentrated versus diffuse interests with the concentrated interests of US sugar cane and beet growers overcoming the diffuse interests of consumers. But is this really the case? Do the more concentrated producers of soda not care about the cost of their ingredients or do the more concentrated American producers of candy not worry about competition from foreign candy makers who do not have to buy high priced American sugar.
The logic of the concentrated versus diffuse argument has serious holes in the argument. Suppose that some policy hurts one thousand concentrated interests, one million dollars each, but benefits one million diffuse interests five hundred dollars each. This is clearly a bad policy. Suppose that all the concentrated interests vote against, but because of diffuse interests only .2% of the diffuse are aware of the policy and vote for it. A politician would promote this winning policy. The problem with the concentrated versus diffuse explanation of democratic politics is that diffused may mean more voters on the diffused side even if individuals are less likely to be aware of the issue or have the issue sway their vote.
David R. Henderson
Nov 16 2014 at 4:35pm
but the more progressive members of the City council pushed back.
Right. And they’re the ones who are in a position to pay attention to what Congress wants, far more so than the taxi commission.
The argument that concentrated interests win out over diffuse interests in the political market place has too many counter examples and too many holes in its logic to be treated as a general theory of political economy.
I agree. That’s why I said it has to earn its wings. I can think of many counterexamples. I also think it explains a lot that otherwise is mysterious.
Do the more concentrated producers of soda not care about the cost of their ingredients or do the more concentrated American producers of candy not worry about competition from foreign candy makers who do not have to buy high priced American sugar.
They do care and they lobby against, but their supply curve is probably close to horizontal, which means they don’t bear much of the cost. The gains from the sugar quotas, though, are capitalized in land prices.
Nov 16 2014 at 7:08pm
Congratulations on reaching your 2000th post. It is indeed an admirable feat. I’m looking forward to the next 2000. Not that I’m going to agree with all of them, of course, but I expect to learn from some of them, and am confident even the ones that make me snarl will make for interesting — even enjoyable– reading.
You’ve done something wonderful with your life, and I thank you for sharing it so splendidly with so many readers.
(I’ll get back to quibbling in my next comments.)
David R. Henderson
Nov 16 2014 at 9:29pm
Thanks so much, mike.
Nov 16 2014 at 10:14pm
And this doesn’t even consider the coming…whatever’s much stronger than a hurricane or tsunami…due to computer-driven cars. Within two decades, I doubt even 10 percent of the cabs driven in big cities will have human drivers.
Nov 17 2014 at 2:01am
Congratulations on the 2000th post, David. You’ve been a part of my information diet for sometime now and always a better part of it. 🙂
David R. Henderson
Nov 17 2014 at 1:52pm
Nov 18 2014 at 12:52am
Congrats on 2000th post, and thanks for doing all of them!
So, I read this post when it appeared a few days ago. Then, yesterday, I was in DC and caught a cab, and sat up front because I was with others. I started talking to the cab driver about the conditions you describe. He said, in essence, yes, up to about a year ago. He said that in past year or so the District has stopped being so free with licensing. He also said that with the legalization in DC of Uber, Lyft, which are killing the regular taxicabs, fewer people want them, anyway. I haven’t checked up on any of this, just reporting what I heard on the street.
He told me that he rents the cab he drives from a company with about a 100 licensed cabs, and that he now pays 20% less to rent the cab he drives, because of the competition.
Nov 30 2014 at 4:07pm
Dr. Henderson – congratulations on 2,000 posts! I look forward to seeing that number continuing to grow over the coming years. You are the primary reason I’m a reader of this blog.
David R. Henderson
Nov 30 2014 at 5:55pm
I just noticed your comment, Robert. Thanks so much.
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