Sunday, January 23, 2011

The Catfish Does a Karl Marx Impression

Felix "The Catfish" Salmon publishes an informative chart of the price of New York City taxi medallions over recent years. He notes the steady climb and blames it all on "capital".

The NYC medallion is the license, represented by a metal medallion secured on the hood of the car, that allows a taxi to operate in NYC. The supply of such medallions is strictly limited by the government of NYC.  Not surprisingly the limits on supply result in a soaring price for the medallions.

The Catfish paints this as a capital versus labor issue. He titles his post, Labor vs capital datapoint of the day, NYC taxi edition and writes:
New York taxis are a textbook example of gains going to capital rather than to labor.
Actually, it's not a case of additional income going to capital, qua capital. It is what economists call "rent seeking".

Here's the Wikipedia definition of rent seeking, which suffices for this discussion:
In economics, rent seeking occurs when an individual, organization or firm seeks to earn income by capturing economic rent through manipulation or exploitation of the economic or political environment, rather than by earning profits through economic transactions and the production of added wealth.
What's going on with the taxi medallion situation is that the powerful influence of taxi cab owners on City Hall results in the city significantly limiting the number of new medallions.

But it is the power of influence that results in the distortion from what would happen in a free market. In this case, the power happens to be in the hands of the taxi owners, i.e. capital, but that is not always the case with rent seeking.

For example, (again from wikipedia) by the government making certain drugs illegal and thus limiting supply, drug dealers show larger incomes than would occur without the government restrictions. This additional gain is rent seeking and clearly has nothing to do with capital.

Union attempts to limit competition for their workers is rent seeking. Again nothing to do with capital.

The Catfish's focus on capital is simply off base.

As far as the income of drivers, it has nothing to do with the price of the medallion. Once the licenses are granted and X number of taxis are available to hit the road, cab owners just bid for drivers, and don't pay a penny more. The same as any other business.  The Catfish has this part pretty correct (and explains pay in the obtuse manner in which drivers are paid, that is via  payments to cab owners for use of a cab with cabbies keeping the rest):

It’s pretty clear to me what’s happening here. The medallion owners hold the power, and will charge whatever they can to drivers. If anything happens (a fare hike, say) which improves drivers’ income, then the rents just get jacked up: there’s a lot of demand for taxi-driving jobs, and so essentially the owners just rent out their taxis to the drivers willing to pay the highest shift fee and therefore take home the lowest income.
If medallions sell for $10 or $200,00.00, it will have nothing to do with the earnings of the drivers. Driver earnings is a separate supply and demand dynamic. 13,000 cabs on the road means owners are bidding for 13,000 drivers. The same way they would bid for tires or gasoline. None of this has to do with the capital invested. Where there is an impact, and the Catfish fails to properly explain this because he is caught in this false Marxian capital-labor struggle, is on the fares. He mentions fare hikes but doesn't tie it in with the limited number of taxis allowed to operate on the streets of NYC. If there were more taxis on the road, fares would be lower. Thus, it is the consumer who in this case, as in most cases, is getting screwed by rent seeking activities. (Yes, I know fares are set by the city, but if you double the number of taxis on the street, watch how cabbies start discounting regardless of what the regulated fare is.)
The big error for the Catfish, though, comes at the end of his column, because of his view that this is a capital-labor struggle. He writes:
Somehow, annoyingly, the medallion owners always end up the winners here, and that doesn’t seem fair to me... It’s time I think for the mayor to start putting in protections for cab drivers, which might get an important constituency on his side when it comes to making these kind of changes.
What this means is that he completely ignores his own logic above, where he indicates he understands why taxi driver take home pay is so low. He now wants to add a new layer of rent seekers, the drivers, even though he writes that:

Meanwhile, it’s the mayor’s job to try to create a system where yellow cabs and liverycabs coexist to maximize the welfare of New Yorkers — the general population first...
But, adding a new layer of rent seekers will do nothing but shift some rent seeking income from owners to the drivers, leaving passengers still stranded with higher fares. If the general population is indeed who the Catfish is looking out for, then instead of this shifting of rent seeking from owner to driver and babble about the capital-labor struggle, he should be demanding that the rent seeking stop and allow the free market to determine how many taxis should be on the streets of NYC.


  1. Where in economic theory does it state that the job of a mayor is to maximize welfare for his citizens? Are there any limits to the scope and means available to a welfare-maximizing mayor?

    It's funny, I always hear that Marx lost the economic debate with the collapse of the Soviet Union and other communist regimes, that Keynes lost the debate in the 1970s... but somehow you still manage to see the same old fallacious nonsense trotted out time and time again by pop-economic commentators like the Catfish.

  2. It has nothing to do with economics...The parasitic elite are STEALING and will promote all economic ideas that support STEALING.

    When will people start figuring this out? These parasites have STOLEN trillions of dollars from the producers over the decades...Unless you are a net taxtaker...They OWN YOU !

  3. I think the post after Taylor's is a perfect example how bad economic ignorance is in our society today. This person states it has nothing to do with economics and then proceeds to make an absurd economic argument.