Saturday, June 21, 2014

Definition of a Taxicab

By Robert Wenzel

WaPo correctly notes:
A taxicab is a car remade by government, modified dozens of ways by edicts within subsections of articles of the city’s taxi code.

The WaPo definition comes in a story about how Uber is disrupting the taxicab industry worldwide:
Every one of these requirements is a point of contention in the escalating battle between the cab industry and tech start-ups such as Uber and Lyft, which threaten to upend a pact that has long existed in Chicago and other cities: In exchange for all of this regulation, taxis have for decades held a government-backed monopoly.
The regulations have made taxicab medallions a spectacular investment:
 In New York, taxi medallions have topped $1 million. In Boston, $700,000. In Philadelphia, $400,000. In Miami, $300,000. Where medallions exist, they have outperformed even the Standard & Poor’s 500-stock index. In Chicago, their value has doubled since 2009.
But Uber is changing that by disrupting the sector and finding ways around the regulations:
Now, however, a market built on restricted supply is showing cracks with the arrival of start-ups that turn anyone with a car into a driver for hire. In Chicago, those cracks have triggered fears that medallion values are tottering...

Throw open the market — to amateurs, part-timers and the underemployed (and whatever they drive) — and medallions lose their exclusivity. Without which, they lose their value, too...That, Uber says, is precisely the point. The five-year-old San Francisco tech company — and the envy of Silicon Valley — has rapidly and strategically infiltrated taxi strongholds by enabling consumers to hail rides electronically from their smartphones.

Uber and companies like it argue that regulations intended for taxis don’t apply to a service no one could have envisioned when the laws were written. And consumers don’t seem to care what those laws say. They are piling in and leaving cities to chase after a fast-expanding business.
Following Uber's recent financing round, which valued Uber at $18.2 billion (Five times its valuation just a year ago), I pointed out in the EPJ Daily Alert  that great investment opportunities exist whenever regulations come crashing down for whatever reason. It has occurred with Uber, but that is not the only case. Resorts stock skyrocketed when Atlantic City first allowed gambling. Southwest Airlines stockhas been a spectacular airline performer, which got off the ground (pun intended) when regulations were eased at Luv Field in Dallas.

People don't generally realize how regulations distort an economy, but the best place to note the impact is in the stock market, where spectacular gains occur by companies who get to breathe as regulations are eliminated in one manner or another.

Uber isn't publicly traded, but hopefully other sectors of the economy will be deregulated in the future. Watch for publicly traded stocks in such industries, they could be great performers.

Robert Wenzel is Editor & Publisher of and author of The Fed Flunks: My Speech at the New York Federal Reserve Bank.


  1. I love what Uber is doing but it appears to be a high risk strategy for investors. Uber provides an iphone app and suddenly this is "...a service no one could have envisioned when the laws were written." ? Gypsy cabs have been providing this service for decades using word of mouth, telephones and street hailing. Adding a new technology does not make it a new service. Perhaps the government regulators are too stupid to see this (and that would be great) but I find it difficult to believe. Its more likely they see an improved more robust revenue source to steal from. I would caution investors that we haven't heard the whole story.

  2. My interest in this subject relates to my involvement (many years ago) in attempting to deregulate a local metro transportation market. Eventually the state attorney general and the local unions got involved and it didn't go well. Not only was there no deregulation but the state passed a new tax and built a useless light rail. However, I did learn about the black market and gypsy cabs. They were a small but persistent thorn in the side of the regulators. Gypsy cabs were difficult to catch and then could only be fined one at a time. Not very economically fruitful for the regulators.

    Now Uber comes along and drops an app on all these former gypsies and they are suddenly very visible to the regulator. Ripe for a Friedman-like payroll deduction tax and additional regulation. This could be fine for the investors and Uber but not so good for the drivers and ultimately only a marginal change for riders. Only time will tell.