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Hurrah! Uber does work (in the broadest sense of the word) after all

Will we see a return of the Medallion Man?

Medallion Man ... maybe

Evgeny Freidman, the taxi mogul, warned New York officials this spring that he was too big to fail and asked for a bailout of the taxi industry. He didn’t get one. So, on Wednesday, he filed a petition to put many of his taxi medallion-owning companies into bankruptcy.

Medallions are the licences many cities require to operate taxi cabs, and their limited number has made them increasingly valuable over the last several decades.

As recently as the summer of 2013, the kinds of medallions Freidman owns were worth as much as $1.2m, far above the $739,000 of debt per medallion that is indicated in the bankruptcy filing.

However, since 2013, medallion prices have fallen as Uber and other app-based car services have created uncertainty in the taxi market.

Medallion owners in several cities, including New York, have reported increased difficulty finding drivers interested in leasing their cabs, as both drivers and passengers have switched to Uber.

Those leases were valuable too: the standard price for for a 12-hour-a-day, 7-day-a-week right to use one of those licences was $40,000 a year. That's what the cab driver had to pay over before he made anything for himself, or to cover petrol or anything.

It really was an economic rent: $40,000 a year to rent a piece of what the city could create for free, a licence to drive a cab on the streets. And that rent was simply going to those such as Freidman.

The reason that economists don't like these sorts of rents is that of course Freidman wasn't doing anything economically valuable to collect that cash. He just has a stranglehold on a licence: and, of course, every incentive to lobby to make sure that more licences weren't issued.

Olson's point about all of this was that it is new technologies that enable the special interest settlements to be overturned. It's an almost impossible political fight to gouge out every piece of rent seeking in the economy.

For example, to make New York issue another 20,000 taxi medallions say, to bring the price down to something reasonable and rational like $100. But new technology can, by changing the structure of the industry, wipe out those rent seeking opportunities. And to Olson that's one of their major benefits: not so much that innovation makes society richer but that it breaks up established power structures.

Of course, it may be that Uber is worse in some manner than a 44-year-old Russian immigrant like Freidman in its effects upon the standard of living.

But in that Olson sense of new technology breaking up the established rent sucking economy, Uber's working very well indeed. ®

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