Welcome to the Future

This past week New York City auctioned 200 new taxi medallions for record prices. The high bid was about $2.5 million for a “minifleet” package, and the accessible medallions fetched record prices as well. These prices and the people who paid them send strong signals about what will happen with the taxi industry in New York. The rent seeking behaviors will continue, the regulators are captured by the industry they are supposed to regulate and taxi policy in the city is expected to remain at the status quo of constrained supply and unmet demand. I suspect that the boro taxi program will barely survive but not be expanded, and Uber and other ridesharing services are screwed. In short, what we have now for taxi services is pretty much all we get. I worry that most or all of our transport systems have similar constraints. Welcome to the future. 

So are we conscripted to a future just like the present? Can we solve pressing concerns?

Recently David Levinson write a nice post about what traffic might be like in 2030. It is a nice future scenario that is dramatically improved on current inefficient systems. I agree with much of it but am concerned that regulatory and labor constraints have cemented too many of our systems in place and the future will end up looking a lot like what we have now. Here are some areas of particular concern and in no particular order:

• ·      Concession agreements are in place that are far longer than existing technologies will last. For instance, the Chicago parking meter concession requires that the city compensate the LLC for any loss of value to street parking during the course of the 75-year agreement. This means that even if cars and driving decline, Chicago may have to pay a penalty.  This affects Chicago’s incentives for reform.
• ·      Labor contracts require too many people working jobs that should be automated, such as train drivers.  This limits new options and services. There will also be a persistent bias toward historical rush hour service even though rides demanded will spread out across nights and weekends. We will also likely replace all passenger cars with driverless cars before we get any driverless transit vehicles. 
• ·      Taxi services are not regulated for the benefit of passengers, nor are the taxi industries all that interested in expanding services.  They prefer to protect their rent seeking. Taxi interests will block new entrants and ridesharing. This is especially problematic because of the nights and weekends issues raised above.
• ·     Cities are branding themselves and this will reduce their economic competitiveness in the long run. Brooklyn, Portland, Austin and others all cultivate their identities at great expense and effort. This suggests that they will fiercely protect what they see as core features, including the built environment and transport technologies. Building restrictions and business preservation will become more restrictive over time, reducing the dynamics of city change.
• ·      Municipal budgets are strained from obligations that do little to improve the lives of current and future residents. Pension obligations are of particular concern as it is extremely difficult to raise taxes to pay for salaries to retired people. These obligations do not have an easy policy answer but will limit future investment resources and flexibility to address currently unknown concerns.
• ·      Much of the infrastructure expansion that has occurred over the past few decades (roads, transit, stadia, etc.) makes municipal budgets worse off in the long run. How cities and states decide to dismantle infrastructure is a crucial issue over the next few decades. As the public rarely has the option of exit deliberate decline will be slower than needed.
• ·      Public investment in infrastructure is not currently aimed at or promoting the greater good. Business elites, downtown interests and others are capturing public spending on transit to serve private interests at the expense of riders. See the streetcar trend as an example. Cities, regions and the nation are not bound together by clear goals, so policy is directed to do something, anything, without a good sense as to what is supposed to be achieved. Again to the streetcars, if they are good for economic development then the budget spent on them should be judged against all other economic development uses of that money. Yet we never discuss opportunity costs like this. Infrastructure investment is pursued as an end unto itself. We tend to focus too much on physical changes (which are small in aggregate) at the expense of service changes that may have larger effects on travel and economic activity.

We are also in a prolonged period of sclerotic governance. While all levels of government have strong roles for ensuring access to opportunities, public safety and economic health, the process of governance is currently not up to the tasks. I see stronger forces protecting the status quo than pushing for reform (see the taxi industry as an example).

So traffic may decline but we may not be able to adjust our systems adequately to address the changes that occur. If our systems of governance work to maintain what we have then the future will look very much like the present.  So how might we re-orient our governance systems to meet future needs? I will return to this in a later post.

Rent Seeking and Transportation Service Innovations

Steve Blank at the Berkeley blog has a nice piece about rent seeking strangling innovation. He doesn't set out to highlight how rent seeking has diminished innovation in the transport sector, but he ends up doing so with examples including auto dealers blocking Tesla, protectionist policies that distort auto imports and manufacturing, and taxi services. Rather than me writing new explanations of rent seeking, here is what he wrote:

Rent seekers
Rent seekers are individuals or organizations that have succeeded with existing business models and look to the government and regulators as their first line of defense against innovative competition. They use government regulation and lawsuits to keep out new entrants with more innovative business models. They use every argument from public safety to lack of quality or loss of jobs to lobby against the new entrants. Rent seekers spend money to increase their share of an existing market instead of creating new products or markets. The key idea is that rent seeking behavior creates nothing of value.
These barriers to new innovative entrants are called economic rent. Examples of economic rent include state automobile franchise laws, taxi medallion laws, limits on charter schools, auto, steel or sugar tariffs, patent trolls, bribery of government officials, corruption and regulatory capture. They’re all part of the same pattern – they add no value to the economy and prevent innovation from reaching the consumer.

 .....

 How do rent seekers win?

Instead of offering better products or better service at lower prices, rent seekers hire lawyers and lobbyists to influence politicians and regulators to pass laws, write regulations and collect taxes that block competition. The process of getting the government to give out these favors is rent-seeking.
Rent seeking lobbyists go directly to legislative bodies (Congress, State Legislatures, City Councils) to persuade government officials to enact laws and regulations in exchange for campaign contributions, appeasing influential voting blocks or future jobs in the regulated industry. They also use the courts to tie up and exhaust a startupslimited financial resources.


Lobbyists also work through regulatory bodies like FCC, SEC, FTC, Public Utility, Taxi, or Insurance Commissions, School Boards, etc. Although most regulatory bodies are initially set up to protect the public’s health and safety, or to provide an equal playing field, over time the very people they’re supposed to regulate capture the regulatory agencies. Rent Seekers take advantage of regulatory capture to protect their interests against the new innovators.

There have been shockingly few service and technological innovations in all aspects of regulated transport over the past few decades. Automobility is long in the tooth for a technology, which may be why we are seeing a decline in auto travel. Transit has performed poorly relative to investment, with few productivity gains and only minor service improvements since the mid-1970s*. Taxi services remain largely unchanged to the point that few cities have bothered to even consider changing how many taxicabs are allowed.

A major reason that there have been so few innovations is because of rent seeking, and understanding economic rents is critical for all planners and transport officials. Here are a couple of recent rentier examples  that make cities worse off: LA blocks taxi apps, and Veolia engages in regulatory capture. Many of the rent seekers are private companies, so don't think that privatization is the key to innovation. Rentiers can be private or public, and in all cases make the public and consumer worse off.

Here is a link to a podcast about rent seeking by a couple of libertarian (at least libertarian leaning) economists, Mike Munger and Russ Roberts (I updated the names based on a commenter rightly saying I should name these two. The podcast and links are excellent sources for information). There are lots of additional links there, too. One thing about rent seeking is that everyone is against it regardless of political persuasion. People differ in what to do about it.


*I am referring to transit in the US generally, not specific lines or station areas. While the past few years transit ridership has grown faster than the population overall, transit ridership is below 1970 levels by nearly all metrics. This helps illustrate the problem.

David Harvey on CIty Monopolies and the Art of Rent

David Harvey is wise and usually has interesting things to say. I'm no Marxist but I agree with many of the things he brings up in this interview with Spiegel. I agree with this especially:

SPIEGEL ONLINE: You are a Marxist and social theorist. In your latest book, you refer to the "art of rent," that is, when capital makes extra profits from local discrepancies. What exactly do you mean?
Harvey : Simply put, a monopolist can demand a premium for a sought-after commodity. These days, cities try demanding premiums by advertising themselves as culturally unique. After the Guggenheim Museum was built in Bilbao in 1997, cities all over the world followed its example and began developing landmark projects. The goal is to be able to say: "This city is unique, and that's why you need to pay a special price to be here."SPIEGEL ONLINE: But if every city had a Guggenheim Museum or a philharmonic like the one currently being built in Hamburg, wouldn't there be a sort of inflationary effect when it comes to such flagship projects that would lead them to fail?
Harvey : The bubble has already burst in Spain, and many of the huge projects remain only half-finished. Incidentally, major events like the Olympic Games, the soccer World Cup and music festivals serve the same purpose. Cities try to secure themselves a prime position on the market -- like a rare wine of an exceptionally good vintage.