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New York’s Taxi Cartel Is Collapsing — Now They Want a Bailout! by Jeffrey A. Tucker

An age-old rap against free markets is that they give rise to monopolies that use their power to exploit consumers, crush upstarts, and stifle innovation. It was this perception that led to “trust busting” a century ago, and continues to drive the monopoly-hunting policy at the Federal Trade Commission and the Justice Department.

But if you look around at the real world, you find something different. The actually existing monopolies that do these bad things are created not by markets but by government policy. Think of sectors like education, mail, courts, money, or municipal taxis, and you find a reality that is the opposite of the caricature: public policy creates monopolies while markets bust them.

For generations, economists and some political figures have been trying to bring competition to these sectors, but with limited success. The case of taxis makes the point. There is no way to justify the policies that keep these cartels protected. And yet they persist — or, at least, they have persisted until very recently.

In New York, we are seeing a collapse as inexorable as the fall of the Soviet Union itself. The app economy introduced competition in a surreptitious way. It invited people to sign up to drive people here and there and get paid for it. No more standing in lines on corners or being forced to split fares. You can stay in the coffee shop until you are notified that your car is there.

In less than one year, we’ve seen the astonishing effects. Not only has the price of taxi medallions fallen dramatically from a peak of $1 million, it’s not even clear that there is a market remaining at all for these permits. There hasn’t been a single medallion sale in four months. They are on the verge of becoming scrap metal or collector’s items destined for eBay.

What economists, politicians, lobbyists, writers, and agitators failed to accomplished for many decades, a clever innovation has achieved in just a few years of pushing. No one on the planet could have predicted this collapse just five years ago. Now it is a living fact.

Reason TV does a fantastic job and covering what’s going on with taxis in New York. Now if this model can be applied to all other government-created monopolies, we might see genuine progress toward a truly competitive economy. After all, it turns out that the free market is the best anti-monopoly weapon ever developed.

Jeffrey A. Tucker
Jeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.  Follow on Twitter and Like on Facebook.

Video Game Developers Face the Final Boss: The FDA by Aaron Tao

As I drove to work the other day, I heard a very interesting segment on NPR that featured a startup designing video games to improve cognitive skills and relieve symptoms associated with a myriad of mental health conditions.

One game, Project Evo, has shown good preliminary results in training players to ignore distractions and stay focused on the task at hand:

“We’ve been through eight or nine completed clinical trials, in all cognitive disorders: ADHD, autism, depression,” says Matt Omernick, executive creative director at Akili, the Northern California startup that’s developing the game.

Omernick worked at Lucas Arts for years, making Star Wars games, where players attack their enemies with light sabers. Now, he’s working on Project Evo. It’s a total switch in mission, from dreaming up best-sellers for the commercial market to designing games to treat mental health conditions.

“The qualities of a good video game, things that hook you, what makes the brain — snap — engage and go, could be a perfect vessel for actually delivering medicine,” he says.

In fact, the creators believe their game will be so effective it might one day reduce or replace the drugs kids take for ADHD.

This all sounds very promising.

In recent years, many observers (myself included) have expressed deep concerns that we are living in the “medication generation,” as defined by the rapidly increasing numbers of young people (which seems to have extended to toddlers and infants!) taking psychotropic drugs.

As experts and laypersons continue to debate the long-term effects of these substances, the news of intrepid entrepreneurs creating non-pharmaceutical alternatives to treat mental health problems is definitely a welcome development.

But a formidable final boss stands in the way:

[B]efore they can deliver their game to players, they first have to go through the Food and Drug Administration — the FDA.

The NPR story goes on to detail on how navigating the FDA’s bureaucratic labyrinth is akin to the long-grinding campaign required to clear the final dungeon from any Legend of Zelda game. Pharmaceutical companies are intimately familiar with the FDA’s slow and expensive approval process for new drugs, and for this reason, it should come as no surprise that Silicon Valley companies do their best to avoid government regulation. One venture capitalist goes so far as to say, “If it says ‘FDA approval needed’ in the business plan, I myself scream in fear and run away.”

Dynamic, nimble startups are much more in tune with market conditions than the ever-growing regulatory behemoth that is defined by procedure, conformity, and irresponsibility. As a result, conflict between these two worlds is inevitable:

Most startups can bring a new video game to market in six months. Going through the FDA approval process for medical devices could take three or four years — and cost millions of dollars.

In the tech world, where app updates and software patches are part of every company’s daily routine just to keep up with consumer habits, technology can become outdated in the blink of an eye. Regulatory hold on a product can spell a death sentence for any startup seeking to stay ahead of its fierce market competition.

Akili is the latest victim to get caught in the tendrils of the administrative state, and worst of all, in the FDA, which distinguished political economist Robert Higgs has described as “one of the most powerful of federal regulatory agencies, if not the most powerful.” The agency’s awesome authority extends to over twenty-five percent of all consumer goods in the United States and thus “routinely makes decisions that seal the fates of millions.”

Despite its perceived image as the nation’s benevolent guardian of health and well-being, the FDA’s actual track record is anything but, and its failures have been extensively documented in a vast economic literature.

The “knowledge problem” has foiled the whims of central planners and social engineers in every setting, and the FDA is not immune. By taking a one-sized-fits-all approach in enacting regulatory policy, it fails to take into account the individual preferences, social circumstances, and physiological attributes of the people that compose a diverse society.

For example, people vary widely in their responses to drugs, depending on variables that range from dosage to genetic makeup. In a field as complex as human health, an institution forcing its way on a population is bound to cause problems (for a particularly egregious example, see what happened with the field of nutrition).

The thalidomide tragedy of the 1960s is usually cited as to why we need a centralized, regulatory agency staffed by altruistic public servants to keep the market from being flooded by toxins, snake oils, and other harmful substances. However, this needs to be weighed against the costs of keeping beneficial products withheld.

For example, the FDA’s delay of beta blockers, which were widely available in Europe to reduce heart attacks, was estimated to have cost tens of thousands of lives. Despite this infamous episode and other repeated failures, the agency cannot overcome the institutional incentives it faces as a government bureaucracy. These factors strongly skew its officials towards avoiding risk and getting blamed for visible harm. Here’s how the late Milton Friedman summarized the dilemma with his usual wit and eloquence:

Put yourself in the position of a FDA bureaucrat considering whether to approve a new, proposed drug. There are two kinds of mistakes you can make from the point of view of the public interest. You can make the mistake of approving a drug that turns out to have very harmful side effects. That’s one mistake. That will harm the public. Or you can make the mistake of not approving a drug that would have very beneficial effects. That’s also harmful to the public.

If you’re such a bureaucrat, what’s going to be the effect on you of those two mistakes? If you make a mistake and approve a product that has harmful side effects, you are a devil incarnate. Your misdeed will be spread on the front page of every newspaper. Your name will be mud. You will get the blame. If you fail to approve a drug that might save lives, the people who would object to that are mostly going to be dead. You’re not going to hear from them.

Critics of America’s dysfunctional healthcare system have pointed out the significant role of third-party spending in driving up prices, and how federal and state regulations have created perverse incentives and suppressed the functioning of normal market forces.

In regard to government restrictions on the supply of medical goods, the FDA deserves special blame for driving up the costs of drugsslowing innovation, and denying treatment to the terminally ill while demonstrating no competency in product safety.

Going back to the NPR story, a Pfizer representative was quoted in saying that “game designers should go through the same FDA tests and trials as drug manufacturers.”

Those familiar with the well-known phenomenon of regulatory capture and the basics of public choice theory should not be surprised by this attitude. Existing industries, with their legions of lobbyists, come to dominate the regulatory apparatus and learn to manipulate the system to their advantage, at the expense of new entrants.

Akili and other startups hoping to challenge the status quo would have to run past the gauntlet set up by the “complex leviathan of interdependent cartels” that makes up the American healthcare system. I can only wish them the best, and hope Schumpeterian creative destruction eventually sweeps the whole field of medicine.

Abolishing the FDA and eliminating its too-often abused power to withhold innovative medical treatments from patients and providers would be one step toward genuine healthcare reform.

A version of this post first appeared at The Beacon.

Aaron Tao
Aaron Tao

Aaron Tao is the Marketing Coordinator and Assistant Editor of The Beacon at the Independent Institute. Follow him on Twitter here.

The Sweet, Sweet Privilege of the Maple Syrup Federation

“Quebec is the Saudi Arabia of maple syrup.”

That’s the money quote from an exposé on the provincial maple syrup cartel.

Quebec’s maple syrup “marketing board” first made big news in 2012 when the culprits of an $18 million maple syrup heist (really) from the Global Strategic Maple Syrup Reserve (really) were caught by provincial police. (See the whole story in a feature film, coming soon, starring Jason Segel — …really.) The board is making news again thanks to recent crackdowns on producers who want to sell syrup outside its control.

Quebec’s maple syrup is managed by the Federation of Maple Syrup Producers, a legal cartel that has been given special privileges under provincial law — including the power to enforce a monopoly in syrup sales — since 1966. All syrup goes through the Federation, which withholds enough from the market to keep the price high, takes a 12% cut of sales, and then (eventually) passes the remainder on to producers.

This month, the Federation stationed security guards in several sugar shacks to ensure that producers don’t sell their own syrup because some of them have begun to fight back.

In defiance of the rules, [Angèle] Grenier exported hundreds of barrels of maple syrup to New Brunswick from 2002 through 2014 — just so she could collect the money she earned.

Last year she knew she was being watched. Her brother and her neighbour each brought a tractor. In under an hour, with three tractors, the team loaded 40 barrels of syrup on a truck.

“All the children came and we did it quick, quick,” she says. The truck sped off down her dirt road.

The federation has now shut down Grenier’s exports.

Last month Justice Clément Sampson of Superior Court in Ste-Joseph-de-Beauce wrote an order permitting “a sheriff to penetrate into the sugar shack of [Grenier], without notice, at any time judged reasonable and as frequently as they judge appropriate … to verify the inventory of maple syrup, take photos and videos of the locale and the inventory, and put a mark, a seal, a tag or any other necessary identifying label on every maple syrup container.”’

Advocates for the syrup quota say it’s needed because prices aren’t enough to keep supply stable for a crop with a harvest that fluctuates from year to year. But if bad seasons are the danger, what syrup producers need is insurance (or futures markets). That could be accomplished simply and cheaply by setting aside money, rather than warehouses full of syrup guarded by state-of-the-art security to prevent Mission Impossible-esque heists.

The marketing board doesn’t protect producers from a bad harvest. It protects big producers from consumers — from you, me, and our dollars that could tempt sellers to compete with them outside the system.

The Federation estimates that only 75% of producers support its fixed prices, but it has the legal power to strong-arm the 25% who don’t. Dissenting producers don’t — can’t — have the same rights under the law if it’s to be enforced. Without equal rights under the law, there cannot be secure rights to property.

One rebellious seller remarks that since he defied the Federation, “They can come into my house anytime they want.” Perhaps that’s why producers in Ontario and New Brunswick, who still benefit from the price supports, have declined to join Quebec’s Federation.

How did this happen? Quebec producers sought legal privileges for themselves by organizing into the Federation. Now that that privilege exists, it’s been seized not only by maple syrup producers, but by a specific contingent who benefit most from it. Special powers, once created, benefit the especially powerful.

The good news is that prices still work. High prices have tempted others to enter the market, and as a result Quebec’s share of global production has fallen from 78% ten years ago to 69% today. If the trend continues, the cartel may become unstable — or it may try to convince (or, failing that, force) others to join in the racket.

In the end, it’s not just those who love maple syrup on a warm stack of flapjacks or that sweet, messy maple taffy who lose out when Big Syrup gets special privileges. Rather, it’s the people who want to act and innovate without permission. Innovation is the great enemy of the status quo, and those who benefit from that status quo, like the Syrup Federation, know this. Their message is clear: conform, syrup slingers, or find yourself in a sticky situation.

Janet Neilson

Janet Neilson is a founding member and program developer for the Institute for Liberal Studies and a contract researcher in Ottawa, Ontario, Canada.