Sunday, November 8, 2009

Limiting Services Raises Prices

In New York City, if you want to drive a taxi cab, you have to buy a permit. These permits, or "medallions," are in short supply, and there are actually fewer medallions in NYC today than there were in 1937.

In New York, the ever-spiraling demand for taxi service, coupled with draconian limits on supply, has had predictable results. Corporate medallions, which permit the holder to operate a single cab, were selling for an eye-popping $760,000 in September. USA Today recently noted that medallion prices have risen 126 percent since 2004; Andrew Murstein, president of a firm that invests in medallions, reports that “it’s an industry that has always gone up. It has outperformed every index you can think of — the Dow, Nasdaq, gold, you name it.”

When the government throws up barriers to entry, like requiring permits or licenses for certain professions, it automatically raises the price for consumers. In some cases it may be necessary, such as limiting the number of cabs on the streets of New York to reduce congestion, but it must always be weighed against the certainty of price increases.

I'm looking at you, medical licenses.

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