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Comment by gambiting | Hacker News Reader

I was mostly agreeing with the article until this part:

"His medallion, once worth $1.1 million, had plummeted in value to $180,000. The dramatic drop in the value of the medallion, which he had hoped to lease for $3,000 a month or sell to finance his retirement, wiped out his economic security. He faced financial ruin and poverty. And he was not alone."

The medalions are stupid and shouldn't exist. Relying on their "value" for retirement is crazy. And like another commenter has said - if it was worth 1.1 million, why not sell it and retire, perhaps doing a less stressful job than driving a taxi for 12 hours in turns with your wife? It sounds like he gambled - that he could keep working, keep the medallion, and retire while leasing the medallion for $3000/month(!!!!!!!!!!) - and like all gambles, this one had a possibility of failing - and it did.

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It also seems like leasing a 1.1M asset for 36k/year is poor retirement planning. 3.2% pre tax won’t ler you live that well.

Seems like an odd emotional link. That we’re supposed to support this person’s edge retirement plan by making hailing cabs suck for users.

What if someone invested in Exxon. Spent $1.1M and was relying on the dividend yield (4.6% btw-http://www.dividend.com/dividend-stocks/basic-materials/majo...). And in twenty years renewables make Exxon tank.

Would we feel sympathy? I would, a little as people losing their life’s savings is sad.

But investing your whole nest egg in one thing is bad. Investing it in a thing that causes misery is even worse. Investing in a thing with artificial scarcity is further worse.

Putting a million into medallions because they’ve risen in value for 80 years is dumb. The article is also disingenuous as there were lots of investment firms buying these. Why only show this one example of a single owner.

This guy’s firm owned 500 in 2005, valued at $200M. https://www.nysun.com/business/new-york-citys-biggest-owner-...

This was a $5B market back then if all 13,605 medallions were worth $400k each. These weren’t mostly owned by mom and pop individual owners.

> 3.2% pre tax won’t ler you live that well

It also means the medallion yields a paltry 0.11 percentage points more than a 30-year Treasury [1]. Which means one is judging it to be just a tad bit riskier than the U.S. government. And safer than Apple [2]. And Stanford [3]. And MIT [4].

[1] https://www.treasury.gov/resource-center/data-chart-center/i...

[2] http://finra-markets.morningstar.com/BondCenter/BondDetail.j...

[3] http://finra-markets.morningstar.com/BondCenter/BondDetail.j...

[4] http://finra-markets.morningstar.com/BondCenter/BondDetail.j...

> It also seems like leasing a 1.1M asset for 36k/year is poor retirement planning. 3.2% pre tax won’t ler you live that well.

Maybe he was betting on the price of taxi medallions to increase considerably.

> Putting a million into medallions because they’ve risen in value for 80 years is dumb.

It's the basis of investing in a lot of assets - like NYC real estate. Limit supply will protect your investment and it will always increase. This is also the basis of dollar cost averaging into an index. The assumption is that the markets/indices will always increase in value over the long term even if it may fluctuate up and down over the short term.

> These weren’t mostly owned by mom and pop individual owners.

Yep. Regulations and limit supply will do that. Just like most of the farm subsidies benefit the mega corporations, not the small farms.

The real problem here is lack of diversification. This is like putting all your savings in company stock. If the company goes under you lose both your job and your savings.

Once they became a significant investment, taxi medallions should never have been owned by taxi drivers.

But going back a level, should we really expect sophisticated financial planning by taxi drivers? He's basically a victim of capitalism.

To be honest, I actually feel bad for medallion owners, even if the medallion system is a bad one.

The gov't sets ups a system, tells you the rules and says "if you buy an expensive medallion, you can drive a cab and make a living". The value of the medallion is purely based on the gov't promise to maintain the system.

So you buy one (or many) and a few years later someone does a work around and the gov't says "oh well, I'm not going to try to enforce the medallion system any more."

That sucks.

Yes, it's purely based on artificial scarcity. Which historical never lasts.

PanAm went bust because they banked on price fixed airline tickets.

USPS benefited from national mail logistics only being available to government level endeavors.

DeBeers is about to get crushed by artificial diamonds which are both cheaper and "better diamonds" than the massive stockpile they've accumulated.

The rocket industry has long labored under the delusion that massive government contracts underwriting their $100m launch prices keep them safe. But their bubble is popping one $60m Falcon 9 launch at a time.

And finally, the government will support whatever brings in the most taxes and f̶r̶e̶e̶ ̶s̶p̶e̶c̶i̶a̶l̶-̶i̶n̶t̶e̶r̶e̶s̶t̶ lobbyist dinners.

DeBeers already got crushed by Canadian mines. Their cartel fell apart 10+ years ago.

Well then said Canadian mine owners had better buckle up.

Lobbyist dinners are low on a politician's list, particularly because at the federal level ethics rules have become so ridiculous about what elected officials and staff can accept as gifts.

Much more interesting to a politician is supporting the policies of well-organized trade/association groups that have the power, through their PACs or membership, to invest the resources necessary to make a difference in a campaign.

Dinners was a joking metaphor for organized support.

> it's purely based on artificial scarcity. Which historical never lasts.

Never? Money are based on artificial scarcity as well.

Heard of the blockchain recently?

Money used to be backed by naturally scarce resources. An ounce of gold is an ounce is an immutable portion of some finite limit of gold until we get alchemy rolling.

But yes, fiat currencies based on the promise of government protection are very susceptible to being popped.

Blockchain is based on artificial scarcity too.

Blockchain itself no, that's based on hashing algorithms and such. You're confusing it with bitcoin and other cryptocurrencies, which are based on supply / demand forces.

Yes, and it's replacing the other fiat systems we currently have. Full faith and credit of the Venezuelan government? No thanks.

> USPS benefited from national mail logistics only being available to government level endeavors.

What Kool-Aid are you drinking? The Post Office didn't benefit from anything, it was mandated because no such service yet existed.

Prior to the Office of the Postmaster General being established, postal service was disjointed and limited at best in the colonies. In the 1600s you had 2 routes in the colonies, Boston to England and Boston to New York City. It was prohibitively expensive and limited largely to business and government communications. In the 1700s the Imperial Postal Service was extended to the colonies with fixed rates and taxes included, and it was incredibly unreliable.

The Post Office was born out of frustration, one of the founding fathers ran a news paper and the Imperial Post couldn't even deliver papers reliably. The Post Office was mandated by the founding fathers under the principle that everyone has the right to secure, efficient, reliable, and affordable mail service.

With the advent of the Interstate Highway System and many other technological advances over the prevailing 200 years, the Post Office was actually able to reduce costs and turn a profit.

During the civil rights movements of the 50s and 60s, the postal workers began protesting and striking because work conditions and compensation. They eventually won the right to unionized. In response to unionization the Postal Reorganization Act (PRA) of 1970 abolished the Post Office Department and turned the Post Office into an independent agency that was excluded from the US Budget.

One could argue that the PRA was the start of union busting tactics employed by the conservative government in power to bankrupt the post office. It doesn't help that every conservative government since then has enacted some sort of constraint upon the USPS that isn't mandated on private services. The most recent being the Postal Accountability and Enhancement Act of 2006 which required the USPS to switch from a Pay-As-You-Go to a Pre-Funded model for it's retirement plans. That's akin to your mortgage company calling you up and saying you'll need to pay off 100% of your principal next year.

Actually the most recent is when congress lowered the price of stamps juuust as USPS had finally built up the pre-fund.

Which of course points to one of the many problems the USPS has which is that they're expected to be self sustaining but have almost no control over their business model (and yet miraculously they manage to make it work for the most part).

>The Post Office was mandated by the founding fathers under the principle that everyone has the right to secure, efficient, reliable, and affordable mail service.

The founders would not have talked about postal service as a "right". A good idea? Yes. Stupid to not have one? Yes. A right? No.

>The most recent being the Postal Accountability and Enhancement Act of 2006 which required the USPS to switch from a Pay-As-You-Go to a Pre-Funded model for it's retirement plans.

Congress saw the writing on the wall—that the Postal Service was probably going to suffer permanently declining revenue in the long run. They took steps to make sure that the financial burden of paying for unfunded pension liabilities did not fall on the taxpayers.

> They took steps

Sure, but not the steps you'd take if you wanted a functioning public postal system. They set an extremely short timeframe to fund the pension account, then cut postage prices right as it neared full funding.

A lot of Congress very openly wants to end the public postal system. Pre-funding the pension system was a reasonable move in principle, but like most changes to the USPS it's structured in a way designed to create a failing system to privatize.

Regarding DeBeers I heard they already control most of production capacity for artificial diamonds. So the price difference is not as much as many hoped between natural and artificial diamonds.

Is that also those chinese ones which were in the new recently? IIRC the old artificial diamonds were mostly for industrial purposes.

> The value of the medallion is purely based on the gov't promise to maintain the system.

There was never a government promise or guarantee to maintain the system as was. There was nothing more than a hope that they would.

How is that any better than building your business around assuming Google was never going to change or improve their search algorithms pre Panda/Penguin? Or betting on newspaper classified ads never going away. Or a thousand other examples like that from the last century. One of the more common requirements of staying in business, is managing to adapt with change.

The only alternative is for the government to try to freeze technological progress for the benefit of a few and at the expense of the many. Except that's impossible, the rest of the global economy will destroy you, leaving you in the stone age.

It does suck. This happens quite a bit with land rezoning. Where a govt change to a long designation increases or lower value. For land rezoning, the property owner can be compensated (https://finance-commerce.com/2011/08/lost-real-estate-value-...).

With Uber it’s a bit different as rideshare is different than hailed cab, so the city didn’t actually take an action that resulted in value.

There are reportedly about 14,000 medallions. At $1,000,000 a pop, it would not be too terrible to have a one-time buyout paid over several years as a compromise to ending the system.

Maybe, but I can think of better ways to spend $14B.

Except that I'm sure there's been a lot of rich people investing into these things and generating artificial scarcity. It's not been the individual taxi drivers that owned these things for a long time; they're leased out for ridiculous amounts of money.

It's a mix. Some wealthier enterprising people consolidated many, and others were cabbies who saved up and took out loans to finance a single medallion.

Another way we might handle this is just to convince these people to cut their losses and default - the banks should have better weighed the risk of deregulation - and give the cabbies themselves reimbursement up to some fixed amount (under $10K) for the inconvenience of reregistering themselves with rideshares, or any livery cab companies.

Paid by whom? We only bail out bankers.

It's the same with mineral rights in proximity to residential housing. The system needs to adapt over time, and it is reasonable to expect people to accommodate changes as they become necessary.

In a loose sense this seems to be what's happening with fiat money and cryptocurrencies.

Yup, in this case I'd be inclined that on the one side, the government dropped the ball by not banning Uber / "black market taxis" outright; on the other, they created artificial scarcity with the medallion system, creating a trade product that only the super rich could afford to own, which they could in turn lease out to make a profit over decades.

I can see why they needed the system though, to prevent a flooding of taxi drivers. And they were proven right, because now with gig economy drivers, the floodgates have been opened and the market has been flooded with drivers in a race to the bottom.

Probably also because for a lot of people there's no other work. This is in part because of the local economy, and in part by the US education system, which is (from an outsider's perspective) a system that ensures highly educated / rich families stay rich, and prevents social mobility - unless someone expresses some special ability and gets a scholarship, probably from a commercial party e.g. sports.

> I can see why they needed the system though, to prevent a flooding of taxi drivers. And they were proven right, because now with gig economy drivers, the floodgates have been opened and the market has been flooded with drivers in a race to the bottom.

I'm not convinced this is true, except in the short term. Plenty of service industries maintain a reasonable number of providers, and many even pay reasonable wages to a lot of those providers.

Uber flooded the market as part of an attempt to break through artificial scarcity; they needed on-demand service to attract customers, and massive scale to fight regulators. And they got their flood of drivers by burning VC money to ensure that the basic "rider -> driver" transaction happens at unsustainably low prices. So what we're seeing isn't a race to the bottom - it's a race to well below the bottom.

Uber rides can't stay so cheap forever; either prices go up and riders leave, or prices stay low and drivers leave. The taxi/driver market in Cleveland or Omaha isn't going to be destroyed by a lack of artificial scarcity.

There is a secondary problem, where even rational markets for services don't function in expensive cities. It may be that rides normal people can afford simply aren't viable in NYC or SF. But that's not a problem with market rates, it's a problem with housing prices that make lots of totally normal jobs unlivable.

A bunch of empty cabs looking for fares affects everyone in the city, though.

That's actually a really good point, and obviously I didn't get into it.

"Medallions are good because they keep wages high" is a position I thoroughly disagree with, but "medallions are justified as a traffic control system by the people who own the roads" is much better. Congestion and road wear aren't meaningfully priced into taxi fares, and it's possible that the socially-optimal number of cabs in circulation is well below the number a driver/rider market would generate.

Already we see a lot of complaints about Uber drivers circling blocks and stopping in traffic, especially since they're most active in high-demand areas. (This also justifies the gap between low-density cities without medallions and high-density ones with them.)

I still object to the medallion system. It's inflexible, doesn't scale automatically to demand, and creates ludicrously overpriced bearer instruments - with predictable consequences whenever supply increases.

But I can definitely accept that cities have a good reason to keep the cab count lower than consumer demand would. I just wish they'd do it by taxing rides or something similar. We've got perfectly good tools for fighting externalities that scale with demand, so why are we still using medallions?

> Uber rides can't stay so cheap forever; either prices go up and riders leave, or prices stay low and drivers leave.

I think there's plenty of market for an Uber-like experience at $1.00-$1.75/mile. That's well above covering the all-in cost of the car and well within the range of what riders will pay. I see no reason to think that Uber can't make a profitable business, where drivers are also making a profit, and riders are willing to pay in a range of amounts near the current rates.

I wouldn't be surprised if Uber is already profitable in cities where they have achieved scale.

I do expect Uber (or Lyft, or...) will turn a profit eventually. There's a substantial gap between Uber prices and cab prices at the moment, and while prices probably have to rise I expect demand will be inelastic enough to keep some ride service alive.

The unique mechanics of ride-hailing apps, like having a demand-responsive workforce and not relying on dedicated vehicles, seem like basically sustainable cost reductions.

The non-unique mechanics like having a good app are also sustainable, but Uber has already provoked most taxi companies to catch up on that. And we'll see how the regulatory bit shakes out - either crackdowns on ride hailing drive prices back up, or cabs lose out because they've got much higher government-imposed costs.

Rent Seeking sometimes creates losers.

Yes - this reminds me of my state where there is a requirement that between bars and breweries there has to be a middle man that resells the booze, because its safer or something stupid. The middle man is enshrined in law. When we wanted to change the state liquor laws, the middle men said I should always be here in the middle, it's my right. That really made me angry.

The middle man uses his free $peech to speak to the local politicians.

Yep - I really don't understand the failure of sympathy towards cab drivers themselves.

Was the medallion system bad? Yes. Creating good jobs by enforcing random scarcity in a handful of markets is a ridiculous system.

But the people who bought these medallions didn't implement that system - they wanted to provide a service, and likely would have driven outside the medallion system if they could. Now they can, but they're broke because they happened to be in business while the government stopped screwing up their industry. They're victims of stupid regulation, not perpetrators.

Yes, the medallions were stupid, although I think they shouldn't have allowed Uber to operate without medallions, or get rid of the system in general.

>Relying on their "value" for retirement is crazy. And like another commenter has said - if it was worth 1.1 million, why not sell it and retire

Because he took out a loan of 1.1 million to buy it. It's not that he bought it for next to nothing and it rose to that price, it was always a stable asset. Because regulation didn't allow non-medallion taxis in the city. Until Uber came and they just allowed it.

>like all gambles, this one had a possibility of failing - and it did.

We're not talking about the smartest people here. Something that had a stable (and slowly rising) value for 100 years didn't seem like a gamble until the lobbyists came in and convinced the lawmakers to allow unfair competition.

I think medallions are stupid, but as long as the system exist, everybody needs to adhere by it, otherwise it's just f*ing over the working poor.

Exactly, and that's my problem with ride sharing companies like Uber (or rather, with governments letting them operate as unlicenced taxis despite strict regulation of 'real' taxis). The government created an artificial monopoly, sold tickets to operate in that monopoly, and then failed to protect it. Medallions were a stupid idea but that doesn't mean the government should be able to just write them off and screw over the people holding them.

So it should be able to screw people not holding them? Or those who cant get a $1 Million dollar loan or pay 3k to drive a car? Car leases are easy at $150.

Any government policy has winners and losers. Literally any. All that's reasonable is that governments act in.good faith and with proper accounting of, say, time horizons. They should have figured out that medallions were unsustainable, what, in the low 100k's? Once it starts working as a pyramid scheme there are only losers from then on... Except the now retired taxi drivers, who banked 1M.

it sounds like the cities should be forced to buy them back at the price they sold them

Private profits and subsidized losses?

Capitalism requires bankruptcy.

A medallion was never necessary to run a car service. There were tons of other car services operating in New York without medallions prior to Uber.

The medallions were required to be able to pick up street hails. Uber does not and never has accepted street hails. They operate more like the other car services where you request a car from a central dispatcher, and then that car comes and picks you up at a location that you requested.

Yeah, but not really. In the days before mobile phones, street hails were a huge majority of a taxi's fares. Your only other choices were to call from home, find a pay phone, or find a cab rank (or does a cab rank still count as a street hail?)

Apps like Uber let people effectively "street hail" while sidestepping the legalities, which were written before mobile phones became available.

> it was always a stable asset. Because regulation didn't allow non-medallion taxis in the city.

In fact it was not a stable asset. Medallion values had increased dramatically in a relatively short amount of time. They went up in price by four fold in ten years for both corporate and individual. [1]

Is it rational to buy something after an extreme price appreciation like that, with the assumption that it couldn't possibly go back down?

[1] https://i.imgur.com/TeJiCpf.png

> We're not talking about the smartest people here. Something that had a stable (and slowly rising) value for 100 years didn't seem like a gamble until the lobbyists came in and convinced the lawmakers to allow unfair competition.

This is not right. It was a bubble. Prices rose from ~$250K in 2001 to over $1.2 million in 2013 [1, 2]. That's a 13% growth rate.

It was obviously a bubble. Yet people were jumping on it, taking out big loans to buy more medallions. It had to burst at some point. Uber was the trigger, but this had to blow up at some point. The sooner the better.

[1] https://www.bloomberg.com/features/2015-taxi-medallion-king/

[2] http://www.nyc.gov/html/tlc/downloads/pdf/march_2013_medalli...

They allow non medallion cars aka the black private car service cars but I think you needed a medallion to pick up a person hailing a cab off the side of the road... ie you didn't call the car service to come pick you up.

With uber they're still not picking people up that are physically hailing them. They are relying on technology aka smartphones to get around this.

Personal experience has shown that Ubers will in fact pick up folks who hail them, you just have to then set up the ride via the app afterwards.

Found this out while waiting an hour for an uber driver - three others drove by and responded to my waving them down to see if they were my uber, and offered to take me (looking back, I should have taken them up on the offer).

This, ironically, turned me on to the taxi system in NY. They were just more reliable at the time.

Uber was allowed to operate as a "car service", which was not based on medallions. There were already many non-taxi car services operating in NYC, all Uber did was scale the idea and put it on a smartphone.

There are many good reasons to licence taxi(driver)s, and cap their number. For example:

- to keep traffic down

- to ensure a minimum standard of vehicle

- to ensure safe, well-trained and responsible taxi drivers.

- to ensure a fair level of income

- etc.

However the main problem with the medallion system is that they can be traded, speculated on, and used to extract "rent" from workers further down the chain. This benefits nobody.

Surely there could be a happy middle way between the libertarian nightmare, banned-in-half-of-Europe Uber model; and the old-skool union cartel medallion model.

The city should auction off the licenses annually. Still rent-seeking, but at least the rent seeking is the city/government.

I agree that those are reasons for the INTENT behind regulating/licensing taxis. Certainly in the past those things may have been more important. However, with the improved access to information that people now have through their phones it seems a lot less necessary.

- to keep traffic down I don't know if limiting taxis actually ends up limiting cars, but limiting cars is certainly the definition of keeping traffic down. - to ensure a minimum standard of vehicle I've actually been surprised but the people driving Uber X usually have nicer vehicles than most taxis I have taken. - to ensure safe, well-trained and responsible taxi drivers. Licensing drivers provides responsible taxi drivers? Yes, tell that to the people that have to pay cash because the credit card machine is 'broken'. - to ensure a fair level of income As far as the fair level of income, taxi companies are taking their cut. How much do the drivers actually end up with?

In big cities, parking the cars is the major problem. Parking spaces cost $1500+/mo

None of your reasons besides keeping traffic down necessitate restricting the number of licenses. And a "fair" wage will be determined by the market.

Nope and nope. A guild of taxi drivers prevents a "race to the bottom", which does, in fact lead to the benefits I describe. Its not an issue of "fair" wages (although I did use that word), its an issue of _good_ wages. If you want a decent service, you have to attract good providers by paying decent money (and its here that Ubernomics falls down).

If you have a single asset worth a million dollars and you hope renting it out for 3% of its a value per year, you should immediately sell it and buy a well diversified investment portfolio instead. You can still sell 3% of your portfolio every year.

They were buying medallions on leverage with hopes of appreciation.

I agree the medallion system is stupid, however the reason for them to exist makes sense. They are used to control the supply of Taxis so streets aren't flooded, however cities should be auctioning the licenses rather than selling off one-time rights. If that were the case Taxi startups like Uber may have started their business with compliance by simply bidding for licenses (in theory if they operate more efficiently they could outbid), but instead because of the rent-seeking medallion system a 1.1 million dollar medallion per car would simply be prohibitive to new entrants.

I agree with you about the dysfunction of the medallion system, but it reveals a bigger problem with the article.

The medallion is meant to artificially constrain supply. NYCTLC tried and failed to block Uber in order to protect their value, i.e., enforce a closed shop, and this was what the cabbie was upset about - losing his exclusionary license to do business. His complaint could hardly be more ANTI "gig-economy" against Uber's drivers flooding the market, which is what tanked his asset's value.

I was riding in a NY taxi in 2015. The driver owned his medallion since the 80s. He had never heard of Uber. I told him about it and suggested that this was the time to sell. I doubt he did, but the point is, is that this wasn’t an overnight event. Technology and markets change. If they didn’t the next generation would never get their chance.

I've got some news for him ... sometimes people invest in their 401Ks and GASP.... when they might want to withdraw from it in retirement, if the country is in the middle of a depression or a recession, guess what? It's worth a fraction of what it once was.

Same goes people who bought ridiculously priced homes in the run-up to 2008... Guess what? Thinking that $600,000 3-bedroom home in the desert near Phoenix, AZ was a good retirement vehicle was not a good choice.

And to a lesser extent, this is another example, a sad one, of people choosing to avoid diversifying their sources of wealth and income. There's simply too much risk by having ALL of your eggs in a single basket.

It's on the one hand easy to sympathize with this case but on the other, I don't think there is anything due him economically.

medallions may have had sense but as a state regulated monopoly should never have had been transferable in the first place and should have had a (reasonably long) time limit on top of it.

Millions of people rely on their house and stock. If my investments lost 80% of their value, I'd be hurting. But I agree with the larger point that taxi medallions were a terrible idea, artificially limiting the supply made them really expensive and we were paying for that every time we used a taxi of course.

And we have a housing shortage because millions of people bet on that housing shortage and then vote for policies that worsen it.

Perhaps so, but we built up a system where that was a retirement plan that made sense and then pulled the rug out from people who were depending on it, and that happened to coincide with the wages for the work plummeting, making it very difficult to pursue an alternate plan.

What about those thousands of Enron employees who lost their life savings because they "gambled" on the fact that their retirement savings will be invested responsibly?

I don't think his idea was such a massive gamble when he paid that money for the medallion.

You can argue about the system as such. But I don't think his idea was unreasonable.

Who were they trusting to responsibly invest it other than themselves? I thought the people who lost were the ones who had it all invested in Enron. I'm not aware of any financial advisor who would consider this responsibly invested.

Look up 401K. Which were mostly invested into Enron shares.

I don't know of anyone who advises people to invest all of their 401k funds in a single company. Every piece of reputable financial advice on retirement seems to suggest that you should NOT do that.

I'm not trying to minimize their loss or how hard that would be, but if we think people should have the freedom to make decisions on how to invest their retirement money, then we have to accept that some people will invest it all in a company where they will eventually lose it.

> I don't know of anyone who advises people to invest all of their 401k funds in a single company.

That is exactly what Enron's in-house financial advisers did. They went to jail for it, but that's cold comfort to the people whose 401k's got wiped out.

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