On the other hand, the limit on taxi medallions protects a common resource, room on the streets. Maybe the balance isn't right, but you're going to need some artificial limitation or else you're going to have a classic tragedy of the commons.
It seems like what she was saying is that if the people who own and use the common resource have the ability to create rules and enforce them, then they can avoid a tragedy of the commons. I'd totally agree with that, you need some way to govern the resource.
About freeing up street space, I'd be curious to see some kind of statistics about how many lyft drivers were headed that way anyway and just pick up passengers vs. how many are providing a taxi-like service. Is there a way in the lyft or uber software as a driver to say that you're only looking for passengers going from one location to another location?
It seems like slugging is more likely to provide those benefits.
I am sorry to say that I do not have the statistics that you are looking for.
People operate taxis to make money. If the number of taxis becomes such that the roads fill with taxis, then the number or taxis should lower itself for two reasons. A.) If the taxis can't get anywhere either then people won't pay for them. B.) The ability of any single taxi to turn a positive profit will approach 0.
I agree with your point that there are natural pressures that would keep the number of taxis down if the artificial limitation was removed. It's just that I don't think that the natural equilibrium point financially is going to be the optimal level in terms of getting people where they want to go efficiently. In my mind, the entire transportation system is useful to provide a service to individuals and other sectors of the economy, and if it's not doing that well it doesn't matter much if the people working in transportation are at a natural equilibrium.
I'm also not saying that the medallion system is the right way to handle the situation. A taxi or car on the road uses up some common, limited resource (space on the road). Maybe you'd have more luck charging for that resource more directly, like a congestion charge?