Wednesday, October 12, 2016

Posner's Taxi Ruling Is Based on Falsehoods and Bad Logic

Conservative jurist Richard Posner, writing for the US 7th Circuit of Appeals, has issued what is likely to be an influential ruling on the regulation of soft cabs (such as Uber, Lyft, etc.; in his ruling Posner refers to these as “TNPs”) and other taxicabs in the city of Chicago. This is unfortunate, because Posner’s ruling is riddled with errors, inaccuracies, and false logic—in fact he all but admits cribbing part of his argument off the internet! Here I’m going to go through Posner’s most ridiculous statements point by point; you can read his full text here.

The first is that allowing the TNPs into the taxi and livery markets has taken away the plaintiffs’ property for a public use without compensating them. A variant of such a claim would have merit had the City confiscated taxi medallions, which are the licenses that authorize the use of an automobile as a taxi. Confiscation of the medallions would amount to confiscation of the taxis: ... Anyway the City is not confiscating any taxi medallions; it is merely exposing the taxicab companies to new competition—competition from Uber and the other TNPs.

Does Posner understand anything about how the taxi industry works? Of course medallion owners can’t complain about competition, because they are already in competition with each other. Even drivers for the same company are in competition with each other. It’s like Posner is borrowing an image of a monopoly from a completely different industry and trying to impose it on the cab industry. Do your homework, sir.

The real complaint from the taxi industry was not “we are being competed against” but “we are being charged licensing fees, etc., but other people operating the same business are not being charged the same fees.” In other words, the argument is not against competition but against unequal competition as an effect of unequal regulation.

An apt comparison would be if someone paid a license fee to run a liquor store, then complained because the city allowed someone to sell liquor next door without a license. Or, if the electric company was only allowed to charge certain rates, but then another electric company was allowed to operate in the same city, charging whatever they wanted. Would Posner really argue that such companies had no legal recourse against the regulator for allowing such unequal competition?

Posner then rambles off into another argument borrowed from the internet—that the difference between Uber and taxis is the simple fact of historical technological change:

Indeed when new technologies, or new business methods, appear, a common result is the decline or even disappearance of the old. Were the old deemed to have a constitutional right to preclude the entry of the new into the markets of the old, economic progress might grind to a halt. Instead of taxis we might have horse and buggies; instead of the telephone, the telegraph; instead of computers, slide rules.

What makes these examples particularly funny, to me, is that I actually research the history of two of these transitions—from the telegraph to telephone, and from horse-drawn cabs to taxis. I’m sorry Mr. Posner, but those transitions had almost nothing in common with this current case. For one thing, those were actual, significant technological shifts, but there is no actual difference in technology between an Uber and a taxi. Both are just automobiles, and both can be hailed from a smartphone. I realize that Posner, like many people, may not be aware that smartphone apps for taxis have been around longer than Uber (in Chicago, Curb (formerly Taxi Magic) has been available since 2009). But you would think that a legal scholar making an important ruling on a case like this would bother to do some actual research on the history of this technology, instead of taking Uber’s crypto-history at face value.

The plaintiffs argue that the City has discriminated against them by failing to subject Uber and the other TNPs to the same rules about licensing and fares (remember that taxi fares are set by the City) that the taxi ordinance subjects the plaintiffs to. That is an anticompetitive argument. Its premise is that every new entrant into a market should be forced to comply with every regulation applicable to incumbents in the market with whom the new entrant will be competing.

Here Posner briefly comes back to reality before taking another swerve off into his own imaginary land. At least he states the taxi industry’s complaints correctly: yes, they are upset that someone competing against them, offering the same service they do, is not subjected to the same rules and regulations. In other words, they are asking for a level playing field. How is this remotely an “anticompetitive argument?”

Then Posner launches into his already infamous “taxi drivers are like dogs” argument. Let’s just quote this, slightly amended for clarity to show what he is strongly implying:

[Taxi drivers] on average are bigger, stronger, and more aggressive than [Uber drivers], are feared by more people, can give people serious bites, and make a lot of noise outdoors, barking and howling. Feral [Uber drivers] generally are innocuous, and many pet [Uber drivers] are confined indoors.

Thank you, Mr. Posner, for so clearly and cluelessly articulating part of the deeply racist and classist imagery at the heart of Uber’s popularity. This ugly little quote is too packed with significance to be fully dealt with here. Suffice it to say for now that the contrast Posner is articulating is known, in US history, as “the house slave and the field slave.”

Let’s move on to Posner’s next insanity, where he takes issue with the lower court judge who had granted some merit to one of the cabdrivers’ claims:

She ruled that the City, by failing to place as many regulatory burdens on the TNPs as on the taxicab companies, might have denied the latter the equal protection of the law. But this was taking equal protection literally, and it should not be taken so. Otherwise prospective entrants to a market who had lower costs than incumbent firms would not be allowed to enter the market unless some regulatory entity burdened the new entrants with regulations, whether or not necessary or even appropriate, that eliminated any cost advantage the new entrants would otherwise have in competing with the incumbent firms.

Equal protection of the law” should not be taken literally? Wow, Mr. Posner. Just, wow. I suppose we ought to leave that one wide open to interpretation, huh? Otherwise we all might have to be treated... equally... well, we can’t have that!

The next sentence is where his argument gets really ridiculous. According to Posner, if we had to offer all competitors equal protection (or, an equal playing field, basically), we would have to handicap any new entrants who had a special advantage. Like saying: runner A is faster than runner B, so if they compete, runner A has to carry weights to make them run the same speed.

Well, this is a fascinating diversion into philosophical speculation, but it has nothing whatsoever to do with the real-life case that Posner is supposedly writing about. The taxi operators are not asking for additional burdens, above and beyond what taxis bear, to be placed on Uber and Lyft to make them competitive; they are just asking for equal regulations. Equal treatment. Literally.

Mind you, there is a very important truth buried here, which Posner has completely failed to recognize. Uber and Lyft really aren’t in a truly competitive market situation against taxis, because while taxis have to compete in a real market, Uber and Lyft (for the time being) are being subsidized by a constant influx of new investment capital. How “competitive” is it to have to keep a small business legitimately afloat while competing against someone who can lose money hand over fist, while constantly attracting more funding? There is no real “market” here as long as Uber (and its backers) have a heavy hand on the scales.

Posner finally turns to his most important argument, that taxis and soft cabs like Uber are too different to be regulated in the same way. First of all, he repeats the very tired argument that taxis can be hailed off the streets, but that Ubers can only (legally) be hailed with a phone app. What Posner completely fails to understand is that this difference is the wholly arbitrary effect of regulation, not a pre-existing difference that regulation is “responding” to.

Not that regulation never responds to the nature of the industry regulated: in fact, much existing taxi regulation is just such a response. In many cities, for instance, it was long illegal for cabs to take street hails—regulators wanted cabs only to pick up at set locations like cabstands, or to respond to orders via phone. Over time, those restrictions were worn away by demand. In some cities, such as Mexico City, there are still different categories of taxi, some of which respond to street hails, while some can only be picked up at stands, and others can only be ordered by phone. This is, incidentally, a very inefficient system, brought about by regulation that arbitrarily creates a distinction between dispatch modes. There is an inherent pull, I would argue, for taxis to ultimately be made available by all dispatch modes. Uber (and other soft cabs) is in fact already starting to experience this.

Right now soft cabs are only (legally) hailable by phone; but this is just the arbitrary effect of the exemption that regulators have created. But anyone coming out of a busy concert and trying to hail an Uber knows that dozens or hundreds of vehicles converging at once, each looking for a specific person, is a complete mess. Now, imagine that the Ubers were instead allowed to line up at the concert exit, and everyone coming out could just take the first one in line. Wouldn’t that be more convenient? Rest assured that, at some point in the near future, regulators will be asked to make this change.

Or say that, as Posner believes, licensed taxis are completely driven out of business. Who then will serve the demand for street hails? Uber, of course, will be given the right to accept flags off the street. And it is perfectly rational, in fact almost inevitable, that this will happen. The only irrational aspect to it would be the inconvenient fact that Ubers had first been created as a separate category on the temporary, and arbitrary basis that they were excluded from these forms of dispatch. But there is no inherent reason for this exclusion, or for the legal distinction between taxis and soft cabs.

Posner then makes a series of false or illogical statements in rapid succession:

A major difference is that customers, rather than being able to hail an Uber car, must sign up with Uber before being able to summon it...

Remember, you can e-hail taxis just like soft cabs, requiring all the same pre-arrangement. This is an absolute red herring.

Unlike taxicab service Uber assumes primary responsibility for screening potential drivers and hiring only those found to be qualified, and the passengers receive more information in advance about their prospective rides—information that includes not only the driver’s name but also pictures of him (or her) and of the car.

This is an odd way to put it, because for taxicabs the “primary responsibility” for these falls to regulators. Uber is only exempt from this (and thus allowed to take “primary responsibility”) because they were granted an exemption by lawmakers. Furthermore, if you’ve followed Uber in the news and the courts at all you are likely to have a dim view of their sense of “responsibility.” Posner is really arguing here that you should simply trust this corporation when it comes to safety. But if Uber was really committed to safety, and background checks, etc., why are they so against being required to follow the same level of safety regulations as taxis already face?

Furthermore, the TNPs use part‐time drivers extensively, and it is believed that these part‐timers drive their cars fewer miles on average than taxicab drivers, who are constantly patrolling the streets in hope of being hailed; and the fewer miles driven the less likely a vehicle is to experience wear and tear that may impair the comfort of a ride in it and even increase the risk of an accident or a breakdown.

If Posner was posting this on Wikipedia, an editor would flag “it is believed” as weasel words. Not only is Posner’s statement weaselly, it is precisely the opposite of “what is believed.” Having studied and written about this very aspect of the industry, I find these falsehoods particularly insulting. The truth is that the core of Uber and other soft cab services are provided by drivers who rely on it as a job; incidental or “part-time” drivers as Posner imagines them only provide a fraction of overall rides. Second, part-time and incidental drivers are not more efficient in their mileage than full-time drivers; in fact, the opposite is likely to be the case, as I pointed out in my 2014 publication on this very question. Mayber Posner should have read some of the literature before jumping to these assumptions?

Posner ends by showing his true colors, with a paean to the disastrous experiments in taxi deregulation back in the 1970s. He lauds the fact that “the deregulation movement has surged with the advent of the TNPs.” Which leads to the most important lesson to be learned from this entire saga:

There is really no such thing as “deregulation;” there is only different regulation.

Posner completely fails to understand (or to admit) that all the differences between soft cabs and taxicabs which he feels justify separate regulatory regimes for the two forms of on-demand car service, were in fact created by those very regulations. Thus, even though he celebrates this as “deregulation” it is really just an arbitrary shift—from one game, involving a certain set of rules and certain players, to another game, with different players and different rules. Even the neoliberal economist Friedrich Hayek recognized that markets are artifacts in this way. The surprising thing is that Posner does not apparently realize this—that regulators are not “recognizing” a real distinction between two markets, but creating that distinction; and Posner in issuing his decision, is actively assisting in that creation.

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