Cannibals and the Education System

Protecting Our Children From State Schools

The monopolistic state-run education system in New Zealand is a mess.  Monopolies usually deteriorate to gross inefficiency over time, and the state run education monopoly is no exception.  But it is much worse than the ordinary run-of-the-mill monopoly.

Some state run monopolies work because they reflect the essence of the responsibilities of state.  These include the justice system, the courts, the defence forces, and the Parliament.  But education is not one of these.  The statists amongst us insist that education is far too critical and important to the future of our country to be left to anyone but the "experts".  It must be both run and supervised by the state.  The truth is diametrically opposite: it is precisely because education is so critical to our national future that it must be kept out of government hands.

At the present there is a gargantuan battle taking place within the state education system.  On the one side are the education unions and the career educationalists who insist upon maximum diversity within the system--provided the diversity is firmly controlled by the educrats and the unions.  If that were to be the case, educationalist nirvana would break out upon us all.

Just a Few More Years Needed

Monopoly Busting Is a Great Calling

If New Zealand charter schools are afforded another six years of existence, we predict that the charter school programme in this country will likely never be shut down.  Unfortunately that is what presently hangs over the heads of the fledgling charter schools in this country because of luddite politicians and their political masters.  

The government schools and education system is controlled by teacher unions.  It is not too much an exaggeration to say that before the Minister of Education can be excused to visit the latrine he/she has to seek permission from the unions.  The teacher unions of course are interested in one thing, and one thing only--protection of their monopolistic patch.  Naturally, the union functionaries couch the matter in different terms.  They speak about quality education, and superior and advanced schools--but in the union view, superior schools can only exist and continue if they are union controlled.  There are no other kinds of schools to be permitted.  Every other kind is a threat, and must be stomped on.

The teacher unions have huge influence over the Labour Party.  That party, along with its pet poodle, the Green Party, has declared that when control of Parliament is achieved, all charter schools will be shut down.

But charter schools by and large, few though they be, are doing an excellent job.

Rampant Intolerance in Academia

Unbelief Does Not Like Competition

An op-ed piece appeared recently in the NY Times declaiming the overwhelming prejudice against conservative academics that bubbles away in the ivory towers of the United States.  Nicholas Kristof reveals the extent of the problem.

A Confession of Liberal Intolerance

Nicholas Kristof
New York Times

We progressives believe in diversity, and we want women, blacks, Latinos, gays and Muslims at the table — er, so long as they aren’t conservatives.

Universities are the bedrock of progressive values, but the one kind of diversity that universities disregard is ideological and religious. We’re fine with people who don’t look like us, as long as they think like us.  O.K., that’s a little harsh. But consider George Yancey, a sociologist who is black and evangelical.  “Outside of academia I faced more problems as a black,” he told me. “But inside academia I face more problems as a Christian, and it is not even close.”

I’ve been thinking about this because on Facebook recently I wondered aloud whether universities stigmatize conservatives and undermine intellectual diversity. The scornful reaction from my fellow liberals proved the point.  

The extent of the prejudice does not surprise us in the slightest.

Paradigm Shifts Put Entrenched, Privileged Business at Risk

Monopolists and Rent Seekers

Various investment gurus, Warren Buffet included, have sometimes described the best investment opportunities come when one discovers a business protected by a wide, deep moat.  The barriers to competition are high.  The business in question is market dominant.  Such businesses are able to operate as a virtual monopoly.  They sit at the toll bridges over the moat and click each passing  ticket to pecuniary advantage.  If you can find a business like that buy it.  It will reward you handsomely.

But, and it is a big "but", all too often such wide-moat businesses are allowed to exist because they are protected by perverse government rules, regulations, and laws.  Competitors are not able to enter the market and drain the moat.  It is not that they themselves are not efficient, or their service or products are sub-standard, it is more that the incumbent company is protected by unjust and perverse laws rather than the loyalty of free consumers.

A market place and economy which truly respects the property rights of all citizens will abhor state licensing, rules, and regulations which impede competitors coming into the market.  When competition is free and open, watch the feather-bedded monopolies collapse; watch the water levels in the moats drain away.

One such case being played out right now is in the taxi industry, facing competition from Uber.  New York is providing an instructive example.

New York’s Taxi King Is Going Down

People don’t deserve to be millionaires because they can get government to let them pick people’s pockets.

By Jared Meyer 

The Federalist

Evgeny “Gene” Freidman is no fan of Uber. The increasing popularity of this vehicle-for-hire (or ridesharing) company has lost him millions of dollars. He has even asked New York City taxpayers for a bailout. As difficult as bailing out the big banks was to swallow, bailing out a taxi mogul—who at one point owned more than 1,000 New York City taxi medallions—is an even harder sell. A bailout would be especially outrageous considering that Freidman and his financial backers are actively working to make consumers pay more for fewer options.

Freidman reluctantly took over his father’s modest yellow taxi business as a young man. He brought his experience in Russian finance to the industry, and started to accumulate increasing numbers of taxi medallions using highly leveraged financing. Freidman expanded a company with just a few taxis into a conglomeration of three- to five-car mini-fleets. 

As Freidman’s taxi empire grew, he expanded into other cities, including New Orleans, Philadelphia, and Chicago. He gained control of hundreds more medallions that are also now in financial trouble. His willingness to bid on practically any medallion that came up for sale helped drive a rapid increase in medallion prices across the country.

Subprime Taxi Medallions

This model can work when times are good but, as the housing crisis showed, it has its dangers. It works until another technology emerges, consumers move on, and funding dries up.  This is where Uber comes in. Competition from Uber has left investors wondering how much the company will grow and what further effects its growth will have on taxis’ market share. While yellow taxi medallions were selling for $1.32 million as recently as May 2013, now they may be worth as little as $650,000.

This drastic drop in price has made the banks and credit unions that fund Freidman’s vast enterprise nervous. For example, his companies still owe around $750,000 for each medallion financed by Citibank. Without new loans to meet existing obligations and expand his fleet, Freidman’s companies became insolvent. This is why he sought the bailout and wants the government to support the medallion market by offering taxpayer-guaranteed loans.

Adding to this financing crunch, the lease rates Freidman now can charge taxi drivers who rent his cars have declined. Many taxi drivers switched to Uber, which offers increased earning potential, flexible work schedules, and improved driver safety. Competition led Freidman to complain that he is no longer able to charge the city’s legal maximum lease rate. This is promising news for drivers, but problematic for Freidman’s income.

There’s Not Much Argument for a Monopoly

Medallions commanded such astronomical prices in New York because yellow taxis had, and still do have, a monopoly on street hails in Manhattan south of the northern boundary of Central Park. Ubers come rapidly, but they are not street hails, because people summon them beforehand with a smartphone. In cities across the country that also use a medallion system, the same reasoning applies. Government restricts the supply of taxis below the level of demand, and medallion owners reap the profits—all at the expense of consumers.

It is not just Freidman’s companies that are in trouble. The banks and credit unions that funded him and other medallion owners are also worried. Just four credit unions hold security interests in over 5,300 medallions, for which they are on the hook for about $2.5 billion. In the face of greater potential losses, these companies have resorted to calling people who work in policy (myself included) to try and convince researchers that Uber is illegal and needs to be banned.

The credit union argument progresses as follows:

1. Yellow taxi medallion owners were granted a monopoly on street hails.
2. For-hire vehicles are only allowed to offer pre-arranged rides.
3. Uber uses street hails, not pre-arranged rides, to connect riders with its driver partners.
4. Therefore, Uber is illegally using street hails, and this infringes on yellow taxi medallion owners’ government-granted monopoly.

If the third premise is true, this argument could hold some rule-of-law water. It is not. The law governing New York City’s street hails date back to the Haas Act of 1937. This law restricted the number of New York yellow taxi medallions to 16,900, which was lowered and now stands at 13,437—even though the city’s population has grown by over 20 percent since 1940.

The Haas Act also set the stage for other common carrier regulations that apply to the taxi industry. These regulations place substantial limits and requirements on taxi owners and drivers in exchange for their monopoly privileges. For example, the city’s Transportation and Limousine Commission sets fare prices, and fares cannot change with increased demand for rides. This is one of the main reasons it is so difficult to hail a taxi in the rain or at the beginning of rush hour.

Updating regulations takes time, but New York City taxis were finally granted the ability to accept ride requests from smartphones (e-hails) early this year. Once taxis were allowed to accept e-hails, something they needed to compete with new technologies, four credit unions argued that the technology was now off-limits for Uber—the company that had popularized e-hails. They sued New York City for infringing upon medallion holders’ monopoly privileges.

This makes no sense. How can a decades-old law covering street hails be construed to cover ride requests made through smartphones? Anyone who has tried to hail a taxi on the side of the road, and then used Uber, knows that the two experiences are vastly different. Simply put, holding your hand up is not the same as pressing a button on your phone.

How to Save Taxis Without Squeezing People

The path forward is not to ban ridesharing or bail medallion owners out. It is to make taxis more like Ubers. This takes more than simply allowing taxis to accept e-hails. Rather, the only ways to save taxis are greater flexibility in pricing and service and increased competition.

As Uber’s rise has made obvious, when the crucial aspect of competition is missing from markets, established companies do not have to worry about improving their services to attract and keep customers. Regulations need to be continually modified and updated in light of new technology.  There is no reason to require New York taxis to have expensive (and annoying) Taxi TVs. Pointless mandates such as this only increase the cost of taxi rides.

Even with a relaxed regulatory framework that embraces ridesharing and competition, taxis will still have an advantage. No one is talking about taking away New York City’s yellow taxi monopoly on street hails. Applying antiquated laws and regulations to new technology is what laid the groundwork for the rise of Uber and other ridesharing services in the first place.

Everyone Shouldn’t Pay for Some People’s Bad Bets

Credit unions oppose allowing Uber to grow because they want to protect their investments. The Queens County Supreme Court ruled against the credit unions last month. The court found that the credit unions did not have a cause of action against the city and its Transportation and Limousine Commission. This was a major win for Uber and consumers, but a death-knell for Freidman’s business and its financers.

The whole yellow taxi financing model is crashing, along with medallion prices. After the ruling, Montauk Credit Union, one of the plaintiffs, was seized by the New York State Department of Financial Services because of “unsafe and unsound conditions.” The day that New York City’s proposed cap on Uber’s growth was defeated, 22 of Freidman’s mini-fleet companies filed for bankruptcy.

Even if medallion holders such as Freidman lost a lot of money, it does not follow that the public should subsidize their losses. The returns from a yellow taxi medallion in cities such as Philadelphia, Chicago, or New York far outpaced the stock market or gold for many years. The values of these medallions about doubled in each city from 2009 to 2013.

Investments carry risk, as Freidman knows from his background in finance. He made a poor calculation that the Manhattan yellow taxi street hail monopoly would continue to provide him enough future cash flow to satisfy bankers, who would loan him more money to expand his fleet. Freidman and his investors have no claim to a taxpayer-funded bailout to cover their poor business decisions. Perhaps they should consider investing in Uber instead.

Jared Meyer is a fellow at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter @JaredMeyer10.

Well Passed the Use-By Date

Vestiges of Guild Socialism Linger On

Not too many years ago, if one wanted to be taught to play the piano in New Zealand, one was required to hire a registered piano teacher.  There was no other kind.  The profession of piano teaching was protected.  The justification for this inanity?  It was to protect the interests of piano students.  It was to ensure that when they hired a teacher, they hired quality. They would be taught "correctly".

In reality, the enforced registration of piano teachers served to protect a cosseted guild.  It stopped piano teachers entering the market.  It cut down competition.  It protected the jobs of the registered.  It also meant higher prices for piano tuition.  The entire practice was a medieval hangover.  But it lasted in New Zealand until the seventies.

There is, of course, nothing wrong with professional institutes with establishing standards, and admit into membership only those who have attained and maintain the standards.  To this day there is an Institute of Registered Music Teachers in New Zealand.  We are sure they do excellent work.  But the critical change lies here: no longer is there an institute running a state enforced monopoly over the supply of musical teaching services.

There remains in New Zealand at least one enormous state-enforced monopoly of a profession: teachers in the government schools.  In order to teach one has to be a state Registered Teacher.  The duties and functions of the NZ Teachers Council, which administers the registration process are similar to all professional associations existing to maintain standards.  But, in this case, it is a state run monopoly.  The arguments for such a state monopoly are the same as those used decades ago to justify a state enforced registry of piano teachers.  The effects are the same.  It represents guild socialism at its worst.