DRI-275 for week of 9-28-14: Touchdown-Celebration Prayer: Time for Separation of Church and Red Zone?

An Access Advertising EconBrief:

Touchdown-Celebration Prayer: Time for Separation of Church and Red Zone?

Fans of the National Football League (NFL) have become inured to the spectacle of celebrations conducted by players who score a touchdown. These actions have assumed a variety of forms, ranging from ordinary excesses of joy and enthusiasm like jumping up and down to esoteric rituals like spiking or dunking the football over the goalpost. Perhaps the most common form is some sort of gyration or celebratory dance. The practice originated among certain players whose fame depended at least as much on their self-promotional zeal as upon their athletic prowess – Deion Sanders, formerly of the Dallas Cowboys, comes particularly to mind.

Older readers will appreciate the striking contrast between this modern attitude and that exhibited by legendary stars of yesteryear like Jim Brown of the Cleveland Browns and Johnny Unitas of the Baltimore Colts. Brown, who may have been the greatest running back of all time, was slow to assume his stance prior to the center snap of the football and even slower to rise after being tackled when running the ball. His demeanor was impassive. He conserved his energy and saved his exertions for the time between the snap and the referee’s whistle signaling the end of a play. Did this account for the fact that his average-yards-gained per carry was the highest of any Hall of Fame runner?

Unitas was similarly deadpan on the field. As quarterback for the Colts, he terrified opponents and awed teammates with the knack for leading his team from behind in the closing seconds of a game. But fans could never have guessed by looking at him whether he had just been sacked for a loss or thrown the winning touchdown pass as time expired. If any of his teammates had ever done anything as gauche as celebrating a long run or spectacular catch, they would have been frozen solid by the icy stare known throughout the NFL as the “Unitas look.”

In the so-called “greatest football game ever played” – the 1958 NFL championship game between the Baltimore Colts and the New York Giants – Unitas provided the prelude to victory by completing a daring sideline pass to tight end Jim Mutcheller in the Giants’ one-yard line in sudden-death overtime. At the post-game press conference, a reporter ventured to question Unitas’s play-calling decision: “That was a pretty dangerous pass, wasn’t it? What if it had been intercepted?” The reporter was the first televised victim of “the look.” “When you know what you’re doing,” Unitas replied without needing to raise his voice, “they’re not intercepted.”

Nowadays many players feel obligated to supplement the audio and visual record of play supplied by television by advertising what has just happened. The newest wrinkle on this style of irrepressible self-expression is praying in the end zone after scoring a touchdown.

The Abdullah Case and Ensuing Fallout

In the fourth quarter of a game between the Kansas City Chief and New England Patriots at Arrowhead Stadium on September 29, 2014, New England quarterback Tom Brady completed a pass to Kansas City safety Husein Abdullah. Abdullah traversed the 39 yards to the New England end zone, where he dropped to his knees in prayer.

End-zone touchdown celebrations are now so commonplace that rules have been drafted to cover them. One of those rules forbids celebrating while “on the ground.” The referees invoked this rule, penalizing the Chiefs 15 yards on the ensuing kickoff for “unsportsmanlike conduct.”

That did not end the matter, though. Two days later, the NFL’s league office announced that the official decision had been in error. Why? It seems that “there are exceptions made for religious expressions,” according to NFL vice-president for football communications Michael Signora. But the referees may have been confused by Abdullah’s body language; he slid on his knees rather than simply kneeling down. Probably sensing an opportune moment, the well-known organization CAIR (Council on American-Islamic Relations) lodged an objection to the original ruling. According to an article in the Kansas City Star (“NFL Admitting Error on Abdullah Flag,” October 1, 2014, by Tod Palmer), “Abdullah is a devout Muslim.” The CAIR spokesman urged the league office to “clarify the policy” so as to “avoid the appearance of a double standard” for Muslims and non-Muslims.

The sensitivities of Americans have been abraded by over a half-century of controversy over the separation of church and state. Now the debate over public religious observance has invaded the football field or, more specifically, the end zone. Will theologians have to be on call for replay decisions by officials? Should the NFL nail a thesis on the separation of church and red zone to the main gate of its stadiums? Is all this really necessary?

The Economics of Player Celebration 

Does associating end-zone prayer with celebration seem odd? Abdullah himself referred to his action as “prostrat[ing] myself to God.” Still, the religious faithful at their devotions are often called “celebrants.” In any case, the attributes of prayer and those of celebration are virtually identical in this particular context, which allows us to apply economic principles to both types of action. Both interrupt the normal flow of play and divert attention away from the game and to the celebrant. A case exists that each kind of action might either please or annoy a football fan.

One interesting thing about this example is the diametric tacks taken by the economist and the non-economist. The non-economist feels compelled to ascertain whether prayer itself is “good” or “bad.” A particularly discriminating non-economist might put that to one side and focus on whether or not prayer is a good thing in this particular context; e.g., on a football field with hundreds of millions of spectators. The economist may or may not feel qualified to supply answers to those questions, but does not care about the answers because they needn’t be answered by any particular individual. Markets exist to answer questions that individuals cannot or should not answer. 

Professional football is an intangible product supplied by the National Football League and its member franchises (teams) to consumers (fans). That product consists primarily, but not solely, of competitive athletic performance. A rhetorical question posed previously in this space asked: If O. J. Simpson were still in full flower of his athletic skills, would he be working as a running back in the NFL, all other things equal? The obvious answer is no, because football fans do not want to watch murderers play professional football, no matter how talented they may be.

The advent of touchdown celebration allows us to add another qualifying example to our definition of the pro-football product. To the degree that some fans enjoy and even encourage end-zone celebrations, it is clear that they derive satisfaction (or utility, in economic jargon) from this practice. That means that the pro-football product is defined as “competitive athletic performance plus entertainment.”

This is not merely an ad hoc formulation cobbled together by an economist for a column. In the same edition of the same Sports section of the Kansas City Star as the story of the NFL’s recantation of the penalty on Abdullah, the adjacent story is a profile of Chiefs’ cornerback Sean Smith. Study Smith’s comments about his flamboyant style of play and the attitude of Chiefs’ coaches to the on-field exhibition of his personality.

“‘I think (the Miami game) gave the coaches a chance to see that when I’m able to go out there and just be myself and let my personality hang out there, not only do I play well, but people feed off my energy,’ Smith said.” [Quoting reporter Terez A. Paylor] “‘Smith, like his other more animated teammates, appreciates Coach Andy Reid’s philosophy. He encourages his players to play with passion and let their personalities shine through on the field, and Smith has embraced that approach this season.'”[Back to Smith again] “‘Coach emphasizes to let your personality show, go out there and cut loose, and be yourself and have fun…That’s something I definitely took personal. I’ve been a very enthusiastic guy. I like going out there and having fun and putting a smile on people’s faces.'”

This constitutes an implicit endorsement by a player and head coach, as cited by a beat reporter, of the economic model developed above.

Does this mean that end-zone celebrations are a good thing? Does it mean that players have a right to indulge them? Does it justify the NFL’s policy? Or condemn it? The answers to these questions are various forms of “no.” End-zone celebrations are one more input into the productive process, no better or worse a priori than any other. They may or may not be appropriate. Players have no “right” to indulge in them because players do not control the production process – the team does. The NFL is the franchisor; it has the right to control end-zone celebrations only if they affect its ability to provide the right competitive environment for the teams and not when only team profitability is at stake.

A last key question may be the one most frequently asked when this issue arises in public controversy. What about the player’s “right” of free religious observance?

Why Freedom of Religion Does Not Guarantee the Right to Celebrate in the End Zone 

Freedom is defined as the absence of external constraint. It does not guarantee the power to achieve one’s aims over opposition; in particular, it does not confer rights. A right can be enjoyed only when it does not abrogate the exercise of somebody else’s right. A contract is a voluntary agreement that imposes legal duties on both (all) parties to it.

These definitions lay the groundwork for our understanding of prayer in the end zone.

Husein Abdullah is an employee of the Kansas City Chiefs football team. He helps produce professional football entertainment but he does not control the mix of inputs into that product. The team decides who the other players will be, what style of football the team will play, what offensive plays the team will run, what defensive sets the team will employ, who the coaches, assistant coaches and trainers will be. If the team chooses all these inputs into the production of professional football entertainment, why should it not also control the nature of end-zone celebrations? Of course, the team may opt for spontaneity by giving free rein to players’ imaginations, just as conventional entertainers in show business may opt for improvisation over a scripted performance. Still, the team will almost certainly forbid players from celebrating by making obscene gestures to opposing players, revealing intimate body parts to fans and performing other acts virtually guaranteed to offend fans rather than entertaining them.

So we should hardly be astonished if the team should choose to regulate an action as potentially sensitive or embarrassing as an act of religious observance – should we? And, speaking as students of economic logic, we can make no objection to that – can we?

How about Husein Abdullah? Or, for that matter, any religious celebrant of any religious denomination? Is he being treated unfairly? Are his rights being violated?

No. As an employee of the team, Abdullah works at the direction of the team and for its benefit. The fact that Abdullah is engaging in a religious observance in this particular case is irrelevant. Abdullah certainly has freedom of religion. He has freedom of speech, too, but that doesn’t give him the right to say anything and everything under the sun in his capacity as an employee with no fear of repercussion.

Suppose Abdullah were an employee working in an office building. Does he have the “right” to pray at the top of his lungs while wandering around and between the desks of his fellow employees? No, he has no right to disrupt the workplace in this fashion even with the excuse that freedom of religion allows him the right of religious observance. Similarly, his “right” to pray in the end zone is circumscribed by team policy.

Does this mean that the Abdullahs of the world are inevitably booked for disappointment in their longing to prostrate themselves before God in the end zone? There is no reason to think so. We know, for instance, that celebrations were once frowned upon and suppressed yet are now practically de rigeur. There seems no way to predict what twists and turns this penchant for celebration will take because there is no way to predict how the tastes of the public will change.

Are we afraid that “discrimination” against unpopular minority groups (Muslims, for example) will proliferate? No, we are not, because in this context the term discrimination loses its familiar colloquial meaning. There is no arbitrary exercise of power against a group because no business has a duty to employ all inputs to an equal degree. Instead, businesses have a duty to their owners and consumers to employ inputs based on productivity precisely by discriminating in favor of the more productive and against the less productive. Whether the inputs are engaging in religious observance, speech or any other activity does not matter. If a player can produce a productive form of celebration, this will make money for his team and provide the player with a celebratory meal ticket. If not, the player will lose the privilege of celebrating in the end zone. Business is not about what the boss wants or what employees want – it is about what consumers want. Economists characterize this principle as consumer sovereignty.

If a player demands a right to pray in the end zone, what he is really demanding is not freedom, nor is an exercise of a valid right. Rather, it is the power to abrogate his duty to his employer at whim. As often emphasized in this space, this confusion of freedom and power suffered by the general public has been repeatedly exploited to political advantage by the left wing.

The Absurd Position in Which the NFL Finds Itself

The framework for analysis outlined above is simple and logical. It is an outgrowth of the system by which we divide labor to produce and exchange goods and services. The pellucid clarity of this system stands out in brilliant contrast to the existing framework under which the NFL currently operates.

The NFL currently has rules governing player celebrations. These rules are part of the code that governs play on the field. Violations are punished with penalties such as the one Abdullah earned for the Chiefs. Consequently, the rules must be mastered, interpreted and applied by the referees. Inevitably, as with all sports decisions made by referees or umpires, subjective perceptions and interpretations cause mistakes and controversy. (The distinction between kneeling and sliding to his knees probably reminded Abdullah of the judging on Dancing With the Stars.) Meanwhile, the entities whose interests are most directly affected – team ownership and management – must sit back and await the chance to appeal any wrongful decision later.

And the fans – the people for whose benefit the system operates – don’t get any direct say in this administrative process. Whereas in a competitive market, input from fans directly determines the nature and extent of player celebrations, the regulated market gives immediate control to the administrative mechanism of the NFL. This allows the entertainment part of the product to contaminate the competitive part when penalties are levied for unsportsmanlike conduct, whereas under a competitive system the team handles problems of unsuitable celebration outside of the context of the competitive contest.

That’s not all to object to about top-down regulation of end zone celebration by the NFL. In fact, it may not even be the worst. The Abdullah case illustrates the political hazards of the top-down approach. The NFL began by wanting to suppress inappropriate celebration, which is surely not objectionable in and of itself. By doing the regulating itself instead of leaving it to the market, the NFL left itself open to the pressures of every special interest with an ax to grind. Because the NFL has no special interest in the profits of any one team, it has no incentive to favor popular celebration. Because the NFL is a bureaucratic organization, it is open to influence by every special interest with an ax to grind, CAIR being the most recent to step up to the grinder.

Suddenly, the NFL finds it can’t simply ban a form of celebration it doesn’t approve of (by “any player on the ground”) because that would run afoul of “religious observance.” Imagine – religious observance interfering with the conduct of a football game, when previously the only thing the two had in common was Sunday. And the minute the NFL starts making an exception for “religious observance,” it then has to confront the issue of different – and conflicting – religions. Wonderful – the two things attendees at a dinner party are never supposed to mention are politics and religion, and both are now elbowing their way into the end zone. What next? Will Stars of David start popping up on player helmets as an expression of their “right of free speech?” If only the fans had the power to throw a flag against the NFL for interference!

The General Principle at Work Here 

Americans have forgotten the value of allowing markets to decide basic questions. A recent Wall Street Journal op-ed commented offhandedly that we have lost confidence in free markets as a result of the Great Recession. If so, this is a monumental irony, since that event was caused by the interference with and subordination of the market process. It is not clear how much of the current attitude originates with a loss of faith and how much with simple ignorance. Regardless of the source, we must reverse this attitude to have any hope of survival, let alone prosperity. We know markets work because the world in general and the U.S. in particular would never have reached their present state of prosperity unless markets were as effective as free-market economists claim they are. The pretense that regulated, administrative markets are a vehicle for perfect “social justice” is not merely a sham – it is a recipe for tyranny. Administrators possess neither the comprehensive information nor the omniscient sense of fairness necessary to decide whose celebrations to allow, which ones to ban and what standard to apply to all.

The best thing about the example of touchdown celebrations is that they provide a side-by-side illustration of free markets and regulated administrative markets. The free market is player celebrations as they evolved in recent years, encouraged by fan response and governed by individual teams. The Kansas City Star excerpts show in so many words that this market exists and the evidence of our senses shows that this market works just as economic logic predicts that it will. And our ever-more-dismal experience with top-down, bureaucratic NFL regulation shows that rule by fiat and by ventriloquists in the chattering classes is an escalating failure.

What about the older fans who are appalled by player celebrations and long for the good old days of strong, silent, heroic players like Brown and Unitas? Why, we’ll just have to find a team that suits our tastes – or found one.

DRI-269 for week of 11-10-13: How Business Views Competition

An Access Advertising EconBrief:

How Business Views Competition

Every profession must endure the distortions resulting from the misshapen lens of public perception. Veteran economists know the specialized meaning of terms like “competition” and “efficiency.” They know the attitudes and mental habits formed by businessmen. And they know what happens when the mind of the businessman is forced to coexist with the vocabulary of economics. What happens is that the businessman perceives economics through the subjective prism of his own wants and expectations. This produces a view that is wrong in predictable ways.

By appreciating how intelligent, single-minded businessmen go wrong, we can better calibrate our own understanding with the truth. Recent published examples provide excellent case studies in the pathology of business misunderstanding of economics.

iK9 – Establishing “Standards” for the Detection-Dog Market

The current (11/4/2013) issue of Bloomberg Business Week tells the story of iK9, a detection-dog business started by a man named Tim Dunnigan. In the article “The Bomb Squad: Building an Empire on a Dog’s Nose,” author Josh Dean explains Dunnigan’s attempt to build a security firm around the olfactory talents of bomb-sniffing dogs.

Detection-dogs use their highly advanced sense of smell to locate everything from explosives to drugs to malignant tumors in humans. Their talent is inborn but requires extensive training and direction. Most of this training is done by individuals working alone or within small businesses, but one of the largest institutions devoted to this purpose is Auburn University’s Canine Detection Research Institute. This subsidiary of the university’s veterinary research school trains some 200 teams of dog and handler every year for corporate and government clients. Associate Director Paul Waggoner has perhaps the best view of the dog-detection market.

“Detection-dog training has been a vocation where most of the knowledge has been handed down in master-apprentice manner. That’s led to a lot of unproven ideas and ways of doing things,” Waggoner observes. “It’s still a young field,” a “trust-me” kind of business.

It’s no wonder, then, that “the detection-dog marketplace is fragmented, and no one knows for sure how large it is,” according to Josh Dean. Estimates range from $400 million to $700 million. So far, the big-ticket buyers have been government and the military, with private security a distant third. In principle, though, “any high-traffic location or corporate headquarters is vulnerable” to the threat of terrorism or criminal activity, so “the potential market is immense.” On the other hand, the service is quite expensive. Effective security requires round-the-clock surveillance and dogs need constant care and supervision. Demand has fluctuated wildly, skyrocketing after the 9/11 attacks and the Boston Marathon bombing but nosediving in between.

Tim Dunnigan’s business plan calls for reaching $200 million in revenue as quickly as possible. He projects about $300,000 in annual revenue from each dog-and-handler team, so his game plan requires employing hundreds of dogs and trainers. Competing in the marketplace poses special problems because the scope for cost-cutting is minimal; any reduction in quality could be fatal to the firm’s competitive position.

What is Dunnigan’s strategy for rising to this competitive challenge? According to author Dean, it would seem that Dunnigan is instead planning on cutting competitors down to his size. “As much as anything, Dunnigan’s strategy seems to be to raise the industry’s profile anddemand that anyone offering canine detection adhere to standards that have yet to be formalized [emphasis added]. One challenge, he says, is that ‘everybody thinks his technique is the best.'”

It is worthwhile noting that even the federal government – thus far the leading purchaser of detection-dog services – has so far feared to tread the line of standardization. “Detection dogs are such a freewheeling business that a U.S. government training standard does not exist among the many departments deploying them in the field,” Dean admits. The watchword of government is coercion and compulsion, so at first glance Dunnigan seems foolish for rushing in.

In a free market, Dunnigan is at liberty to promulgate whatever standards he chooses – for his own firm. He can advertise them in accordance with his inclinations and financial resources. He can contrast them with those of his competitors – or with those they lack.

But the phrase “demand that anyone offering canine detection adhere to standards” has a sound that is both familiar and worrisome to the veteran market watcher. It smacks of the classic American business strategy: get the government to suppress your competition. In this case, it would mean that Dunnigan is lobbying for passage of industry regulations that a fragmented industry of smaller operators would find costly and cumbersome. After all, they don’t have the resources of a CDRI or Auburn University to call upon. These regulations would raise costs in a highly competitive, low-margin industry. (“You wouldn’t believe how thin our margins are,” complains Paul Stapleton, son of the founder of MSA Security, pioneering private-security dog-detection firm and New York-market leader.) In turn, that would drive some firms out of business and reduce the supply of services, raising price for the remaining firms.

To the average person – the man or woman on the street, untrained in economics – a call for standards sounds innocuous and even praiseworthy. All of us have grown up hearing the phrase “the XYZ industry is not regulated by the government” used synonymously for “this industry is inhabited by dishonest, unscrupulous bastards who will take your money and your life without a second’s hesitation.” But to an economist, the “demand for standards” is seen in its true light – as a demand for regulation that will restrict competition at the consumer’s expense and for the benefit of one or a few firms in the industry.

Were we to summarize this rhetorical pathology, it would read as follows: “In order to protect buyers from being exploited by sellers, who may or may not possess mysterious means of providing this new and valuable service, standards of performance must be set. Obviously, these must be set by government because…because…well, because that’s just the way things are done. As a would-be leader in this field, I demand that government step in and set standards to save all of us sellers from succumbing to our own shortcomings.”

Evil Street Vendors

The great economist and multi-disciplinary theorist Thomas Sowell has specialized in exposing the logical shortcomings of conventional rhetoric. One of his most incisive exposes has been of the “powerful powerless” – groups of the lowly and disenfranchised whose economic prospects are customarily suppressed on the contradictory grounds that they somehow possess unfair advantages over ordinary people. Street vendors are charter members of this unfortunate fraternity.

The conventional case against street vendors was argued in a recent letter to The Wall Street Journal (11/11/2013). The author, one Jerome Barth, represents a New York business group called the 34th Street Partnership.

“The Journal has steadfastly defended street vendors in the past…It should follow from common free-market rules that this position is sound. However, in the case of street vending, it isn’t.” This stance is a backbone of the rhetorical practice known as “special pleading.” Free markets and competition, it grants, are wonderful things. They work beautifully – except in my particular case/industry/country/state/city/neighborhood. My case is special, exceptional. Why? Well…er…uh…because it’s mine.

“Street vendors are not necessarily the sign of a good economy or a good downtown. They are messy actors who usually have very poor aesthetics and offer a very uniform product of relatively low quality – when it isn’t counterfeit.” No doubt Mr. Barth would take strong exception if somebody referred to his colleagues in collective terms – “the 34th Street Partnership are sloppy businessmen with questionable ethics.” But he does not hesitate to herd all or most street vendors into one corral and brand them with the same iron. They don’t merely offer a uniform product; they offer a very uniform product! (In political rhetoric, nothing succeeds like excess.)

Of course, we all know that you just can’t trust vendors who sell uniform products of relatively low quality, like McDonald’s, White Castle, Wal Mart and Dollar Store. But it isn’t enough that the street vendors be pigeonholed as specialists in inexpensive, homogeneous goods – no, they must be stigmatized as crooks, counterfeiters. This is just another way of saying: “The customers of street vendors are complete idiots, since they cannot detect forgeries of the simplest, least complex goods; instead, they not only fall for the fakes but apparently keep coming back for more!” And since the customers of street vendors are the same people who patronize the downtown shops of the 34th Street Partners, Mr. Barth is stigmatizing his own customers and those of his colleagues.

“Further, they [street vendors] seldom follow rules, often don’t pay taxes, often exploit workers and leave messes behind.” Throughout the world, street vendors are the lowest of the low among businessmen. Often their net worth travels with them in the cart or wagon that dispenses their wares. The working capital with which they purchase tomorrow’s inputs is gained from today’s sales. But in Mr. Barth’s telling, these powerful powerless wield powers unknown to mortal businesses. They ignore laws, evade taxes, exploit workers – does this mean that a one-man hot dog vendor acting as entrepreneur exploits himself acting as laborer? Meanwhile, Mr. Barth would have us believe that police are the powerless ones. In reality, the police typically act in concert with Mr. Barth and colleagues to roust street vendors on the slightest pretext. Of course, nobody disputes that street vendors should pay taxes and respect property rights, and they possess no special rights or immunities that would prevent this.

“…The great retail places of the world…don’t have street vending or…limit it to products that enhance the street experience and have difficulty paying for storefronts (flowers, newsstands, shoeshine).” The criterion “products that enhance the street experience” is utterly subjective; it allows would-be cartels like the 34th Street Partnership to restrain trade and restrict competition while holding up a fig leaf of pretense by allowing vendors as long as they don’t compete with incumbent merchants. Any downtown habitué knows that flower stands, newsstands and shoeshine parlors do sometimes operate behind storefronts; this is merely the pretext under which the cartels grant them the special privilege denied to competing street vendors.

If there is even a tiny grain of truth in Jerome Barth’s case against street vendors, it would have to crystallize around the issue of spillover costs resulting from a transient vendor who cannot be traced and braced for costs of cleanup. Presumably, this was the rationale for Atlanta’s awarding a franchise rather than allowing open competition among street vendors (“…in the case of Atlanta’s concession of street vending to a single group. namely General Growth Properties”). However dubious this example and this practice may be, it serves to demolish whatever remains of Mr. Barth’s argument against street vending.

The outlines of this second anti-competitive rhetorical pathology are as follows: “Free markets are wonderful for everybody else, but not for me because my case is special. I am the helpless victim of invidious, evil forces beyond the reach of normal market competition. The law must suppress these competitive forces or they will destroy me. (The fact that these powerful evil forces consist of people who are otherwise the most powerless people in society is a paradox that I do not choose to address or even recognize.)”

It’s the Gypsy (Cab) in My Soul

Although both of the first two examples are recent, the attitudes displayed therein have been around for many years. A classic case amalgamating the two rhetorical stances involves the “gypsy” cab business. Gypsy (illegal) cabs operate throughout the world. Taxicabs are heavily regulated around the globe and gypsy cabs are linked to regulation the way pilot fish are attached to whales.

In its paradigmatic form, taxi regulation limits the number of taxis allowed to operate within a political jurisdiction and also prescribes the specific fare structure the taxis are allowed to charge. In effect, the governmental body regulating taxis functions as a cartel that blocks entry of new firms into the market. This limitation places an upward bound on the amount of taxi service that taxi consumers can receive, thereby bolstering the high price set by the regulators. In turn, this allows monopoly profits to be earned on the supply side of the market. Whether the beneficiaries of those profits are taxi firm owners or drivers or somebody else depends on various factors, some of which we will elaborate below.

New York City is the classic case of taxicab regulation resulting in monopoly profits and the proliferation of gypsy cabs. Beginning with the Haas Act in 1937, operators of New York City taxicabs were required to purchase medallions as emblems of licensure. During World War II, 1,794 of the original 13,566 medallions were returned to the city by entering servicemen. That left 11,772 outstanding medallions – a total that has not increased since then.

Meanwhile, the demand for taxicab service in perhaps the most tightly concentrated population in America continued to increase. There was no way to legally increase the size of the taxicab fleet and no way to legally raise the price of service. Thus, waits for service became intolerably long. Service to poorer neighborhoods deteriorated disproportionately, especially to ghetto communities where the risk of robbery and injury to drivers was thought to be higher. Eventually, local residents responded by reallocating private passenger vehicles to the service of commercial passenger transportation; they installed meters, top lights and lettering identifying the vehicle as a taxicab. These gypsy cabs found a plentiful market for their services inside the ghetto and even ventured into the larger community in search of business.

Sometimes private vehicles were conscripted to serve as livery vehicles or jitneys. In principle, livery vehicles are defined as for-hire transportation vehicles engaged via telephone or appointment only and not responsive to street hails. In practice, though, this distinction gradually blurred and the unmarked livery vehicles became de facto taxis. Individuals who contracted with grocery stores to provide exclusive “car service” for shoppers became the modern-day prototype for jitneys. With very few exceptions, these too have traditionally been illegal in America but have been tolerated by authorities beset by complaints about poor taxi service.

Why not simply open up the taxi business for competition? In New York City, the monopoly profits available in the taxi market have been reaped by owners of the medallions. Although it is the drivers who pocket the money derived from the high taxi fares, the value of those monopoly profits is capitalized into the price paid for the medallion. (The medallion is legally transferable, so a retiring driver can cash in his or her investment by selling the medallion to a prospective entrant into the business. The price of medallions fluctuates; it has often reached six figures over the years.) If the city were to suddenly allow free entry into the taxi business, the market value of those 11,772 medallions would suddenly fall to zero – and 11,772 medallion-holders would raise hell when their capital asset suddenly evaporated in their hands. Obviously, New York City politicians fear the volume of this outrage more than they welcome the more moderate gratitude that would flow in from taxicab consumers.

The official rationale for taxicab regulation dates back roughly a century, when the automobile was young and taxis competed with buses and streetcars. City government wanted to protect buses and streetcars from the competition of taxis. But they couldn’t very well say that they wanted to deny taxicab consumers the transportation services vital to their well-being. Instead, they used the same sorts of arguments that survive to this day in the official pamphlets and websites that warn against gypsy cabs.

A famous 1969 New York Times piece warned its readers that, by riding in a gypsy cab, “…you may be putting yourself in the care of a murderer, a thief, or even a rapist [!]. The gypsy driver, by the very fact that he solicits on the street, is at least a crook, but he may have big ideas which include you.” Of course, the inherent contradiction implied by this characterization is never broached. The very thing that makes the gypsy cab attractive is the possibility of earning money by transporting passengers. In order to do this, the vehicle must be made both conspicuous and distinguishable. But driving a big yellow vehicle marked with a number is not conducive to the successful commission of a crime, since it makes its driver both highly visible and easy to trace.

One would suppose that the prospect of traveling with crooks, rapists and murderers would deter prospective passengers of gypsy cabs, but evidence supports the conjecture that gypsy cab operations were and are “flourishing,” to borrow the characterization of black economist Walter Williams. Various estimates have been made of the gypsy cab influx within New York City. One Taxi and Limousine Commission chairman put forward the figure of 15,000, which would have made the gypsy cab business larger than the licit medallioned fleet.

This suggests that gypsy cabs are, in the aggregate, more beneficial than legal cabs. Throughout New York City, but especially in the ghettos and low-income areas, people dependent on commercial transportation are willing to use unauthorized means of transport rather than wait for hours on authorized transport that may never arrive. More pithily put by Wikipedia: “Passengers sometimes find illegal cabs to be more available, convenient or economical than licensed cabs.” Gypsy cabs are often cheaper than licensed cabs in absolute terms. If one thinks of a time delay in obtaining a cab as a form of higher price – foregoing time otherwise available for work or leisure, just as paying a money price entails foregoing alternative consumption goods or saving that could be enjoyed – gypsy cabs are clearly the lower-priced alternative to licensed taxicabs. Consequently, it is the legal taxicab industry that most assiduously demonizes gypsy cabs through propaganda such as that in the quoted New York Times piece above.

Seldom has reality been so at odds with rhetorical pretense as in the taxicab business, where the conventional thinking is bereft of any economic content. Expressing the conventional view compactly would yield something like this: “Crooks are people who violate the law. Gypsy cab drivers violate the law. Therefore, gypsy cab drivers are crooks. Crooks rob, rape and kill people. Therefore, gypsy cab drivers also rob, rape and kill people. You should be happy to wait hours for a licensed cab and pay its sky-high fare rather than risk robbery, rape and death in a gypsy cab.” As with the other rhetorical pathologies we exposed, this one is utterly without redeeming social value. It serves the interest of the taxi cartels and bureaucrats and nobody else.

Business and Competition

These few examples point to a great American truth. American business is devoted to the principles of free enterprise – but not to their practice. American business loves competition – for its rivals. The best way for a business to avoid facing competition is by removing competitors. The best way to remove competitors is by making them illegal or, alternatively, passing laws and regulations making it too costly for them to operate.