Laws and markets

This is Joseph

This point, by James Joyner, is quite good:

The taxi industry is a special case, though, in that cab and limousine owners and drivers made economic decisions based on rules set by the government. While the medallion system is outrageous and I’m happy to see it disrupted, the fact of the matter is that it was the norm for generations. People saved up or took big risks in borrowing to bid on them based on guarantees from their municipal government. They have every right to expect that same government to either enforce the law against illegal competition or compensate them in some way for the broken contract.

The piece that is very important here is the decision to change the legal framework.  Disruption is normal and many people end up as economic losers when conditions change.  We are already bad at coping with that. 

But all markets are based on rules and laws.  We would have no markets at all if force and fraud where not prohibited, for example.  The piece that is dodgy here is the evasion of the existing rules in order to build a company.  It is fine to lobby to change the rules.  But when you have to design your business to evade local regulations then that is a problem.  Not because the laws are good -- they are likely not.  But because it is not the case that private actors who violate laws that they see as stifling innovation are left alone. 

And if government is wrong about a law and needs to backtrack then it makes sense to compensate the losers of the law change.  We don't let private property block roads but we do have to buy it back when we put a road in.  I think applying the same logic to shutting down taxi licensing agreements is sensible.