WHEN CAN WE SUE THE CARTELS?

Here’s a legal dictum I like: “The court is entitled to take notice of the principle of ‘supply and demand.’” This is paragraph 150, in its entirety, of a decision last week by the Quebec Superior Court in a case involving Uber, the Quebec government and taxi regulation. Note that Justice Mark Peacock refers to the “principle” of supply and demand. We economists prefer the “law” of supply and demand. But I guess if you’re a judge, you don’t want to share law with the likes of economists.

The plaintiff in the case, Damas Metellus, wants to lead a class-action suit of his fellow Quebec taxi drivers against the provincial government for both lost income and the decline in market value of their taxi licences. This resulted from competition from Uber, which, he argues, the Quebec government failed to stop, although it had both the power and legal obligation to do so. Stressing throughout his decision that the bar for allowing a case to go forward is much lower than for having it succeed, Justice Peacock let it proceed. At this stage, cases don’t have to be demonstrated beyond a reasonable doubt or even a balance of probabilities. They just have to be “arguable”: They have to hold together in logic, not proven fact.

If past governors general feel entitled to their entitlements, well, why not taxi drivers, too? You might think the right not to lose money to competitors, as taxi drivers have lost money to Uber, was not a right the courts would recognize or enforce — not even courts dominated by a statist “court party,” as scholars have deemed it.

Applying the supply-and-demand factors the court says it’s entitled to take notice of, the basic economics of taxi licensing are that limiting the number of people legally entitled to provide taxi services restricts supply in the market and raises the return to taxi owners above their cost of doing business. This surplus is what allows taxi licences to be exchanged among owners at a price greater than zero. And the going rate in the Montreal market a couple of years ago, which was $200,000, was considerably above zero.

Think about it: If you’re just breaking even in the taxi market, given your investment and the time you put in, you don’t have two bits left over to spend on a licence, let alone two hundred grand.

What gives taxi licences such an inflated value? The prospect of selling taxi services substantially above cost. What prevents new operators from entering the business to take advantage of such an attractive profit opportunity? The police. The law. The courts.

The government — which makes it illegal to operate without a permit and caps the number of permits. Think OPEC, except that legally sanctioned taxi cartels are generally better at disciplining cheaters than OPEC is. Think rather of dairy, where our governments have been ferocious at tracking down and fining unlicensed milk sales.

There are at least two problems with the court case, one technical, one regarding fairness. The technical one: Cabbies want compensation for both declining revenue and the capital loss on their permits. But that’s double-counting. The permit is an entitlement to earn the revenues. Its value falls only because expected revenues have fallen. Give operators one or the other, if the law eventually says you must, but not both. They can have their compensation but not eat it, too.

The fairness question concerns where the taxi cartel’s surplus came from all these years, which is no mystery: It came from taxi users. But what are we, chopped liver? Why don’t we start a classaction suit of our own to get back all the money ripped off from us over decades of artificially restricted taxi supply?

Basic fairness would certainly require that. Unfortunately, the law may not. The taxi drivers’ case against the government is that, despite statutes on the books about needing a taxi permit in order to provide taxi services, when Uber came along the government decided not to enforce the law. That created two classes of taxi driver: Uber drivers, whom the government turned a blind eye to, and regular taxi drivers, whom it continued to subject to close regulation. That double standard was an unfairness, yes, but a minor one compared to the long-lasting aggravated rip-off of consumers.

Bottom line: Taxi drivers lobby for and get a law allowing them to overcharge their customers. When in a bout of good policy sense (a “Taxi Spring” you might say) the government decides not to enforce it, the taxi drivers set about suing taxpayers instead. However unfair that may seem — and it’s exasperating! — I suppose, in the end, supply-and-demand must take notice of the principle of rule of law.

UNFAIRNESS FOR TAXI DRIVERS IS MINOR COMPARED TO THE RIP-OFF OF CONSUMERS.