When City Councilors Pass Laws Without a "Rational Basis"
Published in The Tennessean, Sunday, April 29, 2012 and Forbes with archives.
by Richard J. Grant
Just as most new regulations are “needed” to correct the damage caused by previous regulations, attempts to enforce such regulations often lead to a worsening of practice. City laws to regulate private transportation services and to enforce price fixing are an example of unnecessary laws that lead to even worse government intrusions.
Richard J. Grant is a Professor of Finance and Economics at Lipscomb University and a Senior Fellow at the Beacon Center of Tennessee. His column appears on Sundays.
E-mail messages received at: rjg@richardjgrant.com
Follow on Twitter: @RichardJGrant1
Copyright © Richard J Grant 2012
by Richard J. Grant
Just as most new regulations are “needed” to correct the damage caused by previous regulations, attempts to enforce such regulations often lead to a worsening of practice. City laws to regulate private transportation services and to enforce price fixing are an example of unnecessary laws that lead to even worse government intrusions.
Municipal
agencies looking for reasons to exist love regulations such as the ordinance
passed in Nashville two years ago that requires limousine operators to charge
their customers a minimum price of $45 per trip. Now inspectors from
Nashville's Metropolitan Transportation Licensing Commission (MTLC) have an
excuse for running sting operations to catch those limousine operators that
have the audacity to charge their customers lower prices.
But the MTLC
inspectors have been operating above their station. Last week, Metro
Nashville's police chief sent a rather blunt letter to the city's
transportation licensing director warning the agency against violating the law,
misrepresenting itself, and acting unaccountably. The transport inspectors were
using police badges, carrying guns, and putting blue lights on their cars.
The MTLC
ended up stinging itself, but the “police badge” issue is a sideshow. The Metro
Nashville city council caused the real problem by passing a law that was
clearly against the public interest. To counter lawsuits from the companies
that they are trying to put out of business, Metro's lawyers must put forward a
“rational basis” for the price-fixing law.
The
“rational basis” is rarely the original true reason for the passage of such laws.
The real reason was to restrict the supply to the public of vehicles-for-hire
in order to protect the higher-priced limousine companies from competition. But
voters hate hearing that kind of argument, so a fluffy version of reality is
trotted out as window dressing to distract the public.
This publicly
acceptable version will collapse under rational scrutiny. If Metro lawyers were
to defend the ordinance as an attempt to ensure “fair pay” for drivers, then what
source of omniscience did the city councilors tap to gain such knowledge of what
fair pay is? They can't even define the word “fair.”
Were they to
justify the regulation as necessary “to prevent poaching” of customers, then city
councilors are admitting their role as enforcers in a turf war. They are
admitting that they are anti-competition and opposed to market freedom. They
are apparently quite happy to put the lower-priced limousine companies out of
business and thereby to concede their “turf” to the political survivors.
If the councilors
were to claim that the regulation would give customers a “clearer
understanding” of what they were purchasing, would the customers truly
understand that they are being charged a higher price than necessary? Would
they understand that they are being protected from lower prices but not from
higher prices?
Did councilors
need a law to help “differentiate between types or classes of licenses”?
Perhaps they have a rational basis for wanting to have licenses at all, but
it’s unlikely to be any less vacuous than their reasons for price-fixing. The councilors
have exhibited less knowledge about the transportation industry than have those
they threaten to put out of business.
Perhaps councilors
want tourists to pay higher prices. They have already purchased a convention
center and granted tax breaks to an amusement park. Perhaps they should now buy
a bakery. Then we could have bread with our circuses.
Richard J. Grant is a Professor of Finance and Economics at Lipscomb University and a Senior Fellow at the Beacon Center of Tennessee. His column appears on Sundays.
E-mail messages received at: rjg@richardjgrant.com
Follow on Twitter: @RichardJGrant1
Copyright © Richard J Grant 2012