AI Wealth Truth (42): Why Taxi Licenses Can Be Worth Hundreds of Thousands

I. In many cities, a taxi license can sell for hundreds of thousands, or even more than a million. What is this license? It is just a piece of paper, a permit. It creates no value and provides no service. Yet it is worth a small fortune.

II. How does that happen?

III. Governments restrict the number of taxi licenses under labels like "traffic management" or "service quality". For example, a city issues only 1,000 licenses. Demand far exceeds supply. Artificial scarcity creates "value".

IV. This is administrative monopoly rent seeking (rent-seeking). In economics, "rent" is not housing rent. It means excess profit. When supply is artificially restricted, holders can charge fees far above normal profit. License holders can extract value without doing anything.

V. What is the result?

VI. Consumers pay more. Fewer taxis means higher prices. Part of what you pay goes to the driver's labor, and part goes to the license holder's "rent". You are paying for that piece of paper.

VII. New entrants are excluded. Want to become a taxi driver? First you must buy or rent a license. A barrier of hundreds of thousands blocks many people. Incumbents protect their position with administrative barriers.

VIII. Innovation is blocked. When Uber and Didi entered the market, the taxi industry resisted fiercely. Not because the service was worse, but because it threatened the license "asset value". New technology is good for consumers, but a threat to license holders.

IX. Taxi licenses are just one example. Similar "artificial scarcity" is everywhere:

X. Medical licenses. Medical school enrollment quotas are strictly limited. Doctor supply is insufficient and medical costs are high. Supply restrictions raise doctors' incomes, and consumers pay the bill.

XI. Law licenses. Pass rates for bar exams can be kept artificially low. Legal fees become expensive and ordinary people cannot afford lawyers. Legal services become a luxury.

XII. Urban construction land quotas. Land is nature's gift. It has no intrinsic production cost. But governments limit the supply of buildable land. Land becomes "valuable". Land prices rise, and housing prices rise. A large part of what you pay for a home is "land rent".

XIII. "Premium" school districts. Top schools have limited seats. School-district home prices surge. Artificial scarcity in education turns into a housing premium.

XIV. These "assets" share one feature: their value is not created. It is transferred. From consumers to holders. From new entrants to incumbents. Total social wealth does not increase. It is redistributed.

XV. In the AI era, some artificial scarcities may be broken.

XVI. Ride-hailing broke the monopoly of taxi licenses. Online education may weaken the monopoly of elite schools. AI legal assistants may reduce the barrier in legal services. Technology erodes artificial scarcity.

XVII. But AI may also create new artificial scarcities. Training frontier models requires massive capital and scarce talent. Only a few companies can train the most advanced models. Whoever controls AI controls a new "scarce resource". One monopoly can be replaced by another.

XVIII. The AI chip market is an example. NVIDIA controls more than 80% of the AI chip market. This is not purely technical advantage, but also first-mover advantage and lock-in. In the AI era, the new "licenses" may be chips and compute.

XIX. How should you think about this?

XX. 1. Identify the "rent" you are paying. In the price you pay for goods and services, how much is for "artificial scarcity"? Understanding this cannot change reality, but it can make you clearer. You are not paying for value. You are paying for the license.

XXI. 2. Look for monopolies being broken. When technology breaks artificial scarcity in a field, that field gets cheaper. Ride-hailing is cheaper than taxis. Online education is cheaper than offline. Following technological disruption can save money.

XXII. 3. Be wary of new monopolies. AI does not eliminate monopoly. It may only change its form. Who controls the foundation models can control the ecosystem. Do not naively assume the AI era has no "licenses".

XXIII. 4. If possible, hold scarce resources. Good locations, scarce skills, and irreplaceable relationships. These are "licenses" you can hold. Be a rent extractor, not the one being extracted.

XXIV. Taxi licenses are worth hundreds of thousands not because they are useful. They are valuable because supply is restricted, letting holders charge those who need access. This "artificial scarcity creates value" pattern is everywhere. You pay for all kinds of "licenses" every day. In the AI era, some old licenses will depreciate, and new ones will appear. The game changes, but the rules do not.