Legal monopolies

The @mises twitter account recently posted a link to an article from the Los Vegas Review Journal titled Backlog for driver’s licenses irks many.  Nevada has a problem: many more people need driver’s licenses than there are examiners to give them the necessary driver’s tests.  There are waits of up to four months for driver’s licenses. There is one story of a person waiting and sleeping in the DMV line four times in the span of a month. 

It’s easy for us to be shocked, right? When was the last time you had to wait four months to get groceries? Or four months for a TV? Now, how long did you have to wait for your dentist’s appointment? Or doctor’s appointment? If your experience has been anything like mine, the first two were much easier to do than the last two. But we’ll get back to this in a moment. First, let’s go back to the DMV’s problem.

The DMV clearly has a supply and demand problem. too Many people wanting licenses (demand) and very few people authorized by the state to test them (supply).  So, in the confines of the present system, what can the DMV do? They can:

  1. Hire more examiners
  2. Contract with private firms for testing
  3. Relax the requirements for licensed people that move in state

#1 is out, since the article states that there is a budget shortfall in the state of Nevada.  With the ongoing unemployment/housing crises in Nevada, it’s unlikely the state could tax anyone at any rate higher than what they do now; it would be akin go getting blood from a stone. If you listen to the union in Nevada, #2 is out because it would, “not save money, based on the state’s experience with a private women’s prison. […] Private employees could gain access to personal information of drivers and would not be accountable to the state.” #3 is out because it would be up to the state to determine if the requirements should be relaxed. Currently, out of state drivers have to take a test if they:

  • have more than four moving violations in four years
  • a drunken driving conviction within seven years

Reading this article, I get the impression that according to the sources in it, there is no way to solve this problem. We are simply stuck with individuals camping out night after night at the DMV, hoping to get a spot to take their driver’s test.

I don’t agree.  The current approach is not good for anyone. Citizens feel like cattle (instead of customers), the state has a black mark on its record for its inability to handle a common market problem, and everyone else in the state would have to pay more to make the problem go away (when it’s not even their problem!).

The budget shortfall should have no bearing on the DMV: The price of the driver’s test should cover the cost of that driver’s test. I understand why it doesn’t. By socializing the cost (through taxing everyone), the state can hide the true cost of a license, and not expose the fact that (because of the labor situation) it costs a lot to get.  If they exposed that, there would likely be riots in the streets. So instead, they make everyone pay for it.  Something your local grocery store cannot do.

The union doesn’t care about the people waiting in line, as is evidenced by the article. They erronously state it would not save money (more on this later), and they’re worried that private employees would not be accountable for seeing private information.  A lawsuit if information leaks out would generally spell doom for a business, so I disagree with them there.  As far as #3: What does a drunk driving conviction have to do with someone being able to physically drive? It doesn’t. (It’s used as a tactic to keep people from driving drunk. Commendable, but misguided). If someone comes drunk to a driving test, it would be easy to spot and stop. But the misguided statutes aren’t the focus of this article, rather, let’s focus on something that is actionable: The really long wait for a license.

Why does this happen? How do these shortages in supply come about? Why isn’t the market correcting for this (as we were taught in school)?  The shortage happens because the Nevada DMV holds a monopoly on who can get a license, and they don’t have the capital to expand their employee base.  The market can’t correct for it because by law, only state approved examiners can give a driving test, and the state hasn’t changed its law or contracted with private firms to provide driving tests.

How can we fix this?

Send a message throughout the state: Any driving company that has private instructors can give driving tests. Don’t limit it to one or two firms, because then there’s no competition among the firms.  Allow these firms to set prices.  Allow them to keep the profits from this venture. There is no cost to the DMV’s driving instructor department if a private instrutor gives the test. There is a raised cost for getting a license (as the lines are longer to get the physical license) but there are ways to fix that as well.  I would even say that the DMV could impose a surcharge of x amount of money, where x is the cost needed to sustain DMV operations for taking pictures and issuing licenses. If the DMV is like any private company, they know exactly how much it costs to issue a license (not just the license itself, but the staff, the power, etc).

What would happen if we took these suggestions? Well, overnight the lines at the DMV would go away, as companies sprang up to fill the supply gap.  The prices for these firms would probably be substantially higher than the DMV’s price (but only as long as there were a shortage of examiners — once enough companies came into the mix, or the demand fell, the prices would drop precipitously).  The firms would find methods to make the process more effecient so as to improve their profit margin; and the state wouldn’t have to tax everyone in the state to fix a problem that isn’t everyone’s problem.  The unions would be unhappy because they currently hold a monopoly on that labor market; but knowing their tenacity, they would likely require the private companies to be unionized as well, which would keep the price considerably higher than the market clearing rate. Finally, the citizens of Nevada would finally know what it actually costs to get a license, as opposed to the ‘We think it should cost $45 to get a license” that currently happens, with no feedback from customers as to whether the price is too high or too low’.

Problem solved, we can all go home happy.  But we still haven’t answered why this happens in the DMV, or the post office, but it doesn’t happen for groceries, or furniture, or anything else that is non-government.

This happens in government, but not in private industry. This is a problem that can never happen in a free market. Why? Because there is never a legal constraint on the number of entites that can provide groceries, or provide furniture, or in any other service or good we use or buy day-to-day.  If there were, shortages would inevitably follow when the number needed to sustain the populace fell below the demand.

The Nevada DMV is a nice example of this in action. Not only is there a monopoly, but there’s also only one entity that can legally provide that good or service: the government. So too with the Post office. By law, no one else is allowed to accept or deliver first class mail (letters, and the like). The post office is a legal monopoly.

Starting to recognize these monopolies is the first step to being able to fix the problem, and it’s a problem that doesn’t have to exist.