Chelsea Spade, 27, is earning her master's degree in social work, but to make ends meet she's working as a part-time cab driver in Washington, D.C., through a company called Lyft. But Chelsea isn't like most D.C. taxi drivers.

Traditional cabbies have no way to buy their own cars, because each D.C. taxi is required to have a special permit, which the city has stopped issuing. So the only way to get a vehicle is to rent one from one of a handful companies in the district that already own large fleets of permitted cabs.

Chelsea, on the other hand, simply drives her own car. Since she doesn't have a top light or a uniform paint job, she affixes a giant pink mustache to her front grate to make her car easy to identify for customers.

Traditional cabbies in D.C. don't only need a permit for their cars, they also need permits for themselves. For years, the city had stopped minting new drivers, but recently it started again. Still, aspiring cabbies need to take a mandatory class and pass a test before they can apply. Chelsea, on the other hand, saw an advertisement for Lyft online. After a few hours of training, she was on the road.

Customers of traditional taxis generally hail them on the street. Chelsea's customers find her by opening Lyft's mobile app, which allows them to see her car on a tiny map and hire her for a ride.

Lyft, along with its competitors, Uber and Sidecar, are remaking the taxi business, while kicking to the curb the bevy of useless government rules and licensing requirements that exist in almost all major cities. But politicians and bureaucrats are fighting back against this new model. Washington, D.C. recently proposed new rules that would force Chelsea to obtain a special license to operate, require that she have her car inspected by the city every six months, and allow her to work no more than 20 hours a week. In Philadelphia, New York City, Austin, and Minneapolis, Chelsea's car could be impounded if she were caught driving. In San Antonio, she might get arrested.

There's no logical case against allowing Lyft, SideCar and Uber to operate freely; the fight is all about protecting the existing taxi cartel. In fact, passengers are safer riding with Chelsea than in a regular cab because traditional taxis don't provide their customers with an easy way for registering complaints. With Lyft, passengers get to rate their experience after every ride, and if drivers get consistently lousy reviews, the company will fire them.

Arun Sundararajan is a professor at NYU's business school who studies businesses like Lyft, Uber, and Sidecar, which are part of what's been dubbed "the sharing economy." He argues that the customer feedback mechanisms built into these new online platforms makes them largely self-governing.

Another big advantage of sharing economy businesses, says Sundararajan, is that they don't require any upfront investment. "Models that tap into these assets that already exist, these peer-to-peer models," he says, "will grow a lot more rapidly and have better economic fundamentals than business models that require you to buy assets and deploy them."

These companies are part of yet a larger trend in which new technologies—including online marketplaces, 3D printers, and virtual cryptocurrencies—are cutting out middlemen and allowing individuals to trade goods and services directly with each other. These new business models will remake our economy—that is, unless the government stands in the way.

Click here to watch Reason TV's entire series on the sharing economy.

Written, shot, and produced by Jim Epstein. Additional camera by Joshua Swain.

About 4:43 minutes.

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