This is not true. In the usual situation where the cab operator leases the medallion one cannot touch the medallion to satisfy judgements against the cab operator. At least that's how things were when I studied this many years ago. So this is no reason to keep medallions.
I agree that completely deregulating taxis is not the right way. But there is a sane way to regulate this. Just require safety and quality inspections, require taxi companies to hold a certain minimum insurance or financial responsibility fund, perhaps even put in minimum driver salary requirements and that is pretty much it.
The number of actual taxis on the streets will limit itself by the forces of the free market.
It is possible to regulate for safety (with criminal penalties for breach of regulation, or possibly a bond which can be forfeited to the city, although the latter creates a barrier to entry and probably isn't a good approach) without creating artificial scarcity.
Commercial zoning regulations are quite different, because they relate to land, which is a naturally scarce resource; the scarcity is not created artificially by the government to keep the supply down and prop up special interest groups by keeping competitors out of the market.
- Call in a taxi (long wait time, high chance of a no-show)
- Hail a taxi (sometimes impossible, wait times can be close to 20 minutes in some parts of town)
- Use homobiles (might get picked up by a smoker's car or someone carrying a dog, wait times can exceed 45 minutes)
- Use Uber (more expensive, but very low wait time)
Uber is the clear choice almost every time now, but if there were enough taxis there would be a reason for them to show up when you called, and a reason for the cab companies to invest in an app as good as Uber's.
Even less-nice hotels are good for cabs if they have a notable bar. E.g., the W usually has very quick service, but it's a hike from anywhere good.
After your first few months in SF, you develop a skill for sniffing out cabs. Good luck outside FiDi, Union Square, Market Street, Fisherman's Wharf and the feeder streets through North Beach, and the top of Nob Hill. There are a lot of cabs in the Castro, the Mission, and Cow Hollow, but you need to be ruthless in leapfrogging other parties.
That said, just use Uber. Don't bother with Cabulous and the like, because the inbound driver will flake if he's hailed and can drop the meter sooner.
New York (Manhattan) is a lot better- plus there are tons of gypsy cabs (non-medallion) that you can get in when you are in a pinch.
Chicago is the best U.S. city I have been in for cabs. Short wait if you call, but usually no problem hailing one from just about anywhere, anytime. Even in the rain. It's so easy, I'm not sure why.
Why don't we just make the responsible people personally liable instead?
The technology to do this already exists. If taxi drivers could see where the demand is, and riders could see feedback on drivers, it would solve this problem. Of course technology alone is not enough. To achieve this, you'd need to disrupt the status quo, a part of which is laws that disallow "street hails" of taxis that don't have medallions.
The word "medallion" carries an emotional charge (it's archaic), but taxi medallions aren't all that different from commercial zoning restrictions.
Regardless of why they were introduced, medallions do more than restrict competition; they also give medallionholders something to lose if they abuse their license. Were barriers to entry eliminated, unscrupulous companies could put unsafe cabs on the road and simply fold up shop and reincorporate when anything bad happened.
Ironically, the sky-high price of NYC medallions is a result of a free-market spin on taxi licenses: taxi permits in NYC can be freely bought and sold (like seats on a stock exchange).
Cities have experimented with taxi deregulation and the results have been mixed; in particular, taxi deregulation has been reported not to improve driver salaries.
It's also important to remember that street taxi service is not a particularly efficient market system. In the norms of the taxi market, you cannot in fact be choosy about what cab picks you up (even if you could, there's virtually no information available to you when a cab pulls up). It's thus hard to argue that street taxi competition would be that beneficial to consumers.
On the other hand, because the street taxi market is also characterized by lots of externalized costs (pollution, traffic, hit-and-run accidents, etc), one way consumers could conceivably benefit from "competition" among cab drivers would be to auction permits off, and increase the cost of entry to the taxi market.