You don't have to solve a problem in one fell swoop with one technique. Medallions aren't the only way to reduce congestion, and they aren't a complete solution, but they certainly do at least partly address the issue as an explicit goal, not a side-effect.
I would welcome a separate congestion tax levied on certain other kinds of traffic to complete the solution. You want cabs in the city, and you want them running all the time - they're doing the useful work of moving people around, and should certainly be preferred to traffic that congests the city during rush hour just to cram into a parking lot for eight hours.
Even if there are 10,000,000 cabs, if the congestion tax is set appropriately, they won't all be clogging the streets, since they won't be able to make a buck doing it.
I'm deeply suspicious of this kind of reasoning when it's unaccompanied by an explanation of how the tragedy of the commons would be avoided. You're a cab driver with rent and your kid's tuition to pay, are you the one staying home today?
