Should You Need Government’s Permission to Work?

From Jeff Jacoby in the Boston Globe:

For decades, states have declared more and more occupations off-limits to anyone without a government permit. “In the early 1950s less than 5 percent of US workers were required to have a license from a state government in order to perform their jobs legally,” observed the Brookings Institution in a study last year. “By 2008, the share of workers requiring a license to work was estimated to be almost 29 percent.” To become a barber in Massachusetts, as Leon Neyfakh noted in the Globe last year, a prospective hair-cutter must spend 1,000 hours of study at a barber school, followed by a year and a half as an apprentice. Florida mandates a minimum of six years of training before it will license an interior designer. In Oklahoma, anyone wishing merely to sell caskets has to earn a degree in mortuary science, undergo a year-long apprenticeship in funeral services, and pass a state-mandated exam.

Licensing requirements just as onerous or ludicrous can be found in almost every state. Arizona licenses talent agents. Tennessee prohibits shampooing hair without a license. But the pendulum is finally heading in the other direction.

Reformers left and right have mobilized against laws that pointlessly force Americans to be licensed by the state before they can get a job in their chosen field. To compel would-be surgeons and airline pilots to obtain the government’s imprimatur as a condition of employment is one thing. But when the states impose licensing mandates on locksmiths and yoga instructors and hair braiders and florists, they clearly aren’t being motivated by concern for public safety and the well-being of powerless consumers.

The proliferation of occupational licenses, especially for blue-collar and working-class trades, has been driven by naked rent-seeking. That is the term economists use when narrow special interests use political connections to secure benefits for themselves — in this case, when established practitioners press lawmakers to enact licensing and registration barriers that hold down competition. Thus, as libertarians have maintained for years, occupational licensing aggressively benefits “haves” at the expense of “have-nots.”

The Obama administration has taken up this issue as well. “By making it harder to enter a profession, licensing can reduce employment opportunities, lower wages for excluded workers, and increase costs for consumers,” wrote the Treasury Department and the Council of Economic Advisers in a 2015 report. “Licensing restrictions cost millions of jobs nationwide and raise consumer expenses by over one hundred billion dollars.”

But there’s been progress.

In Arizona, Governor Doug Ducey just signed legislation repealing state license requirements for a number of jobs, including driving instructor, citrus fruit packer, and cremationist. In North Carolina, a bill underway in the legislature would make it lawful to earn a living — without needing government approval — as a laser hair remover, sign-language interpreter, acupuncturist, and pastoral counselor. Nebraska Governor Pete Ricketts recently signed a measure liberating hair-braiders from licensing rules.

Consumers won’t be exposed to the wolves if the state doesn’t supervise every occupation. The private sector is replete with certifying, rating, and accrediting bodies that can attest to the qualifications of almost any occupation and product. The Internet empowers consumers as never before with timely information about vendors, professionals, and service-providers of every description. From Angie’s List to Yelp, from Uber to TripAdvisor, the private market promotes transparency and exposes quality with a nimble persistence no state agency can ever match.

Even libertarian-leaning Jacoby may be conceding more to government regulation than he should. For example: should surgeons be licensed?  The fact that a surgeon has a government license means far less than the fact that he or she is board certified.  Board certification is done by a private association (The American Board of Surgery).   A brand name can be a good guide.  In the Milwaukee market, Columbia St. Mary’s, Aurora and the Medical College are all reputable organizations, with an incentive to maintain a reputation for good care.   And both Milwaukee Magazine and M Magazine rate physicians via their reputation with health care professionals.

As for airline pilots: while the public has fewer means to judge the qualifications of the people in the cockpit, it’s hardly clear that airlines, left to their own devices, would hire unqualified pilots. The loss of a flight due to pilot error imposes huge costs in terms of equipment (the plane), reputation and (if tort lawyers can show the pilot to be unqualified) liability judgments.

While one can argue about specific cases, the overall conclusion is clear. Occupational licensing is, in the vast majority of instances, rent seeking, and not any sort of cure for any sort of market failure.

How Socialism Has Harmed Europe

From the Wall Street Journal:

“Jobs and economic growth” will be the focus at today’s crisis summit in Brussels, but judging by recent meetings European leaders will address the financial symptoms rather than the causes of their economic woes. For insight into the latter, they might do well to read a report on Europe published last week by the World Bank, of all unlikely places.

The study’s lead authors, World Bank economists Indermit Gill and Martin Raiser, conclude that the Continent’s basic growth model of the last half-century is seriously amiss, and that it will take more than well-meaning summitry to fix it.

Some of the news in the report is good. Europe, despite its woes, still accounts for one-third of world GDP with only one-tenth of world population. Before the financial crisis, half of the world’s $15 trillion in trade in goods and services involved Europe. Within the Continent, the single market has created a boom in cross-border trade and investment, raising the incomes of millions of Southern and Eastern Europeans over the last few decades.

As for the bad news, the first source of trouble is the labor market. European workers aren’t nearly as productive as they ought to be, especially in the South. Labor participation is low, and those who are employed are working less than they used to. In the 1970s, the French worked the longest hours among advanced economies. By 2000, they worked a month and a half less than Americans each year.

Europe’s demographics also aren’t on the side of growth. Populations across the developed world are graying, but Europe’s low productivity growth means that its future labor shortfall will be especially acute. It doesn’t help that Europeans draw social security benefits earlier and more easily than their developed-world peers. Pension commitments will strain national budgets even if Angela Merkel gets her way on handcuffing euro-zone public debt.

Which brings Messrs. Gill and Raiser to the other serious drain on European growth. Big government, by their calculation, shaves about two percentage points off growth once public spending passes 40% of GDP. Some welfare states are better-run than others—think Sweden and Germany—but the World Bank report highlights a few important connections between the welfare state and growth.

Today, European governments spend more on social protection than the rest of the world combined, thereby entrenching powerful disincentives to work and enterprise. Social protections have also come at huge direct cost to taxpayers. Europe’s giant debts arose because of “public spending to protect societies from the rougher facets of private enterprise,” the authors write. It’s rare to hear an institution such as the World Bank that is typically sympathetic to its political bosses put the matter so clearly.

A few policy fixes suggest themselves. Labor is still not as mobile within the EU as once envisioned. Easing restrictions on immigration from outside the EU is highly controversial, but it would help Europe face its demographic and economic shortfalls. Wealthy European countries have suffered a net drain of 1.5 million highly educated people to the U.S. alone in the last few decades.

But something deeper that needs adjustment. “From North Americans,” the authors write, “Europe could learn that economic liberty and social security have to be balanced with care: nations that sacrifice too much economic freedom for social security can end up with neither, impairing both enterprise and government.”

Messrs. Gill and Raiser call Europe a “lifestyle superpower”: It attracts tourists in droves, and its residents enjoy peace and a high standard of living. But it’s not getting richer. Unless it again puts income growth ahead of income security and redistribution, the Continent will continue to decline as an economic power.

Liberals Are Less Informed About Economics

From the Wall Street Journal, a story about a public opinion poll testing knowledge of economics. The author is Daniel B. Klein.

Zogby researcher Zeljka Buturovic and I considered the 4,835 respondents’ (all American adults) answers to eight survey questions about basic economics. We also asked the respondents about their political leanings: progressive/very liberal; liberal; moderate; conservative; very conservative; and libertarian.

Rather than focusing on whether respondents answered a question correctly, we instead looked at whether they answered incorrectly. A response was counted as incorrect only if it was flatly unenlightened.

Consider one of the economic propositions in the December 2008 poll: “Restrictions on housing development make housing less affordable.” People were asked if they: 1) strongly agree; 2) somewhat agree; 3) somewhat disagree; 4) strongly disagree; 5) are not sure.

Basic economics acknowledges that whatever redeeming features a restriction may have, it increases the cost of production and exchange, making goods and services less affordable. There may be exceptions to the general case, but they would be atypical.

The researchers, rather generously, refused to count “not sure” against respondents. Maybe they misunderstood, or maybe they thought it is an open question (which in most cases it’s not).

What were the other questions?

The other questions were: 1) Mandatory licensing of professional services increases the prices of those services (unenlightened answer: disagree). 2) Overall, the standard of living is higher today than it was 30 years ago (unenlightened answer: disagree). 3) Rent control leads to housing shortages (unenlightened answer: disagree). 4) A company with the largest market share is a monopoly (unenlightened answer: agree). 5) Third World workers working for American companies overseas are being exploited (unenlightened answer: agree). 6) Free trade leads to unemployment (unenlightened answer: agree). 7) Minimum wage laws raise unemployment (unenlightened answer: disagree).

So here we have a test of basic economic knowledge.

How did different groups respond?

How did the six ideological groups do overall? Here they are, best to worst, with an average number of incorrect responses from 0 to 8: Very conservative, 1.30; Libertarian, 1.38; Conservative, 1.67; Moderate, 3.67; Liberal, 4.69; Progressive/very liberal, 5.26.

Americans in the first three categories do reasonably well. But the left has trouble squaring economic thinking with their political psychology, morals and aesthetics.

To be sure, none of the eight questions specifically challenge the political sensibilities of conservatives and libertarians. Still, not all of the eight questions are tied directly to left-wing concerns about inequality and redistribution. In particular, the questions about mandatory licensing, the standard of living, the definition of monopoly, and free trade do not specifically challenge leftist sensibilities.

Yet on every question the left did much worse. On the monopoly question, the portion of progressive/very liberals answering incorrectly (31%) was more than twice that of conservatives (13%) and more than four times that of libertarians (7%). On the question about living standards, the portion of progressive/very liberals answering incorrectly (61%) was more than four times that of conservatives (13%) and almost three times that of libertarians (21%).

The survey also asked about party affiliation. Those responding Democratic averaged 4.59 incorrect answers. Republicans averaged 1.61 incorrect, and Libertarians 1.26 incorrect.

Liberals and leftists like to think that their views are merely “enlightened.” Indeed, they chortled three years ago when a poll came out showing that a majority of Republicans don’t believe in evolution.

(Of course, in the same poll 40% of Democrats said they didn’t believe in evolution.)

But if Christian conservatives don’t much like evolution, liberals and leftists don’t much like economics.

But the implications of the two things are radically different. While not believing in evolution is pretty much an innocent foible (unless you want to be a biologist), not believing in economic science has nasty implications for public policy.

Further, the liberal ignorance of economics is not innocent. It’s rooted in a class-based ideology. Markets run counter to the class interests of liberals. Markets give power to people who produce wealth, and not to those who redistribute it.

Markets give power to ordinary people, who are allowed to live their lives the way they want. This is a source of frustration for people who believe they should be able to dictate the lifestyles of others.

Stay There Until You Learn Some Economics

Over The Edge

Mortgage Bail-Out Piece in The Warrior

The student paper The Warrior this week ran an op-ed piece of ours on the supposed “crisis” around subprime lending and foreclosures.

Check it out here.

Campus Speaker on Globalization of Textiles

An announcement via e-mail:

The Marquette Economics Association
and
The Center for Global and Economic Studies
present
Professor Pietra Rivoli, author
The Travels of a T-Shirt in the Global Economy
Wednesday, February 14th
3:00 p.m.
Conference Center, Raynor Library
(reception to follow immediately afterward)

It seems the next big push by the campus leftist activists is some sort of “anti-sweat shop” policy at Marquette (so that the people who feel self-righteous drinking “fair trade” coffee can feel equally self-righteous about wearing sweat shirts and t-shirts sold by Marquette).

We don’t know whether we will agree with Rivioi in toto (unlikely), but her view will doubtless be much more nuanced and realistic than the prevailing anti-sweat shop moralism.

Politicians and Drug Companies

From Fox News, an explanation of the effects of political threats on innovation in the drug industry.

For a while there it seemed like there wasn’t much a pill couldn’t cure.

Everything from high cholesterol to “erectile dysfunction” to something that I really thought was a joke when I first heard about it: “Restless Leg Syndrome” (which sounds a bit more dignified with its “RLS” acronym).

But you may have noticed that the number of breakthrough pharmaceuticals for serious illnesses is decreasing. And the question is … why?

Well, Hillary Clinton is one answer. George Bush is another. Politicians scare the hell out of drug companies, almost as much as trial lawyers. And when drug companies get scared, they don’t spend as much on research. They hoard their cash, as rainy-day funds for lawsuits and lobbyists. Pfizer has $13 billion; Johnson & Johnson of New Brunswick, N.J., $15 billion; Merck, based in Whitehouse Station, N.J., $9 billion; and Madison, N.J.-based Wyeth, $8 billion. Swiss drug-maker Roche Holding AG has $17 billion.

But why are drug companies scared of politicians? Because politicians get off on controlling things ... like prices. And when you begin to fiddle with prices, ripple effects go all the way down the supply chain to the point of origin.

For pharmaceuticals, the point of origin is the laboratory, where new drugs are created.

It takes many years to create a breakthrough drug like, say, Lipitor. The payoff is enormous — Pfizer has sold about $12.2 billion worth of Lipitor. But the cost of Lipitor’s development was enormous, too. Politicians focus just on the payoff, saying these drug companies don’t deserve all that cash. But without the huge incentives of striking it rich, would any company have spent so much time and money developing a drug like Lipitor?

For politicians, incentives don’t matter. For the folks who actually invest their own time and money on things, incentives are all that matters.

The issue here is hardly a new one. Since the era of democracy in ancient Greece, politicians have sought to curry favor with voters by confiscating the property of those who have a lot and distributing it to political supporters.

In other words, politicians like Hillary have been around for close to 2,500 years.

Of course, politicians won’t admit they are confiscating property. Rather they will talk about “reforming the patent system” or price controls on drugs or having the government “negotiate prices” with the drug companies (with the intentions of using governent’s monopoly purchasing power to drive down drug company profits).

The Founders of this country were acutely aware of this problem, and thought they had designed a political system to deal with it. Assuming President Bush is willing to veto any confiscatory legislation, they will be proven right.