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State Occupational Licensing Raises Costs And Stalls Innovation

State Occupational Licensing Raises Costs And Stalls Innovation

Senator Mike Lee renews President Reagan’s call to get government out of the way.

“In this present crisis, government is not the solution to our problem; government is the problem.”  That was Ronald Reagan in his first inaugural address, January 20, 1981, and in the years since it has become a rallying cry for small government conservatives.

Last week Senator Mike Lee (R. Utah) struck the same notes in an op-ed in Forbes.  Lee writes:

Should only dentists be allowed to whiten people’s teeth? Or is this a service anyone should be allowed to offer?

This may sound like a silly question at first, but when the deeper question of occupational licensing is applied to the broader economy, it turns out that there are millions of jobs and hundreds of billions of dollars at stake.

But in a number of states throughout the country, dentists began losing teeth-whitening customers to non-dentists who had set up kiosks in shopping malls and were charging less money for the same teeth-whitening services.

These upset dentists then went to their state dental-licensing boards and urged those boards to add teeth whitening to the definition of “the practice of dentistry.” These state boards complied and sent letters to malls informing them that their teeth-whitening tenants (at least those who were not dentists) were in violation of state law and should be evicted. The malls did exactly that. The results were unemployed teeth whiteners, more expensive teeth whitening, and higher profits for the dentists.

This is textbook anticompetitive behavior. An organized cartel (the dentists) restrained competition (limiting teeth whitening to dentists) in a manner that deliberately reduced competition and raised prices. The only twist here is that they used the threat of government punishment to enforce their monopoly.

As Lee put it:

Occupational licensing has grown not because consumers demanded it, but because lobbyists recognized a business opportunity where they could use government power to get rich at the public’s expense.

In short, government contributes nothing but selecting preferred beneficiaries, the very definition of crony capitalism.

The courts have been too slow to protect Constitutional limitations on state power to interfere with economic activity.  Today, George Will followed up on the same tooth-whitening topic.

Discussing a forthcoming decision by the Supreme Court whether or not to hear a case regarding Connecticut’s law limiting who can perform teeth whitening, Will wrote:

The case concerns a minor economic activity, teeth whitening, but a major principle: Can a state limit Americans’ opportunities by restricting access to particular professions for no reason other than the enrichment of people entrenched in those professions? If the court refuses to hear the case, or if it hears it and decides it incorrectly, the “rational basis” test for judging government regulations of economic activities will no longer test anything — it will be completely severed from reasoning based on evidence.

Licensing is contrary to two pillars of good economics.  First, high barriers to entry are bad.  They prevent good ideas from being entering and being tested in the marketplace because they are never implemented by resource-poor people who think of them.  Second, licensing is stultifying by definition, inculcating practitioners with the idea that a thing must be done a certain way and only that way.

This is one area where free-market conservatism and technocratic liberalism intersect.  Uber and Lyft are under assault by old-line taxi companies lobbying for government insulation against superior, market-responsive, upstart, 21st century competition.  The creative destruction school of capitalism dictates that traditional taxi companies must either evolve extremely rapidly or be destroyed.  Instead, they have looked to government to perpetuate them as a methodological monopoly.

Lee wrote his article in the context of Senate hearings on state occupational licensing laws: “Among other things, we will consider the relationship between the antitrust laws and cartels formed under the auspices of state authority, but controlled by active market participants.”

The concept of a state-sponsored monopoly is repugnant to classical liberalism and sound economic policy, and is an opportunity for free-market conservatives to appeal to and attract young professionals who want government to get out of their way.

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Comments

So if tomorrow my neighbor comes to me because he is charged with assault. Can I represent him in court?

Can I just walk in and take the bar exam?

Pot kettle black.

A rather topical question. Guys only answer.

Should Moyls be certified?

    I don’t know. Should mohels?

    Milhouse in reply to HandyGandy. | February 12, 2016 at 1:09 pm

    Not by the government. They are certified, if they want to be, by private organizations; and parents take this into account when looking for one to hire, but they also consider other factors, such as reputation. Here’s one with an excellent reputation, who doesn’t need any kind of certification, since his own reputation is at least as good as that of anyone who would certify him, and he has enough business that he doesn’t need to impress anyone who hasn’t yet heard of him; and yet his web site proudly proclaims him to be “recognized and backed by the Brit Milah Board and the American Board of Ritual Circumcision”. Government has no business interfering in this, and setting standards that are not necessarily relevant to would-be consumers.

      They are certified, if they want to be, by private organizations; and parents take this into account when looking for one to hire, but they also consider other factors, such as reputation.

      That’s a point a lot of people don’t even consider. They act as though if the State doesn’t set and enforce standards and guidelines, no one will step up to fill that gap — even if there’s a market for it. Without the State deciding who is and is not allowed to perform certain tasks, everything would just be chaos everywhere!

      Likewise, if there’s a huge consumer demand to use only tooth-whiteners who have met certain guidelines or standards, there’s no reason why the market wouldn’t provide one.

There are few…if ANY…licensed activities that could not be made the subject of simple certification, open to all regardless of how they came by their skill, knowledge, and expertise.

THis includes the practice of law, which was dealt with just this way through most of our history. One could “read the law”, and seek admission to the bar via the certification process of the bar exam. Many (most) of our greatest legal minds came to the practice of law this way.

Licensing is one of the most egregious traits of the administrative state, and you’ll see it most used in states that tend to be most corrupt. It is the essence of “regulatory capture” of markets, and serves no real protective function for the public. Indeed, it fosters the delusion of being “protected”.

Caveat emptor always works best. Big Brother never performs as promised, and his wages are WAY too high!

    siguiriya in reply to Ragspierre. | February 12, 2016 at 3:19 pm

    “There are few…if ANY…licensed activities that could not be made the subject of simple certification, open to all regardless of how they came by their skill, knowledge, and expertise.”

    Well sure, I suppose we can do that, but would you really want to?

    Let’s say, heaven forbid, that your child needs radiation therapy for a tumor. Would you want your child to have a linear accelerator pointed at him by a radiation therapist with no formal training, no clinical practice or rotations, no evaluations by instructors, no background check for a history of child abuse or other crimes, no check for disciplinary actions in other jurisdictions, and no requirements for continuing education — but who somehow was able to pass the “simple certification?”

    Those are the kinds of requirements that come from State occupational licensing. But perhaps you’d be satisfied with someone who just read the textbooks and has a good memory.

      I would probably check the background and training of anyone I was allowing to point a linear accelerator at my child anyway. I don’t have as much blind faith in the all-knowing, all-seeing State as you do.

      Ragspierre in reply to siguiriya. | February 12, 2016 at 4:38 pm

      Would you want your child to have a linear accelerator pointed at him by a radiation therapist with no formal training, no clinical practice or rotations, no evaluations by instructors, no background check for a history of child abuse or other crimes, no check for disciplinary actions in other jurisdictions, and no requirements for continuing education — but who somehow was able to pass the “simple certification?”
      _________________________________________

      See, this is what’s funny.

      A “simple certification” can be very, very elaborate. Exhaustive, even. But it is “simple” in the sense it never gives a good spit where the information, skill and expertise came from. All that matters is what one knows and can do. All of which is testable. Objectively.

      Conversely, YOU trust the credentials of some moke who cheated or floundered he/her way through a formal “accredited” program that has been blessed by the guild that WILL protect them when they commit malpractice.

      Continuing education? Why not leave that to the association a practitioner belongs to? I can’t count the number of lawyers I’ve seen sleeping through…or having surrogates attend…CLE courses. They’re a joke. IF you want to learn something, you can. If you’re punching a ticket, they’re worthless. Nobody has EVER tested me on one.

        I can’t count the number of lawyers I’ve seen sleeping through…or having surrogates attend…CLE courses. They’re a joke. IF you want to learn something, you can. If you’re punching a ticket, they’re worthless. Nobody has EVER tested me on one.

        Regarding having surrogates attend a CLE, If I catch that happening in El Paso, it’s a one-way ticket to a disciplinary proceeding. As for sleeping through them … … I will admit that I have occasionally looked the other way when an elderly colleague or a new father has had his head drop down during some of the more boring CLE offerings.

Uber and teeth whitening are both good examples, for various reasons.

First of all Uber and taxi companies are not long for this world. We are seeing a very rapid movement to something which I will call robo-taxi’s. So whatever happens is very transitory.

A major reason that Uber is doing so well is because the Taxi industry is corrupt. The licensing agencies allow corrupt people in and keep out competent people who would reduce profit.

Uber on the other has mostly hidden it’s business practices. When they leak out, they indicate abuses too.

Mike Lee and George Will would have us believe that dentists want the teeth whitening business so they don’t want competition. The fact of the matter is that dentists have plenty of business. They don’t need the teeth whitening business.

If anything, they get upset because they do some sort of voluntary dental work. Who do you think are the people that go to nondental whiteners? Not George Will or Mike Lee. They go to a very expensive top of the line dentist. The people that go to these budget rate whiteners are the people who can’t afford to fix the damage they might do.

I’m sure the dentists would rather do their charity work on Grandma’s who can’t afford new dentures versus some one who got their mouth scorched having their teeth whitened on the cheap.

I”m not saying that all licensing requirements are good. But at the same time, to do away with all licensing requirements is not good either.

What really is needed some sort research by economists into the proper way to license businesses.

I think socialist Upton Sinclair got all this regulatory stuff started with his 1906 book The Jungle.

    Perhaps the slide towards governmental regulation, but the barriers to open and free competition go all the way back to the Guild system where knee-breaking and the like was a regular fact of life for anybody who tried to sell a service or good that was monopolized by a particular guild.

    Breaking the power of the guilds made as much progress towards capitalism as banking and property laws, much like today the unions want to control taxi and trucking.

      snopercod in reply to georgfelis. | February 12, 2016 at 1:50 pm

      Good point on the guilds. YouTube has gone a long way toward breaking some of the guilds that still remain in the U.S. though: The HVAC guild, the appliance repair guild, the auto repair guild, etc. Ever try to find information on how to wire up a thermostat to a heat pump? They keep that information secret.

    Milhouse in reply to snopercod. | February 12, 2016 at 1:13 pm

    No, the guild system was up and running in medieval times. But Sinclair’s work of fiction had a great impact on the public imagination; millions of people imagined it was based on some kind of research, and reflected reality in some manner, when in fact it was pure fiction, and every major allegation it made proved to be false.

    Ragspierre in reply to snopercod. | February 12, 2016 at 1:25 pm

    Both you guys are partially correct.

    The medieval guilds were instrumental in breaking the power of the baronial class.

    They were later instrumental in impeding the spread of market capitalism, as they attempted to monopolize whatever trade they conducted. This was one of the essential insights of Adam Smith.

    Breaking their power was essential in spreading market capitalism across Europe.

    It is the nature of monopoly that it cannot withstand the rigors of the market without government protection, which all incumbent producers TEND to seek, again as Smith’s insights taught us.

    It is the natural yearning of government and the incumbent producers to form alliances against the interests of the consumer. You can see this manifest everywhere.

    Merlin in reply to snopercod. | February 12, 2016 at 4:40 pm

    Pay attention here, folks. Rags and Milhouse understand history as it actually occurred, rather than the highly inaccurate, infectious, revisionist history that plagues our modern system of education.

This is textbook anticompetitive behavior. An organized cartel (the dentists) restrained competition (limiting teeth whitening to dentists) in a manner that deliberately reduced competition and raised prices. The only twist here is that they used the threat of government punishment to enforce their monopoly.

This is not a twist. Monopolies are almost impossible without government enforcement.

Look at the history of the railways; almost from their beginning they kept trying to form cartels and raise prices, but none of their arrangments ever lasted, because someone would always find it in their interest to break ranks and grab the extra business. It wasn’t until they got the government to form the FTC that they got the monopoly rents they wanted.

    HandyGandy in reply to Milhouse. | February 12, 2016 at 1:28 pm

    I’m not sure that is true. ( AT&T, IBM, Microsoft ).
    But it government intervention does help.

      Ragspierre in reply to HandyGandy. | February 12, 2016 at 1:42 pm

      Again, you show your idiocy.

      AT&T had a PROTECTED monopoly, and they conducted their business as one. It had to broken by the same government that provided it.

      IBM and Microsoft had market dominance, in part fostered by intellectual property protections, but NEVER a regulatory monopoly. They were simply good at what they were offering.

      Milhouse in reply to HandyGandy. | February 12, 2016 at 2:30 pm

      AT&T had a government monopoly. IBM and Microsoft never had monopolies at all. They had a high market share, but they could never raise their prices beyond market rates, for fear that they would immediately lose it. Just as Standard Oil never had a monopoly and kept its market share for as long as it did only by being the best and cheapest.

        Ragspierre in reply to Milhouse. | February 12, 2016 at 2:46 pm

        Ezzzzactly, Milhouse!

        Stand Oil NEVER behaved as does a monopoly. On the contrary, it behaved ONLY as a free market entrepreneurial business would. They were dominant in the market…which included statist competitors like Russian oil…ONLY because they offered a fine product at MARKET prices. And those prices were possible ONLY because Standard innovated and worked at efficient use of resources.

        And, as a result, ordinary Americans could afford light, heat, and power that they would NEVER have been able to afford otherwise. Hell, even whales were benefited…!!!

          gulfbreeze in reply to Ragspierre. | February 15, 2016 at 4:09 am

          I concur with all of what Millhouse and Rags have posted with one additional note:

          For companies that serve mass markets, sustainable market dominance comes through being the low-cost producer in those markets. Being the low-cost producer enables highest profitability in the long run, allows capital investment into highest-efficiency production, and enables investing in R&D/intellectual property/innovation to continue offering products/services that meet/create future market demands…all of which makes possible a firm having the highest market share.

          “And those prices were possible ONLY because Standard innovated and worked at efficient use of resources.”

          Exactly, and that efficiency is sustainable through being the low-cost producer. Selling at market prices when you’re the low-cost producer results in highest sustainable long-term profitability.

          Of course, companies with market dominance may attempt to use many other methods (legal or ultimately illegal) to continue/increase that market share, but being the low-cost producer ultimately can sustain that share vs. competitors.

    Ragspierre in reply to Milhouse. | February 12, 2016 at 1:30 pm

    Another tell-tale showing how true this is was the population of the “regulators” under the era of the explosion of regulation.

    They were almost ALWAYS people who came FROM the “regulated” industry. Almost always the foxes who conned government to mandate they regulated the hen-house.

    The Sinclairs were just useful idiots.

A better example can be provided than teeth whitening, as there can be serious consequences if done in properly, permanently damaging the teeth.

Take corn-row braiding, or just hair styling. I think Wisconsin now has a 2000 hour apprenticeship. A full 40-hour a week, 50 week year. I can see running a stylist through beauty school, making sure they master the techniques involving chemicals which can do serious damage to the hair and skin. So make sure the stylist can follow the directions without hurting anybody. That doesn’t guarantee they won’t ever, but it helps. There needs to be a balance of enough to show they’re able, but no more. At the end of the day, those who do a good job get better high paying jobs, those who don’t, don’t.

I think interior designers are licensed in Washington, D.C. The excuse was that they might use fabrics which are more flammable. Wouldn’t that be a manufacturer’s problem? Truly unneeded.

states right issue

Dispensing birth control pills is another example of regulatory capture. Doctors oppose having them made available over the counter or via pharmacist, because many of them have gotten so used to the lucrative practice of holding women to hostage for their scripts, making them undergo an invasive (for the woman) and profitable (for the doctor) complete pelvic exam before they will write them their annual refill script.

If they were available over the counter, it would break that stranglehold, and allow women to actually decide for themselves when, and how often, they want to go in to see the doctor for a full exam — some might choose to only do this every two to three years, and that should be their right as competent informed adults.

http://reason.com/archives/2014/03/26/over-the-counter-birth-control-pills-us

    gulfbreeze in reply to Amy in FL. | February 15, 2016 at 5:56 am

    From what I understand, pharmaceutical companies have a large responsibility for lack of OTC birth control pills today:

    http://www.womenshealthmag.com/health/over-the-counter-birth-control

    “Perhaps the biggest problem with this debate is that politicians really can’t control what medications are available where. ‘Congress cannot make any type of medication go over the counter,’ says Cullins. ‘That is a decision made in this country by the FDA and it is accompanied by research that is conducted by pharmaceutical companies.’ But get this: ‘As of now, there is no pharmaceutical company that has expressed concrete interest in taking [their method over the counter],’ says Cullins.”

    Another issue OTC birth control faces is since prescription birth control is named as preventive medicine under Obamacare, it’s available without a copay, so Democrats have dragged their feet in legislation to specifically fast track FDA approval for OTC versions saying that Obamacare would need to be modified to pay for OTC versions as well.

    I believe OTC birth control is a great solution for the political debate the GOP has had over birth control in Obamacare. If you make birth control available OTC and drop the mandate for Obamacare pay for it, it solves the religious objections over the issue.

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