“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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