New podcast episode with Brink Lindsey and Steven Teles about their new book The Captured Economy:

Brink Lindsey and Steven Teles argue in their new book “The Captured Economy” that the last few decades have been characterized by an increase in political rent-seeking. Focusing on the financial sector, intellectual property laws, occupational licensure, and land use, they show how legislation has been captured by special interests in ways that slow growth and increase inequality. In this episode, Lindsey and Teles discuss how these policies distort various markets and cause upward redistribution, as well as the different ways we can work to better “rent-proof” our politics.


In addition to the post arguing against the mandatory licensing of barbers that W. Jerome highlighted last week, Matt Yglesias has gone on something of a liberaltarian rampage recently (see here, here, here, and here).  He’s taken some flack from his commenters for it.  His response:

A colleague mentioned to me the other day that I’m “pretty conservative” on some state and local government issues, with reference to some recent posts on occupational licensing…. I’m not. And I think that whole framing represents a bad way of understanding the whole situation.

I think it’s pretty clear that, as a historical matter of fact, the main thing “the state” has been used to do is to help the wealthy and powerful further enrich and entrench themselves…. The “left-wing” position is to be against this stuff—to be on the side of the people and against the forces of privilege… dismantling efforts to use the state to help the privileged has always been on the agenda. Don’t think to yourself “we need to regulate carbon emissions therefore regulation is good therefore regulation of barbers is good.” Think to yourself “we can’t let the privileged trample all over everyone, therefore we need to regulate carbon emissions and we need to break the dentists’ cartel.”

Our ideologies tend to encourage overly simplistic thinking on these issues.  Liberals make arguments about the existence of market failures to justify a pro-regulation stance, and conservatives/libertarians make arguments about the efficacy of free markets or the unavoidable ham-handedness of government intervention to justify an anti-regulation stance.  This ideological division makes it so that if a conservative allows that, in a given circumstance, regulation may be justified, it seems like she’s conceding something to the liberal, and vice-versa.  This makes people become increasingly entrenched in their ideological priors so that analysis of real-world issues involves little more than post-hoc justification of a forgone conclusion.

It’s too bad that political discourse is so often conducted in this way.  The world is complex; sometimes regulation is justified, and sometimes it isn’t.  It’s nice to see somebody like Yglesias who is a sophisticated enough thinker to recognize this and move beyond the one-size-fits-all arguments that are favored by his political tribe.

Matt Yglesias offers commentary on requiring mandatory of licensure for cutting hair.

Regulation of this sort seems totally unnecessary. People don’t die of bad haircuts, and since hairstyle is a quintessential matter of taste there’s absolutely no reason to think consumers can’t figure out for themselves who has a decent reputation as a cutter of hair…But what’s more, even if regulation were somehow a good idea, the composition of the board couldn’t possibly serve a legitimate consumer protection function. It’s overwhelmingly composed of people from the industry whose incentive is to limit competition and raise prices.

…The only people who are ever going to really care about who sits on the board and what it does are the incumbent businesses looking to limit competition. It’s not the biggest deal in the world (trivial even compared to similar things like rules making it hard for dental hygenists to clean teeth without giving dentists a cut), but the upshot is higher prices for consumers and barriers to upward mobility for people who want to cut hair in exchange for money.

See more about the downsides of occupational licensure herehere, and here.

I am writing in response to Carson’s post that was a reply to a comment loyal Upset Patterns reader Joe wrote, mostly in regards to the further reply by Joe and Benji regarding the inequality of service amongst rich and poor patients.

I just got back from the wonderful city of Stockholm after flying on the extremely low-fare airline Ryanair. Ryanair sucks. If the name you book your ticket with is one letter different from your passport, they make you buy a new ticket. Every bag you check costs at least ten pounds. They fly to airports embarassingly far away from the advertised city destinaton (I took a two hour bus from the airport I flew into to get to Stockholm’s city center). There are no complimentary refreshments. If you find yourself particularly parched or hungry for whatever reason, you get screwed over by insanely expensive food sold on the plane. The interior is tacky and completely plastered by advertisements. Their website is so annoying to navigate. They also play sucky music every time the plane lands and sing something along the lines of “Wow, another Ryanair flight, on time!” Oh yeah, and, they might even start charging for bathroom usage – particularly bad for this bladderly-challenged blogger. But Ryanair’s roundtrip flight cost me about a fifth of what it would have cost me to fly with an airline like British Airways or KLM.

I’ve said before that I’m not completely convinced that ending medical licensure is the best idea. But I think it is an irrelevant argument that poor people might get Wal-Mart brand care while rich people get Mayo-clinic style care. If we decided that everyone should get Ritz-Carlton quality healthcare via shutting out lower-quality doctors through licensure, poor people would inevitably be the ones hurt the most. Ryanair might suck, but it’s better than having the only option be flights filled with non-necessities. The more expensive airlines actually do call for regulation that would effectively negate Ryanir’s cheapness (see: bootleggers and baptists). If there were no Ryanair or Easyjet, everyone would have to pay 500 dollars to fly from Edinburgh to Stockholm. As bad as Ryanair might be, shouldn’t the option of an uncomfortable yet cheap flight be there? The last time I checked, they were the only airline to have actually grown in Europe during the current economic times, showing that they must be doing something right (especially for people on tighter budgets).

My objection to ending medical licensure comes not from an inevitable inequality in care but from the possibility of wreckless medical practices. As a few commenters pointed out, it is the imperfect information regarding doctors and the vast differences between medical practice and other industries that make me skeptical about treating medicine like a purely competitive market. On the other hand, people need to consider these things in regards to this topic:

  • Is the current AMA certification effective in preventing doctors from doing bad stuff?
  • Could the current AMA certification system give people a false sense of security?
  • Could a doctor’s reputation be a better method of communication about quality than arbitrary standards?
  • Does shutting lesser-qualified (in a really strict objective how-many-degrees-do-you-have sense) doctors out of the market help the poor by protecting them from malpractice more than it hurts them from higher prices?

For the first question, I’d say no. There are very incompetent doctors practicing and stricter licensure standards or malpractice rules will probably do very little to improve this. For the second, I’d say yes. When people see that a doctor is certified by the AMA, they probably assume that they are competent and good and don’t hesitate looking around for other doctors or considering performance history. For the third question, I’d say more “yes” than most people would think. Think of ebay. People’s trust in a seller is based completely on a seller’s reputation/rating. Ebay is an extreme, I know. But what about restaurants or general establishments around town? Do they stay in business because the government decides they are “worthy” of it or because repeated business tells other people that there may be something good about the product they are selling?

The fourth one is really just to exercise your brain and I don’t think it can be measured quantitatively at all, unfortunately. For those of you familiar with statistics, think of Type 1 and Type 2 errors. In theory, both are equally harmful. Certifying a doctor that shouldn’t be certified is just as harmful as not certifying one that should be. Is it possible that the current system commits the latter more than people think? I think so.

This is where I think my proposed middle ground, though perhaps not completely thought out, comes into play. The presence of medical licensure means that it is illegal for people who aren’t certified by the AMA to practice medicine. As much as you might trust me to give you some sort of exotic aroma therapy medicine or fix your back, I can’t because of legal hinderances. I think this is crap, just like I think that if someone is near death, they should be able to take whatever experimental drug they want – regardless of whether it is approved by the FDA. If anything, AMA licensure should be a sign of confidence from some entity – not necessarily government-run – that a doctor meets certain standards. The sign of confidence would be akin to a hotel being rated by some tourist’s association or ebay’s good seller ratings. But it should not be a legal requirement. Such rules are a complete infringement on the right of people to engage in voluntary exchange.

If I had to pick one book that has shaped my political philosophy, it would have to be Milton Friedman’s Capitalism and Freedom. It was a wakeup call, of sorts. All of his ideas made sense to me and were written from a radical perspective that I had never even thought of.

Many of the things he recommended seemed radical at the time but have now become accepted or at least respectable ideas: school vouchers, flexible exchange rates for currency, negative income tax instead of traditional welfare state measures, and a flat tax. However, I found it most difficult to grasp his recommendation to end the mandatory licensing of doctors. I still feel fairly uneasy about such a proposition and more importantly I think it is the least politically feasible of all his views.

If you want to think about the benefits of doctor licensure in consequentialist terms, consider these points:

  • Do the licenses really completely protect consumers against medical malpractice (not really).
  • Do the licenses potentially raise overall medical costs (yes, because there is a much smaller supply of doctors, they charge more)
  • Are the requirements necessary to be certified set at the right level (potentially, but look how many years one has to go to medical school to get a license).
  • Does the fact that a doctor has a license make you more trustworthy of that doctor (yes, I am going to assume).
  • If there are no licenses, will people acting as doctors do a worse job because they can (maybe, but probably not. Think of other professions that don’t have licenses).

I remember reading a story a while ago that said the Florida attorney general tried taking the Florida Bar Exam and failed. The attorney general wouldn’t have been able to be a lawyer in Florida. This example shows that while occupational licensing may have the (supposed) intention of protecting the consumer, it can really just act as an effective cartel for those already in the profession. The cartel will limit the supply of those in the industry and effectively raise their wages. I think we can see this in the fact that some places require babysitters to have a license.

I am definitely not convinced completely that we don’t need licenses for doctors. If anything, I think we should have an “optional” licensing system. For example, doctors can be given a gold star if they have certain qualifications (which would make people more confident going to them) but doctors without those qualifications cannot be legally excluded from working. For instance, I could treat you with “alternative” medicines if you really trust me to do so. This seems more plausible. I know Carson supports the ending of licensing for doctors so maybe he’ll have something to say about it.

The following is a short video of Friedman speaking to the Mayo Clinic about the idea:

Video courtesy of Will Wilkinson.

Two police officers helping babysit each other’s kids in England have been ordered to end their arrangement because they don’t have a license for “childminding”. Similarly, a woman in Michigan has been given grief by local authorities for watching her neighbor’s kids.

I don’t think I have to go into the ridiculousness of this situation.

Courtesy of Radley Balko.

I’ll admit, the idea of ending all occupational licensing is very controversial. But does this make any sense? Sadly, it’s not the first time a child’s lemonade stand has been shut down.


Next thing you know, we’ll be subsidizing lemonade stands so they can compete against cheaper, foreign lemonade. We’ll also keep the lemonade artifically expensive so those stands’ adorable owners can be self-sufficient.