Shout it from the rooftops, Matt!

Matt Yglesias shouts it from the rooftops on occupational licensing:

Licensing requirements…are by far the best statistical predictor of business-friendliness, for those subjected to them. And unlike taxes or environmental rules, these have spread like kudzu, with little scrutiny and often scant policy rationale.

A recent comprehensive survey of state licensing practices by the Institute for Justice reveals little consistency or coherent purpose behind most licensing. Nevada, Louisiana, Florida, and the District of Columbia, for example, all require aspiring interior designers to undergo 2,190 hours of training and apprenticeship and pass an exam before practicing. In the other 47 states, meanwhile, there’s no legal training requirement. My friends and co-workers living in D.C.’s Virginia and Maryland suburbs appear to get on fine with unlicensed interior decorators, and all across America, amateurs have decorated their own homes without imperiling public safety.

Almost all states—though not Alabama or the anarchic United Kingdom—require barbers to be licensed, but the specific requirements seem to vary arbitrarily. New York barbers need 884 days of education and apprenticeship. Across the river in New Jersey, it’s 280. But getting one’s hair cut in New Jersey (to say nothing of England) is hardly a life-threatening gamble.

…a wide range of these rules could be done away with entirely at basically no risk. Regulation is needed when it would make sense for a firm to deliberately engage in malfeasance. Dumping harmful toxins into the air is highly profitable unless it’s prohibited. Financiers can draw huge bonuses by taking on too much risk, only to wreck the economy later. In other occupations, though, shoddy work brings its own punishments. An interior decorator who can’t get recommendations from satisfied customers probably won’t remain an interior decorator for long.

In these cases, licensing rules raise the prices the rest of us pay, make it difficult for successful entrepreneurs to expand their businesses, and are often a major barrier to employment for the most vulnerable populations.

We have covered these issues before on MR but sometimes you just have to KEEP SHOUTING.


A commenter on a blog once assured me that a great strength of the USA was that it was far easier to get a licence to run a business than in, say, the UK. I told him that my wife and I had both started British businesses and that no licence had been required. I'm not sure he believed me.

Can I suggest also doing away with government (non)licensing of bondholder haircuts? In a free market haircuts for risk takers would be the predictable norm of creative destruction. This would not be a cut-throat shop, just a regular clean conservative shave.

We already have bonds with haircuts. They're called equities.

Bonds and equity are very different. The distinctions are not trivial.

Yes, thank you, I’ve never pretended to be a licensed economist, which is why I read MR to learn how to split hairs and check the terms before opening my big mouth. Mankiw pp 576-7, and:

Are British dentists licenced?

So, it seems that Matt Yglesias would like to live in Somalia.

Strict licensing requirements for florists and interior designers are all that's standing between the US and lawless bloody anarchy.

Less hilariously, it would be nice if the people advocating less licensing would stop finding the people advocating lawless anarchy so congenial.

Wow. From over on the liberal side, it must really all look the same, huh?

The problem with this, of course, is that the advocates for lawless anarchy are so widespread and powerful. Every day it seems we are inundated with calls to totally abolish government and convert society to a 'road warrior' type system.

The Mad Max lobby is extremely powerful, even more so than the much-feared anti-global-warming Heartland Institute with its thousands of dollars.

"Every day it seems we are inundated with calls to totally abolish government and convert society to a ‘road warrior’ type system."
+pi, fracking hilarious comment

"Every day it seems we are inundated with calls to totally abolish government and convert society to a ‘road warrior’ type system."

Show us your best example.

mofo for the win. Shut the thread down.

And let us know when Ydiot ever deigns to vote for someone who actually supports what he is arguing for, as opposed to endlessly cheerleading for those who fight it tooth and nail.

And just who do you think it is that "supports what he's arguing for"? Republicans? The political arm of the Chambers of Commerce that created these rules is hardly the group to overturn them. Of course, neither are Democrats, for the most part.

If I were in Somalia i would be afraid of many things but I would not be afraid to get a hair cut.

I usually put it at excessive licencing. Like maybe to get a licence to cut hair you must pass a test about basic hygiene and maybe your licence can be revoked if you make a egregious error.

Why is there a hyperlink in the middle of your comment? Did a spambot infect your computer?

Well not so fast, Somalia has plenty of "excessive social licensing". Trying reading your Torah whilst drinking a beer, and flirting with the local ladies, without encountering the enforcers of "social regulation."

Somalia is both anarchic and highly regulated.

They aren't talking about Somalia the country, they mean Somalia the platonic ideal. Like medieval Europeans discussing "Jerusalem" or a modern movie made about "pirates".


He obviously meant Somalians have either bad hair, or Somalians would come take all our haircutting jobs here.

Oh come on, it's not that difficult a situation to understand.

Licensing is, in general, a market-exclusion mechanism with public safety as the diaphonous rationale. Since it's the bending of the political system to the job of market-exclusion the ridiculousness of the barrier is a function of the competence of the local market-excluders. New York's 884 days of education and apprenticeship before clipper can legitimately be applied to head is a function of the competence of the barber's lobby in New York state and New York state politics. The same factors explain Alabama's lack of requirements and the general arbitrariness of such requirements; they're not related to objective criteria but to local, polical conditions.

The conclusion to be extracted from this situation is that all expansions of government power, no matter the urgency or credibility, should be examined through the same lens of a desire to use the coercive power of government to advantage a subset of the citizenry to the disadvantage the citizenry in general.

Another good example of licensure barrier to entry is the market for taxis -- as I always ask my students, why does one need a license to drive a taxi (or a jitney) if one already has a valid driver's license to begin with? -- in addition to allen's comment, I would add that it is because existing taxi drivers want to reduce supply by to excluding new drivers

Yeah, taxi licensing is probably the most ridiculous example of license abuse.

I think the most egregious example is physician licensing at the state level. California, with its wonderful state financial position, actually requires specialists to take general medical exams regardless of specialty or regardless of what other states they are licensed in or how long they have practiced. A glaring example is psychiatrists - in fact, the entire state has been declared a critical need area. So, there are not enough psychiatrists, the state tax revenues are missing, and yet the licensing requirements remain the most onerous in the US and have not changed in decades. Are we really to believe that the state of CA is protecting its citizens against those other states that don't care about medical quality (there are no reciprocity arrangements with other states). I think it is a testament to the lobbying power on one particular group - and the inability of our political system to function for the public good.

As a longtime resident of California, I take issue with the fact that there are not enough psychiatrists. The real problem is that we have too many nuts. This is my basis for arguing for tax increases - if we raise taxes to a high enough level, the crazies will leave California (which is currently happening, most of whom are leaving for Texa) thus rendering moot the psychiatrist/insane imbalance.

Actually taxi drivers are in a position where they can do grievous harm to unsuspecting tourists, both financial and in some cases physical. Licensing them is a way of at least knowing who the cabbies are. If taxis didn't require licensing you're really just talking about hitchhiking you pay for.

An unlicensed, unaccounted for 'taxi' driver can do a lot more damage than an unlicensed barber or decorator. There are safety issues that are pretty unique to letting a stranger drive you around, especially if you are from out of town.

give me a break -- are "unsuspecting tourists" really that stupid??? -- paternalism in defense of cronies strikes again -- in reality, licenses end up harming "tourists by allowing existing taxi drivers to reduce supply -- this is basic price theory -- we don't need a restrictive licensing scheme to protect tourists -- the market will do that, since drivers will want to develop a reputation for safety to attract new customers

And that's why NYC taxi medallions need to cost a million dollars.

"An unlicensed, unaccounted for ‘taxi’ driver can do a lot more damage than an unlicensed barber or decorator. There are safety issues that are pretty unique to letting a stranger drive you around, especially if you are from out of town. "

Yes, which is why they are licenced! So we can force them to all do the harm to those foreigners!

Y'all are a bunch of internet idiots. So after your daughter gets killed by the 'taxi' she rides in, you'll give that one a really stern Yelp review and all is well!

Go ahead, smart guy, explain how having to pay a million dollars for a license keeps her safe.

Again the libertarian blind spot, nuance. Not everything is either/or yes/no. Should taxi medallions be $1 million each? Probably not. Should taxi drivers be licensed and tracked? Yes, definitely. Even a smart guy like you can see that, right Ace?

You haven't actually made any arguments that support the notion taxi drivers need additional licensing beyond that required for a typical driver, who already have to carry liability insurance and are criminally liable for negligence or recklessness.

How is taxi licensing supposed to prevent harm to tourists? License plates can be tracked, driver's licenses can be pulled, etc. There doesn't seem to be any additional value created there, just a cartelization that even you agree is egregious.

Hopefully all this will soon be made moot by Google.

Yes I have, safety based arguments. You need more assurance that the stranger driving you around isn't a psycho, besides the fact he has a driver's license. Otherwise it's paid hitchhiking.

Maybe that's all it needs to be for you, in which case we have an unbridgeable gap.

+1 re Google, see my comment below.

But you haven't explained how licensing makes any difference to whether the driver is a psycho. Does taxi licensing normally involve a psychiatric evaluation?

Because with actual taxi companies vetting drivers (the companies own the medallions) they have incentives to weed out psychos if they can, and some deep pockets to go after if they can't

Taxi drivers are, almost without exception, the most aggressive and impatient drivers on the road. Whatever it is that taxi licensing is supposed to be doing, it isn't working.

Put otherwise, msgkings seems to believe that the taxi licensing regime is about ensuring that taxi drivers are better drivers than the average person. This is just not true.

Deep pockets and company incentives are irrelevant, because every driver has to carry liability insurance anyway.

Also, do taxi companies typically do a psych evaluation on new hires? Note too that there's still nothing stopping the driver from driving your daughter to his dungeon to become his sex slave, the company is not liable for actions taken against their policies.

I assume the criminal justice system still exists in this world without taxi licensure so why wouldn't violent criminals, who use a taxi as a adjunct to their crimes, be tracked down and packed off to prison the same as any other criminal? Do all taxi drivers have to be prejudged guilty of a violent crime proving their innocence only by the purchase of an indulgence from the local government?

Also, there's a damage to society by artificially inflating the price of a taxi ride. Money that could have gone to other, more productive uses, is funneled into the pockets of taxi drivers under force of law. Is society better served by being overcharged for every cab ride along with a reduction in cab-related crime or the reverse? On principle, and from a study of history, I'd go with the latter since the compassion of monopolists is never worth the price they extract.

Sure every driver has to carry some insurance. But I think a taxi driver ought to carry more than the general minimum.

And don't confuse the medallion system, which is a pure restriction on market entry, with a licensing system that imposes requirements such as insurance, a decent driving record, a working and accurate meter, etc. without limiting the number of drivers.

The fact is that taxi passengers, local or out-of-town, have no good way of assessing the quality of the service a particular taxi provides. It's not like I can check the driver's safety record before I get in.


The danger seems to be primarily to the taxi driver.

Now here's a very reasonable taxi licensing requirement:

To become a licensed taxi driver in the city of Boston one must report to Boston police headquarters located next to Ruggles train station on the MBTA Orange Line. The prospect must prove that he is legally eligible to work in the United States and must have had a Massachusetts drivers license for a minimum of one year.

Read the rest, though -- it quickly becomes comedically complicated.

It's time to educate yourself and shed your bigoted and backward ideas about mental illness. While there are certainly some cases of "crazies" and "nuts" and CA may well be glad to get rid of these, most people that need psychiatric care are actually sick. And many do not get adequate care (the costs of which remain hidden until they do something drastic to themselves or someone else).

"New York’s 884 days of education and apprenticeship before clipper can legitimately be applied to head is a function of the competence of the barber’s lobby in New York state and New York state politics."

That can be true, but it is not always true. Don't assume it's all the same.

It may not always be true but it's the way the smart money bets.

I suppose there may be a state here or there in which the barber's lobby gets a Christmas present from the legislature, much the sincere surprise and delight of the barber's association, but the rather higher likelihood is that the levers of power, exerting their corrupting influence, are manipulated by those who seek to support their incomes by artificially constraining the supply of competitors.

Rather a shame we don't license bloggers.

No kidding. Free speech is bitch, isn't it?

Government licensing would take of that, straight away.

It's great to see Matt on the right side of this issue.

I ran into this just today: I just bought a house with a sprinkler system, but there's no backflow preventer installed (previous owner took it, I think). Plumbers here are asking something crazy like $300 to install it, even though it's a trivially simple 15 minute job, but of course there's some nonsense about "only a licensed plumber" in the building code.

Do it yourself.

previous owner took it, I think

... why?

To use on his new house, was my guess. The house I bought from him was a short sale, he had moved out years ago, rented it for a couple years to a Japanese exec. Interestingly I found out his current home is a 9B/9BA quasi-castle perched on our development's largest lake, which appears to have a three-story deck with two gazebos and a large garden area. He's a commercial real estate guy, probably struggling just to make the property tax payments now.

Or possibly it was removed for the winterization when it was vacant (they turned off the water, which involved some mildly weird overkill like putting a cap on the water heater gas line), or it was stolen, or it's in the basement somewhere. Hard to say, still figuring this place out -- I didn't even know what an ejector pit was until a week ago.

Take good care of that ejector pit. They can be touchy if they've been dry for a long time. Having to replace that will make your backflow preventer problem look like peanuts.

(She says from sad experience.)

Thanks for the advice.

It looks like when they installed it, they didn't realize they needed another check valve at the top of the output pipe (where it turns horizontal after leaving the pit pump), so there's a loud "bang" from the water falling back down to the lower check valve every time it runs. Not sure why they didn't fix that 10 years ago, guess they didn't know how.

Why do you assume it would be noticeably cheaper if there were no issues with licensing, which by the way you have yet to demonstrate? And is that the cost of both parts and labor, or just labor? Backflow preventers can be rather cheap or quite expensive, depending on which one you need.

Also, if it's so damn easy, do it yourself.

Because I could do it myself in fifteen minutes, that is labor only (the valve is also $200), and it would currently be illegal to do it myself.

Where is it illegal to do something like that?

Where is says “only a licensed plumber” in the building code.

See, for instance:

In some places, it's even worse than that:

RPZ valves must be installed by a licensed plumber and certified by a plumber with an IEPA Cross-Connection Device Inspector Certification (CCDI) on an annual basis.

Oh, goody.

The alternative is do it yourself and pay to have it inspected. The building code exist for insurers, and insurers are the ones to satisfy (the water company probably self insurers water contamination from backflow valve failures, so they are probably the one requiring the certified installation). that they certify the installer and allow him to certify his own work is a cost saving over the normal separate inspector which must be scheduled in the middle of the work, before the final connection or buttoning up, etc.

Again, doing it myself is illegal. And the "inspector" is just a plumber.

Water can't backflow to the utility lines, the purpose is to prevent contamination of the household water.

Requiring the valve -- okay, reasonable regulation. But it's pretty damned hard to accidentally install one backwards, and unless you fertilize with cyanide, the backflow from an (extremely unlikely) failure isn't a huge deal. It's a sop to plumbers.

Just wanted to pop in before someone brought up the inevitable "but hair stylists sometimes use CHEMICALS, you don't want an unlicensed stylist using CHEMICALS do you?" nonsense.

Entirely depends on the chemicals, wouldn't you agree?

There are a couple of areas where Liberal reformers and libertaians can meet and mutually agitate for change. This is one. Zoning restrictions on mixed residential/commericial, building height, and lot size restrictions, are another. A third is subsidize storm and flood insurance.

Of course one of the libertarian commentators (Allen) reaches to the generalization that "all expansions of a desire of some subset of the to use the coercive power of Government.. to the disadvantage of the citizenery in general." This is use of "all" instead of "sometimes" is not supported by Matt's example. In fact, Yglesias quickly cites examples of where the use of coercive power of Government to restricts the few from profiting at the expense of the many.

"There are a couple of areas where Liberal reformers and libertaians can meet and mutually agitate for change. "

Local liberals are almost always on the wrong side of this issue.

Yes, but I also doubt that all those business owners who lobby for strict licensing requirements are liberals. The closer something gets to one's home or checkbook, the less labels like "liberal" or "conservative" matter.

What a well supported assertion!

Evidence? I'm liberal on many issues but generally oppose licensing requirements and restrictions on urban land use. I think people in general have a knee-jerk tendency to support licensing in the name of "public safety" and that this tendency crosses political lines, as does NIMBYism.

Think of my use of the word "all" in this context an example of the Precautionary Principle from the libertarian point of view. There may be an example of market impediments of the form mentioned by Matt but I prefer to err on the side of caution and denounce them all as dangerous. Then, if the particular policy proves itself innocent of the taint of corruption, it can be enacted.

Matt's examples weren't particularly persausive since there are other, less intrusive and more appropriate routes to protection of the public interest then licensure.

Nothing will change.

Existence & corruption of government occupational licensing is entirely predictable and normal. Power corrupts, everywhere and always. Revolutions on the margin are very rare.

This licensing issue was widely publicized by Nobel Prize winner Milton Friedman... over half a century ago -- without effect.
Entrenched political power easily ignored it. Same same today.

One cannot clean the Augean-Stables with a shovel... nor will obscure licensing studies and essays change status quo politics.

Only a genuine national crisis might produces real change... if such a crisis occurs... it's good to have old ideas/facts like this lying around as a way of doing basic economic things differently & better. Check back here in 150 years.

I remain unconvinced that professional licensing generally has the effect that most economists believe it has. Does it cost significantly more to get a haircut in New Paltz, NY than it does in Berlin, NJ? Is it harder to find a reasonably priced interior decorator in Louisiana or Florida than it is in Georgia or Alabama? Are realtors difficult to find in any place in the United States and are all of them wealthy due to their restricted supply?

Licensing requirements can be as much of a draw to a profession as they can be an impediment to new entrants. Once a profession has a licensing requirement, formal training apparatuses are not far behind. Formal training allows people with no connection to or understanding of a profession to enter that profession. Couple the formal training with the widespread availability of subsidized loans, and you probably wind up with more entrants into a number of different professions than you otherwise would have.

Some professions are clearly different. Physicians, for example, due seem to be in short supply. But their training is far more rigorous and expensive than is typical, and, perhaps due to an additional layer of licensing restrictions, it is not widely available. Barbers are a dime a dozen, and an aspiring barber needs no particular aptitide to procure appropriate training. Not all licensing is the same.

While I think that unnecessary licensing requirements are bad per se, I'm kind of with KLO on this. It cries out for a significant empirical study. How much of a problem is this really? There's something to be said for formal criteria and training encouraging entrants, and even the anecdotal evidence is not all on one side here.

Consider lawyers. There is no shortage of bad lawyers, which is the only kind for which the bar exam is a significant barrier. Great lawyers are scarce, and hence expensive, but that has nothing to do with licensing. You can argue that the credential requires too much time to earn, and that that time is wasted, but that's a second order problem if it isn't practically limiting the number of lawyers. It used to be you could become a lawyer if you were related to or otherwise well connected with existing lawyers. Now there's a formal process and anyone with half a brain can do it.

In cases where licensing appears to be encouraging entry, we should probably try to substitute certification.

Empirical study? On libertarian issues? Please. Who needs it when you have the True Faith?

Lawyers are one of the few cases where all sorts of restrictions make sense, because their job is to attempt to direct the force of the state in their clients' favored direction.

I would even support pay caps at $250/hr (roughly $1M/year) for lawyers. Too many John Edwards out there. Rentseeking is too rational in our current system.

How do those maths work out?

250 x 8 hours per day = 2 k per day x 250 working days per year = 500 k per year, not 1 mn

Quite right, mea culpa.

Billing 8 hours a day, 250 days a year will get you fired in many firms.

What you want to ban, if you're in the mood for such things, is contingent fees and not hourly rates. The hourly rate guys are generally employed when two big institutions have something complicated to sort out - any rational system is going to spend a lot of money doing a good job of that.

The problem is the cottage industry of frivolous stuff.

Yes, I was thinking the cap would be $1M/yr or $500K/hr (as emil corrected me above), regardless of the form of compensation.

I wonder if any other countries have anything like this? Of course, it's awfully hard to engineer these things to avoid dodges, esp when dealing with lawyers.

Anyone who thinks there are not enough lawyers in the US, licensing requirements or not, needs to think again.

The anti-lawyer comments, while they play well to the crowd, are a complete red herring. The point is that licensing seems to encourage entry into law, not discourage it. It may even do so to the point of inefficiency.

I agree that many examples of licensing seem silly and exclusionary (taxis, for example), I'm just not convinced this is a problem of large magnitude or that the effect is obviously in one direction in all cases.

That said, certifications seem plainly superior in all but the most glaring examples.

"The point is that licensing seems to encourage entry into law, not discourage it. It may even do so to the point of inefficiency."

I've seen no evidence that licensing encourages entry into the law and I suspect it's far more likely to be the high average salaries that encourages entry into the field.

2010 Median annual pay: $112,760

Let's flip that around -- do you have any evidence that the average quality of haircuts is higher in New Paltz, NY than it does in Berlin, NJ? That there's a rash (excuse the pun) of barber-caused infections in New Jersey?

It seems to me that the onus is on those supporting a government regulation to prove why it is necessary. It's not the burden of those opposing a regulation to show why it's not.

Yeah, there's that obscure concept called freedom.

I certainly don't disagree that licensing requirements should only be imposed where they provide a clear public benefit that outweighs their costs. In the absence of such a clear benefit, freedom from licensing should be the default. My point is that economists erroneously assume that licensing requirements always act as barriers to entry into professions and that such barriers always impose costs on the consuming public. It may very well be that licensing requirements encourage new entrants beyond what the market otherwise would, which harms not the public but the very professionals economists have assumed are conspiring to screw the public.

You're right. There would be no such thing as pharmacy schools if dispensers of drugs weren't required to hire specially educated, licensed and well-paid pharmacists to read a note from a doctor, walk over to a shelf and return with a bottle of tablets. Because no one would attend a pharmacy school if it didn't make them a member of an exclusive group permitted to hand people drugs which they should be able to select off a shelf themselves.

KLO 9:49 am

"Couple the formal training with the widespread availability of subsidized loans, and you probably wind up with more entrants into a number of different professions than you otherwise would have."

KLO 10:49 am

"My point is that economists erroneously assume that licensing requirements always act as barriers to entry into professions and that such barriers always impose costs on the consuming public"

In my world, subsidized loans are a cost imposed on the (consuming or not consuming) public

Left to their own devices, people who invest in financial institutions will insist on being so imprudent that they will eventually crash and burn, leaving social destruction in their wake. This is not a stupid thing to believe at all, and should be held as a sacred truth by everyone. All previous systemic financial crises were caused by this universal human trait. Do not think more about it.

"Left to their own devices, people who invest in financial institutions will insist on being so imprudent that they will eventually crash and burn, leaving social destruction in their wake. This is not a stupid thing to believe at all, and should be held as a sacred truth by everyone. All previous systemic financial crises were caused by this universal human trait. Do not think more about it."

What do you think makes regulators any different?

Well, since it's regulators' job to protect us, I can only assume that they will have the means and the motivation to protect us.
And, since financiers are only self interested, I can only assume that they will self destruct....or something. As I said, it helps not to think about it too much. We need to re-invigorate our plan of encouraging debt, implementing crazy high leverage uniformly across banks, and insuring it publicly. If it all goes wrong, it seems clear to me that greed is the cause. Obviously greed is the cause. The antidote to greed is public action. And public action consists of telling other people what to do.
Ergo, we should eliminate systemic risk caused by greed by forcing banks all to do the same thing in a highly leveraged way. You support greed, so if this all goes wrong, it will be your fault.

"Well, since it’s regulators’ job to protect us, I can only assume that they will have the means and the motivation to protect us. "

Your assumptions are not borne out by historical precedent.

Also, the antidote to greed is to harness it not try to legislate or regulate it out of existence. The strength of free enterprise lies in not ending, or even blunting, greed but in putting it to use to the benefit of all.

I was being sarcastic. Sorry if it wasn't obvious. I would comment, however, that while self-interest should be put to use, greed, properly defined, should be blunted, speeches written by Oliver Stone notwithstanding.

Don't forget Realtors:

Is a PhD requirement for professors that wildly different?

When I did my graduate education I had already worked as an engineer for a decade. Few, if any, of my professors had as much engineering experience. Yet they had some "training" that concluded in a "certificate" that qualified them to teach more senior engineers.

On professional licensing, would higher education be improved or damaged if the PhD were no longer the required license?

Actually there is a big difference - PhDs are not required for a teaching position by any government entity. They are a self-enforced mechanism and may well be largely driven by attempts to reduce competitive entry. However, absent a legal protection to do so, the market has the opportunity to render such efforts fruitless. Witness the entry of for-profit institutions that often have no PhD requirements and have much lower cost structures as a result. The competition is real and is having an impact across higher education (except at the top tiers). I am not predicting how it will turn out - that is for the market to decide - but there is no government restriction that requires professors to have any particular degree.

I am not sure the current state of for-profit education should be held up as a model for anything.

Does the fact that the PhD requirement is monitored and enforced by US News and World Report, and not a governmental entity, make any difference in the inefficiencies here decried?

Financiers can draw huge bonuses by taking on too much risk, only to wreck the economy later.

Izzat so? Who gets to decide how much risk is "too much"? How about me, with my investment funds? After all, I turned them over voluntarily, he didn't take them at gunpoint, like the government does. And how does he "wreck the economy"? When a bank loses a couple of billion dollars, that doesn't mean that they set a big pile of money on fire at the intersection of Wall St. and Broadway, it means that they paid off someone to whom they owed money. Now other people have the money. If they hadn't have received it, their stockholders or owners would be poorer. Mark Zuckerberg lost billions in the last few days since the Facebook IPO, should a congressional committee look into it?

chuck, I think you are smarter than this comment. In a no-government bailout world your point makes some sense. In this world it does not. The country is poorer cleaning up the mess.

The "wrecked the economy" bit is ironic, since the housing bubble was mostly a deliberate creation of government policy -- just go back and read all the FNMA and Freddie Mac statements on what a great job they were doing.

But okay, so everyone agrees TBTF and GSEs create a moral hazard problem and should be ended. Why isn't that happening now?

Mainly financial industry lobbying. And there's newly unlimited super PAC money flowing too, making sure TBTF stays that way.

"since the housing bubble was mostly a deliberate creation of government policy"

I guess this myth will never die.

There are some myths, all right.

Be sure to note all the points in red, like how the GSEs were never going to be bailed out, and who was saying them.


People also tend to forget the GSEs lied about their exposure, until the SEC finally forced them to admit their holdings were much larger than they had claimed.

When you discuss Fannie and Freddie, you have to realize these institutions that are half a century old and the housing bubble occurred over less than 10 year span. For a good half century before that we had relatively stable housing prices. What fundamental government directive issued toward FNME and FME was there that caused the bubble, again? What fundamental directive caused Wachovia to go under?

Oh and please, tell us how Fannie and Freddie are responsible for property bubbles in Spain, Ireland, the UK, Australia, India, the UAE, and other countries across Europe.


The post is about regulatory limits on behavior and licensing as a supposed antidote for malpractice. Fannie and Freddie are a small part of a broad array of public financial management. To the extent that the recent bubble and bust was international, did these market intrusions mitigate them or worsen them? It seems clear that they worsened them, even if you don't agree that they were a fundamental cause. In either case, they have utterly failed. If the best that can be said of them is that you can't blame everything on them, they would not, in hindsight, have been implemented.

TheAJ - there were deliberate policies in the 2000s to "expand homeownership" to "previously under-served groups" - in other words, to poor credit risks. Bank regulators looked more favorably on mergers by banks who were playing the game, and banks and the GSEs were encouraged to abandon previous lending requirements in order to serve the broader social goal of increasing house-ownership rates.

TheAJ -- you didn't read the timeline, did you? It's a pretty detailed look at how the rules changed from 1990-2008.

It might be of interest to you that Polish government is in the process of partially of fully deregulating something like 3/4 of all licensed professions in a few batches this and next years. There's of course some pushback, but it's weaker than one would expect. As far as I know this is the biggest news in professional licensing anywhere in the world this year.

Here's current list of licensed occupations -

Here's the first planned batch - (these are all pretty minor, but the plans are to go very far with it)

Poland just got a larger bull rating from me.
They should see increase in growth.

It's funny, some of these EE countries are really cutting-edge in some of their pro-growth policies.

This is probably the right way to do it - push for deregulating a bunch of professions and trades all at once, so that the benefit to the public is large enough to help balance the special pleading which will occur.

"Financiers can draw huge bonuses by taking on too much risk, only to wreck the economy later. "

How can regulators measure the risk? Even worse, how can they regulate the risk without systematizing the risk of other side of the trade in the risk.

We are speaking of Type II errors here. Licensing is intended to prevent Type I errors--errors of commission. However, it creates Type II errors--opportunity costs.

If you align the incentives--eg, pay politicians for performance--Type II errors go away.

A good illustration of the silliness of licenses is the fact that there are no licensing requirements to play professional baseball or sing opera -- quality and skill are set by the market with the need for any licenses

Entertainers can't hurt you the way an unlicensed driver or doctor can. Even the worst aria you've ever heard is less damaging than getting mugged or malpracticed.

Once again the libertarians overplay their hands. There's a very good case for reducing licensing on any number of professions, or eliminating it entirely. But the libertarians just gotta go reductio ad absurdum and expect 'the market' and reputation risk to take care of allowing any jerk to hold a scalpel or drive around strangers. Nuance they ain't good at.

And actually, you do have licensing needed to play pro baseball, you have to be in their union (I guess not licensing but I'm sure you'll be equally devastated by that realization). And I'm pretty sure most entertainers have to be in their respective unions.

I haven't actually heard anyone recommend that neurosurgery be performed by random untrained people, but at the same time you don't seem to understand the taxi issue -- it isn't just a matter of registering drivers with the state so they aren't downing a fifth of vodka every shift or driving people off to become sex slaves, there are unnecessary restrictions on the number taxis allowed to operate in an area which serve no public interest but do create a nice little cartel.

I understand the taxi issue fine, I live in an urban area which unlike NYC has far too few taxis, probably due to overlicensing. Are taxis over-regulated/licensed? Probably. Are they comparable to barbers and decorators? Nope.

Nuance, people. Shades of gray. SOME licensing is necessary and good. Many times there too much and it should be reduced.

Good, we agree taxi licensing is an egregiously broken system.

Note that even without taxi licensing, taxi drivers would already be more licensed than barbers and decorators, because they need a driver's license, liability insurance, etc.

Nice rhetorical trick. I don't agree taxi licensing is 'egregiously broken' and I never implied so. I said maybe in some cities it's gone a little far, and can be improved.

And I thought YOU understood that taxi drivers need a little more oversight than driver's licenses and liability insurance, given their unique position of power while they are driving you around.

Of course this all goes away as soon as the driverless cars are up and running.

So, you think $1M for a medallion isn't egregiously broken?

Please, enlighten us as to how $1M medallions make sense.

Again, what kind of oversight do you imagine they are doing?

I once accidentally took a jitney cab from LaGuardia to Manhattan. It wasn't until we were in the car that I realized he wasn't a legit cab driver. I should've gotten out then.

Later he stopped to buy a 40 to drink on the way and at one point got out to take a leak. By the side of the road.

Fortunately I put all this in my Yelp review.

I don't think $1 million per license is correct, but I sure would have liked to be able to report that guy to somebody.

(This was before cell phones were widespread. Nowadays maybe I would've just called the cops from the car.)

Did the car also lack a license plate? What exactly prevented you from reporting him?

Maybe there is a compelling reason to regulate taxis but I don't see it. A taxi license of some sort is fine: imagine someone bringing a copy of his driver's license, vehicle registration for the taxi, proof of liability insurance, and a certificate showing an authorized meter was installed along with a modest filing fee and that's it.

If there are too many taxis in Manhattan, it seems like the better response is to implement congestion charging on taxis and private vehicles alike.

Also, professional athletes in right-to-work states don't have to join the union.

Hence, players on professional sports teams in states with Right to Work laws are protected by those laws, and cannot be required to pay any portion of union dues as a condition of continued employment.[4]

Of course, the history of unions suggests they probably should pay up to avoid ending up in my first link...

"Of course, the history of unions suggests they probably should pay up to avoid ending up in my first link…"

Cute joke, but kind of a ridiculous smear at the same time.

Jimmy Hoffa could not be reached to comment on this thread.

Why is this presented as an issue of no regulation at all versus lots of regulation? What happened to a healthy middle ground?

No such thing on this blog's comment threads. Every regulation or dollar of tax is another step on the road to serfdom.

I don't think anyone has actually argued for ending all regulation.

A better question would be: why beat up strawmen?

Right, the original post is about barbers and interior decorators. But the detractors immediately jump to "WELL WHAT ABOUT NEUROSURGEONS?!?!?!" There are fairly obvious distinctions between the barber and the neurosurgeon which merits regulating one and not the other (although both professions involve wielding pointy objects in the general vicinity of the cranium).

For a couple of years I hung up my shingle as a small animal veterinarian. Since my diagnosis was always brain cancer and the treatment was always euthanasia, the word of mouth advertising didn't work out too well. Maybe I'll go into neurosurgery next.

I should also add that if the antitrust laws applied to local and state governments, then most licensure requirements would very likely be found to be illegal restraints of trade by the courts

This may have been discussed above, but rather than setting up licensing schemes, I would think that simple liability insurance requirements would solve most of the problems that licensing is allegedly intended to solve (i.e., to prevent harm to consumers). Liability insurers set premiums based on the risk posed. If untrained interior designers (for example) pose too much of a risk compared with trained ones, then the insurers won't sell policies to the untrained, or will only sell them policies at high premiums. That in and of itself would push would-be interior designers to obtain training. Alternatively, if untrained interior designers do not pose a greater hazard, then insurers won't require training - which means that there is no reason for state governments to require it either. While not perfect, and obviously not applicable to all jobs/professions/risks, this would seem to be a reasonable path between zero regulation (which will never happen anyway) and over-regulation (which does happen).

"An interior decorator who can’t get recommendations from satisfied customers probably won’t remain an interior decorator for long."

1. The trouble is that in a large urbanized area, where mass market advertising drives lots of customers, while social and reputational networks are weak, recommendations from satisfied customers are irrelevant or can be falsified. An ability to enjoin someone from engaging in interior design work in the event of misconduct, a minimal code of conduct for interior designers, and a pay $5 and sign an affidavit to get a license regime, might be enough to make a huge positive difference. From a public welfare perspective, it is far more important in a licensing regime to have the ability to exclude people who act improperly in some way (to yank their license), than it is to have a high barrier to entry to getting the license in the first place. Keeping proven bad apples out of a profession has value to the public, and reduces contracting costs by making the worse case likely scenario that drives due diligence costs down in situations with weak reputational monitoring.

2. The case for some barrier to entry is also a lot more persausive in professions (brain surgery, legal representation in felony cases, civil engineering), where even a single mistake made under a misguided belief that one is qualified could have dire negative consequences for the customer. I agree that high barriers to entry in low stakes professions (barbers, e.g.) are far less defensible.

3. Don't forget that a fair amount of professional licensing is driven by the need to prevent yourself from being ejected from jurisdictional claims of another profession. If you give medical doctors exclusive jurisdiction over medicine, except as otherwise provided, every other kind of medical professional needs a license. As long as the barriers to entry are approriately low, this kind of "defense" licensing can actually open up rather than narrow the options available to the public.

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