Results for “occupational licensing”
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Common mistakes of left-wing economists?

T., a loyal MR reader, asked for a compendium.  This is my off-the-cuff list, but in the interests of fairness I'm doing one on market-oriented economists as well.  What are some of the common views found on the left which I consider not just disagreements but more along the lines of a mistake?  

By no means is everyone is guilty of these mistakes, nor does it have to mean that the associated conclusions are wrong.  Still I see these frequently:

1. Suggesting that money matters in politics far more than the peer-reviewed evidence indicates.

2. Evaluating government spending on a program-by-program basis, rather than viewing the budget as a series of integrated accounts.  Cross check with the phrase "Social Security," or for use to take many discretionary spending cuts off the table.

3. A reluctance to incorporate sophisticated "public choice" theories into the analysis of favored programs.  

4. Sins of omission: there are plenty of bad policies, such as occupational licensing, which fail to come under much attack from the left.  Sometimes this is because the critique would run counter to the narrative of needing more government or needing more regulation.

5. Significantly overestimating the quality of the political economy of an America with more powerful labor unions and underestimating the history of labor unions as racist, corrupt, protectionist, and obstructions to positive change.

6. Overestimating the efficacy of fiscal policy, underestimating the power of monetary policy, and sometimes ignoring or neglecting how the two interact ("the monetary authority moves last").

7. Citing weak versions of structural unemployment theories and dismissing them with a single sentence or graph, while relying on stronger versions of structural theories in other, non-cyclical contexts.

8. Lack of interest in discussing ethnicity and IQ as relevant for social policy, except in preferred contexts.

9. Overly optimistic views of the fiscal positions of state governments.  Since the states don't have the same tax-raising powers that the feds do, and since state government spending is favored, there is a tendency to see these fiscal crises as not so severe, or as caused by mere obstructionists who will not raise taxes to the required levels.

10. A willingness to think that one has "done one's best" in the realm of policy, and to blame subsequent policy failures on Republican implementation, rather than admitting that a policy which cannot be implemented by both political parties is perhaps not a good policy in the first place.

11. Use of a strong moral argument for universal health care coverage, combined with a fairly practical, hard-headed approach to the scope of the mandate, and not realizing the tension between the two.  Failure to indicate where the "bleeding heart" argument actually should stop and at what margins we should (and will) let non-elderly people die, if only stochastically.

12. Implicitly constructing a two-stage moral theory, which first cordons off the sphere of the nation-state (public goods provision, etc.) and then pushing cosmopolitan questions off the agenda in the interests of expanding a social welfare state.  (In fairness, many individuals on the right don't give cosmopolitan considerations even this much consideration, although right-oriented economists tend to be quite cosmopolitan.)

13. What about countries?  Classical liberals are increasingly facing up to the enduring successes of the Nordic nations.  There is not always a similar reckoning with the successes of Chile and Hong Kong and Singapore; often this is a sin of omission.  (Addendum: comment from Matt here.)

14. Reluctance to admit how hard the climate change problem will be to solve, for fear of wrecking any emerging political consensus on taking action.

In most cases you can find evidence and links by searching back through the MR archives.  

A License to Kill Shampoo

The WSJ has a good piece on licensing, with the usual amusing stories.

Texas, for instance, requires hair-salon "shampoo specialists" to take 150 hours of classes, 100 of them on the "theory and practice" of shampooing, before they can sit for a licensing exam…

A shampoo specialist in Texas, for instance, learns about neck anatomy and must practice skills such as regulating water temperature. "There's a lot of different things that go into it," says Elizabeth Perez, the state's cosmetology program manager.

Morris Kleiner offers the economist's interpretation:

Licensing "Occupations prefer to be licensed because they can restrict competition and obtain higher wages,"….

Mr. Kleiner estimates that across the U.S. economy, occupational licensing adds at least $116 billion a year to the cost of services, which amounts to about 0.1% of total consumer spending. In a look at dentistry, Mr. Kleiner found that the average price of dental services rose 11% when a state made it more difficult to get a dental license.

Does licensing improve quality?

But whether licensing guarantees better-quality work is an open question. Several academic studies in the 1970s and '80s found that licensure boosted quality in professions such as dentistry, optometry, plumbing and real-estate sales. More recent studies have found no evidence that licensing improves the quality of teachers or mortgage brokers.

I love that last sentence. The WSJ does offer some interesting tests:

…a look at consumer complaints about manicurists suggests licensing doesn't necessarily correlate with quality.

Alabama has perhaps the strictest licensing requirements in the nation: 750 hours of schooling and a written and practical exam. The state gets, on average, four public complaints a year about poor service, according to the Alabama Board of Cosmetology.

Connecticut, which doesn't require manicurists to get licenses, has averaged just six complaints a year to the state over the past five years. Two-thirds of those complaints are about gift certificates that aren't honored, according to data from the consumer protection division of the state attorney general's office.

Certification can serve many of the legitimate roles of licensing without the anti-competitive effects of licensing. I hope that is OK with you.

Addendum: Doug in the comments points us to this instant classic in the Palm Beach Post comparing unlicensed hair dressers, "garage cutters," to back-alley abortionists and quoting one salon owner:

"Even with the standards we have, you see a lot of dry hair and wrong color. Imagine what we'd have without these regulations."

State licensed hypnotists

Kevin Carey has a sadly amusing post on occupational licensing:

Back when I was working for the Indiana General Assembly, one member…became convinced that it was crucially important for the state to address, via statute, the problem of rogue hypnotists traveling the land, preying upon unsuspecting Hoosiers. He wasn’t anti-hypnotist, mind you–he thought the government needed to protect people from unqualified hypnotists…

So the state passed a hypnotist licensing law, complete with the requisite boards, professional standards, forms to fill out, fees to pay, and so on….Then, after the law was enacted, a funny thing started happening: The state began receiving license applications from people who didn’t live in Indiana….It turns out they were doing it so they could advertise in the yellow pages and on bus-stop billboards as “state-licensed.”

Hat tip to Matt Yglesias.

Mandates don’t stay modest

A tactic used by insurance companies to deny expensive behavioral
therapy to autistic children has been deemed illegal by a Los Angeles

In a preliminary ruling, Los Angeles County Superior
Court Judge James C. Chalfant found that Kaiser Permanente's refusal to
pay for a child's autism treatment because the provider was not
licensed by the state runs counter to California's Mental Health Parity
Act. That act requires insurers to cover care for mental and behavioral
problems at the same levels they do for physical illnesses.

Here is the full account.  Three different (but not unrelated) takes on this story are:

1. Whatever you think of occupational licensing, as a matter of social status it seems odd to apply it to dog doctors, or for that matter toilet and sink doctors (i.e., plumbers), but not to those who treat autistic children.

2. These treatments can cost $50,000 a year or more and there is little reliable RCT evidence that they actually work.

3. Yesterday I saw two separate television ads, on two separate channels, campaigning for the Virginia State legislature on the grounds that one's opponent had opposed mandatory insurance coverage for autism treatments.  The ads simply take it for granted that such coverage would be a good thing.  (Rest assured I do not usually watch TV, or its commercials, but the first was in a restaurant at Eden Center and as for the second it was the first day of the NBA season.)

How would tighter regulation affect mortgage origination?

Here’s one paper suggesting that regulation doesn’t necessarily solve current problems:

We find that most aspects of mortgage broker licensing systems, such as mandatory professional education, do not have a significant and consistent statistical association with market outcomes. However, one component — the requirement in many states that mortgage brokers maintain a surety bond or minimum net worth — does have a significant and fairly consistent statistical relationship with both labor and consumer market outcomes. In particular, we find that tighter bonding/net worth requirements are associated with fewer brokers, fewer subprime mortgages, higher foreclosure rates, and a greater percentage of high-interest-rate mortgages. Although we do not provide a full causal interpretation of these results, we take seriously the possibility that restrictive bonding requirements for mortgage brokers have unintended negative consequences for many consumers. On balance, our results also seem to support theories of occupational licensing that stress the importance of pure entry and exit barriers over those that focus more on the human capital effects of licensing.

Get that?  Tighter regulation does mean fewer subprime mortgages, but also higher foreclosure rates and higher interest rates on the mortgages.  This paper is hardly the final word, if only because broker licensing is not the only possible means of regulation.  But in the meantime caution is in order; don’t be attracted to the idea of tighter regulation simply because you feel we haven’t had good enough regulation so far.  Regulators are famous for fighting the last war, not preventing the crisis to come.

So far I’m not finding an ungated copy of this paper.

Wednesday assorted links

1. The economics of border walls.

2. “We find that [occupational] licensing reduces equilibrium labor supply by an average of 17%-27%. The negative labor supply effects of licensing appear to be strongest for white workers and comparatively weaker for black workers.”  Link here.

3. Are there more witches than (American) Presbyterians?

4. How economics works (a parable of capital taxation, recommended).

5. Is carbon capture now more feasible?

6. The origins of the Schelling segregation model.

The Logic of Closed Borders

Bloomberg: At least 100 workers at the construction site for Tesla Motors Inc.’s battery factory near Reno, Nevada, walked off the job Monday to protest use of workers from other states, a union official said.

Local labor leaders are upset that Tesla contractor Brycon Corp. is bringing in workers from Arizona and New Mexico, said Todd Koch, president of the Building and Construction Trades Council of Northern Nevada.

“It’s a slap in the face to Nevada workers to walk through the parking lot at the job site and see all these license plates from Arizona and New Mexico,” Koch said in an interview. Those who walked out were among the hundreds on the site, he said.

Erik Brynjolfsson tweeted “Build a wall! And make New Mexico pay for it.” Or perhaps require that Nevada carpenters be licensed.

New issue of Econ Journal Watch

Find it here.  The contents are described as follows:

Occupational Misfeasance of Labor Textbooks: Frank
Stephenson and Erin Wendt report that textbooks neglect occupational

Do Economists
Believe American Democracy Is Working?
A new survey by William
Davis and Robert Figgins indicates that Democratic, Republican, and
Libertarian economists are all of but little faith.

Adam Smith’s Invisible
Hand–Is That All There Is?
Gavin Kennedy argues that it was
just a casual metaphor; Dan Klein dissents.

Guns and Crime, Round 2: Carlisle Moody and Thomas
Marvell rejoin, and Ian Ayres and John Donohue reply.

Intellectual Hazard:
97 quotations about our wanton ways.