Watching economic policy debate feels very much like watching a doctor set a broken arm while the patient dies with blood gushing out of an artery. We look at minor issues and ignore major ones. And then when someone like me points this out, people complain, “Well at least they’re doing something!” That might be a sensible retort if the minor things that were being done were unquestionably good. But that’s never the case.
Take the case of Obama’s new budget line item that gives $15 million to states so that they can evaluate the costs and benefits of professional licensing. Jonathan Chait wrote a very excited article about it, Obama Budget Attacks Big Small Government. In many ways, I agree. The truth of the matter is that if you are going to be oppressed by the government in the United States, it is almost certainly going to be by state and local government — not the federal government. And a lot of professional licensing really is stupid. I’ll go further: there are tremendous state and local regulations that are extremely onerous to people like me who operate what I’ve come to think of as micro-businesses — businesses that consist of one or two people that often don’t even have store fronts.
Where I part company with Chait is in thinking that licensing requirements are really what are getting in the way of people climbing the economic ladder. To begin with, property tax laws that require businesses to pay taxes on all their inventory that they might some day sell are far more inhibiting than licensing. Or consider one of Chait’s favorite examples: barbers. Having to go to school and be licensed is certainly a barrier to entry. But it isn’t as big a barrier to entry as having to rent a shop rather than working out of your house.
But the macro-scale problem is worse. Becoming a barber is currently a path to the middle class precisely because it is a licensed profession. Get rid of that barrier to entry, and more people come into the field, and the quality of the job goes done. And pretty much, the quality of the job goes down to the same extent that it becomes an easier job to have. Allow people to have barber shops in their kitchens and it becomes as much a pathway to the middle class as itinerant farm work.
But hey, that’s the free market, right? Sort of. The truth is that writ large and long, the economy would grow as a result of cheaper haircuts. But there are two reasons why we shouldn’t care. The first is just a matter of fairness. Why is it that it is always the middle and lower-middle classes that have to suffer so that the poor might get a small advantage? We saw this during many of the lame attempts at integration in the early 1970s. The ultimate effect was that the lower and middle classes were disrupted and minority groups ended up just as segregated as when they started. This is what happens when the power elite decide that the only way to help the disadvantaged is by disadvantaging a different, almost as powerless, group.
The other issue is that I just don’t care about economic growth. Over the last four decades, we have seen the effect of economic growth. The rich (top 1%) have gotten way richer. The upper half of the upper class (top 10%) has gotten marginally richer. And the rest have either gotten nothing or have actually lost. So when cheaper haircuts stimulate economic growth, there is no reason to think that the very people who see their wages cut will get any offsetting benefit from it.
Last week, Dean Baker discussed, Ubernomics. It turns out that despite the fact that Uber drivers have enormous upfront costs and are basically just their own businesses, they seem to make less per hour than traditional cab drivers. This doesn’t even take into account that Uber and similar services are flouting the law. As Baker noted, “Find a way to get around the rules and then claim it as a great innovation.” Regardless, this is also the typical story of our economy: lower wages for poor and middle class workers while the rich pocket the savings.
None of this is to say that we shouldn’t look at professional licensing. But it is a minor issue. We are looking at it because it is an issue that doesn’t threaten the power elite. I understand: that’s politics. But there is a problem with supposedly liberal commentators claiming that this is something great. It isn’t. The long-term effects of this will be to lower the wages of middle class workers. But on the up side, Jonathan Chait will get cheaper haircuts.