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How to create jobs without new spending or tax cuts

 Here’s a point that anti-government Glenn-Beck conservatives and social justice Barack-Obama progressives should be able to agree on: We shouldn’t throw men in jail for cutting hair or for painting living rooms without a license (current MD law), and if a man wants to start a new business, he shouldn’t have to get permission from the existing businesses that he aims to compete against in order to do so.

Increasingly there is less and less you can do to earn a living without first getting permission from the government to do it, or without working for a company that needs to get permission from the government. With unemployment stagnating around 10% and with poverty at record levels, it is time to address a problem hiding in plain sight that keeps men from working and keeps more men from earning as much as they would otherwise -- all while benefiting a select few who are powerful and politically connected enough to make the rules. Eliminating or reducing occupational licensing would significantly help the job market, the economy, and the poor, all without increasing spending or sacrificing tax revenue. It is the obvious low-hanging fruit that politicians should be plucking to help get us back on track.

Conservatives should naturally support the elimination or reduction of government regulations that interfere with the right to enter into a private, legal contract. Our criminal justice system has a presumption of innocence, but our business regulatory system very much has a presumption of guilt. Why is someone who wants to open a restaurant presumed to be incompetent and a danger to the public until he proves otherwise to a government bureaucrat? The fear of being sued in civil court under strict or public liability certainly is a strong incentive to use care.  As for the general quality of a product or service “unskillfulness is sufficient punishment,” as Sir Edward Coke wrote in 1614 regarding an English case attempting to impose licensing requirements on upholsters.  If your product is substandard, people won’t buy from you. While the constitutional arguments against occupational licensing may be weak, purists should know that there are long dormant (since 1873) arguments to make under the privileges and immunities clause of the 14th Amendment. “Privileges and immunities” is 18th-century speak for natural rights such as the right to earn a living. The 14th Amendment also provides two additional arguments under the due process and equal protection clauses. If depriving one of his liberty to earn a living is an insufficient argument, then what about jailing or fining one for doing so? Granted such jailing or fining occurs only after court proceedings (due process), but the entire trial is a charade with guilt predetermined the moment one opened an otherwise inherently legal business without a license. The impact of occupational licensing is anything but equal and carries distinct winners and losers. It is government policy that increases income and wealth inequality.

Progressives who traditionally see government as the solution to all problems may be a tougher sell, but an understanding and application of commonly accepted microeconomic theory reveals that occupational licensing raises prices for consumers, increases unemployment, reduces wages (especially among the lowest wages), and puts the American dream of owning your own business out of the reach of many. Simply put: occupational licensing helps create monopolies, and monopolies are bad for everyone except monopoly owners.

Here’s another point that Adam Smith, Karl Marx, and Jesus of Nazareth would agree on: In the long run, under perfect competition, economic profit equals zero. Ergo, Smith, Marx, and Jesus would all agree that perfect competition is good and that anti-competitive barriers to entry that create monopolies and lead to supernormal profits are bad. A monopolistic business will produce less stuff at a higher price and a higher profit margin than would a perfectly competitive business. Higher prices hurt poor people disproportionately because they spend a greater percentage of their income on buying stuff versus saving or investing it. Producing less stuff means businesses employ fewer workers and unemployment rises. The smaller number of employers also shifts the balance of power in favor of employers over employees when negotiating wages. Big businesses are able to get away with paying their workers less because there are fewer small businesses to compete with for the labor supply. In both the retail market of stuff-for-sale and the labor market of workers-trying-to-earn-a-living, monopoly power directly transfers income and wealth from society as a whole to monopoly owners. For a more detailed explanation of how monopolists differ from perfectly competitive businesses, check Dr. Roger A. McCain's concise presentation. (Dr. McCain is a Professor of Economics at Drexel University.)

As broadly unjust as occupational licensing is, it is likely to continue until there is a real public outcry over it. Unfortunately, the moment someone complies with and jumps through one of these regulatory hoops, he just became a supporter of them. If anything, those on the inside of these anti-competitive protective barriers have reason to want to build the walls even higher. In spite of broad spectrum ideological support, the main reason these are unlikely to go away anytime soon is for the same reason that other government subsidies (occupational licensing is a big business subsidy) are unlikely to go away anytime soon: in the battle of concentrated interests versus diffuse interests, concentrated interests always win.

Disclosure: none