Let’s Avoid the Big Government Trap with Regulation


George Mason University Economics Professor Tyler Cowen sees occupational licensing as such a problem, he’s willing to modify his conservative leanings in order to suggest that the federal government step in on the issue:

Unfortunately, I don’t expect the federal bureaucracy to usher in the reign of Milton Friedman’s Chicago School economics. But the federal regulatory process would likely pay less heed to local special interests, and it would produce a more homogenized and less idiosyncratic body of regulatory law more geared toward the most important cases, such as medicine and child care. The federal government is less likely than many state and local governments to obsess over licensing rules for fortune tellers, florists and athletic trainers.

Cowen is falling into the progressive trap.  He recognizes that the “machinery for creating new licenses is much better organized and funded than the institutions for getting rid of them, and once in place these requirements have natural defenders, namely those who have invested in the credentials,” but he somehow imagines this advantage will simply disappear at the federal level.  Why wouldn’t these state-by-state organizations just start making alliances across state lines?

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The assumption that a federal bureaucracy will be free of an inclination to the petty has little foundation in theory or experience.  Presumably, the agency will collect fees through regulation, and that will certainly be the source of its power.  Even just incentives toward job security will keep the numbers of licenses growing.

In cases of asymmetrical incentives, we’re always better off keeping decisions at the smallest scale possible.  The number of dog walkers in a particular town, for example, who want to create some kind of local license will more easily matched before the town council by people who think the license would be unnecessary protectionism.  At the federal level, the side with incentive to organize will have even more aggregated power, while the other side will be even more difficult to organize.

Frustrating as it can be, there is no end run to limited government that goes through big government.