Tag: special interests

The Institute for Justice Exposes the Plague of Occupational Licensing

Today, the Institute for Justice released a 200-page, comprehensive study on occupational licensing in the United States. The report details the plague of occupational licensing that has swept the country over the past 60+ years. According to the study, “In the 1950s, only one in 20 U.S. workers needed the government’s permission to pursue their chosen occupation. Today, that figure stands at almost one in three.”

Fifty years ago, in Capitalism and Freedom, Milton Friedman warned against the dangers of professional licensing. At that time, Friedman quoted a previous study on licensure by Walter Gellhorn:

By 1952 more than 80 separate occupations exclusive of ‘owner-businesses,’ like restaurants and taxicab companies, had been licensed by state law; and in addition to the state laws there are municipal ordinances in abundance, not to mention the federal statutes that require the licensing of such diverse occupations as radio operators and stockyard commission agents. As long ago as 1938 a single state,North Carolina, had extended its law to 60 occupations. One may not be surprised to learn that pharmacists, accountants, and dentists have been reached by state law as have sanitarians and psychologists, assayers and architects, veterinarians and librarians. But with what joy of discovery does one learn about the licensing of threshing machine operators and dealers in scrap tobacco? What of egg graders and guide dog trainers, pest controllers and yacht salesmen, tree surgeons and well diggers, tile layers and potato growers? And what of the hypertrichologists who are licensed in Connecticut, where they remove excessive and unsightly hair with the solemnity appropriate to their high sounding title?

The Institute for Justice’s study found that licensing has only become more wide-spread and more absurd. But an increase in licensure is expected when interest groups are allowed to capture government and violate our economic liberties. Public choice theory predicts a growth in licensing if the anti-competitive interests of trades are not checked by constitutional rights. As Friedman observed,

In the absence of any general arrangements to offset the pressure of special interests, producer groups will invariably have a much stronger influence on legislative action and the power that be than will the diverse, widely spread consumer interest. Indeed from this point of view, the puzzle is not why we have so many silly licensure laws, but why we don’t have far more.

There are significant real-world effects to these laws. In a world of nine percent unemployment, barriers to work should be the last thing we want, particularly if those barriers do not make us safer or better off. The study found that the average license forces would-be workers to pay an average of $209 in fees, take one exam, and complete nine months of training. In the four places in which they are licensed (three states and DC), interior designers have the highest barriers to entry, apparently to save us from shag carpeting and misuses of the Pottery Barn. In the face of such requirements, particularly the months of training, it’s easy to see how someone can be discouraged from even looking for a job.

In addition, out-of-control licensing has other, more human costs, such as the monks of Saint Joseph Abbey, who were prohibited from building caskets in their monastery unless they obtained a funeral director license. The Institute for Justice won that case. Here’s hoping the new study gives IJ’s attorneys the data they may need to defeat other unconstitutional licensing regimes.

Below is the video announcing the study:

Senate Spares Rural Development Subsidies

An amendment to a Senate appropriations bill introduced by Sen. Tom Coburn (R-OK) that would have reduced funding for rural development subsidies at the Department of Agriculture by $1 billion was easily voted down today. Only 13 Republicans voted to cut the program. Thirty-two Republicans joined all Democrats in voting to spare it, including minority leader Mitch McConnell (R-KY), ranking budget committee member Jeff Sessions (R-AL), and tea party favorite Marco Rubio (R-FL).

This was a business-as-usual vote that will receive virtually no media attention. However, it is a vote that symbolizes just how unserious most policymakers are when it comes to making specific spending cuts. That’s to be expected with the Democrats. On the other hand, Republicans generally talk a good game about the need to cut spending and they rarely miss an opportunity to criticize the Obama administration for its reckless profligacy. Republicans instead fall back on their support of a Balanced Budget Amendment and other reforms like biennial budgeting.

I think most Republicans are in favor of a BBA because they believe it gets them off the hook of having to name exactly what they’d cut. There are several reasons why Republican policymakers won’t get specific: 1) they really don’t want to cut spending; 2) they’re afraid of cheesing off special interests and constituents who benefit from government programs; 3) they’re more concerned with being in power and getting reelected; 4) they’re just plain ignorant of, or disinterested in, the particulars of government programs.

As for biennial budgeting, Republicans would have us believe that appropriating money every other year will give policymakers more time to conduct oversight of government programs. I think it’s another cop-out. Coburn’s office put out plenty of information on the problems associated with USDA rural development subsidies (see here). A Cato essay on rural development subsidies provides more information, including findings from the Government Accountability Office that are readily available to policymakers.

(Note: I worked for both Jeff Sessions and Tom Coburn.)

With Friends Like Sen. Sessions, Free Trade Is in Trouble

According to a story in Politico today, Senator Jeff Sessions of Alabama has been whipping his Republican colleagues to vote in favor of the China currency legislation that appears to be headed for passage in the Senate. (My Cato colleague Dan Ikenson has explained  why raising tariffs on imports from China would be a mistake.)

The Politico story says that Sessions is “traditionally a proponent of free trade,” but his actual voting record indicates otherwise. According to the trade vote data base we maintain on the home page of the Herbert A. Stiefel Center for Trade Policy Studies at Cato, Sen. Sessions has voted in favor of lower trade barriers on a bare majority (26 out of 49) of the significant trade votes we’ve recorded.

Since 1997, Sen. Sessions has voted in favor of protectionist farm bills (2002, 2007, 2008), banning safety-certified Mexican trucks from U.S. roads (2007), country-of-origin labeling (2003), the WTO-illegal Byrd amendment (2003, 2005), the original Schumer-Graham bill to impose a 27.5 percent tariff against imports from China (2005), sugar import quotas (1999, 2000, 2001), and steel import quotas (1999)

Meanwhile, he’s voted against the Morocco free-trade agreement (2004), trade promotion authority (1998, 2002), and normal trade relations with Vietnam (2001) and China (1997, 1999).

And to top it all off, it was Sen. Sessions who single-handedly scuttled renewal last year of the Generalized System of Preferences, the long-standing program that had allowed certain imports from poor countries to enter the United States duty free. As my Cato colleague Sallie James has chronicled (here and here), the good senator refused to allow the program to be renewed because of a dispute affecting a small number of his constituents who are employed making sleeping bags.

Like too many of his fellow senators, Sen. Sessions supports our freedom to trade only as long as it does not affect any noisy special interests in his own state.

Lobbying Wolves on the Prowl

The other day I noted that the budget cuts agreed to last week contained lots of familiar faces. Many of the agencies and programs getting a trim were also cut in 1995 in a rescissions package put together by Gingrich Republicans. In the fifteen intervening years, federal spending exploded across the board, which means that an occasional trim job doesn’t accomplish much if the goal is to limit government.

The reason why is that if the scope of government activities isn’t curtailed, the cuts will be short-lived. As long as the agencies and their programs remain, special interests won’t stop agitating Congress to continue, or more likely, increase, funding.

A recent article in The Hill reports that lobbyists are already hard at work:

Groups that advocate for everything from more foreign aid to bolstering the nation’s transportation system saw several of their favorite government programs suffer deep spending cuts in the fiscal year 2011 budget deal.

With millions of dollars now axed from what they consider key federal initiatives, groups are planning to redouble their efforts and lobby to restore as much funding as possible in next year’s budget.

(Note to reporter: A lot of adjectives could be used to describe the spending cuts. “Deep” is not one of them.)

A fellow who lobbies for foreign aid argues that cutting it won’t balance the budget and that “We need to be planting the seeds for future economic prosperity around the world.” It’s true that even eliminating foreign aid wouldn’t balance the budget, but every little bit helps. But what’s striking is his arrogant pronouncement that “we” (taxpayers) need to be forced by the federal government to send our money abroad for the causes he fancies.

A lobbyist with the National League of Cities is relieved that the GOP didn’t get the small cut in local handouts that were originally proposed, but is nonetheless concerned about the “anti-spending climate in Washington”:

‘We’re talking about staff layoffs at the city level. Cities are also going to have completely reorganize their budgets mid-year and prioritize some things out.’

‘In this environment, the numbers from fiscal year 2011 might be the new baseline but our message isn’t going to change,’ Wallace said. ‘We’re focusing on those local programs that create jobs and spur economic growth.’

Cities prioritizing spending? Heaven forbid. Suck more money out of the private sector in order to save bureaucratic deadweight in local government? That doesn’t sound like a recipe for economic growth to me. (See here for more on the problems with federal subsidies to state and local governments.)

Then there are the transportation lobbyists. These folks would probably argue that a giant escalator to nowhere would be a wise use of taxpayer money:

Dean’s group is lamenting spending cuts made to the high-speed rail program, transit security grants as well as funding for “fixed guideway” projects, which include commuter trains, cable cars and ferryboats among other public transit systems.

For the fans of The Simpsons who didn’t catch the escalator reference, see this link for my feelings on government-funded rail projects. (Fans and non-fans should check out these essays on urban transit subsidies and high-speed rail.)

In Washington, it’s the squeaky wheel that gets greased. Lobbyists for government programs exist to make sure that Congress hears their wheel squeaking. Yes, the deck is stacked against those who are forced to foot the bill, but if taxpayers want federal agencies and their programs to get more than a trimming every fifteen years or so, now is the time to make a lot more noise.

Senator Reid’s Gamble

My colleague Dan Mitchell has already written about the tax deal reached between President Obama and congressional Republicans.  But there might be something in the package for people wishing to play poker freely online.

Sen. Harry Reid (D., Nev.) is apparently circulating draft legislation to overturn the Unlawful Internet Gambling Enforcement Act of 2006, which blocked financial institutions from processing transactions with online gambling companies.  I would characterize that as a good move overall, apart from three quibbles. First, the draft legislation would – you guessed it –place a tax on the wagers (you didn’t think you’d get your freedom back without conditions, did you?). Second, the bill applies only to poker, and continues to prohibit “Internet gambling” more broadly. And third, the fine-print sounds problematic from a trade policy (and trade law) point of view:

…Mr. Reid’s office is considering language that would allow only existing casinos, horse tracks and slot-machine makers to operate online poker websites for the first two years after the bill passes, which could limit the ability of other companies to enter the market.

Carving out this fast-growing market for established gambling service providers sets off my protectionist alert. The cosy little cartel wouldn’t just exclude domestic potential competitors; I wrote a short paper a few years ago on how the UIGEA got the United States into hot water with the World Trade Organization, and the same arguments apply today. The United States still – despite vague, and so far empty, talk about changing its commitments with WTO members – has an obligation under the General Agreement on Trade in Services to open its market to online gaming operators abroad.

Politico has more about the groups supporting this move, suggesting (as are many Republicans opposed to internet gambling) that Reid has seen religion on online poker in direct response to the campaign contributions he received from gambling interests. I’m not so much interested in that angle –politicians responding to special interests is hardly news – as I am in the substance of what the legislation is proposing. And if the following reporting from Politico is accurate, the substance is troubling enough :

The National Indian Gaming Association is opposing Reid’s effort to insert the online poker language in any tax cut bill, said an official with the group, Jason Giles. He asserted it gives an advantage to Las Vegas-based gambling operators while discriminating against tribal operators.

“It is drafted to create an initial regulatory monopoly for Nevada and New Jersey for the first several years of the bill, which gives Las Vegas operators time to capture the market,” he said.

A gambling industry insider familiar with Reid’s efforts said Republican-leaning Vegas casino moguls Steve Wynn and Sheldon Adelson, while generally supportive of Reid’s legislation, take issue with provisions that could allow companies that previously operated in violation of online gambling laws to cash in.

The UIGEA is/was a nightmare for online operators to work around, partly because it never really defined “unlawful internet gambling.” Therefore, I am not sure how one would determine unambiguously whether a company “operated in violation of online gambling laws”.  The UIGEA referred to transactions processors rather than gambling companies. And in any case, a few European operators (PartyGaming most famously) withdrew from the U.S. market at the time the UIGEA passed, just to be safe, and yet have continued to face prosecution.  The European firms are at the cutting edge of online gaming services. Of course Messrs. Wynn and Adelson would want them out of the picture, but legislators should resist their attempts.

While Reid’s proposal may be an improvement on the status quo, it falls far short of restoring the full freedom of consenting adults to use their money, time, and online access in a manner of their choosing. It also is a long way from allowing a competitive, open market in gaming services to thrive. We should see this as a step in the right direction, but not the end game.

Policymakers Needn’t Fear Spending Cuts

A recent study by economists Alberto Alesina, Dorian Carloni, and Giampaolo Leece looked at 19 OECD countries from 1975 to 2008 and found no evidence that “governments which quickly reduce budget deficits are systematically voted out office.” Therefore, the authors conclude that governments can “decisively” reduce deficits and be returned to office by voters.

A particularly interesting finding is that only 20 percent of the governments that reduced deficits by cutting spending were subsequently voted out of office. In contrast, 56 percent of governments that reduced deficits by increased taxes were given the boot.

The findings are good news for the large group of incoming members of Congress who promised to cut spending during the campaign.

The authors ask, “If it is the case that certain types of fiscal adjustments are not necessarily costly in terms of lost output or lost votes, why are they often delayed and politicians reluctant to implement them?”

One possible reason they suggest makes the most sense:

Certain constituencies may be able to block adjustments to continue receiving rents from government spending because they have enough political energy (time, organization, money). This is sometimes referred to as an issue of diffuse benefits and concentrated costs. For example, in some cases strikes of public-sector employees may create serious disruptions. Pensioners lobbies may be able to persuade politicians not to touch their pension systems even when future generations will suffer the costs of delayed reforms. Lobbyists for certain protected sectors use campaign contributions for continued protection.

Policymakers in Washington are surrounded by doting staffers, political operatives, and persistent lobbyists representing countless special interests. The result is an endless stream of feedback telling policymakers to SPEND! Or, as is currently more likely the case, DON’T CUT! Many politicians learn to enjoy the warm feelings (and campaign support) that come with delivering the taxpayer goods to particular interests, while those who would actually like to cut spending don’t make any friends.

The media often doesn’t help matters.

Consider how many journalists tend to portray the subject of spending cuts. They describe proposed cuts as “draconian” and modest trims as “slashing” spending. Instead of considering the cost to taxpayers of a program or the possible alternatives to government programs, journalists just think of cuts as “painful.”

One way to puncture a hole in the Beltway spending echo-chamber would be for congressional committees to spend more time listening to witnesses who don’t want more government spending. In a Cato Policy Analysis, former Yale professor James Payne surveyed 14 congressional committee hearings. He found that “in those 14 hearings, 1,014 witnesses appeared to argue in favor of programs and only 7 spoke against them, an imbalance of 145 to 1.”

There’s a lot of talk coming from House Republicans about “changing the culture” in the appropriations committee and elsewhere. A good start would be for the committees to start hearing more from the “diffuse” taxpayers footing the bill, and less from the concentrated beneficiaries. Perhaps then more policymakers will come to realize that pushing spending cuts isn’t so scary after all.

Government Cheese

Self-anointed elites have been relentless in prodding government planners to apply their enlightened solutions for the purported benefit of the ignorant masses. As a result, the federal government has become a Super Nanny monitoring and guiding the intimate activities of the nation’s 300 million inhabitants. However, the government is not altruistic and does not have the solutions for how people should live their lives.

The amalgamation of programs and regulations that constitute the federal government is basically a reflection of the myriad special interests that have won a seat at Uncle Sam’s table. Government consists of fallible men and women who are naturally susceptible to pursuing policies that have less to do with the “general welfare” and more to do with rewarding the privileged birds incessantly chirping in their ears.

One result is that government programs often work at cross purposes. A perfect illustration is the confused U.S. Department of Agriculture, which spends taxpayer money subsidizing fatty foods while at the same time setting nutritional guidelines with the purported aim of getting Americans to eat healthier.

The New York Times explains:

Domino’s Pizza was hurting early last year. Domestic sales had fallen, and a survey of big pizza chain customers left the company tied for the worst tasting pies.

Then help arrived from an organization called Dairy Management. It teamed up with Domino’s to develop a new line of pizzas with 40 percent more cheese, and proceeded to devise and pay for a $12 million marketing campaign.

Consumers devoured the cheesier pizza, and sales soared by double digits. “This partnership is clearly working,” Brandon Solano, the Domino’s vice president for brand innovation, said in a statement to The New York Times.

But as healthy as this pizza has been for Domino’s, one slice contains as much as two-thirds of a day’s maximum recommended amount of saturated fat, which has been linked to heart disease and is high in calories.

And Dairy Management, which has made cheese its cause, is not a private business consultant. It is a marketing creation of the United States Department of Agriculture — the same agency at the center of a federal anti-obesity drive that discourages over-consumption of some of the very foods Dairy Management is vigorously promoting.

Urged on by government warnings about saturated fat, Americans have been moving toward low-fat milk for decades, leaving a surplus of whole milk and milk fat. Yet the government, through Dairy Management, is engaged in an effort to find ways to get dairy back into Americans’ diets, primarily through cheese.

Your tax dollars are being used by the USDA to help Domino’s Pizza (and Taco Bell, Pizza Hut, Wendy’s, and Burger King according to the article) sell its product. Of course, the government isn’t trying to help these fast food giants so much as it’s trying to help a particularly favored special interest: farmers.

While calls to get rid of subsidies for Dairy Management would obviously be on target, the better move would be to get rid of the entire USDA, which the New York Times comically refers to as “America’s nutrition police.” The USDA has been around for almost 150 years, and yet Americans have never been fatter. If there’s a solution to America’s obesity “problem,” it won’t be found in Washington. In a free society, the only solution is to make individuals responsible for the consequences of their own decision-making.

See these essays for more on downsizing the U.S. Department of Agriculture.