0:33 Intro. [Recording date: December 19, 2017.] Russ Roberts: Before introducing today's guest, I want to encourage listeners to vote for your favorite episodes of 2017, as well as telling us about yourself and your listening experience at EconTalk. Go to EconTalk.org; and in the upper left-hand corner you'll find a link to the survey. Thank you for a great year. And I hope to make 2018 better.

0:54 Russ Roberts: My guest is Dick Carpenter... He is the author, with William Mellor, of Bottleneckers: Gaming the Government for Power and Private Profit. It's a book about occupational licensing and related issues, topics that we've talked about recently here at EconTalk; and that's going to be the topic of today's conversation.... What is a bottlenecker? Dick Carpenter: A bottlenecker as we define it in the book is someone who advocates for the creation or perpetuation of a government regulation, particularly an occupational license, that restricts the free flow of workers so that those who are in the occupation can enjoy an economic benefit. Russ Roberts: So, what would be an example? Dick Carpenter: Well, if we think about it in occupational licensing terms, most of us are aware that doctors and lawyers have licenses; and generally people understand that barbers and cosmetologists have licenses as well. But, today, there are lots of occupations that heretofore never required a license, now do require a license. That's often very surprising for people. So, auctioneers and locksmiths, sign-language interpreters, furniture upholsterers; florists in Louisiana, I think interior designers--all of these are occupations that now require a license. Which is essentially a government permission-slip to work. You have to go to the government to get permission in order to work. That's how a license operates. Russ Roberts: And most people don't know anything about it. And that, of course, would include me to some extent, although I'm interested in it and have been for a little bit of time. I think most people's attitude is, 'Well, that seems reasonable. To be representing yourself as a florist, you have to have some knowledge of'--I want to say 'floristry'; I don't know if that's a word. We'll say, 'flowers,' just to play it safe. And so, 'A license--what do you have to do? Maybe, like take a test?' But, of course, the range of things you have to do to get that license varies quite dramatically. Give us some examples of that. Dick Carpenter: Perhaps[?] So, we actually published a report just about a month ago--we at IJ [Institute for Justice], my co-authors and I--examining licensing requirements of 102 different low-to-moderate-income occupations--very much like the ones I just mentioned: auctioneer, locksmiths, and so forth. And so, we examine the requirements for these particular occupations, and we found, as you said, that they are often very disparate. On average, one has to complete about a year of education or experience, complete an examination, and pay about $267 in fees to the state. These were amongst the 5 types of requirements that we collected. The other two were minimum age levels and minimum grade levels. And there are other requirements as well to earn these licenses: there's CPR [Cardiopulmonary resuscitation] training, bonding and insurance, character references, etc., etc. But we examined just those 5 that were most common. So, on average it takes about a year. Which, to many people may not sound like much. So much, so if you have a college education or you have multiple degrees, maybe a year doesn't sound like much. But for somebody who wants to work as cosmetologist, for instance, and may come from a disadvantaged or low-income background, spending a year on education and experience is a long time, and a lot of resources spent earning a license rather than earning a living. So, it can be a significant hurdle to enter that particular occupation. But these requirements are often very disparate as well. So, if you want to work as an auctioneer, 30 states license auctioneers. If you want to work as an auctioneer, 4 of those states require a year or more of education or experience. But, Louisiana only requires 7 days; and in Vermont, it's only 9 days. Eleven of the states that license auctioneers have no education or experience requirements at all. So, we see these very disparate requirements. Locksmith is another great example, where, in most states that license locksmiths, there are very small or minor education and experience requirements. But, in New Jersey, for some strange reason, they require more than a year of education and experience to work as a locksmith. So, these requirements are often very disparate. To do the exact same job, that's just one type of disparate funny[?]. We often found that in one occupation, we'll find that some states license and other states don't license, or, if you compare the licensing requirements of one occupation to another vis-a-vis the safety risks, you see some very irrational requirements. So, we found that on average, cosmetologists will spend about 12 times as much time in education and experience as compared to EMTs [Emergency Medical Technicians], who spend about a month in education or experience. So, there are these really disparate requirements that undermine this rationale of licensing. The rationale is: We need to protect public health and safety. Well, if that's the case, then why is it that only 10 states license furniture upholsterers? If it were really a dangerous epidemic, we expect more states to license it.

6:34 Russ Roberts: Well, it could be those other 40 are just playing into the fire. They've got all the really bad armchairs and couches, and they just don't know any better. So it's hard to know. I mean, the thing that's striking to me is--first of all, before we go further: IJ is Institute for Justice, that you mentioned earlier. Why don't you tell us what they are, actually? Dick Carpenter: Sure. IJ is a non-profit public-interest law firm that represents individuals whose most basic rights are violated by government. So, IJ represents all clients for free. IJ specializes in suing the government, when the government infringes on basically rights of individuals. We take no government money of any kind. Except one. That is, attorneys' fees when we win. Otherwise, we take no government money. And we're supported entirely by donations, by individuals. And so, we represent individuals in the sphere of economic liberty, people who want to work but are prohibited from doing so by irrational government licenses. Russ Roberts: You do other stuff, as well, though. This is an important area of what IJ does, is trying to break down licensing requirements that are not related to public health and safety, right? Dick Carpenter: That's right. So, we also litigate in the areas of private property rights, free speech, and educational choice. Russ Roberts: So, the other thing I want to clarify is: A cosmetologist--that's not an astronomer, right? Thank you for laughing. That was a joke. Thank you for appreciating that. But, I'm pretty sure it's not an astronomer; but it has something to do with cosmetics, and looking good. But, what is it, in some level or precision? Because it's a term that licensers use. It's not a term--not many people say, 'I need a cosmetology appointment today.' Dick Carpenter: Well, sure. So, the cosmetologist is somebody who is going to work on your hair, or sometimes work on facial features, occasionally on nails although that's typically done by a manicurist. So, the cosmetologist is somebody you are going to see when you go into your salon for--it's usually the term that's, it's associated with women and women's services, or a barber or something that's associated with men receiving hair styling. Russ Roberts: So, what's wrong with having cosmetologists--say, the woman who cuts my wife's hair--have a license to make sure that she has a good job? Dick Carpenter: So, licensing purports to protect public health and safety. But, in fact, there is little evidence that it actually accomplishes that. But, there's plenty of evidence that it comes with significant costs. And these costs have been quantified by economists now for a number of years, which include increased consumer costs. And I should back up and say the mechanism for the cost is this: The occupational license--occupational licensing is one of the rare public policies that does exactly what it's designed to do. It keeps people out. We talk about unintended consequences of public policy. This is an intended consequence of licensing. It keeps people out of the occupation. And so, that means, the licensing acts as a [?] as we describe in the book--that restricts the flow of workers into the occupation; and those who are in the occupation can therefore artificially inflate prices and wages as a result. So, that's the mechanism by which these costs are created. So, the first cost in increased cost to consumers. These artificially inflated prices and wages are passed on to consumers in the form of higher prices. But it also restricts job opportunities, as well. So, Morris Kleiner, who I would call the dean of occupational licensing research, has studied this very extensively and found that licensing actually results in more than 2 million fewer jobs on an annual basis, across the country. Licensing also restricts interesting mobility migration--it makes it harder for people to move from state to state. So, picture somebody who works in the state, has worked in the state maybe for a decade in a particular occupation; they are not licensed, but for whatever reason, either need or have to move to a different state. And then they discover that prospective new state has a license. And so then, now, they are going to think twice about moving to that state. Instead may look at moving somewhere else, as a result. So, there's this reduction in inter-state mobility immigration. So, and there are other costs we can talk about as well, but these are kind of the three that have been most prominent in recent years. So, what you get, then, is this public policy that, that, that purports to protect public health and safety, and evidence shows that it rarely accomplishes that. Also, it rarely accomplishes another stated goal of increasing quality of service over and above, kind of, market regulation. But, at the same time, it comes with these significant costs, as well. So, those are kind of the economic arguments about it. But then, of course, there is the right-face[?] argument associated with it, as well: That licensing, it infringes upon the right to earn an honest living unnecessarily. That is, there is no need for the license, and therefore it infringes upon the right to earn an honest living unnecessarily.

12:09 Russ Roberts: Now, what the book chronicles are, in a number of, really often tragic cases where people's opportunities to make a living have been stopped--and it's an empirical question, was whether it should be stopped. You say the goal is to keep people out. Well, you could say, 'That's a good thing,' if it's people who are not going to do a good job or who are going to hurt people. And, it's a really bad thing if it's people who are going to be helpful and therefore they are not going to be able to contribute to helping other people through the skill that they've acquired or would like to acquire or would like to use and learn about. I want to put it in a little bit of context, for long-term EconTalk listeners and even maybe some newer ones. A concept we've talked about on the program is the Bootlegger and Baptist theory of regulation from Bruce Yandle--EconTalk guest in the past and whose view of regulation really changed the way I think about it. And, in the Bootlegger and Baptist story, there are sort of, two parts of a coalition in favor of more regulation. There are the Baptists, who have high-minded ideals in mind--and this would be, in the case--the reason it's called Bootleggers and Baptists is that Bruce was talking about people who wanted to ban liquor sales on Sunday. So, the Baptists don't want liquor sales on Sunday because it's the Lord's Day. The Bootleggers--the people who sell liquor out of the back of their car or in a quiet corner or town or out of their house--those Bootleggers, they love banning liquor sales on Sunday because it creates a demand for their product. And so, the politician uses the cover of the Baptists--they say, 'Well, it's the Lord's Day. How can we have liquor sales?' But, also, is taking money typically from the Bootleggers, who are self-interested in the regulation, and who contribute to the politician. The politician isn't going to say, 'I'm in favor of banning liquor sales on Sunday because I take a lot of money from people who have stills in their backyard.' They, instead, say, 'It's the Lord's Day.' So, they use the ideal of the high-minded argument, and it's a cover: a mask for their self-interested rewarding of a goodie to a special interest group. And the same thing happens over and over again in your book. And is--what I want to go into in some depth, which is: The idea of defending public health and safety is lovely. Keeping out competition for the Bootleggers is not so lovely. And, of course, the Bootleggers--as almost as always is the case, there are a couple of different kinds. There are the people who are in the occupation, who benefit from the restraint on the supply of people into it that thereby would otherwise lower the wages and the income. But there's also the people who do the training, sometimes, as required. So, they also strangely enough, think that the training is really an important requirement. So, talk about some of the examples of the training that's required and whether it's related to public health and safety. Dick Carpenter: Sure. So, one of my favorite ongoing examples is music therapy. So, there is an occupation called music therapists. And, this has been something that has been freely practiced without government regulation for many, many years. But, in recent years, the industry representatives--American Music Therapy Association Certification Board for Music Therapists--have been going state by state advocating for the creation of a license. And this is--this is an embodiment of what we talk about in the book, Bottleneckers. And the story here in the book is that licenses are not created by harmed consumers and concerned citizens going to the legislature and beating down the doors asking for protection. These licenses are overwhelmingly created by these industries going to the legislature and asking for the license. So, for the Music Therapist, as the example: They go now; they have state-based task forces; and they go state by state asking for a license. And the licensing requirements are often very severe. So, Georgia created a license for Music Therapists. So, now, in Georgia, if you want to work as a Music Therapist--to earn the license to work as a Music Therapist--you are going to have to--these are all the requirements: You are going to have to obtain a Bachelor's Degree or higher in Music Therapy; and your Music Therapy Program has to be approved by the Music Therapy Association. That is the very entity that lobbied for the license in the first place. Then, you have to successfully complete 1200 hours of clinical training. You have to pass an examination--which is offered only by the Music Therapy Association--that costs $325 to take. You'll pay various fees to the state. You have to be 18 years of age or older. And then you have to pass a criminal background check. So, these are fairly high hurdles to work in a job that heretofore had any form of government regulation. And now, all of a sudden, has very severe requirements associated with that license. And that story is told again and again and again. And, so, in the book, one chapter after another, we describe how that happens: the process by which that happens. And, it's interesting--you note that those who are involved in the training are often very interested in that. So, in the process of creating it, you have an industry going and asking for the license. But they will often martial the support of not only industry members but also members of higher education or post-secondary institutions that provide training. So, it's very common that you'll see a Professor of Music Therapy or a Professor of Interior Design or whatever the discipline happens to be, where the professor will be there who will also say, 'Yeah; this is very important. Training is very important.' But not saying, of course, explicitly that his institution or her institution will benefit significantly from the government requiring all of this training. So, these [?] training often will be part of this process to create these licenses. Russ Roberts: Well, it's just interesting to me that in the case, say, of the financial sector most of us are uneasy with the idea that there is a lot of communication between financial regulators and the financial sector. The financial sector will defend that, as will government officials and politicians, saying, 'Well, they have all this expertise in the financial sector that we are using to help figure out what is good regulation and what isn't.' And we say--most of us kind of say,' Well, you know, I think there's kind of a conflict of interest there.' In this case, though, because the person on the boards say, or the person who is testifying as a professor--which we have a generally positive attitude toward as opposed to a banker--we sort of think, 'Well, that person is going to make sure that the therapy is done correctly.' Or, that the Interior Design person is well trained. But, of course, the economic interests--the self-interest and the conflict of interest there is the same in all those cases. Dick Carpenter: Sure it is. And you mentioned the Board, or somebody who is going in and asking for the license, would be somebody from the Industry. But, once the license is created, a Board is created to oversee that license. And that Board is immediately captured. By that, I mean, let's say there are 9 members on the Board overseeing a new license. Eight of those seats are going to be captured by member of the industry and sometimes one of those individuals will be somebody who is a faculty member or somebody who provides training from a post-secondary institution, and so forth. And even if it's not, sometimes these Boards will have these kinds of subcommittees that have different areas of focus and responsibility. And so, those who are providing the training will be intimately involved in the decisions that are being made. They are--as you said, they are the experts, and so there is some deference given to these experts in the process of overseeing this license. And interestingly enough, when you look at the legislation that creates the licenses, often the legislation will defer the creation of the requirements to the Boards. So, sometimes the legislation will explicitly say, 'You have to have this much education, pay this much in fees,' etc., etc. But other times the enabling legislation will actually say, 'We're going to create this license, but the requirements to earn the license are going to be established by the Board.' Well, the Board has now been captured by members of the industry who then set the requirements. And, as you said, there is a serious conflict of interest, because they have the ability to keep their competitors out by setting requirements.

20:53 Russ Roberts: Now, I'm trying to be a good Devil's Advocate here, Dick, which is not easy for me, because this happens to be an issue I care really--I care a lot about. I think it's really--I think it's an enormously depressing thing that so many unskilled people trying to get a foothold in an occupation can't get started, and are therefore forced to find something else, which may not be easy for them to do. Or, they are passionate about it. They are passionate about braiding hair. And let's talk about that, as an example. Because I think--my Devil's Advocate part of me and being a good host of the program--wants to say, 'Well, training's a good idea. There's nothing wrong with requiring training. There's nothing wrong with having a Board that would understand what training would be necessary to be a Musical Therapist, because I have no idea. And, as a consumer I might not have any idea even if I care to hire one. So, it's nice to know that maybe that's been taken care of by people who have more expertise than I do. And, a lot of people would say that's a good thing. Now, my natural tendency, of course, is to let the market sort that out, and if people can provide something of value and create a brand name for themselves, it's probably going to be fine. Don't need that formal piece of paper. But, the problem is, once you read in the book about what some of the examples are, you realize it's kind of a--the Bootlegger part is kind of dominating the Baptist part. So, let's talk about hair braiding. Which is--again--it's kind of a small thing. But it's not for the people who are involved in it. So, tell us what happened there and what has happened with the courts and that situation. Dick Carpenter: Certainly. Russ Roberts: Tell us what hair braiding is, because my hair has never been braided. Although, I had a pony tail in college. Just for the record. Dick Carpenter: Mine has never been, either. And I don't think it's probably even possible. But, hair braiding is the many, many-years-, centuries'-old practice of--basically, the name tells you everything you need to know: braiding hair. This is short for African hair braiding. And so this is something that women have been doing in Africa and passing down to their daughters for eons, this idea of braiding hair. So, there's an entire culture built up around hair braiding in Africa that came over to America and has been practiced in the United States for many years. And so, here in the United States, the same thing happens, that a mother will often teach her daughter, and that daughter will teach her daughter. Or, friends will teach each other how to braid hair. So, this is something that has been done culturally within the African-American community forever. But, cosmetologists have seen this as a threat to their industry. And so, they have seen fit to impose cosmetology requirements on African hair braiders. But let's be really clear: Hair braiding is not cosmetology. Hair braiding is braiding. I spent a week in Tupelo, Mississippi: I was writing a study, doing a study on entrepreneurship. The subject of my study was an African hair-braider, Melony Armstrong. It's less than a week down in Tupelo, basically living in Melanie's salon. And so, what I observed was: It is braiding. There's no coloring; there's no chemical; there's no cutting. It's just braiding hair. But, cosmetologists think, 'Well, that's somehow related to the work that we do, and so therefore it needs to be regulated.' But, to work as a cosmetologist, you are going to have to go to school for a year or more. And then you will end up spending between $15,000 and $25,000 in tuition to earn this cosmetology license. And it turns out that there's nothing that one will learn in cosmetology school that applies to African hairbraiding. So, you are forcing a braider to spend enormous amounts of time and money to earn a license that is irrelevant to their work. Russ Roberts: I'm going to interrupt for a sec, because--for, people who don't know much about hair-braiding. A lot of people may have braided somebody's hair once in their life. This is an advanced form of hair braiding we are talking about. This isn't like somebody stops in for 5 minutes in that salon, gets a braid, walks out and pays $5. Give us a range of what kind of things are done in the salon and what they are able to charge for that service--what the value is. Dick Carpenter: Sure. So, a typical braid, kind of a basic braid, could take an hour or more to do. And so, these are very intricate braiding and weaving of hair. So, sometimes you'll hear people refer to corn rows--that could be an example of braiding. Or, sometimes the braiding will include kind of little beads or other bling, if you will, that's braided into the hair. Sometimes hair extensions are braided in. There is a form of braid called Sisterlocks that was created by one of IJ's clients a number of years ago that uses a particular type of tool and creates these really delicate locks that are absolutely beautiful when it's all completely. And the Sisterlocks process can take many hours. Some of these braiding processes will take not one day but could take up to two days. Russ Roberts: What does Melony charge for that? Roughly? Dick Carpenter: So, yeah. You could probably expect to pay in multiple hundreds of dollars for some of these braiding procedures.

26:48 Russ Roberts: So, it raised the question: If nothing in the cosmetology training helps Melony do her job better; and, since, probably in the mainstream salons of Tupelo and elsewhere in the state of Mississippi and elsewhere, there's not a lot of braiding going on--there's just cutting or dying or straightening or curling--why are they so--where is the zeal coming from to keep Melony from making a living? I have a thought; I'm curious what your thought is. Dick Carpenter: Well, in the book we describe the concept as license creep. So, the notion is that, a license is created--a cosmetology license is created. A Board them oversees it. And then over time, the Board will attempt to push its authority out, push its fence out, and sweep in operations that operate at the fringe. And the zeal is, again, couched in this idea that we need to protect public health and safety: 'Well, those people are touching hair, and they might threat public health and safety by passing on some sort of disease,' or something like that. And so therefore they need to go through all these requirements. So, that's what they will say publically. But, it's also a threat economically as well, because those people are offering it--hair braiders are offering a service that might draw people away from cosmetology. In fact, here's an anecdote. I was in Tupelo, sitting in Melony's salon. She said, she suggested to me, 'Why don't you walk down'--her salon is in a strip mall--'Why don't you walk down the end of the strip mall, take a right, and go into a traditional cosmetology salon, and watch what happens down there? And you can see a contrast.' And so I did. I went down there. I sat in a traditional cosmetology salon. And a woman was giving a perm to a young African American woman. And a perm, for white people, for Caucasian people, a perm means, of course, curling your hair. It's the opposite: for African Americans a perm is to straighten the hair. And it's done with chemicals. So, I was watching this: This cosmetologist was putting these chemicals on this girl's hair, and she was, the young woman was becoming increasingly agitated because the chemicals were actually, were actually, kind of causing some sort of chemical reaction in her hair. So, she was anxious because she wanted to get it washed out. Whereas, in a hair-braiding salon, that doesn't happen. It's all done naturally. And so, the fear might be, 'Well, if people realize that if you go and have their hair done in a very aesthetically pleasing way that doesn't involve these chemicals, that might be a threat to my business.' Russ Roberts: Well, I think it is. I just like that as an example because it, first, it shows you the range of competition that actually exists in the real world--that hair braiding is a competitor to a perm or any kind of fancier haircut--some kind of haircut that would make your hair look nice. It reminds of when people say that unions like the minimum wage. Unions like the minimum wage, and you think, 'Well, most, in fact, almost all union workers earn more than the minimum wage. So, it must be out of care and concern for low-wage workers.' But that forgets the reality that low-wage workers are competitors for higher-wage workers. You can substitute a lot of lower-skilled workers in some settings for a few higher-skilled workers. So, they like--unions benefit materially[?], financially. I'm not going to suggest they don't have any good-hearted motive. Maybe they do. But there is a financial motive in there as well. And that's certainly the case here. Can you give us a picture for the hair [?] legal environment nationwide? So, I live in Maryland. Listeners are all over the country. Maybe they are outside the United States. If a person listening wants to just start a hair-braiding operation--learns the skill from a friend and suddenly finds that it's satisfying and they're good at it--can they--what are the odds they can just start a hair-braiding business? Does it depend on where they live? And how has that changed? And I know IJ has been involved--the Institute for Justice has been involved--in opening up that opportunity for people. So, give us a little bit of that history and where we are right now. Dick Carpenter: Sure. So-- Russ Roberts: Because, and I ask because, almost all the regulation you talk about is local. It's either state- or city-wide. Which means that it's very hard to--you have to go state by state, city by city, to fight this. Dick Carpenter: That's right. Licensing is primarily a state function. And we're now involved in a project looking at city-level licensing, as well. There is some licensing at the Federal level, but it is predominantly at the state level and certainly at the city level. So, you are right: When one wants to reform licensing, it is a state-by-state effort, much like those who advocate for licenses have to by state by state in order to create the license. So, for many years, braiders had to earn a cosmetology license in numerous states. And we have been representing braiders in challenging those laws. And we've been successful in having these laws overturned, or successful in having legislatures create exemptions where they will say, 'The cosmetology license will exist as it is; however, braiders are exempted from this.' Or, 'They don't have to earn a cosmetology license, but they have to register with the state'--which is now a case in Mississippi, as a result of the work of Melony Armstrong, who launched this reform effort in her own state. So, through either legislative change or through success in the courts, we have been able to make changes in some states. There are still states that require the cosmetology license, or in other states where it's not entirely clear if it's required. So, I talk about in the book, just, Clayton [Jestina Clayton], in Utah, who learned braiding as a young woman growing up in Africa; immigrated to the United States; married; moved to Utah. She was in a family situation where she needed to earn some extra money. Her husband was in school. She was in school. Etc. So, she began braiding hair. Now, she actually contacted the Cosmetology Board at the time to ask if she needed a license. And was told she didn't. And so she went forward and began braiding hair, making extra money. But then, she received an email out of the blue saying, 'You're doing the work of cosmetology, and you have to have--a cosmetologist--and you have to have a license.' And so, she thought: 'This is crazy; I already asked about this.' And she went back and double-checked. And now for some strategic reason, when she checked a second time, several years later, they said, 'Oh, oh, you have to have a license.' She was gobsmacked. She was told that she didn't have to have this license. And so, she went to the Board, and she said, 'I don't understand--why do I need this.' She gave a presentation, a PowerPoint presentation, about why this license is not necessary for hairbraiding. But they were completely intractable. They were unmoved. They said, 'You have to have this license in order to braid hair.' So, we represented her. That is, I do, represented her. And succeeded in having that law changed, in Utah. So, that's the process that is often required in these states--that you'll either have to go to the legislature and try to get an exemption, or you have to sue the state in order to have these changes made through the courts.

34:31 Russ Roberts: There's a whole bunch of different examples in the book of different professions where this is the case. And, you know, I'm sympathetic to your viewpoint. And, you obviously work for the Institute for Justice, so you are more--it's probably a little more likely that you are going to see this as a self-interested, Bootlegger problem rather than an idealistic, protect-public-health-and-safety Baptist kind of legislation in various places. But, you go through a lot of different cases--selling caskets being an example. Being a tour guide. Selling liquor across state lines through the mail--through, across the country. And, in a lot of these cases, it's pretty clear to me--unless you've misrepresented; and I doubt you did that--there's not much of a justification here, except to keep people out. So, talk for a little bit about the challenge of going after this state by state, or city by city--and the case may be of city taxicabs, or limousines, another example. You are going state by state. All this stuff seems to me to be unconstitutional. It just seems to be--it's the kind of thing where if I told my kids, when they were young, like 12, they'd say, 'Well, that's not--that can't happen in America.' Because they have some romance about freedom and that we're a relatively free country. But, it turns out it's a big problem. And it's a huge--it's actually a very common, increasingly common use of government power to keep people out of these jobs. Shouldn't this, all of this, just be unconstitutional? Government can't just win. Dick Carpenter: Yes. Well, that's certainly the position that we take. The challenge here--there are a couple of challenges. Number one: There are different views of the Constitution. So, there's a well-known law professor, Randy Barnett, at Georgetown, who talks about two competing visions of what the Constitution says. One is the presumption of liberty, the presumption of freedom. That is, not surprisingly, our view of the Constitution, and that says that people should be free--in the case that we're talking about right now--people should be free to pursue the occupation of their choice without unnecessary government intervention, unless and until it is shown that there is a reason--a need--for government intervention to protect the public. That's one view. The other view is that, the government should have the ability to intervene, unless and until the person who wants to work freely shows that what the government is doing is unconstitutional. So, you have these two competing visions at work. And so, these two competing visions play out on a day-to-day basis in courts--certainly somewhat in legislatures, but certainly in courts--where there are, for many years now--really since the late 1930s and certainly since the 1950s, this idea that there is a proper, necessary role of government to regulate here. And so this idea of the presumption of constitutionality of government intervention has prevailed for a number of years. Which was different from many, many years before that. At the Founding and up until the late 1930s, the opposite prevailed. That is, the notion of the presumption of freedom--people were free to choose and to work in the occupation of their choice without unnecessary government intervention. So, we've had these competing visions of the Constitution going back and forth. And so, we're obviously in court trying to advocate and push courts toward this presumption of freedom, and this presumption of liberty. But, on the other side, the licensing proponents are--they are the concentrated interest, whether in the legislature or in the court. They are the power of the concentrated interest. So, in the legislature, for instance, they go and they advocate for the creation of the license. But, then, when the license is challenged--so, if there is a reform effort like Melony Armstrong attempted in Mississippi or Justina[?] did in Utah, if there is an effort to reform in the legislature, the power of the concentrated interest comes into play. And so the amount of campaign in order to protect that license--they'll have industry data, capital; they'll bring many members of the industry and they'll hold a rally on the steps of the Capitol. They'll do personal lobbying in the State Legislators' offices. They'll make strategic campaign contributions. They'll give special awards to legislators. They'll invite legislators to the workplace. They'll groom these relationships. And they'll get testimony in committee rooms: why these licenses are so necessary. And they'll fill the rooms up with members of the industry. This is what I mean by campaign. And that's the power of the concentrated interest: bringing to bear that influence on state legislators who don't hear from the other side. The consumer--you and I--we are not represented in the room when these decisions are being made. Russ Roberts: And why not? Dick Carpenter: Because, number one, we don't know. These are things that are happening in some state capital somewhere. Where, most of us are busy doing our lives. We're busy working, raising our families. And so we don't even know that these things are happening. We are--somewhat innocently--relying on our elected officials to represent our interests. But, as Public Choice theory tells us, the elected official has his or her own interests. Which aren't necessarily the public's interests. Their interests are being re-elected. And so, there's an implicit quid-pro-quo that happens. The person--the elected official will grant the license to this group, the special interest group. And the group then, implicitly will support this elected official at the next election--just as an example. So, the person who is elected representative is not always necessarily doing so.

40:41 Russ Roberts: Well, the key also is our stake in it is relatively small. I might want to get my hair braided, but that's one of a--it's a small part of my life. If I'm a cosmetologist, it's a big part of life. It's my livelihood. So, I'm going to be vigilant and zealous in keeping out competition. And, of course, the people who might benefit from the repeal of the license might not even know that this is something they are interested in right now. They might not think about being a hair braider. But they might, down the road. And then it's too late; they might have missed the hearing because that wasn't on their radar screen at the time. There were only a few of them in the actual practice of the occupation. What's interesting to me, in the chronicle of the book of what often happens: It's usually a complicated process. There's some hurdle, some bottleneck put in place that has no relationship to public health and safety. There's not a very good case to be made for the license, say, or the terms of the license. There could be some--there are terms of the license that might make sense. But the actual terms turn out to be clearly restrictive without any benefit of public health and safety, let's say. And so what happens is that you--IJ--or somebody bring suit, saying, 'This is a bad law. This is a bad legislation. This is a bad license restriction requirement.' And the judge will often say, at least in some of these cases, 'Yeah, but the legislature voted on it. And therefore I'm not going to interfere with it.' And that's where I brought up the constitutionality part. And we had Clint Bolick on the program, a long, long time ago, talking about: What's the appropriate role for a judge in that setting? But, my personal preference would be that the judge represents the Constitution, and say, 'Well, it seems like this is a bad law.' Of course, what ultimately happens is it gets challenged, is appealed, if you have the money; and if IJ has the time and the resources it will get appealed and eventually [?] can get to a very high level. I would just hope that some of those higher level decisions might influence some judges down the road to be more willing to strike down some of these licenses that are not productive. Is there any evidence for that? Dick Carpenter: Yeah. That's certainly the goal. Legal change generally is made one case at a time, one decision at a time, setting precedent that can build upon itself in future decisions. So, we talk about caskets as an example in the book. So, in many years, in many states if you wanted to sell a casket you had to be a licensed funeral director. Now, let's be clear on this. A casket-- Russ Roberts: is a box-- Dick Carpenter: is a box. There's nothing mystical or magical about a casket. In fact, right now, anyone listening could take their phone and order a casket from Costco and have it delivered to your house. Russ Roberts: Now, there's an exciting opportunity. Thanks for letting us know, Dick. That's the kind of service that EconTalk listeners expect from this program and from our guests. Why do you mention that? Dick Carpenter: Well, you said you wanted to make EconTalk better in 2018. Russ Roberts: That's true. We're doing it. We're doing it. And, why do you mention that I can order one from Costco? Dick Carpenter: Well, because the funeral establishment will tell you that you have to have all of this specialized knowledge to sell a casket. That there's something really specialized that requires all of this training to be a licensed funeral director in order to sell a casket. When, in fact, there isn't anything specialized that you need to know in order to sell a casket. But, for many years funeral directors prevailed; and so, if you wanted to sell a casket you had to be a licensed funeral director. So, we challenged that in court, and had a great victory in Tennessee in what was called the Craigmiles Decision--pastor Nathaniel Craigmiles was our client. And so that decision, although it was a number of years ago, has now been very instrumental in challenging subsequent casket laws. And also other laws as well, in that that decision was talking about, 'Well, there's no real, rational reason why this law is necessary. Why do you need all this law in order to sell a casket?' That's kind of at the core of that particular decision. And so, with that decision, IJ attorneys can then use it again and again to say, 'Look, a judge, this judge, has already said this is irrational, all these requirements. And so you, Judge, now the case before you at this time, you should apply the same type of standard in this type of occupation--whether it's caskets, like we did in Louisiana with monks who wanted to sell caskets there, or other types of similar occupational licensing cases.' So, build one case after another. Build a precedent to try to encourage judges to do real judging, to actually look at the circumstances and make a decision. Russ Roberts: And as a result, Costco could sell caskets. It sounds like 'she sells seashells by the sea shore.' It could be a good brand--a tongue twister--'Costco--'; I can't do it. I'm in trouble already. But, Costco can sell caskets. And, has the price gone down? Dick Carpenter: Yes. Competition works. So, in the funeral industry, the price of caskets actually was marked up anywhere from 250% to 600%. And even in industry publications--when I was doing research for the book--I found industry--by 'industry,' I mean, like funeral establishments, funeral publications and so forth, magazines--where authors would say, just say, to themselves, to other funeral establishment readers: 'We all know this is where we make our money. The casket is where the money is made.' And so,-- Russ Roberts: Leveraging often the guilt of the surviving loved one. Dick Carpenter: Sure. Sure. Yeah. And so, this 250-600% markup was a significant increase, but with the introduction of competition, now you see casket sales are much lower. The example we talk about in the book with Pastor Craigmiles was, when he had to bury his mother-in-law, he paid a significant amount--$2000 or $3000--for a particular casket for his mother-in-law. And then, after that, while traveling in New York he found the exact same casket for something like $800. New York was unregulated--you could sell caskets without a funeral director's license. And so, competition definitely does, as in technology and many other sectors, it definitely drives down prices.

47:16 Russ Roberts: I want to look at wine sales. It's not a licensing example but it's an example of a bottleneck--literally. This is the bottle of wine; and it's also just another example of where the existing industry tries to use the power of the state to restrict competition. And it's also a beautiful bootlegger and Baptist example because it's about alcohol, so I kind of was drawn to it. I was shocked in reading about this--'shocked' is too strong, but I was intrigued and surprised--by Rockefeller's role in Prohibition and the removal of Prohibition and how that ended up affecting the beer and wine market going forward. So, try to tell some of that story. It's a complicated story, but it's a very interesting story. Dick Carpenter: Right. So, the movement, the Temperance Movement that eventually resulted in Prohibition was a long one. And there were many who owned businesses--industrialists like Rockefeller and others--who, throughout this kind of growing temperance movement came to believe that alcohol was a significant problem: it had many social ills. And so, Rockefeller and others pushed strongly for Prohibition as a way to solve this social problem, to solve the social ill. Well, as it turns out, it came with its own other problems. And that was: it created a sense of lawlessness, as it created this black market for alcohol. And so, although Prohibition-- Russ Roberts: And alcohol--excuse me. Rockefeller was a bootlegger and a baptist. He had a financial motive: He thought workers would be more productive if they were less drunken. But he also was a lifelong teetotaler--meaning, he didn't drink. Correct? Dick Carpenter: Yes. [?] also right. Russ Roberts: Which is also interesting. I just thought that was kind of cool. Keep going. Dick Carpenter: Yes; he was both economic- and principle-based in his objection. That's right. And so, he was instrumental in funding and pushing for Prohibition, but didn't really think through--I don't know that people even had the language at the time that we do, today, when talking about unexpected consequences. Certainly people didn't think about the unintended consequences of primarily the lawlessness that was created as a result of it. And so, after a while, as Prohibition kind of ground on, Rockefeller and others became--began to realize, they came to understand that it wasn't really solving the problem as they had hoped it would. And was creating all of these other problems that they had not intended. And so, here's this man who was instrumental in the creation of Prohibition and eventually kind of threw in the towel and realized: This isn't accomplishing what we wanted, and is creating these other problems. And so, he gave up his support for Prohibition and led an effort to repeal. So, with the repeal of Prohibition, he and some colleagues of his--they did this study toward liquor control that looked at how we might regulate the industry. And so, his two colleagues recommended two different approaches. One approach was that states would control the sale of alcohol: that, if you wanted to buy alcohol you had to go to a state-owned or state-sanctioned firm--retail firm. A second approach was called the three tier system. And the idea was that they were going to create this separation within the alcohol industry. So, the alcohol industry that's Producers; then they have Retailers who are selling the alcohol; and then the third tier is the Distributer. So, this three-tier system is created, with this Producer, Distributor, Retailer. And the idea was that they would, by law, say that the Distributor had to be between the Producer and the Retailer; and that no one could have a financial interest in multiple of those three tiers. You couldn't be both a producer and a distributor. You couldn't be both a producer and a retailer. And the thought here, was, that they would be solving a problem that existed before Prohibition. Before Prohibition, you could be both a producer and a retailer. Or a producer and a distributor. And then, the belief was, that because of that, that the producer and the retailer, who could be one, they were out there pushing alcohol too much. That they were instrumental in the over-consumption of alcohol. And so, by creating these distinctions, these legal distinctions, where one could not be the other--you could be a producer but not a retailer, a distributor but not a retailer--that it would reduce overconsumption of alcohol. That was the logic. It's debatable, but that was the logic, nonetheless. And so, the Distributor, by law, is put in between the Producer and the Retailer. And, as a result, by law, what they are doing is essentially injecting a bottleneck into that process. And so, the Distributor enjoys the ability to mark up the cost of the product as much as 30%. They serve no particular function reducing the overall consumption of alcohol. Russ Roberts: Well, they do a little bit. Because they make it more expensive, potentially, which keeps consumption down, right? Dick Carpenter: Yes, of course. Russ Roberts: I'm not sure that was the literal intention of that system, but it does have that effect. Dick Carpenter: Right. I suppose, arguably, that could be true. But, they've inserted the Distributor in here, created this bottleneck, and increased costs. And so, these are the two forms of regulation now that we see, that predominate. The 3-tier system is more common across the states. More than 30 states have it. But the state-owned or state-regulated or state-monitored system is also true in some states, like Virginia, as well. And so, this is how alcohol is regulated. Many people don't realize that this is how it's regulated, and that the price of their wine, for instance, is going to be significantly greater by as much as 30% as a result of this type of regulation. And so, wineries would particularly[?] sell to retail stores; but they would have to go through a Distributor by law, in 3-tier states. They couldn't sell directly to a retailer. They would have to go through a Distributor. That wasn't a significant problem. But a second problem was: As the wine industry and consumers of wine became interested in going to wineries and buying directly from the [manufacturer?]--the producer--rather than from a retailer, there was this new, burgeoning market. These producers could actually sell directly to consumers. And people would travel. So, our client, Juanita Swedenberg, she had winery in Virginia. She had clients who would drive down to Virginia from New York. Or from Michigan. Or from Maine. Or from other places. And they would love the wine that Juanita sold, and so they would want to buy directly from her. They couldn't get her wine in New York. No distributor would sell her wine in New York, or would provide, retailers would provide her wine, in New York. Russ Roberts: It's important to mention--because she was just small. She's a boutique. Dick Carpenter: Yeah, that's exactly right. Yeah. The Distributor has an interest in representing people who are big players. Because they want to move as much product as possible. So, they don't want to represent some small winery in the middle of Virginia. They want to sell products that are going to move a lot of volume. And so they are not going to represent people like Juanita or Dave--our other client, David. So it was hard for those consumers in New York or other places to get wine from Juanita. And so they could buy directly from her. She could ship her wine directly to them; but then she discovered that that was illegal. Because she wasn't going through a Distributor in order to do so. So, that was the--those were the facts of the case, that she was saying, 'This is ridiculous. Why do I need to have a Distributor just to sell directly to a consumer in New York? Or anywhere else?' Russ Roberts: And of course, normally it wouldn't matter much. Because it's hard to find out about every little niche winery. But, with the Internet starting to grow in the 1990s you had the opportunity to get the word out, to spread information, to have these smaller both custom breweries and wineries finding a market for their product that their Distributor might not be willing to deal with it, because the return is smaller to the fixed costs of adding a client. And the--the great thing about this example is that, you need an excuse to explain why you shouldn't be able to buy wine where you want. So, if you are in New York State, why shouldn't you be able to import a bottle? You can drive down to Virginia and carry the wine home. Why can't you have the winery ship it to you? And of course the answer is, 'It's dangerous.' Explain. Dick Carpenter: Well, the argument, for the Distributors, the argument is, 'Well, it's dangerous because, who knows who is buying that wine? That could be a 13-year-old boy ordering that wine and having it delivered. And that 13-year-old boy is going to buy this boutique wine from a vineyard in Virginia and get drunk, drinking a $50 bottle of wine.' This is the argument. Russ Roberts: 56:55 Well, it's a good argument. Because we know that, 'Thirteen-year-old boys without this would never get access to alcohol. There's no teenage drinking anywhere in America up until this happened. And you can just be alert or why.' It's such an absurd argument. Of course, the 3-Tier system doesn't protect teenagers, either. So-- Dick Carpenter: Well, not, yeah, let me interrupt this to say, not only is it absurd because it's not like they can't get alcohol from other places; but what 13-year-old boy is getting drunk on $50-bottles of wine? Russ Roberts: One who has access to his parents' credit card. And--you know, I guess it's conceivable. We're laughing about it, but it's possible that a kid could use mail order to get alcohol. That kid might have trouble generating a fake ID [identification] or having a older brother, or friends who might be able to do that and get access to alcohol. So, having it delivered to your house is a lovely idea as long as your parents don't check the credit card bill, and aren't home when the delivery comes. And say, 'Jimmy, what's in that box?' And he says, 'Comic books.' 'That's awfully heavy for comic books.' And you open it, and there's $50-$100 bottles, four $50-$100 bottles of wine to save on the shipping. Dick Carpenter: Well, there's an easy--I should say, there's an easy fix for that. Russ Roberts: Yeah. Explain. Dick Carpenter: And that is: and the easy fix is that the shipper, whether it's UPS [United Postal Service] or FedEx, or whatever--the shipper just has to, cannot deliver the goods, cannot deliver the box, unless it is a). signed for, and b). signed for by someone is of a certain age. Russ Roberts: Right.

58:33 Russ Roberts: So, that's just a great example of how a lot of times we might have sympathy for the thrust of a particular regulation; but the way that it actually gets implemented is done to protect someone who is not the one we are claiming it protects. So, that kind of regulation would be okay. It might be expensive: UPS doesn't want to have to check the age and prove or have an ID or all that for the person who signs for it to prove that they are over 21. But, you could argue that's problematic. But, certainly it's problematic just to say, 'No wine sells across the United States lest a teenage, poor girl, has access to alcohol.' And, of course, it's ultimately an empirical question. And--right? In these court cases, I assume that came up a lot, as to how serious this problem actually is, versus just trying to scare people. Dick Carpenter: Yes. That's right. So, in the case, Juanita's case that actually did come up as an empirical question, that couldn't find any evidence that that was in fact a problem. Even despite trying to. They would set these sting operations to try to--you know, to try to capture this in action. They were unable to do so. In fact they found quite the opposite, where, the sting backfired; and they weren't able to--they discovered that people were buying alcohol in a way that was unanticipated, etc., etc. So, anyway, the point is: There was no evidence that that was actually happening. Even though they attempted to actually manufacture it through a sting.

1:00:07 Russ Roberts: Now, a lot of these examples are--these are occupations that are relatively small in number. There aren't a lot of hair braiders in the United States. But there will be more, thanks to IJ. There aren't a lot of people making a living selling caskets, but there are now more. So, these are all good things. But, there's some big areas that would be more controversial. Just one example I want to mention, you don't talk about in the book I don't think, is education. To teach in the public schools, you need to be certified. My wife teaches in a private school. She does not have an Education Degree. She is therefore incompetent in the eyes of the state to teach mathematics, because she does not have an Education Degree. And that's, I think, just a grotesque miscarriage of justice in our public school system, that people have to have a set of hoops they have to jump through that have little to do--you might think they have something to do with it, but in fact--one of the things my wife had to do was she had to take American History, if she wanted to be a Public School teacher in math. It didn't seem to be that relevant. There are a lot of things like that that are in place simply to make it expensive for people to add to the supply of the folks who are doing a particular occupation. So, I think that one--I think most private school teachers that have uncertified teachers seem to be doing just fine. And, of course, I'm an extremist. I've been hiding this from you, Dick, but I think listeners probably know I'm not a big fan of any kind of licensing--even in economics. I don't even think economists should be licensed. So, lawyers and doctors strike me as a case where most people would probably think it's a good idea. But I'm open to the possibility that that's a bad idea. Where--are there--when you are thinking about the Institute for Justice and what your work is, where are you looking? What are the cases? How do they come up? Since I don't think you are out there trying to get doctors to be able to practice without a license, correct? Dick Carpenter: Right. Most of the clients for IJ are going to be small entrepreneurs. And so, our typical client is not going to be somebody who is a well-heeled physician, for instance. Although, we do represent physicians in cases of Certificate of Need, for instance, which you and Professor Munger talked about a couple of months ago. And we represented a dentist, for instance, in a particular case. But, by and large, these are folks who just want to enter an occupation--who want to own a business, as a hair-braider, for instance. Or they want to enter an occupation maybe not as an entrepreneur, but they just want to work. They want to go to work for someone. And so, it's really--we're talking about, small business folks who are on the first rungs of the economic ladder. People who may be entering or re-entering the economy. These are the typical clients that IJ represents.

1:03:03 Russ Roberts: So, do you have a personal opinion about licensing in general? Do you think it should just be banned? Do you think it's just basically unconstitutional? Or, do you think there are cases where it has merit? Dick Carpenter: Even if the--after our founding, you know, even during the [?Locknarian? Lochner?] era, where there was this belief that there was a right to earn an honest living without unnecessary government intervention, there was still a balancing going on. So, it wasn't as though it was like, 'Everybody has to work; everybody has the ability to work, the right to work, in anything they want. Period. Full stop.' There was still, even at that time, an attempt to find the right balance: A recognition that there might be some role for the government in the process. And so, we still ascribe to that. And so, in other work that we've done--this report that I've mentioned at the beginning of our talk called "License to Work," we talk about how, for too long, we have lived in this binary world of licensing and no licensing. Those are the only options out there. But, in fact, there are multiple options in between licensing and no-licensing. And, we should be clear that no licensing doesn't necessarily mean no regulation. It means market regulation. People's behavior in the commercial sector is regulated. And certainly at no time in history has that been truer than today. Where, on our phones, we can get more information about a service provider through third-party websites than any licensing scheme can ever provide. And, companies, firms, businesses pay close attention to those ratings. And the regulate the behavior of those service and goods providers. So, just because there is no government intervention doesn't necessarily mean that there's no regulation. There's market regulation at work. But, if there is some need that the market cannot meet, then there are other forms of government interventions that doesn't require a license. So, for instance, mandatory bonding and insurance. Registration. Inspections. Certification. These are all examples of government intervention that do not restrict entry into the occupation, but can still have some of the purported benefits of licensing, without all of the accruing costs. Russ Roberts: It's just interesting how our culture responds, and how it, how we are socialized to feel about things--whether the government protects us from something or not. I was coming off the Metro the other day in Washington, D.C., and a woman asked me for directions, needed to get somewhere; and she said, 'How long would it take me to get there?' And I said, 'You know, you might want to just take an Uber,' because the Metro stop wasn't going to get her very close. And she was--I don't know. She was not a young person. I don't know how old she was. She might have been in her 40s or 50s, let's say. And she looked at me quizzically, and I said, 'Have you ever ridden in an Uber before?' And she said, 'No.' And she said, 'You mean getting into a car with a stranger?' And I said, one, I said, 'You ever get in a cab?' 'Yeah.' 'Do you know the cab driver?' The cab driver is a stranger, too. Now, she could have said, 'But the cab driver's been licensed and vetted by the government.' And she would be right. But, of course, that doesn't stop them from sometimes doing not-nice things to people--like, not picking them up, for starters, or doing worse things to them. And I explained to her that an Uber driver, even if that person hasn't been vetted in a formal way--by Uber, which I think they do some --they are vetted by the customers who have rated them accordingly. But I said, the most important thing, that if, God forbid something happens to you in that Uber, Uber knows where they are. They know where that person is 24-7. They know you are in the car with them. The cab driver--there's no record of who is in the cab. So, in many ways--Uber is regulated in different ways, obviously; and you can argue whether they are for better or for worse. But, it's not, it's not like the Wild West--so-called Wild West; it probably wasn't so wild. But it's not like, 'So, anything goes. A drunk axe murderer could pick you up as an Uber driver.' And, of course, there have been tragedies in Uber. There's tragedies in cabs. It's a complicated question that comes down to empirical evidence. Most of us ride Uber all the time, go to Airbnb all the time. There's no inspections the way there are with hotels. But, if the person shows up and the Airbnb is filthy, they get a bad rating. And so that does restrain them to some extent. Dick Carpenter: Certainly it does. Here's another example. My wife has sustained an injury at work, and so she had to go to a Workers' Comp [Workers' Compensation] doctor. An assigned doctor. She couldn't go to her Primary Care physician. But, before going to that doctor, she looked up that doctor on the Internet. And found that the ratings for this doctor's office were not so wonderful. Russ Roberts: Okay. Dick Carpenter: But she had to go there anyway. So, she goes, she does the appointment. Everything turned out fine as far as the appointment is concerned. As she's leaving, the person at the front desk said to her, 'How would you rate your visit today?' That is not an accident. Russ Roberts: Right. Dick Carpenter: That question to my wife is not an accident. That office knows what kind of ratings it is getting. They are getting paying attention to how consumers--even in the health care industry, people are rating providers. And those providers are paying attention to how they are being rated. And they are attempting to regulate, or they are regulating their behavior, as a result. And this has been one of the great innovations in recent years, that has improved the ability of consumers to make decisions. Where, before, with a licensing scheme, if you actually intended to use a licensing scheme to make a decision--which you probably didn't--if you wanted to, to go and get information was a Herculean task. To find out information about a particular good or service provider under a licensing scheme was almost impossible. But now, you have it all at the fingertips. And so, health consumers make even better decisions at no time in history. Russ Roberts: Yeah; and I, of course I'm sympathetic to that view.