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Liberal Economics

The Wall Street Journal has an interesting opinion piece on basic economic principles and peoples ability to understand them. As you might expect from a WSJ article, the author found that self-identified liberals failed to understand basic tenants of economics.

Consider one of the economic propositions in the December 2008 poll: "Restrictions on housing development make housing less affordable." People were asked if they: 1) strongly agree; 2) somewhat agree; 3) somewhat disagree; 4) strongly disagree; 5) are not sure.

Basic economics acknowledges that whatever redeeming features a restriction may have, it increases the cost of production and exchange, making goods and services less affordable. There may be exceptions to the general case, but they would be atypical.

Therefore, we counted as incorrect responses of "somewhat disagree" and "strongly disagree." This treatment gives leeway for those who think the question is ambiguous or half right and half wrong. They would likely answer "not sure," which we do not count as incorrect.

In this case, percentage of conservatives answering incorrectly was 22.3%, very conservatives 17.6% and libertarians 15.7%. But the percentage of progressive/very liberals answering incorrectly was 67.6% and liberals 60.1%. The pattern was not an anomaly.

Ann Althouse finds the strength of the conclusions suspect.

What do you think?

Update: Ed Morrissey has discovered the same article and has posted his comments. He has similar doubts on the veracity of the work but still considers it an interesting read.


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Comments (49)

Well those Obamanomics prin... (Below threshold)
GarandFan:

Well those Obamanomics principles don't appear to be working very well. And he's supposed to be 'the smartest man in the world'.

"Liberal Economics" is an o... (Below threshold)
Caesar Augustus:

"Liberal Economics" is an oxymoron.

I think Althouse makes a go... (Below threshold)
P. Bunyan:

I think Althouse makes a good point and it is best summed up by the commenter (to Althouse's post) John, who wrote:

"the test isn't actually measuring economic illiteracy, it's measuring intellectual dishonesty."

So naturally the leftists failed even though they likely knew the right answers.

Word has it Barry scored in... (Below threshold)
914:

Word has it Barry scored in the high 6's..

I dunno, 914. Since they're... (Below threshold)
Hank:

I dunno, 914. Since they're grading on incorrect answers, I think Obama could have aced this one.

I wonder whether it's about... (Below threshold)
James H:

I wonder whether it's about savings overall or saving individually.

In particular, I'm thinking about mandatory licensing schemes. While such things are no doubt subject to rent-seeking and erecting large barriers to entry by competing professionals(cough bar exams cough), I can't help thinking that such a thing is about allocation of costs.

Consider a population of 100 surgeons, for example. Let's stipulate that 25 are high-quality surgeons, 50 or of middling quality, and 25 are complete and total hacks.

Without a licensing scheme in place, you might see lower costs for individuals who visit surgeons of varying quality and pay varying rates for the same operation.

But then somebody who goes to see on of the 25 hacks gets his cheap surgery ... then has to spend a buttload of money to get corrective surgery when the hack botches the job.

Ideally, the hack (or his liability insurer) would bear the cost of the corrective surgery ... but if we assume a market with little to no regulation, that hack may not have the requisite malpractice insurance policy, or the assets to pay for that patient's corrective surgery.

On the other hand, mandatory licensing spreads the costs around by creating a situation where the individual surgeries cost more, but there is presumably less chance of a person getting hit with corrective surgery costs, as the hacks don't have medical licenses.

Actually James H, in real w... (Below threshold)
P. Bunyan:

Actually James H, in real world the opposite occurs. In a free market the hacks would go out of business after harming one or two patients. Due to licensing and regulation and insurance and trail lawyers the hacks are protected and continue to hack away.

While I don't work in the medical field, my wife and several relative and friends do I hear them talk about this all the time-- at least we know who the hacks are even if the general public is not privy to that info thanks to the terms of the settlements.

Bunyan:I've met se... (Below threshold)
James H:

Bunyan:

I've met several attorneys who probably got their law licenses and JDs through mail order myself ...

Interestingly, the "trial lawyers" who keep the hack surgeons working are probably defendant's attorneys, not plaintiff's attorneys.

The point I'm trying to make with the surgeons, is that in a free, non-licensed market, the hack surgeon might be forced out of business, true. But before he goes out of business, he'd probably ruin more than a few people's health. Wouldn't it be better to avoid that from happening?

James: "Wouldn't it be b... (Below threshold)
P. Bunyan:

James: "Wouldn't it be better to avoid that from happening",

Yeah it would, but so far our government has failed in their attempts to do so and in fact has generally made the problem worse.

(Of course the above sentence is true for about 95 out of 100 things the government does, so it's almost a cliche.)

Licensing could be a solution if it's done correctly (it will never be because that would be unfair and someone would sue), but I think there are better ways.

And of course, even the gre... (Below threshold)
James H:

And of course, even the greatest surgeon in the world is going to screw up at least once ...

One needs no specific info ... (Below threshold)
Don L:

One needs no specific info to know that Liberals fail at sound economic policy. They actually believe that central planning by bureaucrats is more efficient than the marketplace. We need look no further.

But then again look at the efficiency of the voting system that lets voters put a man of absolutely no executive experience (and a gaggle of seriously questionable friends who loathe America)into the chief executive position.

Actually the system may be fine but the players are void of character which we are told no longer matters -so any system with that as a handicap will ultimately fail.

Whos in charge of administe... (Below threshold)
914:

Whos in charge of administering/ legislating policies that are effecting the current economy? Liberals + Barry.

Whats happening with Barry + liberals in charge of current economic policies?

The proof is in the pudding. Barry is a complete economic disaster in every liberal sense of the word.

1) Mandatory licen... (Below threshold)
Mac Lorry:
1) Mandatory licensing of professional services increases the prices of those services.

Yes, if we are talking about the initial price as measured in monetary terms. What the question fails to address, however, is the cost of failure which varies greatly from one service to another.

For example, I purchased a new Dodge back in 2001 (yes, I should have done more research, but that's another story). When I would take it in for the inevitable warranty repair the local dealer would never have the part on hand, so I had to take it in first so they could figure out what part they needed to order and then again when they got the part. There was no charge for the service or the part, but it cost me two days disruption rather than one if they would stock parts. If they had built a quality product in the first place I wouldn't have even the one day disruption. Because time is money, poor quality and inept stocking of parts cost me money even while the Dodge was under warranty. That's the cost of failure.

Likewise there's a cost to an individual when a doctor misdiagnoses their illness. That cost can range from an extra day of missed work to the individual's life. It's said that the free market will correct for incompetent or even poor doctors, but how does it do that?

If it's through "information" then there must be a readily available, accurate and independent source of information that doctors and their political allies can't corrupt or obfuscate. No such source exists and likely can't exist.

If it's through the legal system then doctors must include the cost of malpractice insurance in their prices and consumers also have to pay for the doctor's defensive medicine, which we heard about during the healthcare debate. The result is higher prices and neither of these means helps the individual who lost their life due to an incompetent doctor.

It's not clear that the simple "I agree" answer is correct when you consider the cost of failure. Insuring doctors meet a minimum level of competency may actually reduce the true cost of medical services.

"Insuring doctors meet a... (Below threshold)
P. Bunyan:

"Insuring doctors meet a minimum level of competency may actually reduce the true cost of medical services"

Unfortunately, with regard to government licensing that "minimum level of compentency" is usually very, very mininmum. Its been my experience that government licensing has a lot more to do with taxation and regulation than with ensuring a minimum level of compentency.

The problem is that it can and does often create a false level of security in the consumer.

Many consumers assume the government is protecting them through licensing and regulation and thus many don't take the personal responsibility to find out the true competency of whomever they are hiring, be it a doctor, plumber, mechanic or whatever. This false sense of security may in fact lead to many people hiring substandard doctors, etc. and thus more likly leads to an increase in the true cost of whatever service is being hired.

Many consumers ass... (Below threshold)
Mac Lorry:
Many consumers assume the government is protecting them through licensing and regulation and thus many don't take the personal responsibility to find out the true competency of whomever they are hiring, be it a doctor, plumber, mechanic or whatever.

If there was actually a source of relevant, unbiased and accurate information then doing research would work assuming you have the time. As it is, no such information source exists for doctors and it's spotty for plumbers, mechanics, and whatever.

In a medical emergency you usually have to take what you get and hope they know what they are doing. Removing the current state requirements, even if they are minimal, means the aggravate cost of failure goes up, and thus, makes the true cost of medical care higher. That's just the opposite of what people only looking at the initial cost of medical care expect.

The free market can only work when consumers can accurately measure what they are purchasing. Getting that information is simple with most commodities, but the more complicated the product the harder it is for consumers to get that information. By the time you get to doctors, medical devices, and drugs it's nearly impossible for consumers to know what they are buying. Given so many conflicting studies on nearly every subject it's even difficult for doctors to figure out what techniques and medications actually work best for a given level of risk.

mandatory licensing does no... (Below threshold)
jim m:

mandatory licensing does not measurably improve the level of competency in a given profession. What it does do is raise barriers to entry into that profession, often in the form of additional education erquired to pass the licensing exam.

While the education does improve the level of performance the licensing does not.

Forget doctors for a moment and let's talk Medical Technologists (the laboratory workers). In most states these workers are not licensed. They still need to get additional education to get their degrees and to get professional certification that enhances their ability to get a job. In states not requiring licensure workers can get a job without certification.

States like california, which licenses, do not see an improvement in the skill level of the lab workers. What they do see is a reduction in their workforce as people are prevented from moving to california to take jobs that are available.

So licensure does not improve services but instead places an artificial restraint on the availability of labor, which in turn results in a higher cost of labor as employers are forced to compete for that limited resource.

Doctors and lawyers have to be licensed in every state, but the example here they do not. So the example of the Medical Technologist is one that shows the effect of licensure in nice relief.

Arguments that licensure would improve quality are shown to be spurious. States that do not require licensure still find the labs full of licensed techs. The market demands the use of licensed techs and licensure is an unnecessary burden on the individual. The only difference created by licensure is a barrier to entering the market. It is essentially a tax imposed upon those who desire to perform the jobs they are trained to do.

James H, Please explain how levying a tax on workers will reduce the cost of labor when all it does is prevent them from getting work.

The free market ca... (Below threshold)
jim m:
The free market can only work when consumers can accurately measure what they are purchasing. Getting that information is simple with most commodities, but the more complicated the product the harder it is for consumers to get that information. By the time you get to doctors, medical devices, and drugs it's nearly impossible for consumers to know what they are buying.

Mac,

I have to disagree. The reason that people don't know how to select a doctor is because they do not have to. Licensing takes the place of people asking the proper questions. Just like in the case of selecting a contractor to do work on your house it is not easy to find a good physician. People fail to check out a prospective personal physician because they assume that since the person is licensed that they are OK. In that way licensure becomes a hinderence in selecting a quality physician.

We spend more time trying to find someone to redo our bathroom than we do in selecting someone to cut us open with a knife or to deliver dangerous chemotherapy drugs.

It's a cop out to say that it is too complex to select a physician. We may not know how to do electrical work or plumbing, but we know how to find a contractor. We should be applying the same lessons to our health.

No Mac, I don't think your ... (Below threshold)
P. Bunyan:

No Mac, I don't think your right. Removing the "requirements" does not automatically mean "the aggravate cost of failure goes up". If you remove the barriers or "requirements" you will increase competition which has been proven time and again to decrease costs, increase quailty, and reduce failure. It's a basic economic and historical fact, though Lee Ward and Obama might not believe it.

What does it say about libe... (Below threshold)
jim m:

What does it say about liberal ethics that they assume that any person if not held by some government regulation to deal fairly and equitably with their fellow man, that everyone will with few exceptions choose to lie cheat and steal from their neighbors?

One can only assume that it reveals a rather ugly part of their psyche that they would with little remorse, act in that very manner themselves.

Mac,Your assumptio... (Below threshold)
jim m:

Mac,

Your assumption that in an emergency you don't have time to check out a physician and therefore you will get stuck with some incompetent hack presumes that a hospital or clinic is going to pay for the cheapest labor it can get away with rather than provide high quality of service to attract customers.

Such a condition is found in one industry and one industry alone: Government.

In the real world a hospital will compete to get the best physician staff it can. Poor physicians are weeded out. ( yes we could do a better job of that but government intervention would only impede that process not make it more efficient)

The fact of the matter is that the market will tend to have hospitals competing to provide better service. A government protected and licensed service has no incentive to provide anything beyond the bare minimum of whatever standard the government specifies and pays for.

Again, I feel that your assumption that people will provide the crappiest service they can get away with belies your own personal issues. In the world as I have experienced it the times I have gotten really crappy service have been most frequently from government paid time servers who have no incentive what so ever to do a good job. They do the least amount of work possible and don't care what the results are because their customers have no choice but to come to them.

Under government licensed systems the only people who can provide a service are the ones selected by the government. They have reduced incentives to provide good service because they are protected from competition by the licensing laws. When in government run healthcare they will be paid by the government for what they do, there will no longer be any incentive to do anything more than the minimum. With their jobs protected and their pay dictated not by quality but by quantity they will do the least amount of work necessary. For proof of that I would cite the history of communism or any government system with unionized workers. Eastern Europe has seen how paying regardless of the worker's performance leads to crappy output. We see the same thing in our schools where paying for merit is nearly illegal. That is what the government intends to do with healthcare. That is what your blessed government regulation does. By arguing that it makes things better you are simply lying to yourself and everyone else. You are ignoring the truth that is manifest all around you.

mandatory licensin... (Below threshold)
Mac Lorry:
mandatory licensing does not measurably improve the level of competency in a given profession.

If you are talking about paying for a license plate for your car then I agree. You pay the money and here's your license plate. However, mandatory licensing that includes minimal educational requirements and difficult testing requirements certainly does raise the level of competency. To say otherwise is to dismiss the value of education and testing.

While the education does improve the level of performance the licensing does not.

Once again it depends on what you mean by licensing. If the licensing includes difficult testing requirements then it does establish a minimal level of competency. It flies in the face or reason to claim that testing doesn't establish a minimal level of competency.

They still need to get additional education to get their degrees and to get professional certification that enhances their ability to get a job.

And of course professional certification involves difficult testing requirements just like it does for IT professionals.

States like california, which licenses, do not see an improvement in the skill level of the lab workers. What they do see is a reduction in their workforce as people are prevented from moving to california to take jobs that are available.

The skill level may be similar because of the professional certification requirement. As for a reduction in their ability to get Medical Technologists there could be other reasons such as a requirement for malpractice insurance.

States that do not require licensure still find the labs full of licensed techs. The market demands the use of licensed techs and licensure is an unnecessary burden on the individual.

What this demonstrates is that licensure that includes difficult testing requirements does raise the level of competency, but it doesn't matter if the state or the market imposes the requirement. In fact, the market is much quicker to impose such requirements than the state as we see in the IT and auto mechanic professions. The problem is that consumers have to have confidence that the "certification" doesn't become just a watered down marketing ploy, such as SPAM e-mails offering to sell whatever diploma you need to advance your career. The public wants to make sure doctors and lawyers earn their "certification" rather than just buy their way into a lucrative practice where the cost of failure may mean someone loses their life. Thus, the state does the certification, not the market.

The cost of failure to individuals is the criteria by which the state reasonably mandates certification. If the cost of failure is that your computer or car doesn't get fixed then let the market dictate certification, but if the cost of failure means your life, your freedom, or you livelihood are at risk, then the people have a right to mandate certification through their government.

No Mac, I don't th... (Below threshold)
Mac Lorry:
No Mac, I don't think your right. Removing the "requirements" does not automatically mean "the aggravate cost of failure goes up". If you remove the barriers or "requirements" you will increase competition which has been proven time and again to decrease costs, increase quailty, and reduce failure. It's a basic economic and historical fact

I'm a conservative not a libertarian, so I don't accept libertarian dogma on face value.

It's a demonstrable fact that the free market only decreases cost, increases quailty, and reduces failure when consumers can accurately ascertain the true cost and quality of goods and services. Besides simple academic experiments that demonstrate this, the history of medical devices and drugs prior to the establishment of the FDA gives a real world example. Without knowing what they were doing people paid good money to ingested toxic chemicals, expose themselves to high doses of radiation and subject themselves to painful electric shocks. In a market place full of such quackery fewer people found the handful of safe and effective treatments.

The libertarian will say that the free market will "eventually" correct itself, but that's only true if accurate information becomes widespread. That doesn't often happen because it's in the interest of those selling the quack treatments to suppress or obfuscate such information. More importantly, it does nothing for the individuals who lost their life or health waiting for the free market to do its magic.

This establishes two simple principles. 1) The more complicated the product or service the less effective the free market is at producing low cost (including the cost of failure) goods and services. 2) The free market does not act preemptively to protect individuals from dangerous products and services.

You can see for yourself how the free market fails to preemptively protect individuals simply by looking at some unregulated products. Ever see people with the little ball on the top of their car radio antenna, or how about those homeopathic (distilled water) remedies, or the magical water "conditioner" that uses no salt like a water "softener" does (of course the conditioner doesn't soften the water; it's an old marketing trick in a new wrapper).

I have no problem with the caveat emptor (let the buyer beware) doctrine of the free market as long as the cost of failure doesn't rise to the level of my life, health, freedom, or livelihood. When it does then it's reasonable to ask for preemptive protection be it by government regulation or private certification.

Your assumption t... (Below threshold)
Mac Lorry:
Your assumption that in an emergency you don't have time to check out a physician and therefore you will get stuck with some incompetent hack presumes that a hospital or clinic is going to pay for the cheapest labor it can get away with rather than provide high quality of service to attract customers.

I was talking about certification to establish a minimum level of competence. Even if an accurate source of information about doctor competency existed, and it does not, you can't even control what hospital you go to if you are injured in a car accident. Even if you could you can't control what doctor is on duty at the time you need treatment. More importantly, you can't judge the competency of a doctor by the number of patients that die under their care because often the most dire cases go to the most competent doctors and die regardless of the level of the treatment. The free market simply can't operate in such an environment.

Again, I feel that your assumption that people will provide the crappiest service they can get away with belies your own personal issues.

I made no such assumption. The issue is does certification raise the level of competency? My argument is that when certification includes rigorous education and testing requirements then it does in fact raise the level of competency and the higher level of competency reduces the agitate cost of failure. Such certification also acts preemptively to protect consumers from incompetent individuals. When the cost of such failure is a person's life or health then certification by the state is justified.

In the world as I have experienced it the times I have gotten really crappy service have been most frequently from government paid time servers who have no incentive what so ever to do a good job. They do the least amount of work possible and don't care what the results are because their customers have no choice but to come to them.

That's my experience as well, but it's a different issue than government licensing of doctors and lawyers who then go on to practice in the private sector.

Under government licensed systems the only people who can provide a service are the ones selected by the government. They have reduced incentives to provide good service because they are protected from competition by the licensing laws.

You are not considering the full system. Licensing doesn't protect people from competition because the compensation for similarly competent people rises to attract more competition. You can reduce up front prices if you allow less competent people to offer the same service but the cost of failure then rises to more than offset up front prices. I hear of lots of people coming to the US for medical treatment. If the free market worked in this area these people would be going to Mexico.

Mac you missed my point.</p... (Below threshold)
jim m:

Mac you missed my point.

Licensing does not ensure better outcomes for a service because we have examples where absence of licensing results in the same quality of service through market forces. So licensing of professionals doesn't help.

There is no broader sense in which the licensing will help. Establishing a minimum level of competency does not necessarily mean that there is an acceptable level of quality. Licensing does not and cannot force a quality output. Competent people can still make crappy goods and services. Licensing schemes protect workers from being fired for poor output and encourage organizations to meet only minimum standards rather than compete for market share based on quality.

So 2 semi-liberal bloggers ... (Below threshold)
Jeff:

So 2 semi-liberal bloggers find a study showing liberals as weak on economics as flawed ... what a shock ...
yes, I know Ed started out on the right but his rudder has been turning left for years now ... and Ann ... well, she voted for Obama ...

Licensing does not... (Below threshold)
Mac Lorry:
Licensing does not ensure better outcomes for a service because we have examples where absence of licensing results in the same quality of service through market forces. So licensing of professionals doesn't help.

I'm not talking about licensing where a person just pays a fee with minimal requirements imposed. What I'm talking about is licensing where rigorous education and testing requirements are imposed. Perhaps there are examples of licensed and unlicensed barbers and manicurists providing equal service and in that case I agree, they should not be regulated by the government because the cost of failure is low. Such an example, however, doesn't counter the arguments I have made about the licensing of doctors and lawyers.

Establishing a minimum level of competency does not necessarily mean that there is an acceptable level of quality. Licensing does not and cannot force a quality output

But licensing, where rigorous education and testing requirements are imposed, reduces the risk of catastrophic failure and does so preemptively, which is something the free market cannot do. When that failure is your life, health, freedom, or livelihood such licensing is justified and beneficial. That's not to say that licensing hasn't been abused and misapplied, but such misuse doesn't negate the benefits of proper licensing.

Licensing schemes protect workers from being fired for poor output and encourage organizations to meet only minimum standards rather than compete for market share based on quality.

Such one-size-fits-all dogma doesn't stand up to analysis. There's a place for free markets and there is a place for regulated markets. The cost and risk of failure is the determining factor.

Mac,I think we can... (Below threshold)
jim m:

Mac,

I think we can agree on this (or should anyway): that licensing has the primary effect of limiting the labor pool. Whether it be through financial requirements or through educational ones.

Several things follow from that fact:

1) A restricted labor pool means a higher price for that labor. (that's econ 101, if you cannot see that truth there is no point in discussing this)

2) Costs for entering that labor pool are going to be passed on to employers and consumers. Employers are forced to pay licensed workers higher salaries as a direct result of the restricted labor pool. You can excuse it as paying for their expertise but the real bottom line is that there are fewer workers for the positions and therefore you pay more for them. Professionals like Doctors and lawyers who sell their product directly to consumers will need to recoup the cost of the education required as a prerequisite of the license. Licensure requirements force would be professionals to go through expensive educations in order to gain that license. Educational programs have to be from accredited institutions which means that not only do you need an education but the source of that education is restricted so the education itself has an inflated price.

3) Licensing does not prevent incompetence. We have countless examples of Doctors and lawyers, electricians and plumbers who are criminally incompetent and still are licensed professionals. We cannot prove that licensure reduces that frequency. In the example that I gave above of laboratory workers the answer is NO, licensure does not effect competency in any material way.

4) Licensure actually makes it more difficult to remove incompetent individuals. We have seen many cases where regulatory bodies are loathe to revoke the license of an incompetent professional. There are many cases of staggering incompetence where practitioners are allow to keep their license. Regulators are unwilling to revoke a license that was costly to obtain. Furthermore, professional organizations will actively advocate to make revocation of a license more difficult as license revocation is a threat to their livelihoods. Professionals have a vested interest in making it difficult to revoke a license.

So the whole point is that licensing does not make the quality of the practice significantly better, but it does make it more costly to find the labor and it is more difficult to remove incompetent professionals once licensed.

Such one-size-fits... (Below threshold)
jim m:
Such one-size-fits-all dogma doesn't stand up to analysis. There's a place for free markets and there is a place for regulated markets. The cost and risk of failure is the determining factor.

But licensing regulation IS a one size fits all dogma. It says that if you pass certain minimal requirements you get a license. And you are right it does not stand up to analysis.

It does not improve quality. It provides a refuge for the minimally competent and protects hem from their incompetence and creates the illusion that the minimally competent are as good as the exceptionally competent.

More effective than regulated licensing is professional standards that are voluntarily followed. Voluntary associations that inspect and accredit individuals and organizations do a far better job of increasing the level of competency and quality of the work they do.

Take for instance the American Association of Blood Banks vs the FDA. The AABB inspects and accredits laboratories and blood collection services. Their standards are often adopted by the FDA. AABB standards typically precede the FDA. In general the AABB requires a higher level of competency than the Code of Federal Regulations. The voluntary association does more to promote quality than the government requirements for registration and licensure. In fact the federal regulation actually offers multiple levels of regulation allowing some organizations to escape regulation or to receive less frequent inspection. The professional organization does not recognize such distinctions and inspects small and simple operations as diligently as the large and complex.

Once again an example of how government regulation actually allows for incompetence to escape accountability where the market solution actually holds all to account fairly and equally.

licensing, where r... (Below threshold)
James H:
licensing, where rigorous education and testing requirements are imposed, reduces the risk of catastrophic failure and does so preemptively, which is something the free market cannot do. When that failure is your life, health, freedom, or livelihood such licensing is justified and beneficial. That's not to say that licensing hasn't been abused and misapplied, but such misuse doesn't negate the benefits of proper licensing.

I think Mac Lorry hits the nail on the head here. A licensing scheme is about establishing minimum competence in a profession, not optimal results for all people. The cost of this licensing scheme is spread across all people who use, say, a doctor's services, rather than allocated in a large, very expensive way, to somebody who uses a noncompetent doctor.

James H, Please explain how levying a tax on workers will reduce the cost of labor when all it does is prevent them from getting work.

It doesn't reduce the cost of labor. It re-allocates the costs of failure, as I tried to show in my admittedly garbled hypothetical above, and, as Mac Lorry points out, endeavors to ensure that a given professional meets some minimal level of competence.

And before you go off on me, understand that I work in a profession that has extremely steep educational costs and an onerous licensing process. I don't like it, but I recognize some of the good it provides.

Regarding the importance of... (Below threshold)
James H:

Regarding the importance of market information: As nearly as I can tell, the best way for the free market to ensure information is available to consumers is for the professionals to develop some code or symbol that shows a particular professional is deemed competent by his peers.

In other words, a private-sector certification process in which a person is not required to get the certification, but in which a professional is essentially unable to conduct business without it.

But if such a process is created, how do you ensure that existing professionals do not use such a process to collude and prevent new competitors from entering the marketplace?

James H,Collusion ... (Below threshold)
jim m:

James H,

Collusion is actually easier to do when the government regulates the industry. Where I used to live hospitals have to get state approval before expanding or offering new services. There was a great scandal where the state regulatory agency was taking bribes to withhold approval for a new hospital near where I lived. The market would have supported a new hospital. Corruption meant that the strongest competitor was kept out of the market in favor of a weaker one who could not build a new hospital but could only offer an urgent care center.

You imply that professional association are more likely to be a part of such corruption, yet my experience is that it is found far more in government and not at all in the professional area.

Wait a minute, though. In ... (Below threshold)
James H:

Wait a minute, though. In the situation you're describing, the briber and the bribee get hauled off to the clink once their collusion is discovered.

If you have a private certification entity, don't you run the risk that entity may simply engage in legal collusion and not face punishment?

Here's a better example:</p... (Below threshold)
jim m:

Here's a better example:

Veterinary hospitals are accredited by an organization called AAHA. The national organization has a vested interest in encouraging hospitals to accredit. Organizations that have a broader geographical scope will have an interest in increasing membership and not in restricting trade. A local organization can and sometimes does create barriers to entering the market. This is actually seen frequently with trades where unions certify contractors. There is a vested interest in excluding non union members and lobbying for laws that restrict non-accredited contractors.

Jim M:Your point a... (Below threshold)
James H:

Jim M:

Your point about geographical breadth is well-taken. My larger fear is that if we withdraw the government role in licensing, then over time (not necessarily immediately) we would essentially see the private organizations become corrupt and promote collusion ... which I find just as distasteful as bribery and corruption in government licensing processes.

I think ... (Below threshold)
Mac Lorry:


I think we can agree on this (or should anyway): that licensing has the primary effect of limiting the labor pool. Whether it be through financial requirements or through educational ones.

When I use the term licensing I'm talking about the kind that imposes rigorous education and testing requirements for the purpose of preemptively eliminating unqualified individuals. Keep that in mind.

Properly applied, license limits the labor pool to those individuals who are minimally qualified to provide as specific service. That means butchers won't be doing surgery.

1) A restricted labor pool means a higher price for that labor. (that's econ 101, if you cannot see that truth there is no point in discussing this)

That's true, but when you get to econ 301 you'll learn that what they taught you in econ 101 was overly simplistic. The cost of failure has to be taken into account to determine the true cost of any product or service. For example, what's the true cost of using asbestos insulation in a home? It was cheap stuff in 1955 but we now know it was the most expensive insulation available over its lifecycle because it's such a powerful carcinogen. Generically, that's the cost of failure. Ignore it at your own demise.

2) Costs for entering that labor pool are going to be passed on to employers and consumers. Employers are forced to pay licensed workers higher salaries as a direct result of the restricted labor pool.

As for doctors and lawyers, which are the professions I have been talking about, the cost of licensing is trivial compared to their education and training. Unless you are arguing for opening such professions to doctors and lawyers without formal education the costs imposed by licensing are recouped on the first day of a doctor or lawyer's professional life. The benefits of eliminating incompetent individuals from such professions outweighs such costs by a wide margin.

3) Licensing does not prevent incompetence.

Nor can the free market. Nothing is 100 percent so there will always be examples of such failures, but that doesn't mean licensing fails to weed out the worst.

We cannot prove that licensure reduces that frequency. In the example that I gave above of laboratory workers the answer is NO, licensure does not effect competency in any material way.

If you go back and read your own example and my definition of licensing then you will see that there are two groups. One group licensed by the state and a second group licensed by private certification. There is no group of unlicensed laboratory workers in your example, and thus, it proves nothing.

4) Licensure actually makes it more difficult to remove incompetent individuals. We have seen many cases where regulatory bodies are loathe to revoke the license of an incompetent professional. There are many cases of staggering incompetence where practitioners are allow to keep their license. Regulators are unwilling to revoke a license that was costly to obtain. Furthermore, professional organizations will actively advocate to make revocation of a license more difficult as license revocation is a threat to their livelihoods. Professionals have a vested interest in making it difficult to revoke a license.

Without licensing there is no means to remove incompetent individuals apart from criminal prosecution, and criminal prosecution is just as effective in removing licensed incompetent individuals. As for provisional organizations protecting their members, well that's the case with or without licensing. What licensing does is preemptively weed out the worst individuals and that's something the free market cannot do.

But licensing regulation IS a one size fits all dogma.

Most professions are not licensed and the licensing requirements are different for different professions, so it's not a one-size-fits-all dogma. People who believe that an unregulated free market will magically improve all things and lower cost haven't considered the cost of failure. If the free market could price in failure up-front then Volvo would be the number one car maker as most people put a high value on their lives and health.

It does not improve quality. It provides a refuge for the minimally competent and protects hem from their incompetence and creates the illusion that the minimally competent are as good as the exceptionally competent.

You keep confusing licensing with people working in government or union jobs. Licensing is a trivial cost for doctors and lawyers compared to their education and training. No one who has the smarts, the desire and the money to get the needed education to be a doctor or a lawyer is going to be turned away by the cost of licensing requirements. If you are arguing that doctors and lawyers shouldn't need such extensive education and training, then say so and make that point.

Once again an example of how government regulation actually allows for incompetence to escape accountability where the market solution actually holds all to account fairly and equally.

I'm not denying that market forces (law suits and insurance rates) don't result in standards and regulations that often go beyond government regulations. The government sets minimum requirements, such as in their building codes, and I always look for a contractor who professes to exceed minimum codes.

Where there are mature self-regulated industries it may be possible to remove licensing requirements and let the free market take over. Where it's been tried, such "deregulation" has mixed results, however.

Bottom line is that where the cost of failure is high the people have a right to preemptively weed out incompetent individuals through government licensing just as they have a right to preemptively restrict dangerous behavior (driving drunk).

"because it's such a pow... (Below threshold)
P. Bunyan:

"because it's such a powerful carcinogen"

Actually that's not at all true either, but the trial lawyers don't want you to know that. It is a carcinogen, but not a "powerful" one. IIFC the guys who actually mined it day after day had cancer rates of about 6/1000.

"Without licensing there is no means to remove incompetent individuals apart from criminal prosecution"

Yes there is-- don't use their services in the first place.

"just as they have a right to preemptively restrict dangerous behavior (driving drunk)"

Just how do they do that? By arresting 0.01 percent of drunk drivers before they kill someone? Well then again that's probably a lot more effective then licensing is at weeding out bad doctors.

In the name of liberal fair... (Below threshold)
914:

In the name of liberal fairness, can we redo the 2008 election?

It is a carcinogen... (Below threshold)
Mac Lorry:
It is a carcinogen, but not a "powerful" one.

That really wasn't the point. The point is that what seemed like cheap insulation for pipes and furnaces turned out to be expensive when its total lifecycle is considered.

Yes there is-- don't use their services in the first place.

The doctrine of caveat emptor (let the buyer beware) you invoke requires a readily available source of accurate and relevant information. No such source of information exists for doctors and lawyers for a number of reasons unrelated to licensing. Thus, you can't avoid their services in the first place.

Well then again that's probably a lot more effective then licensing is at weeding out bad doctors.

For students from US/Canadian Schools with MD degrees 14% fail at least one of the three required tests on their first try. For students from Non-US/Canadian Schools 54% fail at least one of the three required tests on their first try. For repeaters from US/Canadian Schools with MD degrees 72% fail. For repeaters from Non-US/Canadian Schools 90% fail. Those are hardly trivial failure rates considering these folks have spent 8 years or more in college.

Just how do they do that? By arresting 0.01 percent of drunk drivers before they kill someone?

So what do you think would happen to the number of deaths due to drunk driving if there were no DWI laws? Stricter enforcement of DWI laws over has greatly reduced that death rate, so it's a sure bet that repealing such laws would result in an even greater increase. Preemption of risky behavior is justified when the cost of failure (car crash) is high.

"...understand basic ten... (Below threshold)
sierra:

"...understand basic tenants of economics"? You mean tenets.

Actually asbestos is kinda ... (Below threshold)
P. Bunyan:

Actually asbestos is kinda relevant to this discussion because government regulations made it cost way, way more than it should, But that's a long story and tangential to this topic.

"No such source of information exists for doctors and lawyers"

That's simply not true, but maybe there's a differnce related to city people vs. country people. See in the country we talk to others in our community and if someone's not on the up an up we all know about it. But even for city folk there's things like Angie's list. And anyone can ask for references and check them before hiring someone. So yeah there are lots of sources of information, they just take a little personal responsibility. (And even the worst of them are still probably as good as government tests.)

"For students from US/Canadian Schools with MD degrees 14% fail..."

Your statistics in and of themselves prove nothing. In order for them to be meaningful in this context you'd need to compare them to the statistics of a free market system. For example, you are assuming that those that fail the required tests would succeed in a free market system. You are also assuming that all those that fail the tests would make poor doctors and that those that pass the tests would make good doctors. I disagree with those assumptions.

I don't really want to go off on yet another tangent about DUI, but I will say that preemtive enforcement may be contributing to the reduction in deaths, but there are other factors too, like education, changing societal mores and substancially improved safety equipment in vehicles-- so it hard to say how much effect the preemptive enforcement has on the overall reduction or how truly cost effective it is.

Econ 301 does not teach the the basic principles taught in Econ 101 are overly simplistic-- or only true in certain cases, which is the point I thnk you're trying to make. It teaches why the principles in Econ 101 are principles and gives you a better understanding of a why they work as they do.

It really boils down to this: You may think it's worth the cost of licensing for the benefits you perceive to receive from said licensing-- and that's fine, that's your opinion and I'd bet a lot of people share it, but I don't really think you've backed up your claim that licensing requirements in a few specific cases do lower overall costs.

That's simply not ... (Below threshold)
Mac Lorry:
That's simply not true, but maybe there's a differnce related to city people vs. country people. See in the country we talk to others in our community and if someone's not on the up an up we all know about it. But even for city folk there's things like Angie's list. And anyone can ask for references and check them before hiring someone. So yeah there are lots of sources of information, they just take a little personal responsibility. (And even the worst of them are still probably as good as government tests.)

Sure you can learn things about a doctor from his patients such as his bedside manner, personal hygiene, honesty, where he went to school, and how long he has been in practice. The information you won't find, however, is how competent he is in a particular area of medicine, and that's precisely the information you need to avoid incompetent doctors. Sure, his patients will have opinions about his competency, but they are hardly qualified to judge him or rate him relative to doctors overall. What you get is anecdotal information about how the doctor treated a particular patient and/or a particular condition.

Your statistics in and of themselves prove nothing. In order for them to be meaningful in this context you'd need to compare them to the statistics of a free market system. For example, you are assuming that those that fail the required tests would succeed in a free market system. You are also assuming that all those that fail the tests would make poor doctors and that those that pass the tests would make good doctors. I disagree with those assumptions.

Your point is that the tests may not be predictive of a person's competence in medical practice. There are always end cases, but the series of rigorous tests has been designed by doctors with real world experience to be predictive and the tests are modified annually to keep them relevant. There are no assumptions for you to disagree with as the argument that tests can't be designed to be predictive of competence was lost a long time ago.

Econ 301 does not teach the the basic principles taught in Econ 101 are overly simplistic-- or only true in certain cases, which is the point I thnk you're trying to make.

The point I'm making is that econ 101 doesn't teach all of economics, if it did, there would be no need for more advanced classes. The free market is really a complex subject with all kinds of exceptions to the basic principles. The basic law of supply and demand assumes the producer and the consumer have accurate information about cost and price, respectively. As soon as you introduce a non-commodity product the basic law of supply and demand has to be modified and the consumer has to consider lifecycle costs, not just the initial price. For example, when you purchase a car you want to know what fuel mileage various models get and what's their reputation for reliability. You can get that information from several sources such as Consumer Reports and the doctrine of caveat emptor is possible and the free market works.

However, when it comes to medical drugs it costs millions of dollars and many years of testing to figure out the benefits and the risks. Even with the FDA, manufactures have so much invested that they sometimes try to cheat. Just look at the level of quackery that existed prior to the FDA for an example of what the free market produces when consumers can't determine the true value of a product. Where the doctrine of caveat emptor is not possible the free market fails. There are many past and contemporary examples of such failures. Government regulations weren't invented out of whole cloth for no reason, they arise out of the failures of the free market, and most of those failures can be attributed to the breakdown in consumers' ability to practice caveat emptor.

Care to invest in a mortgage backed security that's been rated "Investment quality" by an independent rating agency? Lots of people did not knowing that the rating agencies couldn't really determine the quality of the mortgages the security was based on. Sales of those securities made more funds available for mortgages, which made it easier for people to get mortgages. The problem was that the people making the mortgages didn't care about borrowers' credit worthiness because they quickly sold the mortgages to Wall Street, which then produced mortgage backed securities and paid independent rating agencies to give them an "Investment quality" rating so that they could sell them to investors. You know, like pension plans, mutual funds, and local governments. Yes, the government started and then contributed to the problem, but the breakdown in investors' ability to practice caveat emptor was like pouring gas on a smoldering fire.

It really boils down to this: You may think it's worth the cost of licensing for the benefits you perceive to receive from said licensing-- and that's fine, that's your opinion and I'd bet a lot of people share it, but I don't really think you've backed up your claim that licensing requirements in a few specific cases do lower overall costs.

I'm sure I won't convince you either. I have never seen someone who has swallowed libertarian dogma ever cough it back up.

And I've seldom seen someon... (Below threshold)
P. Bunyan:

And I've seldom seen someone who was willing to abdicate their personal responsibilities, and the rights and liberites that are inextricably tied to said responibilities, be willing to again take on the burden of being responible.

It's true that taking personal responsiblity is very hard, but as far as I'm concerned it well worth the costs.

I wonder if you realize that your willingness to give up even what you might consider to be a very small portion of your personal responsibilities to the government puts you on the same road as Obama. Sure you may be traveling down that road on a moped going 25 miles per hour while Obama's rocketing down it in a space shuttle at 24,000 miles per hour, but it's the same road and it leads to the same place. I'd actually wouldn't care that you wanted to travel down that road were I not being dragged down that road with you, but sadly that's the nature of government power.

I don't like where that road leads and it appears we're going to get to the end of the road very soon so you'll get to see it for yourself. When we get there some conservatives might realize what they've been doing by acquescing to ever increasing government for so many years and wish that they'd turned off that road long ago, but I'd bet a lot of them are just gonna blame the guys in the space shuttle.

They'll say, "we tried to apply the breaks", without understanding that brakes don't work on that road.

And I've seldom se... (Below threshold)
Mac Lorry:
And I've seldom seen someone who was willing to abdicate their personal responsibilities, and the rights and liberites that are inextricably tied to said responibilities, be willing to again take on the burden of being responsible.

It's true that taking personal responsiblity is very hard, but as far as I'm concerned it well worth the costs.

This isn't about taking personal responsibility. You can't possibly take responsibility for what you can't know. When you purchase something for which you can't practice caveat emptor, it's not the free market, it's a crap shoot.

Unless you're an anarchist rather than a libertarian you believe there has to be laws in order for there to be an orderly society and there has to be government to set and enforce those laws. Where libertarians depart from conservatives is on the principle of preemption. Libertarians see preemption as an assault on liberty while conservatives see preemption as justifiable where the cost of failure is high and consumes can't practice caveat emptor.

Thus, conservatives support preemptive laws and preemptive licensing such as DUI laws and licensing of doctors and lawyers. Not all preemptive laws and licensing requirements meet the high cost of failure and caveat emptor criteria and in those cases conservatives and libertarians can work to repeal them.

For example, I support the FDA's role in requiring drugs to be "safe and effective" because the cost of failure is high and because caveat emptor has been proven in the real world not to work in this area. However, I oppose the FDA expanding its role into foods because the cost of failure is not high and I'm able to practice caveat emptor in purchasing food and food supplements.

You see, I base my support or opposition on rational criteria. Rather than following dogma blindly, I'm taking personal responsibility to understand the issues and how the system really works. You should try it.

You're putting your faith i... (Below threshold)
P. Bunyan:

You're putting your faith in the goverment Mac, and I hate to tell you this bit of rational criteria, but the goverment is comprised of humans and thus is just as falable as all humans are. I understand well how the goverment and the "system" works, TYVM. But hey, you just go on believing that the costs are justified because the goverment is protecting you and keeping you safe. I just wish I wasn't forced to go there with you.

Me, I'd rather not give up liberty for the illusion of security. I'll take responibility for finding out on my own if my doctor and lawyer a really qualified.

And you know what else? I'... (Below threshold)
P. Bunyan:

And you know what else? I'm not opposed to doctors and lawyers being licensed, I'm just willing to acknowledge that (1) it does increase costs, (2) does not guarantee the competency of the doctors and lawyers, and (3) it prevents some qualified and competent individuals from entering those professions.

Let me rephrase #45, instea... (Below threshold)
P. Bunyan:

Let me rephrase #45, instead of writing "I'm not opposed" I should have written "It's not so much that I'm opposed..."

'Cause I think I am somewhat opposed to it. Not hard core opposed to it, but a little.

You're putting you... (Below threshold)
Mac Lorry:
You're putting your faith in the goverment Mac, and I hate to tell you this bit of rational criteria, but the goverment is comprised of humans and thus is just as falable as all humans are.

You have a point if you're an anarchist. Otherwise, you too are putting your faith in the government at least for defending the nation, operating a judicial system and a monetary system.

But hey, you just go on believing that the costs are justified because the goverment is protecting you and keeping you safe. I just wish I wasn't forced to go there with you.

You can force me to go with you if you can convince enough people you are right, such that libertarians win most elections. The problem with that, however, goes back to the libertarian belief that preemption is an assault on liberty and never justified.

Not that many years ago a libertarian was debating a conservative and was asked about their position on preemptive laws such as DUI and speeding. The libertarian said there should be no such laws citing some of the same arguments you make above. The conservative then asked the libertarian if he was ok with a drunk driver speeding 90 MPH through a school zone while children were present. The libertarian defended his position restating there should be no preemptive laws and that if the driver killed some kids then the parents could sue him.

In an election debate such an answer would remove any hope the libertarian had of winning. That's why libertarians (Ron Paul) have to run for office disguised as conservatives, but liberals have figured this out and will use libertarian's preemption dogma to paint them as lunatics, and because they disguise themselves as conservatives, people like me get painted with the same lunatic brush and more liberals get elected.

Guess that's why I have spent so much time seeing if there was a way around the libertarian preemption dogma.

I've got no problem with na... (Below threshold)
P. Bunyan:

I've got no problem with national defense. I have much less faith in the judicial system, but see the necessity of it, as corrupt as it it. Now the monitary system-- well we can talk about that a year from now.

"You can force me to go with you if you can convince enough people you are right,"

If you believe that then you don't understand libertarian beliefs at all. Libertarians would let you do whatever you wished. If your community wanted to pass a billion laws to govern your lives and protect you from whatever you feel you need protection from, that's fine with us--we just don't want you to force our community to do the same.

Lastly, if someone is going to get drunk and speed through a school zone, speed limits and DUI laws will not stop him. Sure, there's a miniscule chance the police will catch him first, but there's no reason to count on that happening. Still, while I can't speak for all libertarians, I personally am o.k. with DUI laws and speed limits. I just don't expect them to protect me or my children.

P.S. I'm not sure what thi... (Below threshold)
P. Bunyan:

P.S. I'm not sure what this "preemtion dogma" you mention is.

As I understand it, Libertarians believe you should be able to do pretty much whatever you want as long as your not causing tangible harm to someone else. Driving drunk as well as speeding do have the potential to harm other so they should be illegal in my opinion. I just don't trust the laws to prevent drinking and driving or speeding. Reduce them a little, sure, but not prevent them.




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