The occupational licensing racket #wonkbook

at 08:00 AM ET, 06/13/2012

Here's a fun fact: "In 1950, fewer than 5 percent of Americans worked in jobs that required licenses. Today, it’s roughly 30 percent, and that number is likely to grow."

That's from Jacob Goldstein, who notes that, at least in Utah, one of those jobs is "African hair-braider," which falls under the jurisdiction of the state's "Barber, Cosmetology/Barber, Esthetics, Electrology and Nail Technology Licensing Board" -- nice name -- and has been judged to require a cosmetology license at a cost of almost two years of school and $16,000 in tuition.
Jestina Clayton wanted to start a hair braiding business in her home near Salt Lake City, but couldn’t do it without a license. She explored training as a cosmetologist, and found that no school taught braiding. So she would need 2,000 hours of training in other skills she didn't need, simply to have a legal braiding business. (Jim Urquhart - AP)

If you want to see the permissions required to work in your state, the Institute for Justice has a comprehensive report that includes licensing profiles for every state. In Washington, D.C., for instance, interior design requires a license, and that license requires almost six years of education and apprenticeship, not to mention passing an exam. This is all so interior designers don't...what? Make your house look ugly?

After all, in 47 other states, interior design does not require a license. And they don't seem plagued by interior design fraud, or even unusually unattractive interior design choices. So it's hard to see what compelling interest in being served by making it so difficult for aspiring interior designers to enter the market.

There are examples, of course, of occupations that really should require licenses. I'd like some certainty that my emergency medical technicians, for instance, know what they're doing -- though, in D.C., the EMT license, unlike the interior design license, does not include a mandatory number of days you need to spend in training, nor an exam you need to pass.

It's hard to make the "necessity" argument, however, for barbers, or cosmetologists, or funeral attendants. In the United States today, over 1,000 different professions require this sort of licensing. All too often, the license is a mixture of protection racket and backdoor tax -- and it comes at the cost not just of jobs, but of new business formation, and economic experimentation.

"Our best shot at creating a decent economy in the future will come from making it easier for workers to shift out of dying careers and into promising ones," concludes Goldstein. "Workers need to be able to experiment and to fail (quickly and often) until they find the real, valuable skills that customers will pay for. This will take years. And in order for them to do that, we need to start by making it easier to braid hair in Utah."

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Top story: Uncertainty in Europe

The ECB endorsed a European banking union. "The European Central Bank called on Tuesday for euro zone leaders to form a 'banking union' to oversee its big banks, a move that would help shield countries and their taxpayers from the misfortunes of their troubled lenders. A banking union might address one of the causes of the euro crisis: the tendency for sick banks to undermine entire countries. The costs of taxpayer-financed bailouts in Ireland and Spain, among other countries, were so large that they raised questions about the creditworthiness of national governments...In a report issued Tuesday, the central bank said it envisioned that euro zone countries would share responsibility for regulating big banks and for managing a common deposit insurance fund. Countries would also create procedures for winding down terminally ill banks so taxpayers would not have to bear the cost, the bank said." Jack Ewing in The New York Times.

Germany's Bundesbank is not exactly thrilled by the idea."Germany’s Bundesbank has warned of possible risks from banking union in the EU, saying it would be tantamount to a back-door pooling of sovereign debt, unless accompanied by fiscal union that allowed control over national budgets...The views of Germany’s hawkish central bank reflect broader German opposition to any agreement that could leave the eurozone’s largest economy liable to bailing out banks in weaker countries, unless in return for measures that more closely integrate budget and spending policies. Banks in Germany have already signalled opposition to having their existing deposit guarantee schemes potentially used to rescue banks in other countries." James Wilson inThe Financial Times.

Spanish government-bond yields continued to swell. "Spanish government-bond yields pushed higher for a second day Tuesday, ratcheting up pressure on European policy makers to devise another, and bolder, response to the swelling sovereign-debt crisis. The financial markets' reception to a €100 billion ($125 billion) euro-zone-funded rescue of Spain's banks, announced over the weekend, has been sharply negative. The yield on the 10-year Spanish government bond rose to 6.72% Tuesday, a euro-era record, up from 6.52% on Monday and 6.24% before the plan was revealed on Friday, according to data-provider Tradeweb...The problem is particularly acute in Spain, which still must sell around €36 billion worth of medium- and long-term debt this year to refinance existing borrowings and to fund a wide budget deficit. If it can't access financial markets for those funds, it will have little choice but to turn to European authorities for a full-blown bailout."Charles Forelle in The Wall Street Journal.

Spanish taxpayers would be liable for a failed bailout. "Many details of the banking bailout remain to be resolved -- including which of Europe’s rescue funds will supply the money. The one thing that is clear is that even though the money will be funneled to the banks, the government in Madrid will ultimately be responsible for guaranteeing that $125 billion, adding to the Spanish government’s already rising debt load. That fact, more than any other, probably explains why there was heavy selling of Spanish government bonds on Monday and Tuesday. The yield on Spain’s 10-year bonds -- an indicator of the government’s borrowing costs and the risk of holding that debt -- rose Tuesday to as high as 6.8 percent. That is approaching the level that led to bailouts for Ireland, Portugal and Greece...Critics are noting that any upside from the arrangement will go to the banks and their investors. The potential downside will be the Spanish people’s to bear."Raphael Minder in The New York Times.

@ryanavent: The bail-out situation has developed not necessarily to Spain's advantage.

Italy denied that it would be the next to seek a bailout. "Italy has forcefully denied it would be next in line after Spain to seek a eurozone bailout. Mario Monti, prime minister, described as 'inappropriate' loose talk a day earlier by Maria Fekter, Austria’s finance minister, that Italy was at risk of needing a rescue. Corrado Passera, industry minister, also dismissed the idea that Rome might need external help...The prospect of Mr Monti’s technocrats left semi-paralysed while fragmenting parties stumble towards elections expected next March is fuelling alarm on financial markets already focused on Italy’s growing debt and deepening double-dip recession. Italy’s yields are tracking closely behind Spain’s, despite a flood of analysts’ notes duly noting Italy’s stronger fundamentals - a much smaller budget deficit, low levels of private sector debt, lower unemployment and mostly stable banks that did not overdose on property speculation." Guy Dinmore in The Financial Times.

@BCAppelbaum: What we need this summer is an Olympic Truce that covers financial crises.

The World Bank warned that Europe may slow global growth."The World Bank on Tuesday warned that fears about the euro zone had reduced investors’ tolerance for risk, and it urged poorer economies to protect themselves by reducing their debts. In the report, a scheduled update to the bank’s overview of the global economy, the bank forecasts sluggish growth in high-income countries, like Japan, Germany and the United States, in the coming years. It expects more modest growth in the middle-income economies that have been the engine of the global recovery, like China and Brazil. And it sees developing countries in Africa, Asia and Latin America experiencing slower growth than they have for most of the last decade...The bank largely maintained the dreary economic forecasts it made in January, when it significantly cut its growth expectations and warned of a shock 'similar in magnitude to the Lehman crisis' as a worst case. It now expects global output to increase 2.5 percent in 2012 and 3 percent in 2013." Annie Lowrey in The New York Times.

WOLF: Europe needs higher spending and inflation in the core."If the current policies seem unlikely to work and either a federal or a transfer union is ruled out on grounds of political or economic infeasibility, what is left? I suggest the combination of two ideas: 'insurance union' and 'adjustment union'. By an insurance union, I mean one that provides temporary and targeted support for countries hit by big shocks. By an adjustment union, I mean one that ensures symmetrical adjustment to changes in circumstances, including, changes in financing. Both are necessary and, together, they should be sufficient to ensure a workable union in the long run. These notions would have been unnecessary if original members had been far more similar: the minimal union would then have worked. But that is not what now exists. If the eurozone is to sustain its current membership, it needs a combination of insurance and adjustment." Martin Wolf in The Financial Times.

SINN: Germany is right to balk at bailing out Europe. "Although Europe may seem far away from the economic life of the average American, the fate of the euro zone weighs heavily on the United States economy...It’s no wonder, then, that President Obama is urging Germany to share in the debt of the euro zone’s southern nations. But in doing so, he and others overlook several critical facts. For one thing, such a bailout is illegal under the Maastricht Treaty, which governs the euro zone. Because the treaty is law in each member state, a bailout would be rejected by Germany’s Constitutional Court. Moreover, a bailout doesn’t make economic sense, and would likely make the situation worse. Such schemes violate the liability principle, one of the constituting principles of a market economy, which holds that it is the creditors’ responsibility to choose their debtors. If debtors cannot repay, creditors should bear the losses." Hans-Werner Sinn in The New York Times.

HOCKETT: Europe needs a trial separation to survive. "The euro is not a fundamentally bad idea. It just needs a timeout while some critical kinks are worked out. Europe is at least two economies: a northern tier we might call Hanseatica and a southern one we will call Mediterranea. The Hanseatic economy is primarily commercial and industrial, and relies on exports. The Mediterranean economy remains more pastoral and agricultural, and relies on debt for its purchases of manufactured goods from the north...There should be a North ECB and South ECB, operating in concert and presumably under one board -- to manage two closely related, but still partly distinct, currencies. The North and South ECB branches should likewise maintain partly distinct credit and monetary policies. And like the U.S. Fed regional banks, whose boards are partly made up of local economists, bankers and other business leaders, they must be managed partly by those most affected -- northern Europeans in the North ECB, southern Europeans in the South ECB." Robert Hockett in Bloomberg.

Top op-eds

1) GOLDSTEIN: Licensing laws should be loosened. "Once upon a time, these barriers weren’t such a big deal. In 1950, fewer than 5 percent of Americans worked in jobs that required licenses. Today, it’s roughly 30 percent, and that number is likely to grow. In the coming years, global competition and the increasing rate of technological change will force many workers to bounce from career to career throughout their working lives. Nearly 13 million Americans are out of work; since the start of the recession, the manufacturing sector alone has lost about two million jobs. There’s little doubt that laid-off factory workers will find themselves increasingly looking for opportunities in landscape contracting, athletic training and in hundreds of other professions that require licenses...Almost nobody is calling for wholesale abolition of professional licensing...A wide range of economists and activists, however, are looking for ways to loosen the rules in a productive way." Jacob Goldstein in The New York Times.

2) LACKER AND STERN: Living wills could end too big to fail."Mapping out the unassisted resolution of a large, complex financial institution will be very hard work. But such work is critical, because to end too-big-to-fail it is not enough for regulators to declare their intention to withhold support from the creditors of distressed financial institutions. For such a commitment to be credible, investors must expect regulators to follow through. And for regulators to follow through, an unassisted wind-down must be a viable and credible option...There is no substitute for the painstaking work of charting out precisely how the resolution of a large institution would play out. How else would one know how small, or how simple, to require such institutions to become? Attempting to write a credible, detailed living will is the only way we can see of restructuring an institution so that it is not too big or too complex to fail." Jeffrey Lacker and Gary Stern in The Wall Street Journal.

3) EICHENGREEN: Work sharing could help alleviate the unemployment crisis. "For those unfortunate enough to experience it, long-term unemployment - now, as in the 1930’s - is a tragedy. And, for society as a whole, there is the danger that the productive capacity of a significant portion of the labor force will be impaired. What is not well known, however, is that in the 1930’s, the United States, to a much greater extent than today, succeeded in mitigating these problems. Rather than resorting to extensive layoffs, firms had their employees work a partial week...We know this from a 1986 article by my Berkeley colleague James Powell and his co-author, none other than - wait for it - Ben Bernanke...The US federal government could emulate this example by compensating the states more generously for their Short-Term Compensation programs. Its failure to do so not only inflicts avoidable pain and suffering on the unemployed, but also threatens to inflict long-term costs on American society." Barry Eichengreen in Project Syndicate.

4) ZINGALES: Time for a corporate tax swap. "There are two layers of taxes levied on corporate income: a dollar of profits is taxed 35 cents at the corporate level, and then another 9.75 cents (a 15% tax on the remaining 65 cents) when it is distributed under the form of dividends or realized as capital gain...The simplest solution to this problem is to move most of the burden from the corporate level to the individual level. If corporate taxes were just 15% and dividends and capital gains were taxed at the personal tax rate (35%), the total amount of taxes paid on a dollar of corporate profits would not change. Yet there will be several advantages. First, small corporations struggling with liquidity problems will see their cash flow increase -- and so will their investments and hiring. Second, corporations, which are highly sophisticated at lobbying, will find it less profitable to do so, reducing the creation of tax loopholes. Last but not least, all personal income will be taxed at the same rate, eliminating tax arbitrages among different forms of income." Luigi Zingales in New York Daily News.

5) PORTER: Discrimination doesn't drive the pay gap. "Most economists believe the gap between women’s and men’s wages does not stem primarily from employers paying women less than men for the same job. It occurs mostly because men and women take different jobs and follow different career paths. Part of this difference may be a result of discrimination in hiring and promoting. Much, though, is a result of the constraints of motherhood. There are policies that could help diminish women’s pay deficit by increasing flexibility in the workplace and easing women’s family burden. Reducing the nation’s vast income inequality would also go a long way. Many European countries have smaller gender pay gaps because the difference between the earnings of low-wage and high-wage workers, men or women, is much smaller than in the United States. But mandating equal pay for equal work is unlikely to make much of a difference." Eduardo Porter in The New York Times.

Top long reads

Monica Potts on life in one of the country's poorest counties:"While most of Appalachia is poor, Southeast Kentucky, where the mountains start turning into hills, is the worst off. There was never enough coal for deep mining that would at least provide well-paying jobs. The ground, mostly black slate, is too rocky for farming, though some families grew tobacco on a few flat bottomland pastures until the government bought them out in the 1990s. Five of the poorest counties in the United States--Owsley, Clay, Lee, Knox, and Wolfe--touch here, huddled along a swath of wilderness, the Daniel Boone National Forest, that divides them from the rest of the state. Owsley County does the rest of these small, poor counties the favor of being a little bit smaller and a little bit poorer. Less than 200 square miles, slightly bigger than the city of New Orleans, it’s shaped like a bowl with hills on the edges and the low, slow south fork of the Kentucky River cutting through. It has the distinction of being the poorest county in the United States with a majority-white population."

Ylan Mui profiles loan officer turned consumer activist Beth Jacobson: "For nearly a decade, Beth Jacobson lived inside the vast machinery of subprime mortgages that shook the nation’s economy. In sworn court testimony, she described watching loan officers comb through heavily African American areas such as Baltimore and Prince George’s County, forging relationships with churches and community groups to sell their members shoddy mortgages. She says she processed loans for homeowners with sterling credit ratings with higher interest rates than they needed to pay. And she says she pumped out millions of dollars in mortgages to people with no paperwork and low incomes, becoming Wells Fargo’s top-producing loan officer. The machine made her rich -- the questions came later. Now, she has recast herself as a crusader for consumers in a battle that has pitted her against the system she once pushed."

Folk interlude: Tim Buckley plays "Morning Glory" on Late Night Line-Up.

Got tips, additions, or comments?  E-mail me.

Still to come: The deficit is down; healthcare spending growth is coming back; the farm bill struggles in the Senate; technology is driving increased oil production; and Batgirl wants equal pay.

Economy

Higher tax receipts narrowed the deficit. "Higher tax receipts and slightly lower government spending have narrowed the federal deficit for the first eight months of the fiscal year compared with a year earlier, Treasury Department figures showed Tuesday. Still, if the government continues to pile on debt at its current pace, it could hit its $16.39 trillion borrowing limit sometime toward the end of the calendar year, according to Treasury estimates. The deficit totaled $124.6 billion in May, compared with a $57.6 billion shortfall during the comparable month a year earlier. But a Treasury official noted that partly reflected a shift in timing for some payments and credits that artificially lowered the year-earlier figure. Adjusted figures show a deficit of about $129 billion for May 2011, larger than last month's gap, the Treasury Department said. The department collected $180.7 billion in taxes and other revenue last month, the highest May tally since 2006 and the second-highest on record for the month." Jeffrey Sparshott in The Wall Street Journal.

@damianpaletta: For context, Since 1980, the US govt has had monthly surplus (tax revenue > spending) 0 times in any May.

Jamie Dimon will play down JP Morgan Chase's losses in front of Congress. "When JPMorgan’s chief executive, Jamie Dimon, appears Wednesday on Capitol Hill, he plans to play down the risky trading activities that have already prompted at least $3 billion in losses. In prepared testimony for a Senate hearing into the trading mess, Mr. Dimon called the losses an 'isolated event' that would not hurt customers or taxpayers. While apologizing for various mistakes, he explained that risk was unavoidable in the banking business, and ultimately the firm’s capital position and diversified model 'did what they were supposed to do' and protected the company against unexpected losses in one area. Those internal systems will be scrutinized by lawmakers. At the hearing on Wednesday, the Senate Banking Committee will focus on the firm’s risk controls and management oversight." Ben Protess and Jessica Silver-Greenberg in The New York Times.

Senators are pushing for trade with Russia. "Momentum is growing in Congress for legislation to normalise US trade relations with Russia in connection with its looming accession to the World Trade Organisation. A bipartisan group of influential senators on Tuesday introduced a bill that would grant 'permanent normal trade relations' status to Russia, calling for fellow lawmakers to approve the legislation over the next two months. The bill - sponsored by Max Baucus, the chairman of the Senate finance committee - would also repeal the Jackson-Vanik amendment, a provision of US law designed in the 1970s to restrict trade with countries that restrict emigration...The bill presented on Tuesday was also co-sponsored by John Kerry, the chairman of the Senate foreign relations committee, John McCain, the top Republican on the Senate armed services committee, and John Thune, a South Dakota senator who is considered a possible vice-presidential pick for Mr Romney." James Politi in The Financial Times.

Math documentary interlude: Andrew Wiles' struggle to prove Fermat's Last Theorem.

Health Care

Romney unveiled his healthcare plan. "Romney fleshed out a plan that he proposed earlier that would apply free-enterprise principles to the nation’s health-care system rather than operate it like a 'government-managed utility,' letting competition drive down prices and increase quality. He also vowed to divert federal Medicaid dollars and other federal funding to state governments, making them responsible for covering the uninsured. And he promised that his plan would still help cover people with preexisting conditions, one of the more popular components of Obama’s law...He would allow individuals and small businesses to buy insurance coverage with the same tax advantage that larger businesses enjoy and to purchase insurance across state lines or join organizations to give them bargaining power with insurers...Romney also said his plan would help cover people with preexisting conditions if they lose or change their jobs, although Americans already have been guaranteed such coverage since the 1990s under the COBRA law."Phillip Rucker in The Washington Post.

Healthcare spending growth is set to speed up again. "A forecast released Tuesday said the growth rate for U.S. health spending of all types would stay historically low the next two years. But it would increase if most of the federal health-care overhaul takes effect in 2014. After that, the rate would drop, but spending still would grow at a higher rate than that of the past few years, according to the Centers for Medicare and Medicaid Services. The figures, published in the trade journal Health Affairs, suggest the current soft spending is a short-term trend. Consumers have been cutting back on doctors' visits and employers have trimmed insurance since the U.S. first fell into a recession. National health-care spending growth was 3.8% in 2009, the smallest increase on record, and was followed by a similar 3.9% in 2010. Economists in the new report projected similar rises averaging 4% annually for 2011, 2012 and 2013." Louise Radnofsky in The Wall Street Journal.

The appropriations bill funding ACA is moving forward. "The Labor, Health and Human Services appropriations bill passed out of a Senate Appropriations subcommittee by a vote of 10 to 7 with the GOP united in its opposition to increased funding for the Affordable Care Act. It heads for a full committee vote on Thursday. Protecting the ACA’s funding could be tricky if part of the law is struck down by the Supreme Court later this month. 'We’ll just have to see what the Supreme Court decides and how that plays out. I just don’t know yet,' subcommittee Chairman Tom Harkin (D-Iowa) acknowledged...Overall the spending bill provides $158.8 billion for 2013 for the departments of Labor, Education, Health and Human Services and related agencies. That $8.8 billion is more than the House is expected to provide in its bill, which is heading for a markup as soon as next week and a major fall battle looms, likely after the fiscal year ends on Sept. 30." Erik Wasson in The Hill.

Domestic Policy

The Senate farm bill is struggling. "The Senate farm bill stumbled badly coming out of the gate Tuesday evening, but its floor managers promised to persevere despite the partisan dysfunction that so plagues Congress this year...The stakes are big: a bipartisan bill promising real savings and impacting an important part of the economy. Failure of the Senate to act would kill any chance of House action this summer, as well as invite chaos when the current farm law expires Sept. 30...Proponents are battling a mindset that nothing will get done before the November elections and better to seek short-term political advantage with amendments. Indeed, more than 220 have been filed thus far, many not relevant to the farm bill itself. Part of this is a conservative strategy to bait Majority Leader Harry Reid (D-Nev.) into a confrontation that will ultimately kill the bill. Given his temper, Reid can be his own worst enemy in these situations and appears to get little help from Minority Leader Mitch McConnell (R-Ky.), under pressure from his own right."David Rogers in Politico.

@7im: Can I get a subsidy for my Farmville acreage? ?#farmbill?

Remote areas could lose broadband under funding changes."Adak Island lies in the Bering Sea 1,200 miles from Anchorage and neither cyclone winds, tsunamis nor unexploded artillery from its days as a World War II base prevents its 326 or so residents from expecting a high-speed Internet connection to the rest of the world. That service may end soon for some because of a fight with federal regulators over subsidies. The cost to bring mobile, high-speed Internet service to this tiny speck in the Aleutian Islands is turning into something of a test of the Federal Communications Commission’s vision of a mobile, broadband-based communications system that telephone users subsidize for the needy and hard-to-reach corners of America...Greater Adak Island and its lone policeman won’t be serviced much longer unless the FCC reassesses how much it reimburses Mayes’s company under a $4.5 billion subsidy program the commission revamped last fall to help spread broadband nationwide." Brooks Boliek in Politico.

The children of immigrants are lagging behind. "The education, health and socioeconomic lot of the children of immigrants, the fastest-growing population group in the U.S., has raised concerns about how those children will perform when they enter the workforce...Many children of immigrants start life with advantages that children of native-born Americans don't have, according to the study. Roughly three-quarters of the country's children of immigrants lived with both parents in 2010, according to Mr. Hernandez's study, compared with 70% for the children of native-born Americans. At least one parent had a fulltime job for roughly two-thirds of each group. Children of immigrants are less likely to experience low birth weight or infant mortality, an advantage known as the 'immigrant paradox' because it runs counter to the expected outcome. However, as they grow up, children of immigrants begin to fall behind other children as the liabilities of being born into poverty become more acute." Miriam Jordan in The Wall Street Journal.

Old commercials interlude: Batgirl does a PSA for equal pay.

Energy

The solar market is likely to double in 2012. "The U.S. market for solar panels is likely to double in 2012, thanks to government policies and falling prices, although new tariffs on panels imported from China could contribute to slower growth in 2013, according to a new study. U.S. developers are likely to install about 3,300 megawatts of solar panels this year, nearly double the amount installed in 2011, according to the study released Wednesday by the Solar Energy Industries Association and GTM Research. The global solar-power market has been turbulent for manufacturers, as prices have plunged amid an oversupply of panels. But the falling prices, as well as faster development for large-scale solar power plants, have driven strong demand for solar in the U.S., the report found. The report predicted that global solar-panel installations this year will reach nearly 30 gigawatts, which would make the U.S. the fourth-largest solar market, with an 11% share of the global market." Cassandra Sweet in The Wall Street Journal.

Technology is likely driving high U.S. oil production levels. "U.S. oil production reached its highest level since 1998 in the first three months of 2012, providing fodder for more political wrangling about who should get the credit. Some experts say the credit largely belongs to the private sector. 'In the end, the president and Congress can’t take credit for what price and technology have delivered,' Tom Kloza, chief oil analyst at the Oil Price Information Service, said in an email. 'It would be akin to taking credit for the iPad.'...Richard Newell, who served as head of the EIA from 2009 to 2011, agreed. 'In a political year, different parties would like to take credit for positive news in the energy sector, and I think here the credit largely goes to technology,' said Newell, who is also a professor of energy economics at Duke University...EIA’s June 5 monthly petroleum supply report said domestic oil production this year went above 6 million barrels a day in the first quarter for the first time since October-December 1998." Andrew Restuccia in Politico.

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

 
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