I. The Perils of Capture.
Lindsey and Teles do not limit their critique of licensing to relatively “easy” case cases such as florists. They also explain in detail how licensing of professionals such as doctors and lawyers also often increases costs without improving quality. Even if these types of licensing cannot or should not be abolished entirely, there is great need for reform. Anyone who has ever taken a bar exam can see that much of what is tested has little if any value for most practicing lawyers, and is instead a barrier to entry that serves to protect incumbent lawyers against competition. Economists and many legal scholars have long pointed out that the cost of legal services – especially for the poor – can be greatly reduced by cutting back on licensing and letting nonlawyers (such as paralegals and others) take on various tasks that are currently reserved for licensed members of the bar.
Finance regulation and intellectual property are far more controversial among experts than licensing and zoning. Nevertheless, Lindsey and Teles make a strong case that government regulations created a range of perverse incentives that increased investment in dubious securitized mortgages, and perhaps also over-investment in the finance sector generally. And the authors argue that it did so through regulating and subsidizing the relevant industry too much, not too little. In the case of intellectual property, they cite considerable evidence indicating that IP protections go far beyond what is reasonably necessary to encourage innovation, and indeed often have the effect of stifling it.
II. How Capture is Facilitated by Voter Ignorance.
The cumulative impact of these and other regulations that favor well-organized affluent interest groups at the expense of the poor and the general public is very large. So much so that it is worth asking why such policies persist. Why don’t voters rise up and get rid of the politicians who perpetuate them?
The ignorance of the general public creates opportunities for well-organized interest groups to manipulate policy in their favor by lobbying, monopolizing the attention of policymakers, and otherwise exercising influence behind the scenes. Although experts across the political spectrum recognize that some of these policies inflict great harm on the economy and massively constrict opportunities for the poor, they rarely come up in public debate. And it is even less for them to become significant campaign issues.
III. Is there a “Liberaltarian” Solution to the Problem?
Unfortunately, Lindsey and Teles’ proposed solutions are less compelling than their analysis of the problem. One of the main fixes they advocate is giving policymakers more and better staff so that they will be less dependent on organized special interests for information. Improved staff might well be useful. But it is hard to believe it will make anywhere near as much difference as the authors claim. Lawmakers don’t need much in the way of additional staff expertise to get good information on the perils of zoning, licensing, and other similar policies. A great deal of work on this subject has already been done by academics and policy analysts. Lindsey and Teles rely on it heavily in their book. Legislators with a genuine interest in getting at the truth can readily access this work, much of which is available online for free. Members of Congress can also use the Library of Congress to get free access to almost anything published anywhere in the world.
More promising is the authors’ advocacy of stronger judicial review of to curb regulations that benefit special interests at the expense of the general public. I have advocated a similar approach myself, in the field of constitutional property rights, where capture is also often a problem. However, it will not be easy to persuade judges – especially left of center ones – to set aside their longstanding aversion to taking up “economic” issues. Progress in this field is possible, but is likely to be slow.
Unfortunately, the authors dismiss what may be the best strategy for fighting capture: reducing the complexity of government by cutting back on its size and scope. Lindsey and Teles argue that we can make government simpler and more transparent without reducing the range of issues that it controls. But this is highly unlikely. So long as state and federal governments continue to spend nearly 40 percent of GDP and regulate nearly every aspect of society, it is inevitable that their activities will be highly complicated, and provide many opportunities for interest groups to exploit public ignorance. There just isn’t any simple and clear way to regulate so much. And voters cannot effectively monitor more than a small fraction of all this government activity.
As Lindsey and Teles point out, regulatory capture can sometimes be curbed if the issue in question becomes the focus of public controversy. But they also note that such cycles of attention are fleeting, as voters and the media quickly move on to the next outrage du jour. The more issues the state controls, the less time any one is likely to spend in the spotlight. Cutting back on government intervention in some areas increases the odds that the remaining functions of government will get significant public attention.
That does not necessarily mean that government need be anywhere near as small as a libertarian “minimal state.” But it does mean it will have to control many fewer aspects of our lives than it does today. A simpler state with fewer functions can still do much to help the poor, for example by bolstering their wages through an expanded earned income tax credit. But it will have to stop trying to control so many aspects of the economy through regulation.
In the last part of their book, Lindsey and Teles argue that the danger of regulatory capture creates opportunities for new cross-ideological alliances between free market advocates on the right, and those on the left concerned about economic inequality and increasing opportunity for the poor. In these cases, deregulation can simultaneously promote economic liberty, increase efficiency, and reduce inequality. Lindsey (a liberal-leaning libertarian) and Teles (a libertarian-leaning liberal) themselves exemplify the sort of “liberaltarian” coalition they advocate. For the moment, neither right nor left seems much interested in this sort of alliance. To the contrary, both seem to be moving away from it, towards various forms of big-government populism.
But recent events in both the United States and Europe suggest that political alignments may be more fluid than we previously imagined. Only a few months ago, Emmanuel Macron upended French politics, and won the French presidential election on a platform that combines deregulation with traditional left-wing ideas, in ways at least somewhat similar to what Lindsey and Teles advocate. The odds against a comparable development in the US seem long. But if Lindsey and Teles’ ideas get enough traction, perhaps we can take at least some significant steps in the same direction. At the very least, both right and left would do well to give serious consideration to this important book.