Drunk On Reason

Today the days of castes and guilds are long gone (at least in most parts of the world). Anyone, we are told, is allowed to follow their own dreams and pursue the career of their own choosing. All you need to do is to “demonstrate the required skills” so that you could be “licensed” and from there you may be free to engage in that occupation. Of course, your license may be revoked if you engage in “malpractice” which is defined differently for different professions. This is done, as the justification goes, to protect public safety and welfare. We, the consumers, are too naive, too gullible, and would easily be the victims of charlatans and frauds. So licensure provides certain standards that all individuals must follow if they are to practice a certain occupation to keep the unqualified out of the inner circle and raise the quality of the service provided. The reasoning is all too simple. I must add it even looks sound. Except that this reasoning has glaring holes that only come to surface upon further scrutiny. The requirements for licensure are not only useless as far as the consumers are concerned, but mostly harmful.

It used to be the case that members of a certain craft were systematically organized into different enclaves. These were in more extreme forms castes, and in milder forms guilds. So the people born into a certain caste would follow professions allowed to that caste, and the higher societal castes enjoyed higher privileges and rights than lower ones. Guilds also operated by segregation though there were exceptions at times for newcomers. Most guilds would organize to fix prices, control the working conditions, and establish monopolies so that no one could enter their profession unless with their permission and under their supervision. They also monopolized trade in that no one else could establish another guild of the same profession. It is not hard to see how such a system of control could artificially keep prices higher and quality lower all under the pretense of “maintaining high standards” for the members of each profession. Any new technology invented by anyone that had the potential to be an improvement on, say, forging metals by using a machine or in a system in a factory clearly endangered the occupation of blacksmiths and was consequently aborted by the guilds through their political power (the power that they had gained either directly by the high-status masters being statesmen themselves or indirectly by close alliance with statesmen). Fast-forward to our world today, licensing has replaced the old guild system with, one might argue, even more efficiency. There are many professions that one cannot practice unless he is licensed to do so. Let us see if the justifications given for licensure laws bear any truth.

Firstly, if it is the case that it is the public whose interests are being served by licensure laws, why is it that it is almost always the members of the particular profession in question who demand the licensure of their occupation and not the public? I do not recall the general public, coming from various walks of life, gathering in front of legislative buildings lobbying for licensure of any particular occupation. There is a simple reason for this. We all are consumers many thousands of times in our lifetime but we have a vested interest in only one occupation, the one we are practicing ourselves. One may be dissatisfied with the work a contractor does on his AC unit, but he barely has any incentives to take the pain and effort to pressure his representatives in the government to require a license for anyone repairing ACs. But the person repairing AC units has a career defined by it. Of course he would have far more interest in licensure requirements to raise the status of his profession. One can only conclude that only the members of each occupation can know quite well how unethical and dishonest their fellow practitioners are so they try to save the rest of us from them. Secondly, and this just happens to be a convenient fact, it is always the practitioners of the licensed occupation who will be on the board that decides the exact requirements of licensure and that grants or revokes licenses to individuals. If we need professionals to do a job, the logic goes, then it is only the experts who are knowledgeable enough in that profession who can set the standards for licenses. This is all sanctioned and protected by the state so that many professions cannot be practiced unless with the explicit approval of the occupational board and the government. If you are hearing a bell that resembles the sound of guilds, you are not alone. But I have barely scratched the surface.

It is my position that consenting adults within a society must be free to make their own decisions. This, to me, is the basis of freedom. People shall be free to voluntarily enter into any transaction with others or refuse to do so. Any restrictions on the freedom of individuals to freely engage in contracts with their fellow human beings must stand on very solid grounds to the extent that the benefits of such restrictions not only outweigh their costs, but also outweigh the cost of depriving responsible adults of freedom itself. This is an important starting position and perhaps the most relevant to the topic at hand. This is because licensure, in effect, erects a wall between the freedom of one person offering his services or goods and the freedom of another to reject or accept that offer out of her own volition. The wall can only be lifted through acquiring a license by the first individual who is not the only bearer of this burden. The second individual is also deprived of the goods and services that she could otherwise have, had there been no licensure laws. So, the question becomes, what have been the costs and benefits of the licensing?

For brevity, I decided to mention the costs of licensing using bullet points. Each point can be further expanded in much more detail but the mere mention of them should be enough for my purposes. The cost of each category, if possible to calculate, is written in parenthesis next to it. So, without further ado, here is list:

• Lost Output (Total estimated cost of $7 billion a year¹):

1. Delay in the supply of services/goods: Let us assume that in the perfect world, everyone who wishes to be a barber and is ready to open a shop finally does so. The time between someone’s decision to open a shop (assuming she has the capital to do so) and acquiring the license will result in a gap in the supply of one barber to the market. This causes a disequilibrium in the supply and demand chain. The temporary lower than otherwise supply will increase the cost of getting a haircut. This simple example does not quite capture the severity of the dent in the supply chain. In reality, many licensing boards have unreasonably time-consuming requirements which further delay the start of a profession for the individual.
2. Consumers avoiding services/goods: In many instances people forgo certain services due to high costs or resort to alternatives or, even worse, try their own remedies. Research points to a link between more stringent licensing for dentists and optometrists and worse dental and vision care due to fewer practitioners² resulting in higher costs. Research has also shown a relationship between stricter licensing for electricians and accidental electrocution due to people doing their own electrical work.³

• Misallocated Resources (total estimated cost of $200 billion a year⁴):

1. Cost of Education: First, suppose Jim is skilled in performing job X. But now because of licensure requirements, he has to go back to college and graduate to be able to provide the same services he was adequately providing before. This would only result in him losing several valuable years of his life not contributing to himself or the society at large plus whatever amount of money he now has to spend on this superfluous education. The cost of education will then be passed on to the consumers.
2. Human Capital Displacement: Second, Jim might, rather reasonably in many circumstances, decide that it would not be worth the time and effort, not to mention the financial burden, to go back to college just to be able to do the job he can already do. So he switches to another career in which, almost by definition, he would be less than maximally productive (if he were more productive in the new profession he would have been doing it in the first place. Please note that this is on a large economic scale and not a statement about every single individual). This is known as displacement of human capital. By engaging in less productive occupations, the economic return of the individual, and consequently the society at large, will be smaller. This also negatively impacts the number of practitioners available since a person changing careers will result in a lower supply of providers in the old profession.
3. Economic Return: Third, Jim might finish college and bear the costs but now he has to pay dues just to remain licensed if he is in certain occupations controlled by groups like the American Society of Interior Designers and the Academy of Nutrition and Dietetics. (How the former organization “protects” the public safety I will leave to your imagination). These dues in many cases are used not to ensure more skillful workers but to lobby for anti competitive regulations so that they can maintain their monopoly over an entire occupation and artificially raise the prices by keeping the supply of practitioners low. (The American Medical Association has perhaps mastered the art of lobbying to the extent the word “cartel” may be more appropriate than “guild” for their practices. This may be due to the fact that, in public opinion, licensure seems the most justified for physicians. More on this later.) For instance, research suggests that funeral services have managed to increase their economic return (cost of their services for our purposes) by 11% to 12% simply because of licensing requirements.⁵ This economic return for their services, while jolly good for those in the profession, is obviously paid for by the consumers. Or take braiders in the state of Louisiana who must have 500 hours of training and then pass an exam administered by the Louisiana State Board of Cosmetology⁶ (more suitably perhaps the Louisiana State Guild of Cosmetology) in order to be licensed. In Mississippi, a braider needs only to register and he will be granted a license.⁷ This has had the effect of severely slashing the supply of braiders in the state of Louisiana where the total number of licensed braiders is roughly around 100 people in a state of 4.5 million people.⁸ In Mississippi, by contrast, it is over 6000 (population of 2.9 million).⁹ For goodness sake, how dangerous could potential braiders be in Louisiana to “public safety”?
4. Featherbedding: Suppose Lucy is a great plumber who was trained to do the job but she is not licensed. Many states require that Lucy be accompanied by a licensed plumber simply to fix or install different appliances. So the consumers end up paying for both the unlicensed, and perfectly capable, worker as well the licensed practitioner who would play the role of a mannequin at best. This is known as “featherbedding.”

• Other Societal Costs

1. Worker immobility: Different states have different licensing requirements for different occupations. One could be free to practice an occupation in one state without a license but upon moving to another state, her occupation could require licensing which may involve spending one year in training and passing an exam. Such laws would prohibit the mobility of the workforce and the individuals to work their occupation without restrictions in new places across the country.
2. Unrelated restrictions: Some occupational licenses require the demonstration of “good character.” This often involves having no criminal records, even those records irrelevant to the profession at hand. This leaves out a portion of our society who are attempting to earn an honest living after having been held accountable for their prior mistakes. It is quite common for ex-offenders to enroll in vocational schools or be encouraged and subsidized to do so only to find out that they will not be able to practice whatever they were trained for due to their background. For a nation priding itself on being the land of opportunity and second chances, it is truly cruel of it to shut people out of its blessings in such manner. During the Cold War, the requirements for being granted a license had reached a rather confusing level. For instance, Veterinarians in the state of Washington had to sign a non-Communist oath. Pharmacists in Texas had to swear that they were not Communists nor in any way associated with them. Neither could piano tuners practice without taking that fateful oath which assured that the applicant was not a Communist. No one ever bothered to enlighten people how being convinced by Karl Marx severed a man’s ability to administer an injection to a cow?
3. Suboptimal alternatives: Strict licensure requirements will result in alternative avenues that are often wasteful at best and dangerous at worst. An example of this is best captured in the healthcare industry. Such practices as homeopathy, osteopathy, and faith healing are alternatives to real medicine and real physical care. It is rather difficult to imagine how these practices would be as successful as they are had we had a higher supply of doctors and, consequently, a lower healthcare cost. The existence of underground service providers who are often less than qualified is also exacerbated by licensure requirements. (Who would in their right mind believe that in Louisiana, only about 100 people braid hair in any given year?)
4. Hampering innovation: Innovation is the hallmark of an economically healthy society. But innovation in any specific field requires some knowledge of that field. How could an aspiring youngster find a cheaper and more effective method for filling cavities in our teeth if he is discouraged from practicing the occupation due to licensure in the first place? In addition, licensure rewards the status quo. Innovation disrupts the status quo, therefore the practitioners are disincentivized from the endeavor of innovation. An example is when the Mississippi Board of Licensure for Professional Engineers and Surveyors filed a lawsuit against Vizaline, a private company that provides a satellite photograph of a property by taking the legal description of the property and feeding it into a computer program which then generates a line of the property.¹⁰ The lawsuit filed by the Board claimed that the company provided surveying without being licensed (without having paid homage to the guild, in other words). Vizaline, in effect, won the lawsuit¹¹ but is there anyone who can reasonably hear such a case and still suspect that the Board’s intention was to “protect public safety” and not further their own interests? (I should note that innovation that benefits within an occupation is usually welcomed but innovation that benefits without and unsettles the usual practices are fiercely opposed).
5. Fewer jobs and lower wages: Licensure, as noted before, lowers the supply of providers in many occupations. This results in job loss since many people will not engage in the profession of their choosing (and talent). The available data points to a loss of 2.8 million jobs in the economy¹² due to licensing requirements. But fewer people in job X means more people in all other jobs. Take Jim from our earlier example, and assume that Jim gives up being a plumber and instead decides to be a bartender. Since the inviolable law of supply and demand is at full force at all times, this only means that the supply of bartenders in the economy is increased by one which will lower wages in that occupation accordingly. (while, of course, it will increase the wages for the plumbers by reducing their supply by one).
6. Everybody pays more: Looking at some of the earlier points I made, it may look as if licensure at least helps one group of people, the practitioners of the licensed occupation. But this is only true if their occupation is the only one requiring licensure. As I mentioned above, we are consumers thousands of times in our lifetime. The proliferation of occupation licensure means that we pay higher prices for many of our goods and services (because of human capital displacement). So while, if we are in a licensed occupation, we may enjoy higher than otherwise wages, we pay higher than otherwise prices for many of the things that we consider worth purchasing. The most disadvantaged in this scenario would be the people at the bottom of the socioeconomic status who have low-paying jobs and no lobbying power to mandate licensure for their occupations. They are paid their economic market value but will have to pay more for the goods and services they receive. Perhaps we can comfort them by assuring them that it is all for their “own good.”

Are the purported goals of public safety and welfare actually realized by these licensure laws? The first rule to keep in mind is that “public safety,” or “quality,”  or any other potential benefit cannot be employed as a blanket justification for any cost. Any rational approach requires a cost-benefit analysis and the cost part is just as important as the benefit part of the equation. So, the benefits of licensing, if any, should outweigh all the costs already mentioned. The available body of evidence shows that not only the “benefits” spectacularly fail to outweigh the costs, but there is barely any benefit to speak of in the first place. During the Obama’s administration, the Department of Treasury, Department of Labor, alongside the Council of Economic Advisory issued a review of the academic literature and concluded that “With the caveats that the literature focuses on specific examples and that quality is difficult to measure, most research does not find that licensing improves quality or public health and safety.”¹³ Another independent review of 19 studies also suggested that quality or public safety are, by and large, not positively impacted by licensing.¹⁴ The reasons for the failure of licensing to promote public safety or well-being are quite simple. The practitioners themselves are already incentivized to implement any measures that mitigate the risks to the public. A lawyer’s interest lies in appropriate representation of her client so she can make a favorable reputation for herself whether she holds a piece of paper stamped by the American Bar Association or not. Likewise, your likelihood of filing a lawsuit to claim damages caused by a malpractice of a physician that resulted in a paralyzed arm will not be dampened if he started waving his license in your face. Lastly, someone licensed, say, thirty years ago is no indication of his current knowledge or skill level and, consequently, his quality of service. The threat of costly lawsuits and a poor reputation does much more than any current licensing requirements to promote public safety. (Those oblivious to such concerns and more motivated by short-term dishonest profits will be swiftly punished). In the face of all this, is it really appropriate to even consider this a close call between the costs and benefits of licensing? Is it not already clear that licensure only advances the interests of occupational lobbying groups? Now onto the elephant in the room, the medical profession.

We, as a society, are to trust the individuals we hand our bodies over to. As a result, we have built a system, governed by a body of practitioners, to ensure that those engaging in medicine are fully capable and adhere to the highest of standards. But underneath lies an insidious practice, accepted tacitly by almost everyone, which is crippling our healthcare system more than any pharmaceutical or insurance company could ever do. The shortage of doctors in the United States is something that cannot be attributed to anything other than a deliberate attempt by the American Medical Association (AMA) to force it. There is no reason why a country with the highest number of foreign students and the best educational institutions in the world should have a physician shortage. For one thing, the AMA has lobbied the legislators so that anyone admitted to any medical school should have a four-year college degree first. This is a completely unnecessary step. Many countries, including many European countries, do not have this requirement. So, at the outset, four years and thousands of dollars become the very initial investment for a talented young person who wishes to be a doctor. Another restriction is for foreign doctors. Not only do they have to pass an initial test, they will also have to get certified by the Educational Commission for Foreign-Trained Medical Graduates (ECFMG), enroll for residency, and finally be licensed in their state. This whole process usually takes several years. Are we to believe that such requirements are entirely justified? These foreign doctors are in most cases just as capable as U.S. educated physicians. It is hard to see any justification for this other than a desire by the AMA to artificially cause a doctor shortage so that the wages are artificially raised. Another important reason is denial of opportunity. In other professions licensing is usually done at the end of one’s training. So, a prospective worker first completes the training and then applies to be licensed while meeting all the criteria. In these cases, the individual may be more persistent to be licensed since she has already invested in the occupation. In medicine, however, the AMA has managed to strike at the heart of this efficiency by controlling admission to medical schools. In order to be a licensed physician in the U.S. one must have graduated from an approved medical school. Not surprisingly, the list of approved medical schools is determined by The Liaison Committee on Medical Education (LCME), which is sponsored by the AMA. No wonder that the power the AMA exercises over these colleges is so great, to the extent that the universities keep the acceptance rates low so as not to cause friction between them and the AMA. By controlling admission, the AMA can safely minimize market competition. All of these (and, believe me, much more) have resulted in a lower ratio of doctors to population size in the U.S. than many European and non-European countries which, under normal circumstances taking immigration into account, should not at all be the case.¹⁵ (The American Bar Association has pathetically attempted to mimic the AMA with some success but not quite as much. It may be due to a lower overall demand for lawyers in comparison to physicians or any other reason.)

To be fair, I am not suggesting that the AMA, or any other licensing board or organization, is inherently evil or on a mission to exploit the government for their own benefits. I believe that those on the boards of all these occupational licensure organizations have, by and large, genuinely good intentions. The issue is that human behavior is not shaped by intentions, but by incentives. The proof for this is so ubiquitous that almost anywhere you look on a large economic scale, you can see the clash of intentions with incentives and the ultimate victory of incentives. The incentives of the AMA, as well as others, lie in promoting their own interests by suppressing competition and ensuring higher than actual market value wages by controlling supply while the intentions are to protect public safety and increase quality. Since the incentives of such an arrangement will not change, we must change the arrangement. In the absence of licensure for physicians, those who will practice medicine without actual knowledge of it will be sued for malpractice and fraud or their failed “treatments” will reach enough ears to drive them out of their jobs. The capable people will have a smoother path to realizing their potential by a much lower educational cost as well as more options.

My position is that we should abolish licensing for all occupations. But the nagging question remains, how do we ensure that competent people will be our doctors and plumbers? This question itself is a demonstration of the tyranny of the status quo. For clarity, a license is a document issued by the state that authorizes an individual to practice an occupation or activity. Certification, on the other hand, is a document obtained voluntarily, typically at the end of a series of training or classes. The main difference is that individuals do not need to be certified to practice an occupation (unless as a condition of licensing). Now consider an occupation that does not currently require licensure in most cases- engineering. Engineers do not need to be licensed to practice in the field (unless they are supervising a public project). However, scores of unlicensed but nevertheless competent electrical, chemical, mechanical, computer, industrial, aerospace, civil, biomedical, petroleum, nuclear, and other engineers are currently holding jobs, many of which are of great and critical importance. Yet, no one ever loses sleep over how we can measure the competence of these engineers without requiring licensing. Companies that hire engineers have far more incentives to ensure that the skills of their engineers are of sufficient quality than any government agency or licensing board. Engineering is a good case study of how an unlicensed and vast occupation can operate efficiently and with magnificent results. No wonder most innovations take place in these various engineering fields (e.g., AI, wearable devices, ever-more efficient microchips, and medical devices to name a few more recent ones). It is quite easy to draw lessons from the engineering profession. Instead of costly and useless licensing, we can have private or public enterprises offer certifications. Universities already certify their students and so do vocational schools. Many private organizations also certify other businesses, e.g., Better Business Bureau. Some rate enterprises for different purposes, e.g., LEED. For the same reasons that clueless folk on the street won’t be able to find a job in Silicon Valley, a self-proclaimed “doctor” who happens to be a charlatan will not be offered a job at a hospital. To the extent that this charlatan attempts to practice on his own, his repeated failures at curing illness and the mountain of lawsuits would soon drive him and his reputation out of business. And if, for any reason, some find the sham services provided to them by this swindler worth their time and money, then what right do we have to intervene on behalf of them and who is it that we would be protecting in that case? To me, voluntary certification (as opposed to mandatory licensing) is a suitable solution for jobs that require more technical or fine-grained knowledge. Companies or consumers then can choose to use the services of certified or uncertified individuals. Perhaps certification will not be in demand for certain other professions like braiding or funeral services. Whether or not a certification program will be attractive is then determined by consumers and hiring companies, not some self-serving board with state power behind it. If we ever enact the policy mentioned here, we can continue on the path of voluntary certification programs that individuals may attempt to receive to boost their own reputation, all the while we scrap all the negative effects of licensure. This, to me, is not only the most reasonable course of action but a step in the direction of freedom for people and freedom for their choices. 

1. Licensure_Report_WEB.pdf ↩︎
2. See no. 1 ↩︎
3. See no. 1 ↩︎
4. See no. 1 ↩︎
5. See no. 1 ↩︎
6. Louisiana Hair Braiding Schools | Ethnic Hair Braiding Courses ↩︎
7. Regulations Governing Registration of Individual Performing Hair Braiding ↩︎
8. Louisiana hair braiders measure renewed backlash ↩︎
9. Mississippi Hair Braiding – Institute for Justice ↩︎
10. See no. 1 ↩︎
11. Vizaline, LLC v. Tracy, No. 19-60053 (5th Cir. 2020) :: Justia ↩︎
12. See no. 1 ↩︎
13. licensing_report_final_nonembargo.pdf ↩︎
14. The Effects of Occupational Licensure on Competition, Consumers, and the Workforce | Mercatus Center ↩︎
15. Medical doctors (per 10 000 population) ↩︎