Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't John Jr. (the dot read aloud .txt) 📖

or realtors’ understanding of interest calculations and real estate law? The fact that these restrictions exist for a wide variety of licensed occupations suggests that difficulties in testing skills are not the primary explanation for minimum time requirements in occupational licensing regulations.

So why do professional associations adopt rules that effectively prevent some of the smartest and ablest people from entering a profession and thereby lower the average quality of new entrants? If Adam Smith is right and the point of making those entering a profession take a long time is to reduce their numbers and thereby maintain higher wages, why not just make the licensing exams more difficult? This course of action would eliminate the weakest qualified candidates, while eradicating the long schooling requirements that discourage bright, hard-working aspirants who can quickly learn professional skills.

The real justification for minimum time limits in school for aspiring professionals is that current professionals don’t want too much new competition. Professionals need to admit enough new entrants to their field in order to secure the profession’s interest. But allowing too many new entrants would create competition that could depress wages. By mandating minimum time limits in school, current professionals allow new entrants in a way that discourages many of the highest quality candidates who would provide the most competition for themselves.70

Unfortunately, state governments perpetuate this state of affairs by adopting licensing and accreditation processes that include mandatory minimum times in school. While these rules help prop up the salaries of current professionals, the professions overall would greatly benefit from a little more free competition.

Smoking Bans—Light ’Em Up

All these contrasting examples of private market creativity and government inefficiency do not imply that government intervention in the economy is always undesirable. There are some areas in which businesses will impose unjust costs on others that can only be controlled by the government. One of the best examples of this is the regulation of pollution.

Environmental problems arise because the costs of polluters’ actions are passed on to other people.71 The classic case is the “common pool” or “overfishing” problem. Fishermen tend to overfish an area until the fishery is depleted. If one fisherman lets a fish go so that it can spawn, there is no guarantee that another fisherman won’t catch that same fish. But this problem is eliminated in privately-owned fisheries like private lakes or fish farms. If a fishery is running low on fish, the owner can leave fish to spawn knowing that no one else will catch them.

Outdoor air pollution suffers a similar “common pool” problem; if too many individuals or companies emit too much pollution, the combined result can produce illness and even death. Everything from cars to power plants emit byproducts that could be classified as harmful, but no one would argue that we should eliminate cars and power plants because their pollution costs outweigh all their benefits. Similar to fishermen out at sea, individual car makers or factory owners are unlikely to take into account the cost that their pollution imposes upon others. Altruism only goes so far. This creates a legitimate space for government intervention—governments can regulate pollution levels by limiting, taxing, or otherwise restricting pollution emissions.

The problem here is that the government’s inevitable tendency is to increase the scope of its authority. Allowing the government—whether federal, state, or local—to regulate pollution may be necessary, but we can only watch with dismay as the government uses this authority to steadily expand its coercive powers. In doing so, it inevitably begins mandating solutions to tangential “problems” that are best left to the market to solve.

This is most evident today in the restaurant industry, where local governments are becoming increasingly intrusive in ensuring clean air by banning smoking. A restaurant owner will face competitive pressures to decide whether his customers want to be allowed to smoke, just as he must figure out what food to serve, how big the portions will be, and what kind of décor to have. Restaurants that don’t satisfy their customers on these issues will quickly go out of business.

That’s why smoking in restaurants should not be considered a common pool problem subject to government intervention. Restaurants that allow smoking don’t base their policy merely on their love of smokers; they are responding to competitive pressures and customer preferences. And of course, the choice doesn’t have to be between perfectly pristine air and air so cloudy that you can’t see more than a few feet; many restaurants simply create smoking and non-smoking sections. But this solution, too, is outlawed by government smoking bans.

If restaurants can go out of business when they don’t get small things right, like whether to include an extra side dish with a meal or what kind of background music is played, why is there any less reason to believe their decision on smoking will likewise reflect customer demand? If anything, the fact that people feel so strongly about smoking—both for and against—implies that restaurants will very carefully tailor their smoking policies to their customers’ wishes.

Restaurant smoking is more like a private fishery than a common pool. And the best thing the government can do to ensure people get the air quality they want is to let the market decide.

To conclude, the free market is remarkably inventive. Given enough time, all kinds of seemingly insurmountable problems can be overcome if someone stands to earn a profit by finding a solution. In contrast, government intervention, although often well-intentioned, faces inherent economic and political problems that make it costly and naturally inefficient. As Milton Friedman famously pointed out, “Nobody spends somebody else’s money as carefully as he spends his own.”72 Looking at examples from Airbus to NASA to state licensing systems, it’s hard to disagree.

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Crime and Punishment

If something becomes more costly, people will do less of it. This is the fundamental principle of economics—a simple notion that also explains a lot of human behavior in realms seemingly far removed from trade, industry, and finance.

Take sports, for example. When college