
The Rent-Seeking Is Too Damn High - luu
http://fivethirtyeight.com/features/the-rent-seeking-is-too-damn-high/
======
HillaryBriss
Here's a quotation from the article:

"Defenders of occupational licensing typically argue that the rules help
protect consumers and workers, and that’s undoubtedly true in some cases. I
want the people filling my cavities to know what they’re doing. But it’s hard
not to suspect that in many cases, these rules serve another purpose: to make
it harder for new competitors to enter the marketplace."

While the article seems to criticize rent-seeking behavior only in businesses
and professions that require lower levels of education, if we combine this
article's statements with the often repeated claim that the US pays roughly
twice as much for health care per capita as other developed countries it seems
reasonable to ask: Is there a rent seeking problem in the medical and dental
fields too?

OTOH, why does the article's author want to deny the poor and less well
educated segment of the small business community its fair share of the
economic protection which occupational licensing offers?

~~~
seibelj
It is logical to require you to have a license to fill a cavity for safety
reasons. It is not logical to require a license to cut hair. Yes, it will
boost earnings of barbers, who are generally lower-middle class, but it simply
doesn't make logical sense.

~~~
pdonis
_> It is logical to require you to have a license to fill a cavity for safety
reasons. It is not logical to require a license to cut hair._

You mean there are no "safety reasons" involved in cutting hair? A person with
sharp implements around your head and neck poses no safety risk?

Also, even if the "safety reasons" are more compelling for dentists than for
barbers, that's still not a reason to have the government doing the safety
checks by means of licensing. Private organizations could do the same safety
checks--plus, they would have an incentive to do only the checks that actually
added value, whereas government has an incentive to impose any requirements
that have enough of a political constituency, whether or not they add value.

~~~
zzalpha
_Private organizations could do the same safety checks_

Someone didn't learn anything from the 2008 crash and the issue of private
ratings agencies...

Privatize safety checks and businesses will shop around to get a
certification.

Believe it or not, capitalism doesn't solve every problem.

~~~
ad_hominem
Someone didn't learn about the de facto monopoly the SEC (federal gov't) gave
the Big Three (Moody's, S&P, Fitch) at the time of the meltdown through its
NRSRO status:
[https://en.wikipedia.org/wiki/Nationally_recognized_statisti...](https://en.wikipedia.org/wiki/Nationally_recognized_statistical_rating_organization#Subprime_mortgages.2C_CDOs.2C_and_the_financial_crisis)

The whole banking and financial system at that level has its tendrils wrapped
so firmly around the gov't (and vice versa) that a failure there is hardly an
indictment of free market principles.

~~~
lmm
We're not going to remove all government in one fell swoop. So cases where
deregulation causes problems are a strong argument against blindly supporting
any and all deregulation. "Deregulation works, you're just not using enough of
it" is fallacious IMO, but even if it were correct it would still be
irrelevant.

------
inopinatus
Here's a tech sector example. If your startup wants to become an auDA
registrar (i.e. of domains under .au) you must first spend six months as a
reseller of an existing registrar.

You read that right. Planning on building anything innovative around a .au
domain registration? Please, first funnel all your anchor customer
registrations to a competitor. Oh, and build your stack and business processes
around their platform, workflows, APIs &c.

~~~
feider
"Planning on building anything innovative around a .au domain registration"

Can anyone give an example involving innovation around specific domain
registration?

~~~
J-dawg
I'm only guessing here, but I assume that any SaaS that offers a "white-label"
service would need to be a domain registrar. Survey Monkey, for example, does
this on the platinum pricing plan.

------
Animats
He's missed another trend that's not as visible - the concentration of
commercial real estate ownership. There are many towns and small cities where
one or two organizations own most of the commercial property. They control
rents and can decide which businesses get to operate.

~~~
petercooper
I'm in the market for commercial property. I have a growing company, want a
space customized for us, and we plan to stay long term. But buying is making
almost no sense as you can't write down the costs against profit, whereas you
can with rent.. so the only people buying such property are investors or
people with money to burn in my experience. If they changed the tax code to
let businesses get a deduction based on property they buy or build, ownership
would be so much more diverse.

~~~
Animats
True. That's why it's common to set up two companies, one to own the real
estate and one to operate the business. The business rents from the real
estate company. This is OK with the IRS as long as the rent is commercially
reasonable. Now, the operating company gets to treat the building cost as rent
and deduct it. The real estate company gets to deduct mortgage interest and
pays taxes only on its profits, the difference between rent and mortgage
payments.

If the operating company goes bankrupt, it doesn't take down the real estate
company with it. The real estate holding company just has to find a new
tenant.

~~~
rahimnathwani
Why do you need this two-company set up in order to deduct mortgage interest
from taxable income? Why wouldn't it work if the operating company bought real
estate?

------
jackcosgrove
Professionalization and accreditation could all be described as a closed shop
in labor terms. It's classist to say unions are bad while the AMA is good, or
vice versa. They're the same thing. Doctors may say they cannot form unions
(AMA vs USA) but they have something even better: a closed shop. Closed shops
are rarer than collective bargaining, and far more powerful.

~~~
onetwotree
On the other hand, you really want a professional association that can put a
doctor out of business permanently if they persistently fuck up, and assure
that new doctors have the requisite training. The AMA is an example of
professional licencing that does in fact benefit consumers. A line industrial
worker who is always drunk on the job is a much smaller problem than a doctor
who is always drunk on the job.

That said, I'm all for unions, because they provide protection for workers
from rent-seeking behavior by corporations. If it makes my prices a bit
higher, so what.

~~~
jackcosgrove
The artificial limiting of supply of physicians is terrible for consumers - it
drives up costs and results in foregoing of care because people cannot afford
treatment. I understand that physicians sacrifice a LOT during training, and
so can expect high wages in return. I also understand that many physicians
give away tens of thousands of dollars of free care every year.

But I think the answer is to amateurize the medical profession. "Amateurize"
means to use algorithms and tools to reduce complicated activities into bite-
sized pieces that are easier to learn. Henry Ford amateurized automobile
manufacturing.

This would enable doctors to begin their careers faster and with less debt,
and would enable more people to become doctors because the skills and
aptitudes required to become a doctor would be reduced.

Doctors now are still in the craftsman mindset, much like a carriage maker in
1910. I believe most doctors could be reduced to technicians much like CRNAs
or PAs without affecting health outcomes. There would still need to be a core
of highly trained physicians as there are now, to do research and bridge the
knowledge gaps between the technicians, and perhaps this core could be the
same size as the current yearly crop of MDs.

But does a family practice doctor need 8 years of post-high school education
and 3 years of residency to do routine diagnoses when the most likely course
of action is, "Eat less and exercise more"? I don't think so.

------
hwstar
Someone has actually proposed a constitutional amendment to control rent-
seeking:

[http://ordinary-gentlemen.com/2013/11/08/the-anti-rent-
seeki...](http://ordinary-gentlemen.com/2013/11/08/the-anti-rent-seeking-
amendment-part-i-definitions/)

[http://ordinary-gentlemen.com/2013/11/11/the-anti-rent-
seeki...](http://ordinary-gentlemen.com/2013/11/11/the-anti-rent-seeking-
amendment-part-ii-the-amendment/)

------
matt_wulfeck
Great example of laws that start out innocent enough, but then become a vector
for anti-competitive behavior by the incumbents. The laws that prevent tesla
dealers from selling directly to consumers is another example.

These types of misguided laws should come with very short expirations (if they
come at all).

~~~
thirdsun
The Tesla laws don't sound innocent at all however - I guess most people would
agree that it seems pretty ridiculous right from the start.

~~~
AjithAntony
> right from the start

Why would thousands of entrepreneurs open GM, Ford, and Chrysler dealerships
when the manufacturers could just open a store and undercut them? These laws
were a promise to protect that business model.

That doesn't mean that such laws are a great fit for our current economy, but
it started out innocent enough.

~~~
thirdsun
Yes, you're actually right - thinking about it, the issue is that these laws
a) don't have any place in this day and age and b) were really abused in the
case of Tesla, which never used the traditional dealership model to sell cars
as far as I understand it (european here).

On a sidenote: One could argue whether these laws made any sense, even back
then - just image how ridiculous it would be if every industry enjoyed the
same "protections".

------
Shivetya
Another problem with the over regulation of professions is that in many states
those convicted of a crime cannot obtain a license. They can have totally
served their time, both in jail and/or probation but still be prevented from
holding a "professional license".

Worse many of the jobs that require these licensees don't pay that much which
brought up a whole industry of schools which pass off the costs through
student loans and such to get a career which long term isn't going earn a lot
of money or even come with benefits

------
gozur88
[https://news.ycombinator.com/item?id=11041340](https://news.ycombinator.com/item?id=11041340)

------
EGreg
I think Milton Friedman had some great (albeit biased) lectures in which he
analyzed these issues from a consequentialist libertarian point of view:

[http://m.youtube.com/watch?v=8q71hrwUcu0](http://m.youtube.com/watch?v=8q71hrwUcu0)

------
anovikov
This mainly relates to non-scalable industries where everything depends on
simply reproducible labor not requiring a lot of training - like yes,
barbershops, or real estate. I think it's more of good than bad - it prevents
flocking of people into these industries resulting in cutthroat competition,
low quality, and desperation of everyone involved. People simply find some
other better trades instead.

Sometimes i feel like something like that must be introduced into software
development, too: too many random people here, trying to compete only in
price. It doesn't work of course, savvy clients see the real picture, but it
drops the shadow on the industry in general, like people don't want to learn
now to code out of the fear of having to compete with $5 an hour Indians.

~~~
Shivetya
I would love to know your justification for regulating barbers and stylist. A
greenhouse manager requires certification for pesticides which can make sense,
but a florist merely goes out of business if they are awful but require
certifications. Regardless, from 2013 here is the list in my state.
[http://explorer.dol.state.ga.us/mis/Current/cerliccurrent.pd...](http://explorer.dol.state.ga.us/mis/Current/cerliccurrent.pdf)

The document is a little odd as some jobs specifically call out licensing in
the state while others mention national certifications (baking food anyone?).
Interesting that Computer Engineer is in there, broad enough to catch a lot of
people who might not expect it.

~~~
pluma
Stylists do more than just cut hair. It's not unskilled labour. Especially
when it comes to dying hair you need to understand the chemical reactions
involved and the damage they can do to the skin and hair.

There are a lot of people working in the field who just barely know how to cut
hair. But the better ones do more than just design work.

EDIT: For context, in my country (Germany) a lot more occupations are
regulated than in the US, including hair stylists / barbers (I don't think we
have the distinction). While I agree that for some of the jobs the regulations
are too harsh and there are too many hurdles to get foreign qualifications and
job experience recognized, I think that the existence of these regulations,
especially for jobs that involve exposing customers to hazardous materials, is
for the better.

~~~
ezy
One would like to think licensing is about ensuring quality, but if one
actually takes a look at the reality, one realizes that licensing is about
restricting the field and paying to play, and almost never about ensuring
quality.

Even professional licenses are like this, unless you are a complete idiot it's
not the knowledge that's the problem (e.g. passing the exam, if there is one),
it's paying for the requirements (e.g. the degree and/or the continuing
license fee) or fitting the requirements (e.g. being a foreign worker).

------
gaur
Am I the only one who thinks that "rent-seeking" is a wildly misleading name
for this phenomenon? To normal people, "rent-seeking" means "looking to
collect on a payment for leased property".

Same for "moral hazard". I'm not sure what phenomenon that phrase should be
applied to, but it certainly shouldn't be applied to the phenomenon of people
taking more risks because they won't have to deal with the fallout. That
phenomenon should be called something like "risk asymmetry".

~~~
chubot
It's an established name from economics. The wikipedia definition is: "seeking
to increase one's share of existing wealth without creating new wealth". You
can think of it as a generalization of seeking rent for a property.

For better or worse, that is what you are doing when you lease a property. You
want to be paid just for owning something, not for doing anything.

Analogously, if you provide service X, you can seek "rent" _in addition_ to
the value you provide.

One way to do this is by manipulating the market for X by reducing the supply
of those who provide X, e.g. through an unnecessarily onerous licensing
process. The additional amount you make with the licensing process in place
falls under the category of economic "rent".

[https://en.wikipedia.org/wiki/Rent-
seeking](https://en.wikipedia.org/wiki/Rent-seeking)

~~~
gaur
> The wikipedia definition is: "seeking to increase one's share of existing
> wealth without creating new wealth".

I think I figured it out. "Rent seeking" means "trying to get something for
nothing" economically.

This would be a lot less confusing if people would just use straightforward
terminology ("getting something for nothing") rather than an opaque phrase
that sounds like something else ("rent seeking").

~~~
Kalium
It's a term of art. It has a very precisely defined technical meaning that
specialists are familiar with and share a common understanding of. Its primary
purpose is to permit those educated in the subject to converse clearly and
unambiguously with one another in an efficient manner.

It is perhaps not the most reasonable thing to expect specialists conversing
with their peers in the argot of their field to reduce all their conversations
to the point of intelligibility to the average layman. It's also perhaps not
the most reasonable thing to expect all terms of art to be re-named every few
decades as language shifts. Never mind the challenges of achieving consensus
every time someone wants to rename something.

------
onetwotree
The comments in this discussion seem to be focusing on the fact that rent
seeking is problematic in highly skilled professional fields as well as lower
skilled fields.

While we clearly need to ensure that bad doctors stop practicing medicine,
that crooked accountants can't take advantage of people, and...that loud
librarians can't be librarians anymore (or something ;)), perhaps this is a
better role for the government than a private professional association that is
motivated to engage in rent-seeking?

------
silveira
Now just imagine if that to be a programmer, you needed a diploma from an
credentialed university and passing an exam from some organization.

~~~
collyw
Instead we get stupid coding tests every bloody interview we go to.

------
pluma
ITT: HN arguing whether capitalism is better than democracy.

------
bobby_9x
Of course this behavior is artificially inflating the market.

The demand stays the same and the supply is reduced （due to the barrior to
entry and hoops you need to jump through), which results in higher prices.

The same principals can also be applied to most unions.

~~~
api
It's a complicated problem though. Everyone wants to make as much as possible,
but everyone also wants (economically speaking) everyone _else_ to make as
little as possible.

A union job is great for me. But it's bad for me if my plumber has a union job
because then it will cost more to fix my sink.

In economics (and ecology, evolution, etc.) it's actually quite strange for
something _not_ to be a paradox. Straightforward linear behavior in complex
living systems is weird, and if you think you have an example you're probably
missing something.

~~~
chrisseaton
What's the paradox?

~~~
jackcosgrove
The fallacy of composition.

If everyone made more money, everyone would be better off, right? Except in
order for this to happen, everyone would need to charge more for their goods
and services, so prices would rise and the raises everyone got would be sucked
up by rising prices, leaving everyone in the same place as where they started,
relatively.

The sad truth is that every economy must pick winners and losers. If everyone
wins, no one wins.

Whether this selection process aligns with productivity determines the
trajectory of nations. Productivity measures actual wealth creation, and
hopefully politics does not lag too far behind it.

~~~
zurn
Countries with high unionization and relatively low income differences between
low end and high end workers are excellent performers. Especially if you
include quality of life, free time, egalitarianism, low poverty etc instead of
just average GDP per capita.

See eg [http://www.nationmaster.com/country-
info/stats/Labor/Trade-u...](http://www.nationmaster.com/country-
info/stats/Labor/Trade-union-membership)

~~~
jackcosgrove
That's a correlation, but the causal relationship is the other way around.
Unions form after a country industrializes as a response to income and wealth
inequality. So you're comparing the income and wealth of already
industrialized countries which subsequently developed trade unions with
presumably countries that haven't industrialized yet.

Indeed in the Scandinavian countries you're citing, excessive trade unionism,
among other illiberal measures, in the 80s and early 90s led to economic
crisis. There were economic reforms in the mid 90s which restored economic
growth by paring back the role of the state and trade unions.

------
mschuster91
The problem is that sometimes it is vital for cities to be able to control
which (and how many) businesses open up in an area.

Just look at what has hit HN today - an article about Walmart closing down and
leaving entire regions without a less-than-3-hours drive to the next grocery
store.

It is vital for a city to be able to prevent big chains from entering a
market, destroying the competition by price dumping (made possible by sheer
scale) and then packing up - leaving a stripped down town in the process.

Oh the other side, it's unfortunate that these laws and regulations more often
than not get abused for clientel politics.

~~~
jimbokun
What does that have to do with requiring two years of training to get a
barber's license?

~~~
mschuster91
I don't have a problem with that. Anything with healthcare or safety
(electricians, plumbers, gas installers, builders, car mechanics) must be
regulated in order to protect the public.

90% of the skill required in many jobs can be learned in a week or a month.
It's the 10% you only learn over the course of education that are safety
critical, though. Not to mention practicing in a safe environment instead on
your customers or their homes.

Let's take your barber as an example, and only the stuff that comes to my non-
professional mind:

\- highly aggressive chemicals that will ruin your health if you're not taking
proper safety precautions

\- the fact that you're meddling with a deadly sharp knife at the necks of
your customers

\- health hazards for the customers: lice, other transmittable diseases,
improperly disinfected equipment

\- health hazards for yourself that can be carried by your customers and you
can pick them up (e.g. you cut the customer by accident, he's HIV+ and you
have an open wound on one of your fingers while not wearing gloves - something
I rarely see barbers do)

The fact that the IT industry largely consists of self-educated people might
be pretty cool but on the other side, how many security incidents could have
been avoided by proper education? Even for BASIC security like not doing echo
$_GET["name"]? Take a look at
[https://blog.setec.io/articles/2016/01/07/software-
kill.html](https://blog.setec.io/articles/2016/01/07/software-kill.html) or
literally hundreds of similar articles.

~~~
jimbokun
That's a great, detailed answer. Thanks.

------
coldtea
> _Defenders of occupational licensing typically argue that the rules help
> protect consumers and workers, and that’s undoubtedly true in some cases. I
> want the people filling my cavities to know what they’re doing. But it’s
> hard not to suspect that in many cases, these rules serve another purpose:
> to make it harder for new competitors to enter the marketplace. In Nevada,
> according to Politico, barbers need more than two years of training to
> qualify for a license; that’s a high bar to anyone looking to break into the
> business._

So, it's the all powerful Nevada barber cartel that influences legislation in
order to keep new people from entering the trade?

Well, I, for one, seriously doubt that.

And I wouldn't call the requirement to have "two years of training" before
taking razors to people's necks and scissors to people's hair "a high bar"
either.

While there is indeed TONS of rent-seeking going on, I'd look for it in
serious industries, with big companies and multinationals involved -- from
telcos and ISPs to construction and the health industry for example.

~~~
hibikir
A cartel doesn't have to be very powerful at all to influence public policy.
For something like this to happen, we need very few factors:

1)A small set of people that have much to gain from a policy change, while
it'd be a small visible cost for everyone else. The moment another easily
identifiable groups can lose, this weakens considerably

2)Enough political will to lobby. This can be due to single issue voting, or a
setup where only the people that contribute economically to a cause will
really benefit from it. This is the reason unions are very weak in "right to
work" states, as the legislation makes paying dues a suboptimal outcome.

As long as you have that, it's pretty easy to get laws passed that will help
you and hurt the public in hard to measure ways. It's easy to sell
occupational licensing to people that aren't paying much attention, because
the costs of it to the public are not easy to see, but very real to people who
know get protected from other people joining their profession.

In Spain, for instance, you'll see a bunch of computer science professional
organization that try to recruit people by saying that they will "protect your
degree", mainly by lobbying for legislation that would separate someone with a
computer science degree from "intruders" (people with decrees in engineering
physics and such that can code).

And two years of training before becoming a barber is plenty of barrier: There
are other professions that have similar difficulty and pay, but lack the two
years of training requirement. So less people become barbers, as losing two
years of pay for training is worse than getting a job right away! This leads
to decreased competition, and eventually high prices. Two years is A LOT of
time to end up getting paid that little.

