In this Future of Liberty discussion, Governor Mitch Daniels interviews Philip Hamburger, legal scholar and founder of the New Civil Liberties Alliance, about the administrative state. The two agree that federal agencies have committed at least two sets of sins. First, they have unduly and unnecessarily violated the rights of citizens, and second they have done so on shadowy constitutional grounds.  Professor Hamburger attributes the rise of the administrative state to two intertwined factors. First, Congress has a strong political incentive to over delegate—especially  when it comes to politically risky details—and in doing so it unconstitutionally relinquishes legislative authority to bureaucrats. And second is a Progressive ideology that worships centralized, uniform administration and a larger role for government. By the turn of the twentieth century, these two factors would conspire to set the stage for the rise of the administrative state. A ray of hope has recently broken through. The Supreme Court’s reversal of the Chevron doctrine has drawn intense attention to the issue of judicial deference. What will be the actual effects of closing the Chevron deference door? Only experience will tell. If economic history provides a clue, it’s that human systems tend to adapt whenever institutional rules get rearranged. Bureaucrats are no exception. So, closing Chevron deference might not alter the balance of power—it will depend on how agencies adapt to new ways to do things. (See Lynne Kiesling’s take on the new incentives post Chevron.) Nor is the classical liberal grass necessarily much greener before the courts, which also have a history of trampling on economic rights. Most notoriously, 1938’s US v. Carolene Products relegated economic rights to the lowest priority for judicial review. Under 2005’s Kelo v. New London, courts defer to local majorities for the proper scope of eminent domain. And in 1992’s Lucas v. South Carolia Coastal Council, regulation does not count as a taking unless it destroys virtually the entire value of a property. The list goes on (see The Dirty Dozen by Bob Levy and Chip Mellor). Reining in judicial deference might move us out of the constitutional shadows, but there seems little to guarantee it will improve rights protection. How did we get here? Hamburger attributes the rise of the administrative state to an American form of classism, whereby Progressive elites foist their good intentions and faith in government on everyone else via the state’s monopoly on force. This certainly jibes with a disturbing 2023 Rasmussen poll showing stark contrasts between elite and mass opinion on economic, social, and political issues.  Yet, we would be remiss to neglect the forces of populism. A running theme in the work of James Buchanan is that Leviathan is us, and Big Government is ultimately the result of self-government. “When we speak of controlling Leviathan we should be referring to controlling self-government, not some instrument manipulated by the decisions of others than ourselves. Widespread acknowledgment of this simple truth might work wonders. If men should cease and desist from their talk about and their search for evil men and commence to look instead at the institutions manned by ordinary people, wide avenues for genuine social reform might appear.” (The Limits of Liberty, p.188) It is on Main Street and the kitchen table, not just on K Street and the administrative law bench, where the buck stops.   Edward J. Lopez, is Professor of Economics at Western Carolina University, Executive Director of the Public Choice Society, and author of numerous articles and books including Madmen, Intellectuals, and Academic Scribblers. (0 COMMENTS)

For all those who have taken an economics course, you’ve no doubt heard plenty about market failure. I suspect you’ve heard relatively less about government failure. Part of the allure of the public choice tradition for me has always been its very clear explication of the latter. But in this episode, leave it to perennial favorite Mike Munger to put a wrinkle in my contemplative ease. For starters, Munger places the earliest public choice insights well before the typical story (it even includes Pigou!). Munger describes the history of the concept of market failure as resulting from the quest to explain large fluctuations in aggregate economic activity. While economists of the time believed letting markets and the price system work would alleviate such “failures,” they wondered if there were interventions that might shorten this time period. As host Russ Roberts puts it well, “Can the government outperform the private sector, either by taking on some of its tasks or by improving, by intervening, by regulating, subsidizing, taxing, the choices that would emerge from a market private choice, a set of private activities?” We hope you’ll join us in digging into this tangled history, and we hope you’ll share your thoughts with us today.     1- For starters, why do YOU think laissez-faire is so difficult for politicians- and citizens!- to accept?   2- Why does Munger believe that Arthur C. Pigou should be considered the first public choice theorist? To what extent did he convince you? How should we really interpret what Pigou has to say about externalities, according to Munger? As Munger says, “He [Pigou] wants to get prices right. He has an economist’s intuition about this. He thinks democracy can’t do it.” As evidence, Munger points to the Pigou quote below: It is not sufficient to contrast the imperfect adjustments of unfettered private enterprise with the best adjustments that economists in their studies can imagine. [Pigou 1912, pp. 247–248.] Why does Munger say that most of our apparent misunderstanding of Pigou comes from Ronald Coase? And most importantly, what does all this mean as far as how we should think about market failure?   3- At  ~28 minutes in, Munger explains the four kinds of market failure. What are they? Which are more or less subject to the vicissitudes of democracy? Which are more likely to be solved be allowing the market to work, absent interventions? Which would benefit most from government action?   4- Munger suggests we need to devise a new set of government institutions based on expertise that will guide markets correctly by getting prices right. As Roberts says, “Markets fail, governments fail, and therefore we need a third thing.” Munger agrees, but says we don’t even know what the third thing is yet. How satisfactory is this answer for you? To what extent can government be sufficiently insulated from political pressures sufficient to innovate and experiment? Should we be directing attention toward making bureaucracies more effective, as Roberts suggests? What alternatives might you suggest? Explain.   5- If we are to rethink government action in the way Munger suggests, how does this change our approach to industrial policy? Munger references his article, “A Good Industrial Policy is Impossible” (in a democracy), in which he writes, …the usual separation between markets and politics, where markets are probably going to perform better than democracy in deciding how to allocate resources, was not only conceded by the Cambridge Welfare Economists: they anticipated Public Choice arguments by 60 or 70 years. They just had a different solution. Their solution was to have commissions of experts whose job will be in each sector to get prices right. An empirical question? Is this an empirical question? If so, how might we begin to answer it? Can we find the “third way” mentioned above by disaggregating government failure unto institutional versus procedural failures?   (0 COMMENTS)

This is part two of three-part series. In part one of this series, I discussed different kinds of inequality and which ones we should be concerned about. You can find part one on Understanding Inequality here and part three on Declining Inequality here.   Part 2: Measuring Inequality Adam Smith was well aware that money is not the sum total of well-being; he once opined that “the chief part of human happiness arises from the consciousness of being beloved.” Smith would easily comprehend why someone might choose greater flexibility over higher pay to spend more time with loved ones and would understand that such a choice does not render anyone worse off but is merely an example of someone acting on personal preferences. The greater an individual’s freedom to make choices to act on her preferences, the better off she is. “Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life,” as Smith noted. Income is just one (admittedly important) measure of well-being precisely because greater income often affords more options to individuals. Well-being is multifaceted. Attempts to measure it should include income but should also recognize the complexity of the topic and avoid focusing myopically on income. George Mason University economist Vincent Geloso and I tried to do just that by creating a new measure of inequality, the Inequality of Human Progress Index (IHPI). The IHPI assesses well-being holistically by seeking to capture a fuller range of choices available to individuals than can be gleaned from income alone. By examining inequality in a multidimensional way, the IHPI takes inequality more seriously than measures that focus solely on income inequality. In fact, we surveyed international inequality across a greater number of dimensions than any prior index. We first constructed a Human Progress Index that includes income as well as other metrics, each speaking to a different component of progress that matters in terms of human well‐​being: lifespan , childhood survival , nutrition, environmental safety , access to opportunity , access to information, material well‐​being, and political freedom. We chose those variables to capture the multifaceted nature of well-being with the best available data. Smith may be right that “the consciousness of being beloved” is a key component of well-being, but it is rather hard to find a good measure of it; we limited ourselves to readily quantifiable metrics where the extensiveness of each data set’s year range and coverage of different countries allowed for meaningful analysis. Including so many variables meant we had to constrain ourselves to measuring how global inequality has changed since ​1990, because data were often not available or limited before that date. The index confirmed that impressive gains have been made since then, with most people around the world becoming better off in absolute terms. Importantly, were those gains shared, or did a few countries see most of the benefits while other countries were left behind? To find out, we looked at how inequality between countries has changed over time across those dimensions which I will discuss in part three of this series.   Want to read more? John V. C. Nye on Standards of Living and Modern Economic Growth in the Concise Encyclopedia of Economics. Jeremy Horpedahl, Americans Are Still Thriving at Econlib. James R. Otteson’s Brief Biography of Adam Smith at AdamSmithWorks   Chelsea Follett is the managing editor of Human​Progress​.org, a project of the Cato Institute that seeks to educate the public on the global improvements in well‐​being by providing free empirical data on long‐​term developments. (0 COMMENTS)

Should we want the greatest good for the greatest number? (And, incidentally, should the “we” mean a numerical majority?) The Trolley problem in philosophy raised the issue. I was reminded of that in an interesting article by economist and philosopher Michael Munger, “Adam Smith Discovered (and Solved!) the Trolley Problem” (June 28, 2023), as well as in a follow-up Econtalk podcast. The precise form of the Trolley problem was formulated by British philosopher Philippa Foot in a 1967 article. Imagine you see a runaway trolley speeding down a steep street and about to hit and kill five men working on the track. But you are near a switch that can divert the trolley to another track where only one man is working. None of the men see the trolley coming. You are certain that if you switch the track, only one will die instead of five. Should you switch it, as a utilitarian would ? If you answered yes, consider an equivalent dilemma (quoting from Munger’s article): Five people in a hospital will die tomorrow if they do not receive, respectively: (a) a heart transplant; (b) a liver transplant; (c) and (d) kidney transplants; and (e) a blood transfusion of a rare blood type. There is a sixth person in the hospital who, by astonishing coincidence, is an exact match as a donor for all five. If the head surgeon does nothing, five people will die tonight, with no hope of living until tomorrow. Assuming there is no legal risk (the government is run by utilitarians who want the greatest good for the greatest number and are fond of cost-benefit analysis), should the head surgeon kill the providential donor to harvest his organs and save five lives? To answer this question, most people would probably change their minds and reject the crude utilitarianism they espoused in the preceding Trolley problem. Why? Munger argues that Adam Smith formulated another instance of the Trolley problem in his 1859 book The Theory of Moral Sentiments and discovered the principle to solve it. Smith did not express it that way, but his solution points to the distinction between intentionally killing an innocent person, which is clearly immoral, and letting him die from independent causes, which is not necessarily immoral. Drowning somebody to kill him is immoral, but not saving somebody who is drowning may not be. Intentionally shooting an African child is murder; not giving to a charity the $100 that would save his life is certainly not criminal. A more recent argument by Philippa Foot (see Chapter 5 of her book Moral Dilemmas: And Other Topics in Moral Philosophy [Oxford University Press, 2002]) explains that the underlying basic distinction is “between initiating a harmful sequence of events and not interfering to prevent it” (this concise formulation of her complete argument is from the abstract of her article). More precisely, she writes: The question with which we are concerned has been dramatically posed by asking whether we are as much to blame for allowing people in Third World countries to starve to death as we would be for killing them by sending poisoned food? Emphasizing moral agency, the basic principle is that It is sometimes permissible to allow a certain harm to befall someone, although it would have been wrong to bring this harm on him by one’s own agency, by originating or sustaining the sequence which brings the harm. In his 2021 book Knowledge, Reality, and Value, libertarian-anarchist philosopher Michael Huemer also considers the Trolley problem and comes to a similar solution, albeit more nuanced in extreme cases. His philosophical approach is “intuitionism,” as the subtitle of this book suggests: A Mostly Common Sense Guide to Philosophy. (My double Regulation review, “A Wide-Ranging Libertarian Philosopher, Reasonable and Radical,” gives the flavor of this book and of his The Problem of Political Authority: An Examination of the Right to Coerce and the Duty to Obey [2013].) Anthony de Jasay’s condemnation of utilitarianism as a justification for government (coercive) interventions is based on the simple economic observation that there is no scientific basis for comparing utility between individuals; for example, it is meaningless to say that saving five men preserves “more utility” than killing one. Utility pronouncements, he writes, “are unfalsifiable, forever bound to remain my say-so against your say-so.” (See my Econlib review of his Against Politics.) What is pretty sure is that utilitarianism, and certainly “act utilitarianism” (as opposed to “rule utilitarianism”), does not work, except perhaps in the most extreme and uninteresting cases—such as “stealing $20 from Elon Musk without him noticing and transferring the money to a homeless person would create net utility,” that is, Musk would lose less utility than the pauper would gain. Even if the statement seems to make sense, we can’t predict a single individual’s behavior, only general classes of events: perhaps that homeless person will use the $20 to buy cheap alcohol, get drunk, and kill a mother and her baby, who would have been a second Beethoven. He might even be a utility monster, deriving “more utility” from the harm he causes to others than what he himself loses. Even if the homeless person uses his $20 to purchase a used copy of John Hicks’s A Theory of Economic History, the story of his “gift” might spread and lead to a billion greedy people crying for the same transfer from Musk. Or they may agitate for the $20 billion to be directly expropriated by the state to finance subsidies for them. **************************************** I tried hard to have DALL-E (the most recent version) represent the simplest version of Philippa Foot’s Trolley problem. Despite my detailed descriptions, “he” just could not understand–which is not really surprising, after all. Even the idea of a fork in a trolley’s track with five workers on one side and one on the other side, he could not represent. I finally asked him to draw a runaway trolley with one track and five workers in the middle of the track. The images he produced were among his most surrealistic, as you can see from the featured image of this post. Given his poor performance, I mentally apologized to Philippa Foot (who died at 90 in 2010) and instructed DALL-E to add to the image “an old, dignified woman (the philosopher Philippa Foot) in deep thinking and looking at the trolley coming.” In this simple task, the robot did quite well. Philippa Foot wondering about how DALL-E could make such a mess of her Trolley problem (0 COMMENTS)

In Capitalism and Freedom, Milton Friedman warned that heavy government involvement in the economy would reduce our freedom. Friedrich Hayek made a similar argument in The Road to Serfdom. I have always found this argument to be plausible, but at times I’ve wondered if it is truly persuasive.  Throughout my life, European governments have been fairly large as a share of GDP, and yet Europe still seems relatively free, at least compared to some of the more authoritarian parts of the world.  Recent events, however, have made me more receptive to the Friedman/Hayek position, particularly the regulation of social media platforms.  Here’s David Rose: If the government directly punished free speech, it would arouse an immediate reaction among voters. Instead, the government works quietly behind the scenes like a mob boss, who effectively says “Nice social media platform you got there. It’d be a shame if something happened to it.” All the government has to do to debase our right to free speech is to make it more costly than otherwise. The more we have allowed government to enmesh itself into our lives, the greater the risk to us of speaking against the government through actions and inactions that we will likely have no way to prove were motivated by an effort to shape or suppress our speech. . . . The root of the problem isn’t any given court’s ability to deal wisely with any given misdeed, it is the ability of the government to impose costs without accountability.  People often cite China as an exception to the capitalism promotes freedom hypothesis.  But is it?  Over the past 40 years: 1.  China has regressed in terms of free speech (and speech was far from free back in 1984.) 2.  Chinese people are freer to have more than one child. 3.  Chinese people are freer to live where they choose.  (“Hukou” restrictions remain, but are getting weaker every year.) 4.  Chinese people have more freedom to date whomever they choose.  (Gays are no longer subject to arrest.) 5.  There is far more economic freedom to start businesses, travel, and enter different professions.  I am certainly not arguing that China is a good example of capitalism promoting freedom.  It is not.  But notice that even in the worst case for Friedman’s hypothesis, the one cited by almost every opponent of neoliberalism, the effect of capitalism on freedom is ambiguous—gains in some areas and losses in others.   (0 COMMENTS)

  I was talking with a fellow tennis player during a break in a game. I’m at my cottage in Canada, and we play 3 on 3, which sounds weird but is a real kick. He told me that he’s a socialist progressive and said that his beef with capitalism is the inequality it creates. He had in mind by “capitalism” the system that both Canada and the U.S. have. I replied that you couldn’t state that the current degree of inequality is due to capitalism because we don’t have capitalism; we have a mixed economy. I pointed out that term “mixed economy” is a good one. I came across it in Paul Samuelson’s introductory text in my only economics course at the University of Winnipeg, in 1969 to 1970. (Our text was actually authored by Samuelson and Anthony Scott, a Canadian economist at UBC, because Samuelson needed someone who could add some of the Canadian content that dealt with Canadian institutions.) The term was widely used at the time. But, I noted to my tennis friend, that term has virtually disappeared. What is the mixed economy. Wikipedia has a nice treatment here. The whole Wikipedia entry is worth reading but here are the first two paragraphs: A mixed economy is an economic system that accepts both private businessesand nationalized government services, like public utilities, safety, military, welfare, and education. A mixed economy also promotes some form of regulation to protect the public, the environment, or the interests of the state. This is in contrast to a laissez faire capitalist economy which seeks to abolish or privatize most government services while wanting to deregulate the economy, and a fully centrally planned economy that seeks to nationalize most services like under the early Soviet Union. Examples of political philosophies that support mixed economies include Keynesianism, social liberalism, state capitalism, fascism, social democracy, the Nordic model, and China’s socialist market economy.   Governments do many things that make inequality less and many things that make it greater. The particular example I pointed out to him of a government institution that almost certainly makes inequality greater is the government almost-monopoly on K-12 schools. Poorer kids get crappier education and the teachers’ union, which, like the government schools, is an almost-monopoly on the most important input in government schools, labor, makes things worse. I hereby announce that I am going to do my bit to bring back the concept of the mixed economy. UPDATE: I just noticed that I posted about this in 2011. Oh, well. It deserves to be said again, this time in the context of inequality. (0 COMMENTS)

My attention was recently drawn to a headline declaring that Washington, the state I grew up in, would no longer require aspiring lawyers to pass the bar exam in order to become practicing lawyers. I did a bit of reading on the subject and it turns out this decision was motivated by DEI concerns: During a September presentation before the Washington State Bar Association Board of Governors, Washington Supreme Court Justice Raquel Montoya-Lewis, one of the chairs of the Bar Licensure Task Force, said the movement comes in part “from law students who have raised issues about equity, not just in the history of the adoption of the bar exam, but also over the course of many decades, when you look at the disproportionate impacts that the bar exam has on examinees of color.” She went on to note, “They tend to fail the bar exam in disproportionate numbers.” Now, this might immediately strike you as a horrible shift in policy. But I see several ways to see some positive developments here.  First, it’s worth pointing out that concerns over a disproportionate impact of policies on minorities is not something libertarians need to disregard. In fact, it’s very common for libertarians to highlight how various government regulations disproportionately affect vulnerable communities as reasons to be opposed to such regulations. Milton Friedman famously argued that the disemployment effects of the minimum wage disproportionately harmed the black community – he clearly didn’t think this disproportionate impact was morally irrelevant. Second, libertarians often worry about barriers to entry into a profession, including when they take the form of official requirements for licensing and certification. Libertarians are much more confident than most that in the absence of such regulations, a variety of mechanisms would develop to ensure quality, such as private certification and reputation. See, for example, this case cited by David Friedman where private certification of egg quality due to market pressure in England produced superior results to government regulation of the same issue in America. Libertarians have long argued that legally mandated certifications invoke concerns about “the public good” as a smokescreen for entrenched interests to shield themselves from competition on the market.  Third, unlike many DEI-style initiatives, this is a change in rules that equally applies to everyone. Unlike in cases like college admission, where you can essentially get bonus points towards admission (or deducted from admission!) depending on what race you are, this program simply makes additional means to qualify as a lawyer available to everyone. The architects of this program certainly anticipate the outcome of this change in the rules will particularly benefit minorities, but that’s still not the same as applying different rules to people based on their race or holding them to different standards on account of their race. I’ve written before about how some states have loosened regulations on the provision of legal services, resulting in more legal services becoming available to people of limited means without any apparent negative effects. And Washington isn’t going so far as allowing just anyone to show up in a court and argue a case. This new law allows the bar exam to be substituted with a variety of other means to qualify to practice law, such as “completing a six-month apprenticeship while being supervised and guided by a qualified attorney and complete three state-approved courses, or finishing 12 qualifying skill credits and 500 hours of work as a legal intern, or completing standardized educational materials and tests under the guidance of a mentoring lawyer, in addition to 500 hours of work as a legal intern.” So the gates haven’t been thrown down – they’ve just been opened a bit wider. These extra options will allow more people to get their proverbial foot in the door. Perhaps because they didn’t qualify through the traditional bar exam, they’ll be in lower demand and start their careers at a lower rung making less pay – but as time goes on they can develop a reputation based on the skill they demonstrate and rise up in the profession, rather than being shut out at the gate. This seems good to me, at least from a directionalist stance.  So I can find reasons to like this policy change from a libertarian perspective. However, I wonder how progressives would interpret it from within a progressive perspective. Now, some progressives may oppose this move, of course. But some will support it. And among those who support it for the DEI reasons that were cited, it seems to create the following trilemma: The bar exam requirement isn’t necessary to ensure a high degree of competence among lawyers – this can be achieved through other means such as alternative qualifications and reputation gained through demonstrated competence. This fits with what I’ve argued so far, but I imagine this response could also make progressives nervous, because once you allow this, huge portions of the administrative state suddenly become very vulnerable. So this seems like a high risk argument for a progressive to make.  The bar exam is necessary to ensure a high degree of competence among lawyers, but having legal services provided by a competent lawyer isn’t that important, so we can drop the requirement for the bar exam. This, too, seems unpalatable from the progressive mindset, particularly given that progressives are often very worried about issues like criminal justice and incarceration. The bar exam is necessary to ensure a high degree of competence among lawyers, and having competent legal representation is indeed very important. However, ensuring that the demographic makeup of practicing lawyers looks the way we think it should is more important than both of these factors combined. This, too, seems pretty hard to say with a straight face.  So there’s my counterintuitive hot take on this issue – the removal of the requirement to pass the bar exam, taken in the name of DEI, is actually a policy move that libertarians can view optimistically but should make progressives very nervous. I admit, I didn’t expect to reach that conclusion when I started reading about Washington’s decision, but here we are.    (0 COMMENTS)

This is part one of three-part series. Over the past two and a half centuries, the world has seen significant progress. People live longer, are richer and better educated, and enjoy greater political freedom. (I previously explored the role of cities as engines of such progress for the Liberty Fund’s AdamSmithWorks project). But has that progress been enjoyed by only a few? Has the improvement in living conditions accrued mainly to a small elite, leaving much of the world behind? What many don’t realize is that these improvements have indeed been widely shared. It seems that globalization and market liberalization—whose power Adam Smith recognized more than two centuries ago—have raised absolute living standards to unprecedented heights and reduced overall inequality. The world is not only wealthier but also more equal. In this series, I will discuss what inequality is, how it’s measured, and how to understand it’s decline.   Part 1: Understanding Inequality A popular adage states that “the rich get richer and the poor get poorer”—encapsulating the view that progress is enjoyed only by some. In a much-quoted passage subject to various interpretations, Smith wrote, “Wherever there is great property, there is great inequality. For one very rich man, there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many.” How readers understand Smith’s words on inequality often depends on whether and to what extent they consider inequality to be a problem. Smith was hardly the first to bring attention to the subject of inequality. Some research even suggests that concern about inequality may be evolutionarily hardwired. Human psychology evolved at a time when people lived in small hunter-gatherer bands that tended to divide meat in an egalitarian manner. Society has altered considerably, but moral intuitions remain largely unchanged—highly unequal distributions of resources often strike people as unjust. Of course, our genetic predispositions for thinking in certain ways should not be given undue weight: human impulses can be bad as well as good. What Smith calls “the odious and detestable passion of envy” is sometimes implicated in the desire to reduce inequality and has long been characterized as negative by sources such as the biblical Book of Proverbs (which says that “envy rots the bones”) and the playwright William Shakespeare (who wrote that “envy breeds unkind division”). The tendency to focus on relative, rather than absolute, measures of well-being can also be harmful because absolute rather than relative measures of progress are the best standard to assess the success of different institutions and policies. Furthermore, the majority of people have no objection to inequality arrived at by merit, and there is no evidence of widespread inequality-induced unhappiness. In developing countries, increased economic inequality that arises as part of the population escapes poverty is often seen as heartening—proof that upward mobility is possible—and can coincide with greater average happiness. Research has similarly found “a complete lack of any effect of inequality on the happiness of the American poor.” Of course, when the rich are protected through privileged status in law, inequality seems far more troubling. Smith recognized that incumbent businesses sometimes gain unfair privileges from the government—in the form of regulations that strangle competition, for example: The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. . . . The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. (Wealth of Nations, Bk 1, Ch 11) The growth of government since Smith’s time makes those concerns even more relevant. Examples of such laws range from a needlessly expansive regime of occupational licensing stopping individual competitors from entering a field and overbearing regulatory barriers blocking new businesses from entering an industry to bailouts, mandates, and subsidies that artificially boost sales and coddle entire industries. Inequality that arises from such cronyistic government policies is concerning, and reforms to prevent governments from increasing inequality in this manner are a prudent idea with broad appeal. There are of course other possible causes of inequality, particularly in rich countries. Consider income inequality. As countries develop economically, income inequality becomes less and less useful as a measure of well-being. In subsistence economies, everyone is engaged in the same struggle for survival. In contrast, people are engaged in different pursuits in affluent societies because such societies offer diverse avenues for fulfillment. While some individuals seek to maximize their income, others may choose lower-paid professions that they find enjoyable or meaningful or that confer prestige or greater flexibility. Individuals may prefer work that allows more time for leisure or caring for their children. Smith famously observed that each person pursues self-interest—“the care of his own happiness, of that of his family, his friends, his country”—but as Lauren Hall previously noted for AdamSmithWorks, “Smith never argues that economic interest is or should be the sum total of all human activities” (emphasis added). When income inequality results from personal decisions that some people make to pursue things other than material prosperity, it is hardly a good measure of well-being. Income inequality in such societies reflects personal choices, not overall well-being. In other words, advanced economies provide numerous paths to happiness, diminishing the significance of income inequality. Fortunately, there is a more meaningful way of measuring inequality which I will discuss in part two of this series by focusing on the Inequality of Human Progress Index (IHPI) created by myself and Vincent Geloso.     Want more? Vincent Geloso on the Great Antidote podcast talking about Global Inequality at AdamSmithWorks Chelsea Follett’s Cities as Centers of Innovation: Lessons from Edinburgh and Paris at AdamSmithWorks Pedro Schwartz, Poverty and Inequality, at Econlib.   Chelsea Follett is the managing editor of Human​Progress​.org, a project of the Cato Institute that seeks to educate the public on the global improvements in well‐​being by providing free empirical data on long‐​term developments. (0 COMMENTS)

  Occupational licensing today directly affects more than one in five workers in the United States—up from one in 20 workers in the 1950s. This is nearly twice the fraction of workers belonging to a union and more than 15 times the fraction of workers receiving the federal minimum wage. Although licensing is widespread in the United States, it does not receive the same level of attention as either of these other labor market institutions. Occupational licensing is costly for both consumers and aspiring workers, but results in measurable benefits for existing market practitioners. Occupational licensing persists even though its costs very likely outweigh its benefits. This is the first paragraph of Edward J. Timmons, “Occupational Licensing,” in David R. Henderson, ed., The Concise Encyclopedia of Economics. It’s a badly needed update to the original article on occupational licensing in the Encyclopedia, “Occupational Licensing” by David S. Young. Young’s article stands up surprisingly well, given that it’s 31 years old. Still, lots has happened, both in policy and in research on the issue. Timmons is on the leading edge of this research. Another excerpt: Economists have estimated the effects of occupational licensing on consumers, aspiring workers, and existing practitioners. By restricting consumer choice and limiting the number of providers of licensed services, licensing, economic theory would predict, should increase prices. Research confirms that licensing raises the prices of licensed services by anywhere from 3 to 13%. Evidence is more mixed on the effects of licensing on the quality of services received by consumers. A few studies looking at licensing of physicians and midwives at the turn of the 20th century find evidence of some benefits for consumers in the form of lower mortality rates. Studies estimating the effects of licensing in the 21st century often find little evidence of benefits for consumers. A recent book published by the Upjohn Institute examining case studies of licensing in the US and Europe reaches the conclusion that licensing is not improving the quality of services delivered to consumers. It is also important to note that estimating the average effects of licensing on quality may not fully capture losses in access to service from reductions in the number of professionals. This has come to be known as the “Cadillac effect.” Milton Friedman introduced the idea in his 1962 classic, Capitalism and Freedom. The idea is that licensing limits consumers to either purchasing services from providers meeting standards set by licensing boards (Cadillacs), or not purchasing services at all. This may encourage consumers to seek services in the underground economy or incentivize consumers to do the services themselves. Early work by Carrol and Gaston supports the idea that consumers begin to perform more “do-it-yourself” work when licensing limits consumer choice by restricting entry. Notice in the above that Milton Friedman was one of the skeptics on licensing long before skepticism became popular. I remember being blown way, when I was 17, by his discussion of how we could have good medicine without licensing doctors. As Milton recognized at the time, he took the hardest issue to refute and, at least in my mind, refuted it. Thanks to Alicia Plemmons, who is one of the leading researchers in the area, for humbly recommending her colleague Edward Timmons as author of the piece and thanks also to Tyler Cowen for taking a quick look. (0 COMMENTS)