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Who benefits from occupational licensing laws? The licensees, to be sure — to the detriment of the consumer

Via Coyote Blog and Radley Balko, the Philadelphia Inquirer brings us a nice illustration of why occupational licensing laws really exist: Not to protect the consumer, but to protect the licensees from free-market competition:

Mary Jo Pletz was really, really good at eBay. But now the former stay-at-home mother and gonzo Internet retailer fears a maximum $10 million fine for selling 10,000 toys, antiques, videos, sports memorabilia, books, tools and infant clothes on eBay without an auctioneer’s license.

An official from the Department of State knocked on Pletz’s white-brick ranch here north of Allentown in late December 2006 and said her Internet business, D&J Virtual Consignment, was being investigated for violating state laws.

“I was dumbfounded,” said Pletz, who led the dark-suited investigator to a side patio area, where he grilled her. “I told him I would just shut down,” she said.

Mary Jo’s violation? Auctioneering without a license. Sound familiar? It should. It parallels the dumb stunt the Sate of Arizona tried to pull on Zillow.com, which was accused of doing real estate appraisals without a license.

But there are consumers who need protecting, right? Oh, you bet:

D&J Virtual Consignment had 11,000 feedback comments on eBay and 14 were negative, Pletz said, giving her a 99.9 percent satisfaction rating.

Ebay is not just perfect Capitalism, it is Capitalism Perfected — everything that has always been implicit in free-market commercial transactions made utterly transparent by means of database management. If you are looking for the complete and irrefutable refutation of Das Kapital, you’ll find it not on but in the form of Ebay.com.

So where’s the beef?

Amoros, the state spokeswoman, said investigations were a “complaint-driven” process but those complaints are confidential.

Uh huh.

It is only possible to for you to defend occupational licensing laws by ignoring the palpable harm they do to actual consumers — higher prices for lower quality goods and services. But even then, don’t get downwind of yourself. This stuff stinks.

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  • 29 comments

    29 Comments so far

    1. Bonnie Sherwood January 31st, 2008 2:44 pm

      This is absurd. One has to look at the purpose of the licensing law. Many bear no relevence to consumer protection and are just state money makers. But some are for consumer protection. Like a license to drive a car. Even a dog license which requires proof of rabies shots, protects consumers, doesn’t it. You should not put all licenses in the same bucket.

    2. Greg Swann January 31st, 2008 3:08 pm

      Hi, Bonnie. If you’ll look again, you’ll see that I was talking about occupational licensing laws.

      Even so, you raise interesting points. Is it your claim that dog owners would not get shots for their pets without dog licensing laws? Or are you saying that, in the presence of dog licensing laws, you have no need to fear rabid dogs? Is it plausible to you that dog licensing laws make you less cautious than you should be about potentially-rabid dogs?

      This is one of the detrimental effects of occupational licensing laws: They delude consumers into thinking that a practitioner must be competent because that person is licensed, and, in consequence, they are less cautious than they should be about guarding their own interests. Would you consider either of these — carelessness about potentially-rabid dogs or about potentially-incompetent practitioners — to be desirable outcomes?

      Here’s another one for you, a lens to clarify the mind: If you could drive on a road where all the drivers had licenses but none had insurance, or, instead, on a parallel road where none of the drivers had licenses but all of them had insurance — which road would you choose? Would you rather that the professionals and tradespeople you work with were licensed but not bonded or insured, or would you prefer to work with people who were bonded and insured but not licensed?

    3. CJ, Broker in NELA, CA January 31st, 2008 4:35 pm

      Greg: What a remarkable idea! Dump state licensing –but have a state mandated E&O insurance program.

    4. Sean Purcell January 31st, 2008 4:43 pm

      Greg,

      With you on the ebay nonsense (which would be outrageous were it not so mind-numbingly prevalent). With you on the “detrimental effects of occupational licensing laws”. But you lost me with the examples.

      Given the choices I would prefer the road with licensed drivers, which I assume have endured at least a rudimentary course in driving safety, over the parallel road which I perceive to be filled with yahoos who don’t care about safety because they have insurance. The contrator example is more to the point IMHO. Given the choice between a contractor who has registered (via the licensing) with the state and whom I can check for comlaints and/or track down after the job (theoretically), is preferable to the contractor that has enough insurance to lower his sense of risk and accountability while probably not protecting me all that much.

      The contractor example is interesting because it is similar in many ways to real estate agents. The license is basically there for the taking. It signifies no real competence and only serves protection in the sense that the licensee can be tracked. Which brings me back to your very cogent argument: occupational licenses not only create a false sense of security but they are financial pry bars for government. We should recognize licensing for what it is: basic registration, and remove government’s oversight altogether (similar to registering a car – provides trackability and token coin to the crown without any implied warranty as to the road worthiness of the car). If we want to move beyond caveat emptor we need oversight groups that know the business (e.g. NASD).

    5. [...] 31, 2008 Once again, Bloodhound has a fantastic post up on a topic that is tangential to much of a theme I’ve been hammering since I started this [...]

    6. Greg Swann January 31st, 2008 5:13 pm

      > Greg: What a remarkable idea! Dump state licensing –but have a state mandated E&O insurance program.

      Good grief, don’t attribute that to me. I am not in favor of any sort of coercion of innocent people. Whatever peril you feel in the world of commerce, pushing everyone around at gunpoint is immeasurably worse. Whatever objective you might seek from that commercial world, it cannot possibly justify even the smallest act of compulsion. Government is formalized criminality. Civilization is the polar opposite. We insist upon encysting ourselves with government, for now — but not with my consent.

    7. Derek January 31st, 2008 6:49 pm

      I have seen similar cases including one here in North Carolina.

      I could be wrong, but the seller in this case would be the owner and the owner of the merchanise should not need an auctioneering license.

      Ebay on the other hand should be required to obtain one however, I think there is a huge loop hole from my understanding of how state and federal laws work. I have no idea where Ebay is from as I never use the site, but lets say NY. Being in NY and acting on behalf of the seller in NC, the state would no longer have control of the status. The sell occured in NY. But I would assume that there would be some interstate commerence laws involved? With real estate, the good never crosses state lines so with Ebay real estate, maybe a license would be required.

    8. Jillayne Schlicke January 31st, 2008 9:13 pm

      So if we do away with all occupational licensing, then anyone would be able to:

      practice law
      administer prescription drugs
      perform surgery
      color your hair
      give tax advice
      appraise a home
      perform chiropractic care
      distribute commerical fertilizer
      run a daycare center
      offer therapy
      clean your teeth
      perform a routine pap smear
      perform a prostate exam

      Protecting the consumer is only half the reason why we have occupational licensing. The other half is because it promotes confidence in that industry. Consumers select a business knowing that there are some minimum standards set forth.

      The higher the degree of industry SELF-regulation, the more consumers trust those professionals. Government was never designed to regulate every single move these licensees make. That is the job of the industry (business), not government.

      A free market works but without a system in place for justice, capitalism does not work.

    9. Greg Swann January 31st, 2008 9:31 pm

      > [Licensing] promotes confidence in that industry

      Oh, please. I’m in real estate. The license promotes confidence that the licensee has fingerprints — or was able to buy some.

      > A free market works but without a system in place for justice, capitalism does not work.

      All or Nothing Fallacy. No one, ever, in the entire history of human thought, has proposed a civil polity without a dispute resolution mechanism. You’re not talking about Capitalism. You’re talking about nothing. Capitalism is the political system of people who seek to live free of systemic crime.

    10. Derek January 31st, 2008 9:39 pm

      Jillayne:

      I do not agree we should get rid of them but I will admit that I think 90% of the occupational licenses are rather moot.

      The real estate license exam had to be the easiest thing on the face of the world. Auctioneering license, my dad has one and from the looks of it, it’s not too hard.

      Case in point with my real estate license. I threw the HUD-1 statement in the trash and did not even look at it when I went to take the state test. I was confidence enough to know I had passed not to even bother looking over the thing. It wasn’t until I went to take my full broker class that I even bothered to look at what was on the HUD-1.

      Of course, I am a highly educated guy so I should be able to pass most of the stuff with rather ease, but am I really prepared to enter real estate? I could survive but personally, I don’t feel ready no matter how good I did on the state exam.

      I also have a permit from the ATF to transport explosives. I kid you not! Ask me what I am doing and I will tell you right from the start, I have not a freaking clue!

      My point being is this: A good majority of the occupational licenses are full of brown stuff. I have been telling people over and over I am considering running for NC House. Trust me if that happens, I darn sure ain’t getting any votes from the real estate agents or even insurance agents for that matter as one of the first things I will bring to the floor is how weak our state occupational license requirements are. What’s even sadder is the fact that I have heard from agents who have licenses in other states that our requirements (I cannot verify that personally) are mush harsher than other states so I can only imagine what it’s like there.

    11. Derek January 31st, 2008 9:48 pm

      Oh yeah, I always get a kick out of the Real Estate Agents with GRIs talk about how how it’s equal to a master’s degree in real estate! I highly doubt that, but I will admit the certificate looks better than my college degree!

      What about things like e-Pro designations? What’s that equal to? A bachelor’s in computer science?

    12. Robert Kerr January 31st, 2008 9:55 pm

      [Greg]Hi, Bonnie. If you’ll look again, you’ll see that I was talking about occupational licensing laws.

      Occupational? Ok. How about police? Should police be licensed? A badge is a license, after all, granted only after successful completion of required training and demonstration of proficiency.

      [Bonnie]You should not put all licenses in the same bucket.

      Exactly.

    13. Jillayne Schlicke January 31st, 2008 10:08 pm

      “No one, ever, in the entire history of human thought, has proposed a civil polity without a dispute resolution mechanism.”

      I can think of many political systems in world history that had no dispute resolution mechanism for its members. Well, maybe for the men but other groups such as women were excluded in this process.

      “Capitalism is the political system of people who seek to live free of systemic crime.”

      That’s an interesting assertion, given the systemic crime that’s playing out in our current financial crisis.

      :)

    14. Greg Swann January 31st, 2008 11:07 pm

      > I can think of many political systems in world history that had no dispute resolution mechanism for its members. Well, maybe for the men but other groups such as women were excluded in this process.

      Your bona fides as a feminist revisionist are already well-established here, but, in fact, civilization exists to protect women and children. Capitalism is by far the best protection ever devised for the weakest members of a polity, those people most likely to be raped, enslaved or slaughtered under other political systems. Capitalism is also the only political system with the moral and intellectual confidence to entertain joyfully this kind of revisionist motes-and-beams debate. In a society less free, you are at perfect liberty to criticize Capitalism, but to speak against the local tyranny is to invite imprisonment or execution.

      > That’s an interesting assertion, given the systemic crime that’s playing out in our current financial crisis.

      It’s topical crime, not systemic — words have meanings — and all of it was done under the color of law, effected by vast cadres of state licensees. Caveat emptor is the only reliable form of consumer protection, although free-market entities like the Underwriters’ Laboratories can bear some of the load. What should be obvious to you, from your own first-hand experience, is that the systemic crime that is government is very poor at protecting consumers from larceny and fraud. To the contrary, the state deludes its more gullible citizens into believing they are protected when in fact the state’s licensing mechanism serves best to deliver the most ovine of sheep to the most lupine of wolves. In that respect, the state becomes a facilitator of larceny and fraud. This is anti-Capitalism in action, in the sense that the weakest people are the ones most victimized. And this is not some bizarre exception to the rule. Rotarian Socialism is the exact and intended outcome of the law.

    15. Jillayne Schlicke January 31st, 2008 11:34 pm

      Civilization doesn’t exist to protect women and children. It exists so we don’t all kill each other.

      Let’s not continue to perpetuate the notion that women are weak victims and must always need the protection of men.

      There is no license needed to become a corporate executive.

      Government was never designed to police all real estate and mortgage licensees 100% of the time. The industry must self-regulate. For example, if NAR is ineffective, then capitalism dictates that another group will spring forth and, if that group can provide value, they will grow to dominate the need to regulate where government cannot. Industry self regulation serves the consumer and also the licensee.

    16. Brian Brady January 31st, 2008 11:41 pm

      Why not license all E-bay sellers as auctioneers?

      Because it’s easily avoided. I can accept payment offshore, I can post through a server offshore. I can sell my coin collection, to my neighbor, through an e-marketplace and avoid all local licensing laws.

      Let me prove Greg’s argument:

      Q: Why have I sold more homes in Mexico than most Realtors (and received a commission)?

      A: Because while I’m unlicensed, I taught a class at The Learning Annex and had a killer website, in 2003-4. I did the research and had owned property in Mexico; I knew the process.

      Q2: Why would Californians and Arizonans travel to Mexico, look at properties, and insist on using me to present offers to American agents (licensed in CA or AZ), who lived and practiced in Mexico?

      Q2: Because the lack of licensing made the consumers perform due diligence. Preparing an offer, at the Denny’s in San Diego, with someone who knew the process, trumped any license.

      Confidence in a practitioner trumps confidence in an industry, all the time. I WANT consumers to distrust mortgage originators; I thrive on that lack of confidence.

      It makes me shine.

    17. Brian Brady January 31st, 2008 11:43 pm

      typo: A2

    18. Greg Swann January 31st, 2008 11:53 pm

      > Let’s not continue to perpetuate the notion that women are weak victims and must always need the protection of men.

      Your rhetoric is thrilling, but when you step into an elevator the guarantor of your safety is neither rhetoric nor stout-hearted fighting spirit but philosophy. In cultures where men do not regard women as their moral and political equals, the lives of women are solitary, mean, nasty, brutish and short. For what it’s worth, I would find feminist rhetoric much more plausible it it condemned such abominations. And by now we’re so far off topic we can barely see the topic from here.

    19. Jillayne Schlicke February 1st, 2008 12:10 am

      Brian says, “Confidence in a practitioner trumps confidence in an industry, all the time. I WANT consumers to distrust mortgage originators; I thrive on that lack of confidence. It makes me shine.”

      So now we have one shining mortgage originator and consumers should all use….Brian.

      o k a y

      Now there’s a solution worth fighting for: every man for himself. I’m a shining star and to all my competitors: sucks to be you. No wonder capitalism is dying.

      Well, by the time all the wholesale lenders have closed up shop, you may very well be the last mortgage broker standing and you’ll have plenty of business with your background and knowledge in hard money lending.

      Brian, somewhere inside you, do you have a sliver of hope that someday your competitors would not financially prey on consumers? Is there any hope for a better mortgage lending world for more than just Brian?

    20. Jillayne Schlicke February 1st, 2008 12:26 am

      Greg says: “I would find feminist rhetoric much more plausible if it condemned such abominations.”

      In such cultures the same things happen to men. Their lives can also be solitary, mean, nasty, brutish and short. I would not limit the condemnation to just one gender.

      Licensing laws exist so that everyone is playing the game of capitalism with the same set of rules.

      If there were no real estate licensing laws, consumers would flock to attorneys for help. Why? Because they have a mature system of rules set into place where they brutally self-regulate their industry for conduct that promotes confidence in the industry. They have a rigorous educational system set up and difficult, week-long bar exams to pass. I don’t think consumers would pay very much money to Average Joe Realtor with no agreed-upon set of standards.

      If we go any direction with licensing and real estate, on my wish list would be a required college degree program and a much more rigorous licensing exam.

    21. Greg Swann February 1st, 2008 12:36 am

      > Licensing laws exist so that everyone is playing the game of capitalism with the same set of rules.

      Nonsense. Every law that we might designate as malum prohibitum, which includes all regulation of commerce, exists to promote the interests of the politically favored at the expense of everyone else. In the United States, this form of organized crime was invented by the National Association of Realtors, which paved the way for every other sort of grafter to latch onto Big Mother’s teats. This is not news.

      > If we go any direction with licensing and real estate, on my wish list would be a required college degree program and a much more rigorous licensing exam.

      I’m sure this notion will be looked upon fondly by the teacher’s unions.

      Incidentally, this general philosophy — “The government intervention that is already failing abysmally will work much better if there is more intervention” — is also not a new philosophy. What is new is the demonstration by von Mises in the 20th century that, if these ideas go unchecked, the end result is invariably totalitarianism. A little systemic crime is bad, but trying to correct it with even more systemic crime is not only worse, it tends to occasion the progressively more desperate need for more and more systemic crime. Most Socialists don’t start out with the goal of becoming mass murderers, but, unless the Socialist trend is reversed, the result is always millions upon millions of political murders. This is not a game we’re playing.

    22. Bonnie Sherwood February 1st, 2008 10:35 am

      Greg

      You are wrong that dog and driver licenses are not occupational licenses, unless you have a narrow view of what an occupation is. So call it the occupation of being a car driver on city streets or the occupation of being a dog in public.

      Also, you are using the exception to DISprove the rule. The fact that some people can install electrical wiring without a license does not mean we should eliminate licensing for electricians. It is illogical, in my opinion, to base a system on the exception. I will ask you point blank– would you hire an electrician to install wiring in your house if he did not have a license?

    23. Anonymous February 1st, 2008 10:38 am

      We’re back in Athens with Solon facing off against Themistocles with a little Marxim thrown in between!

      I agree a college education should be required. Perhaps an associate’s degree or at least 2 years general education classes.

      It’s needed especially in the areas of reading, writing and math. I do not think a full degree in business or economics is needed, but it would be helpful to have a few basic college classes in those areas. Maybe even a course in POLS that discusses local and state politics as well.

      It’s really bad when you have real estate schools and junk going around advertising GET YOUR REAL ESTATE LICENSE FAST!!! In only 4 to 6 weeks or so. Just think of the perception that reflects on the public knowing how fast and easy you can get a RE license.

      As for the laws, Greg what do you suggest Draco like laws? Our laws are not laws of laws but rather laws of men and always have been.

      On the other hand, I am getting a kick out of reading Greg call Jillayne a feminist. My research thesis this semester is on gender relations during the Red Scare era.

    24. Derek February 1st, 2008 10:39 am

      We’re back in Athens with Solon facing off against Themistocles with a little Marxim thrown in between!

      I agree a college education should be required. Perhaps an associate’s degree or at least 2 years general education classes.

      It’s needed especially in the areas of reading, writing and math. I do not think a full degree in business or economics is needed, but it would be helpful to have a few basic college classes in those areas. Maybe even a course in POLS that discusses local and state politics as well.

      It’s really bad when you have real estate schools and junk going around advertising GET YOUR REAL ESTATE LICENSE FAST!!! In only 4 to 6 weeks or so. Just think of the perception that reflects on the public knowing how fast and easy you can get a RE license.

      As for the laws, Greg what do you suggest Draco like laws? Our laws are not laws of laws but rather laws of men and always have been.

      On the other hand, I am getting a kick out of reading Greg call Jillayne a feminist. My research thesis this semester is on gender relations during the Red Scare era.

    25. Greg Swann February 1st, 2008 11:08 am

      > You are wrong that dog and driver licenses are not occupational licenses

      You don’t get to redefine words just because you don’t like where an argument leads. A dog’s life usually is a dog’s life, but that doesn’t make it a job.

      > The fact that some people can install electrical wiring without a license does not mean we should eliminate licensing for electricians.

      The corollary argument would be that a licensed electrician is of necessity not incompetent. There are many firemen who can testify against this claim.

      > I will ask you point blank– would you hire an electrician to install wiring in your house if he did not have a license?

      You bet. Two overhead fixtures in the kitchen, two more in our home office, venting over the range, all that plus phone and cable jacks — along with a bunch of other handyman stuff. I am not interested in whether or not a vendor has a license. I’m interested in whether or not he is competent. I bought the best my money could buy. Every sane person does.

      > It is illogical, in my opinion, to base a system on the exception.

      Do you understand that your belief that you should have the power to impose your systems on people innocent of any wrong-doing makes you the greatest peril? I don’t mean you, personally. You’re just regurgitating a lifetime’s indoctrination. But the doctrine that force should supplant reason is criminal ab initio and, if unchecked, ultimately homicidal. We deploy our fears of minor, isolated injuries as the justification for pandemic theft, coercion, censorship and eventually imprisonment and execution.

      What peril do you face in the marketplace that is worse than having 40% or more of your income stolen? Do the math on the opportunity costs of 40% of everything you earn, for your entire life.

      You can have the last word.

    26. Brian Brady February 1st, 2008 12:23 pm

      “Brian, somewhere inside you, do you have a sliver of hope that someday your competitors would not financially prey on consumers?”

      Yes, but since victims refuse to prosecute these rascals, my hands are tied. I’m just an originator.

      “Is there any hope for a better mortgage lending world for more than just Brian?”

      I hope not; that’s been my unique sales proposition since 1994

    27. Sean Purcell February 1st, 2008 2:31 pm

      Brian – I can see the bumper stickers that accompany your business model now:

      “Better living throught Brady”
      “A chicken in every pot and Brian in your loan”
      “Once you go Brady, you never go back”

    28. Bonnie Sherwood February 1st, 2008 3:26 pm

      Greg,

      Thank you for the last word. You are a gentleman.

      We are talking about the same thing: competency, which is a form of consumer protection. The consumer is protected by having competent professionals. This is common sense, I think.

      We only differ on how society determines who is competent. I say stricter licensing. You say licensing is not needed.

      I rely on the licensing agencies to do the best job they can insuring competency for me. Education, testing, etc.

      It is not a perfect system but no licensing is far worse. It leaves that decision to each individual person. In theory this sounds good, but in practice I doubt it would work. For one thing, it would create a lot of wasted time: an economist would call it an inefficiency in the marketplace: I could not simply rely on the license and would have to do my own investigation, which takes time and effort. Plus, you have to know what to ask : and the right answers. Sounds like a test.

      And I don’t even know what questions to ask an electrician. They should be the questions on the electrician’s license test: but I don’t have the correct answers. The license says to me someone did know what questions to ask & the person answered the questions to a minimum qualification. The harder the questions, the more the person knew. Questions for electricians are probably more complicated than a simple homeowner job.

      You may know how to chose a competent electrician for basic home repair: my husband does it: but how do you determine if that electrician is competent to wire your entire house? Would you have an unlicensed person wire your entire house? If you said yes, I would be amazed.

      My sister had a handy man (unlicensed) friend who had done small electric jobs to put in a circuit box and he overloaded the circuits. Luckily a licensed electrician saw it. It was a fire hazard. The funny part is the friend charged the same as the electrician.

      I guess what I am trying to say is the license should act like a good housekeeping seal of approval that this person is competent. If there was no license to tell me this, something very much like a license would have to be invented to tell me, to save me time. And whatever that something else is, it would not be free to get and some kind of testing done. So we are right back where we started (or progressed to, depending how you look at it): which is a “thing” that identifies a competent person to save people time. I say it is OK to call that thing a “license”.

    29. Adnan October 19th, 2008 1:20 am

      Greg, this was a nice idea. I’ve frankly speaking never thought of this before …. thanks!