Books – Page 151 – artdiamondblog.com

Occupational Licensing Does More Harm Than Good

Source of book cover image: http://www.upjohninst.org/publications/titles/lo.html

(p. C3) It is well known that doctors, dentists, and lawyers must be licensed to practice their professions. But what about occupational therapists, manicurists and barbers? How about fortune tellers, massage therapists, shampoo assistants, librarians, beekeepers, electrologists and movie projector operators? These are just a sampling of the hundreds of occupations that require a license in at least some states or counties.

In a new book, “Licensing Occupations: Ensuring Quality or Restricting Competition?” (Upjohn Institute, 2006), Morris M. Kleiner, an economist at the University of Minnesota, questions whether occupational licensing has gone too far. He provides much evidence that the balance of occupational licensing has shifted away from protecting consumers and toward limiting the supply of workers in various professions. A result is that services provided by licensed workers are more expensive than necessary and that quality is not noticeably affected.
. . .
Several studies have examined the effect of license requirements on performance in occupations like dentists and teachers. In one study, Professor Kleiner and a colleague, Robert T. Kudrle, found that stricter state licensing requirements for dentists did not noticeably affect the dental health of 464 Air Force recruits. Other studies have found at best weak evidence that students in classes taught by licensed teachers performed better than those taught by unlicensed teachers.
Summarizing the literature, Professor Kleiner concludes, “there is little to show that occupational regulation has a major effect on the quality of service received by consumers.”
At the same time, the hurdles imposed by occupational licensing reduce the supply of workers in many regulated professions, which drives up wages in those jobs and the price of services. Dentists, for example, were found to earn and charge 11 percent more in states with the most restrictive licensing requirements. While tough licensing standards may help higher-income consumers avoid low-quality providers, it also appears to prevent lower-income consumers from gaining access to some services.

For the full commentary, see:
Krueger, Alan B. “Economic Scene; Do You Need a License to Earn a Living? You Might Be Surprised at the Answer.” The New York Times (Thurs., March 2, 2006): C3.
(Note: ellipsis added.)

You want more evidence? OK, here’s more evidence:

(p. A20) BISMARCK, N.D., Oct. 10 (AP) – The State of North Dakota is exploring whether people who sell items on eBay for others must get standrd auctioneers’ licenses, a process that includes taking instruction in talking real fast.

To get a license in the stare, aplicants must pay a $35 fee, obtain a $5,000 bond and undergo training at one of eight approved auction schools, where the curriculum includes rapid-fie speaking, breathing control and reading hand gestures.
“I don’t think it offers any additional protection for the consumer,” said Mark Nichols, who runs a small consignment store in Crosby. “It just creates a lot of red tape for the business, as well as having to put out a lot of money.”

For the full story, see:
“North Dakota Weighs Auction License for Some eBay Sellers.” The New York Times (Tues., Oct. 11, 2005): A20.

For Kleiner’s book, see:
Morris M. Kleiner. Licensing Occupations: Ensuring Quality or Restricting Competition? Upjohn Institute, 2006.

Indiana Almost Legislated Wrong Value of Pi

Yesterday (3/14) was “Pi Day.” Source of image: http://www.mathwithmrherte.com/pi_day.htm
After school yesterday, my daughter Jenny told me that in her sixth grade class with Barbara Jens, they had celebrated “Pi Day.” I didn’t get it until Jen pointed out that the date was 3/14 and the first three digits of pi are 3.14.
Being a hoosier by birth and upbringing, Pi Day reminded me that in 1897 the Indiana House of Representatives unanimously passed a bill legislating the wrong value of pi. It would make a better story if the House had taken this action based on a literal interpretation of the bible, which gives the value of pi as an even 3. But apparently the House action was based on a mistaken “proof” offered by physician Edwin J. Goodwin. Fortunately for the reputation of Indiana government, a mathematician visiting the state capitol for other reasons, convinced Senators of the mistake, and consideration of the bill was postponed indefinitely in the Senate, before it could become law.
For my source, and more details, see Petr Beckmann’s wonderful book:
Beckmann, Petr. A History of Pi. New York: St. Martin’s Press, 1971.

Source of image: http://www.amazon.com/gp/product/0312381859/ref=ed_oe_p/104-6209536-4473568?%5Fencoding=UTF8

Tom Friedman’s The World is Flat, is Worth the Wait

Source of the graphic is page 1 of: MICHAEL O’CONNOR. “Library may help turn borrowers into buyers.” Omaha World-Herald (Saturday, March 4, 2006): 1 & 2.
If you live in Omaha, and want to check out a copy of Thomas Friedman’s pro-trade and globalization best-seller The World is Flat, it looks as though you’re going to have to wait awhile. While you’re waiting, you may want to read his earlier, and in some ways better, The Lexus and the Olive Tree. It is better in its discussion of the importance of Schumpeterian creative destruction, and better in terms of the coherence and flow of the argument.
See:
Friedman, Thomas L. The Lexus and the Olive Tree. New York: Anchor Books, 2000. [ISBN # 0-385-49934-5]
Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005.

French Courage: In Defense of Voltaire and Free Speech

Better known by his nom de plume: Voltaire. Source of image: WSJ article cited below.

There is much to like about Voltaire: he defended reason; his novel Candide is hilarious; and he is reputed to have drunk more than 40 cups of coffee a day.

The enemies of freedom censored Voltaire when he was alive, 250 years ago. In an unintended tribute to the power of his ideas, today’s enemies of freedom still seek to censor him:

(p. A1) SAINT-GENIS-POUILLY, France — Late last year, as an international crisis was brewing over Danish cartoons of Muhammad, Muslims raised a furor in this little alpine town over a much older provocateur: Voltaire, the French champion of the 18th-century Enlightenment.

A municipal cultural center here on France’s border with Switzerland organized a reading of a 265-year-old play by Voltaire, whose writings helped lay the foundations of modern Europe’s commitment to secularism. The play, "Fanaticism, or Mahomet the Prophet," uses the founder of Islam to lampoon all forms of religious frenzy and intolerance.

The production quickly stirred up passions that echoed the cartoon uproar. "This play…constitutes an insult to the entire Muslim community," said a letter to the mayor of Saint-Genis-Pouilly, signed by Said Akhrouf, a French-born café owner of Moroccan descent and three other Islamic activists representing Muslim associations. They demanded the performance be cancelled.

Instead, Mayor Hubert Bertrand called in police reinforcements to protect the theater. On the night of the December reading, a small riot broke out involving several dozen people and youths who set fire to a car and garbage cans. It was "the most excitement we’ve ever had down here," says the socialist mayor.

The dispute rumbles on, playing into a wider debate over faith and free-speech. Supporters of Europe’s secular values have rushed to embrace Voltaire as their standard-bearer. France’s national library last week opened an exhibition dedicated to the writer and other Enlightenment thinkers. It features a police file started in 1748 on Voltaire, highlighting efforts by authorities to muzzle him. "Spirit of the Enlightenment, are you there?" asked a headline Saturday in Le Figaro, a French daily newspaper.

. . .

(p. A10) Now that tempers have calmed, Mayor Bertrand says he is proud his town took a stand by refusing to cave in under pressure to call off the reading. Free speech is modern Europe’s "foundation stone," he says. "For a long time we have not confirmed our convictions, so lots of people think they can contest them."

For the full story, see:

ANDREW HIGGINS. "Blame It on Voltaire: Muslims Ask French To Cancel 1741 Play; Alpine Village Riles Activists By Letting Show Go On; Calling on the Riot Police." The Wall Street Journal (Mon., March 6, 2006): A1 & A10.

(Note: ellipsis added.)

The Market Rewards the Unprejudiced

Source of book cover image: Amazon.com.

In his doctoral disseratation on the economics of discrimination, Gary Becker argued that those who discriminate in the labor market pay a price for their prejudice in the form of having to pay higher wages. Those who do not discriminate have open to them an additional pool of workers, whose talents will contribute to the firm’s bottom line. GE’s Jack Welch recounts a story that supports Becker’s claims:

(p. 212) Another idea I’ll leave behind is one that developed when I was visiting Japan in the fall of 2000. I had been going there for years and found it difficult to get the best male Japanese graduates (p. 213) to join us. We were having increasing success, but still had a long way to go. Finally, it dawned on me. One of our best opportunities to differentiate GE from Japanese companies was to focus on women. Women were not the preferred hires for Japanese companies, and few had progressed far in their organizations. Again, I got revved up. Fortunately, we had Anne Abaya, an ideal Japanese-speaking U.S. woman in a senior position at GE Capital. She agreed to go to Tokyo to become head of human resources for GE Japan. I gave her a million dollars for an advertising campaign to position GE as "the employer of choice for women. What I didn’t know was how much talent we already had in place. In May 2001, when Jeff and I were on a Japanese business trip, we had a private dinner with 14 of our high-potential women. They ranged from CFO of GE Plastics Japan, general manager of sales and marketing of GE Medical Systems Japan, marketing director of GE Consumer Finance Japan, to the heads of human resources for GE-Toshiba Silicones and GE Medical Systems. Jeff and I had never been with a more impressive young crowd. It confirmed for me how big the opportunity could be.

Source:

Welch, Jack. Jack: Straight from the Gut. New York: Warner Business Books, 2001.

For the revised version of Becker’s dissertation, see:

Becker, Gary S. The Economics of Discrimination. 2nd Rev. ed., Economic Research Studies. Chicago: University of Chicago Press, 1971.

Harry Browne Sought Freedom in an Unfree World

Source of book image: Amazon.com.
Harry Browne died Wednesday, on March 1, 2006, of Lou Gehrig’s disease.
Every semester I mention Browne to students in most of my classes. I tell them of his bestseller, How I Found Freedom in an Unfree World.
I have not read the book for many years. My memory is that Browne tells of how he was unhappy in a high-paying investment career because he did not like having to report to the job on set days, at set times, and to take orders he sometimes did not agree with, from bosses he did not always respect.
He did not feel free, and he he felt that being unfree was making him unhappy. So he quit, his job, divorced his wife, and headed west to write best-selling self-help books.
I tell my students that we don’t have to go as far as Browne did in order to sympathize with his wishing he was not constrained by the firm that had employed him. So I ask my students: given the appeal of Browne’s sentiments, why do we have firms? Why don’t we all just become independent contractors?
The answer, I tell them, is to be found in Ronald Coase’s article “The Theory of the Firm,” in which Coase suggests that firms reduce the transaction costs of team production activities.
I also mention, though, that developments in information technology and the internet, are reducing the transactions costs of creating production teams on a project-by-project basis, and hence are increasing the feasibility of more and more of us becoming independent contractors, or at least working for small firms.
In this regard, I refer them to an article co-authored by Brynjolfsson that argues that IT has differentailly benefitted the small firm, and I refer them to Daniel Pink’s Free Agent Nation. I also mention web sites like guru.com that make it possible for those who want to work as free-agents to find firms that want to hire them on a project-by-project basis. I tell them about the movie industry, that already pretty much assembles teams on a project-by-project basis.
The world may never be the way Harry Browne wanted it to be. But it may be possible to come closer to Browne’s vision, than Browne’s detractors imagined.
Besides his book Harry Browne served the cause of freedom in other ways as well, running for President in 1996 and 2000 on the Libertarian Party ticket.
I do not completely share Browne’s views: sometimes he seems to treat personal commitments too cavalierly. But he wrote well, he stimulated thought, and he sought to make the world a better place. Harry Browne, rest in peace.

Owlish Evidence: More on Why Crichton is Right

Environmentalists have hypothesized that there is a link between harvesting old-growth forests and declines in owl populations. But there is reason to believe that the hypothesis may be false, and apparently environmentalists and the federal government do not have much interest in testing it:

. . . , we know little about the relationship between harvesting and owl populations. One such study — privately funded — infers an inverse relationship between harvesting and owls. In other words, in areas where some harvesting has occurred, owl numbers are increasing a bit, or at least holding their own, while numbers are declining in areas where no harvesting has occurred.
This news will come as no surprise to Oregon, Washington and California timberland owners who are legally required to provide habitat for owls. Their actively managed lands are home to the highest reproductive rates ever recorded for spotted owls. Why is this?
One possible answer is that the anecdotal evidence on which the listing decision was based is incomplete. No one denies the presence of owls in old-growth forests, but what about the owls that are prospering in managed forests and in forests where little old growth remains? Could it be that spotted owls are more resourceful than we think?
We don’t know — and the reason we don’t know is that 16 years ago federal scientists chose to politicize their hypothesis rather than test it rigorously, to flatly reject critiques from biometricians who questioned the statistical validity of the evidence on which the listing decision was based, and to declare with by-god certainty that once the old-growth harvest stopped owl populations would begin to recover.

For the full story, see:
JIM PETERSEN. “RULE OF LAW; Owl Be Damned.” The Wall Street Journal (Sat., February 18, 2006): A9.

Solow’s Wit (But Not Wisdom): Treat Schumpeter “Like a Patron Saint”

(p. 195) As Robert Solow wrote acidly in 1994, commenting on a series of papes on growth and imperfect competition, “Schumpeter is a sort of patron saint in this field. I may be alone in thinking that he should be treated like a patron saint: paraded around one day each year and more or less ignored the rest of the time.”
Schumpeter was a most unwelcome guest at the neoclassical table. Yet it was hard for the mainstream to reject him out of hand, since Schumpeter was such a celebrant of capitalism and entrepreneurship. He thought it a superb, energetic, turbulent system, one that led to material betterment over time. He hoped it would triumph over socialism. He just didn’t believe it functioned in anything close to the way the Marshallians did, and he was appalled that economists could apply an essentially static model to something as profoundly dynamic as capitalism. Schumpeter wrote presciently, “Whereas a stationary feudal economy would still be a feudal economy, and a stationary socialist economy would still be a socialist economy, stationary capitalism is a contradiction in terms.” Its very essence, as the economic historian Nathan Rosenberg wrote, (p. 196) echoing Schumpeter, “lies not in equilibrating forces, but in the inevitable tendency to depart from equilibrium” every time an innovation occurs.

Source:
Kuttner, Robert. Everything for Sale: The Virtues and Limits of Markets. Chicago: University of Chicago Press, 1999.

NGOs Throw Money at Poverty, and Then Declare Success

Mark Pendergrast, in his opus on coffee, tells us about Bill Fishbein, a coffee retailer from Rhode Island, who wanted to help small, poor, coffee farmers in Guatemala:

(p. 419) . . . , Fishbein wanted to do something to help. At first, he worked with established nongovernment organizations (NGOs) but soon became disillusioned. Too often, the NGOs simply threw money at communities, then declared projects successful even without long-term improvements. "It amounts to a network to move money around, to pull the heartstrings of donors," he complains.

Source:

Pendergrast, Mark. Uncommon Grounds: The History of Coffee and How It Transformed Our World. New York: Basic Books, 2000.

Specialty Coffee: How Does it Fit Christensen?

Christensen and Raynor:

(p. 55) Not all innovative ideas can be shaped into disruptive stategies, however, because the necessary preconditions do not exist; in such situations, the opportunity is best licensed or left to the firms that are already in the market. On occasion, entrant companies have simply caught the leaders asleep at the switch and have succeeded with a strategy of sustaining innovation. But this is rare.

Source:

Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

In several later chapters of Mark Pendergrast’s Uncommon Grounds, he documents how the major coffee retailers failed to perceive and respond to the threat posed to their business by the specialty coffee retailers. In some ways specialty coffee firms would seem to be disruptors. But they were neither "low end" nor "new market." Wasn’t specialty coffee what Christensen would call a "sustaining innovation"?