The Case for Laissez-faire Hair Braiding

To many, occupational licensing laws elicit instinctive approval. In their capacity as consumers, people tend to ascribe these regulations to the state’s ostensible concern for the “public interest.” It is all too easy to imagine a society in which incompetent doctors, unscrupulous stockbrokers, and rapist cab drivers are allowed to endanger the safety of their customers. Notwithstanding economic objections to the necessity of occupational licensing – such as the argument that a firm’s interest in its own reputation would compel it to weed out unqualified employees – George Stigler argues that these laws are lobbied for and crafted by entrenched economic interests. Irrespective of its effects on consumer safety, occupational licensing functions as a barrier to entry in those markets subjected to it. Using the coercive might of the state, it imposes non-market costs – typically in the form of onerous bureaucratic procedures and expensive degrees – on prospective entrants. By limiting the supply of entrants into a given market, occupational licensing tends to prevent the supply of that market’s goods from meeting demand. Licensed producers benefit by being able to raise prices above market-clearing rates. Essentially, occupational licensing laws inhibit value formation by prohibiting a class of mutually-advantageous market relationships between producers and consumers. However, they also induce licensed firms to destroy value (i.e. to create deadweight loss) by incentivizing them to expend scarce resources on political influence rather than alternative goods. Thus, these regulations exert quantifiable negative impacts on any sensible definition of the “public interest.”

The salience of Stigler’s critique and the naiveté of public interest justifications are illustrated eloquently by the documentary, Locked Out: A Mississippi Success Story. Around the 5-minute mark, the Institute for Justice commentator describes how Mississippi cosmetologists lobbied the state legislature to freeze competitors out of the hair braiding market and reaped oligopoly profits as a result. Despite Melony Armstrong’s extensive experience with and demonstrated competence in hair braiding, the Mississippi State Board of Cosmetology required her and her peers to obtain a $10,000, 18-month, and utterly superfluous credential. A credential that almost prevented Armstrong from embracing her entrepreneurial dream. The cosmetologist cronies enjoyed long-lasting success because they presented concentrated benefits and dispersed costs. Statewide, voters base their electoral decisions on the relatively small list of issues that effect them directly (taxation, infrastructure investment, public schooling, etc.) of which the costs of niche services such as hair braiding are generally not included. Thus, the rational ignorance cultivated by democratic majoritarianism enabled politically connected cosmetologists to establish an oligopoly. Armstrong had to solicit the services of a filmmaker and high profile advocacy organizations such as IJ to make her plight visible and inspire sensible policy changes. Nevertheless, dozens of other harmless occupations, from tour guides to dairy farmers to Christmas tree vendors, remain restricted throughout the nation. This moving documentary demonstrates that Stigler’s theory is not an abstract thought experiment founded on unrealistic assumptions. To the contrary, regulatory capture is an all-too real structural flaw of democratic societies which, though harmful to the public as a whole, is especially detrimental to prospective entrepreneurs who lack wealth, influence, and a voice in their supposedly representative governments.  

Spreading Disillusionment in Germany

      Last week Germany held its parliamentary elections.  According to our Johnson reading  between 1958 and 1976 West Germany's average voter turnout was 84%.  However, between 1998 and 2009 voter turnout dropped almost 12% to 70.8%.  This year it is expected to drop another 5%.   Johnson said that one of, if not the, strongest explanations for why people vote is the "social pressure hypothesis" which "states that individuals vote in order to avoid the social pressures that their friends, family, {and} neighbors...would place upon them if they did not."  Germany is facing a situation in which this very social pressure is rapidly declining.  According to a pollster in Germany, "There has been a change in mood among the public...you no longer have to be ashamed to be a non-voter." According to his poll only 7% of non-voters "had to deal with criticism from friends and relatives, while 57% indicated that friends and family don't care whether they vote or not."  The very groups that Johnson mentioned who should be pressuring their fellow citizens to vote no longer care, and even fewer of those that care are saying anything.       

     There are also tinges of Downs and a side comment by Johnson in this article.  Among economists, intellectuals, and journalists the race to the center to capture that median voter has left much to be desired from the parties.  They want to debate "big issues" while all they see from the parties is "kids' stuff election campaigns," "un-philosphical politics," and "a single 'mega-party.'''  Not only do they know that their vote is unlikely to determine the outcome of the election, they feel that even if their vote was to be the deciding vote it wouldn't really matter which party won.  The author tells us that if these just people took the time to read the party platforms they would see that there were real differences in the parties, but as Johnson says, its not worth their time. They are rationally ignorant.      

     The marginal benefit of voting is declining as voters increasingly see few differences between the two parties.   Voters don't care who wins because they don't see the differences effecting them.  At the same time, the net marginal cost of voting is increasing as the societal pressure to vote decreases. There is a net increase in the marginal cost of voting because the societal pressure costs of not voting no longer offset the tangible cost of voting.  Therefore, we are seeing the marginal benefits of voting declining as the marginal costs rise which, as expected, results in fewer people voting. 

Rosario Dawson Fails To Understand Rational Abstention

This CNN op-ed by Rosario Dawson seeks to persuade disenfranchised minority citizens to vote in this November's gubernatorial and mayoral elections by appealing to several unconvincing justifications for voting. Dawson appeals to a sense of civic duty, as "voting is the bedrock of our democracy” and a means for citizens to “take ownership of [their] communities.” However, such appeals are ineffective, as voter abstention and rational ignorance are both sensible consequences of the American democratic structure.

Dawson suggests "voting is the easiest way to make your opinion known on any issue,” yet disenfranchised voters are not moved to vote by utility gains, social pressure, or a sense of ‘civic duty’ to overcome the cost of voting and make it to the polls. A rational voter will only vote when his marginal benefit exceeds his marginal costs. The marginal costs for voters, particularly the lower-income minorities that this article targets, will be relatively high, in terms of lost wages or the opportunity cost of taking the time to educate oneself on important issues. In some locales, the marginal cost is even higher due to restrictive photo ID laws, limited voting locations and hours, and tedious paperwork. While the National Voter Registration Day initiative alleviates the cost of the paperwork, the costs will still exceed the expected marginal benefit derived from voting. The probability of a vote being decisive is extremely low, so that even if the magnitude of the value gained from electing a preferred representative is very high, the expected marginal benefit of the average disenfranchised voter will be negligibly low.  

Instead of appealing to a sense of civic duty, Dawson’s campaign would be more effective if it focused on making voting costless or increasing the social pressure on those who do not vote.

Healthcare Reform and Rational Ignorance

This recent article from Politico describes the beginning of the implementation of the Affordable Healthcare Act in Kentucky. The state has developed their own program called Kynect, and recently set up an information booth at the state fair to inform citizens of upcoming changes and answer questions. However, the article tellingly highlights how little the people of Kentucky actually know about the details of the new health care plan. Rational ignorance can clearly explain this. The Affordable Healthcare Act is very complicated to understand and taking the time to read the extensive bill has very high opportunity costs. The marginal benefit of a better understanding of the new health care system is much less than the marginal cost of taking the time and effort to decipher the plan. Therefore, most people are rational in their decision to remain ignorant about the specifics of the new law.

As the article describes, Kynect is working to inform citizens about the health care law’s implications for their lives. Events like the one at the state fair are intentional efforts to combat rational ignorance. Still, as is described in the Politico piece, much work remains to be done. A recent survey quoted in the article from the Kaiser Family Foundation “found that 44 percent of those surveyed weren’t even sure if the law was still on the books — many thought it had been repealed or tossed out by the Supreme Court.”

Young Voter Turnout Drops

      In this past mid-term election, Democrats took a huge blow, facing not only a lower number of young voters but also voters who were less willing to support Democrats. A Washington Post article reports that voters between 18-29 dropped from 18 percent in 2008 to 11 percent this past election. These same voters also backed the Democrats by only 16 points, compared to the 34 points in 2008.

      These numbers raise the question of why young voter turnout reached this lowest point in two decades. One reason may be that individuals do not believe their vote would make any difference. The expected benefit from voting is lower than the cost of going to the polls and voting. It would only make sense to vote if the cost is next to nothing, if the benefits are extremely large, or if the race is expected to be extremely close. Another reason why voter turnout may be low is because the cost of becoming educated on the various issues is too high; the cost of learning all the different opinions on all the different points just doesn’t seem to pay off. Based on this reasoning, voters are rational in remaining ignorant about the issues.

      Politicians understand that most voters also think this way; that it’s okay to remain rationally ignorant. That is why we see so many advertisements that do not specifically state the politician’s standpoint on issues, but rather present values and social images that may get a voter to vote for them, for example, being a “family man” or being an advocate of the “American dream.” If candidates were to address their stand on various issues, they run the risk of pushing away the ignorant voters who know nothing about them and may otherwise vote for them if they did end up going to the polls. In 2008, Obama ran the hugely successful “Change” campaign, greatly appealing to the youth nationwide. According to Downs, parties formulate policies in order to win over votes, rather than win elections to formulate policies. It could be because of this that Democrats suffered in the mid-term elections, as it seems the youth bought into the promise of change two years ago, but have not seen enough reform to draw them out to vote in this election.