The Rent-Seeking Is Too Damn High

http://fivethirtyeight.com/features/the-rent-seeking-is-too-damn-high/

by luu • 10 years ago

321 242 10 years ago

bobby_9x• 10 years ago

Of course this behavior is artificially inflating the market.

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

The same principals can also be applied to most unions.

api• 10 years ago

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

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

In economics (and ecology, evolution, etc.) it's actually quite strange for something not to be a paradox. Straightforward linear behavior in complex living systems is weird, and if you think you have an example you're probably missing something.

chrisseaton• 10 years ago

What's the paradox?

morgante3• 10 years ago

A union job is great for me.

Not necessarily. Unions tend to lower the pay of the top performers.

HillaryBriss2• 10 years ago

Here's a quotation from the article:

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

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

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

seibelj• 10 years ago

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

nedwin• 10 years ago

I'm also not so sure that occupational licensing is the primary driver of the cost of healthcare in the US.

pdonis14• 10 years ago

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

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

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

VLM2• 10 years ago

I've looked into it because its been a traditional straw dog for decades.

The stereotypical image of an all male barber shop giving men buzz cuts with a clipper is appealingly boring, but the work clusters inseparably with womens beautician type work, and that work can be crazy.

They use corrosive dyes and peroxides and bleaches that will damage your skin or destroy your eyes both as a victim or as an employee. Used correctly its safe as a surgery scalpel.

They insist on mixing technologies that are very problematic for the general untrained public to mix, like water and electricity, as either victim or employee.

There can be disease issues, not quite of the level of a biohazard lab, but you want at least some minimal standards and of course some of the chemicals used for sterilization are not necessarily safe for the general public to screw around with as either victim or employee.

This was a "local news issue" a couple years ago where the big bad state was attacking "retired beauticians cutting hair in their basement part time" but they carefully don't mention its more than cutting hair, there are open containers of high strength hydrogen peroxide in a residential house with kids in it, or the hair dryer not plugged into a GFCI outlet next to the running water sink, etc.

WRT danger and risk its about one or two steps beneath the truck driver with a CDL and hazmat cert, or the electrician who does the wiring for a public pool, or the welder at the local nuclear plant... and the hoops to jump thru are also, appropriately, about one or two steps lower. From a high risk down view as opposed to low risk looking up, its not unreasonable.

If you propose separation of the harmless hair cutting stuff from dangerous stuff, then the tear jerking starts about problems of scale and unless there is a level playing field of identical training only giant salons will be able to afford the specialized and soon to be rare training to color hair or whatever.

It makes a great straw dog, but is a pretty good match compared to other fields.

Spooky2310• 10 years ago

Grooming trades have an element of skill and licensure ensures that people with the license have a known level of competency.

jonesb63• 10 years ago

Anyone whose ever been to a bad dentist would see the merit in this. I used to go to a "budget" dentist when I was a kid and had very painful experiences, it can be excruciatingly painful if the dentist doesn't know what he's doing.. or doesn't care.

This is not a point that transfers 1:1 to a hair stylist.. the odds and consequence of a stylist cutting me vs a dentist tapping a nerve is.. huge.

grogenaut• 10 years ago

I mean if you don't want your barber / stylist to understand that you should clean your implements to prevent the spread of things like lice, sure there's nothing to cutting hair.

Sometimes this license is very light like "yeah I can pass a written driving test".

maxsilver• 10 years ago

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

It actually is logical to require a license to cut hair, specifically for safety reasons you mention.

Barbers / Hair Stylists are waving sharp pointy blades around your scalp, eyes, ears, mouth. If you don't know what your doing, you can cut or seriously injure someone (even just accidentally).

Additionally, those tools are easy transmission vectors for diseases (both from potential cuts, and from bugs like lice).

It doesn't take a lot of training, the two years for licenses mentioned in the article is ridiculous and should be reduced. (As an example, Michigan's license requirements are less than half the time+cost of Nevada's requirements mentioned in the article).

But Barbers have been licensed for 70-100 years (depending on the state), and there's a good reason for that -- you really do want to ensure everyone practicing that profession has some basic safety training and experience first, and the government seems like the best organization to ensure happens.

the_watcher• 10 years ago

Is there a rent seeking problem in the medical and dental fields too?

It certainly is. It's just that the crux of this article is that occupational licensing for low or medium skilled trades is inherently problematic rent-seeking, whereas the requirement for a license to practice medicine or dentistry isn't itself a problem, it's the artificial limiting of those who can get the license that presents a problem.

msabalau• 10 years ago

The article looks forward to a bright future where people who cut hair can earn much less than the current median wage of $11.12 an hour.

stana• 10 years ago

In Australia within a few visits to the dentist the cost could easily start going over $5000. I am hearing more and more stories of people going overseas to do dental work - and a lot of these I would say reasonably well off people - upper middle class.

Considering pretty high educated professionals immigration numbers, it is surprising dental costs staying so high (which is not the case with other professions).

fennecfoxen4• 10 years ago

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

Well, obviously, no one deserves a particular "fair share" of a business. That's basically saying that they own a certain number of people as customers, which is almost like micro-slavery. (And if there's enough businesses where someone owns the rights to you as a customer, it gets progressively more and more so.)

But beyond that, who would be the competition for the "poor and less well educated segment of the small business community" afforded protection? Surely a new entrant into the hair-braiding business is more likely to be poorer and less-well educated than someone who is already in the business and influential enough to be lobbying occupational licensing boards.

eli_gottlieb• 10 years ago

That's basically saying that they own a certain number of people as customers, which is almost like micro-slavery.

No, it's slavery when you own a certain number of people as workers.

eru• 10 years ago

I think you missed the snark in the line you replied to.

Spooky2310• 10 years ago

The real purpose of combating "rent seeking" in healthcare is to displace RNs with lower skilled LPNs, CNAs and other aides.

Since nurses actually deliver your care and have the training to actually help you, it is a cost saving measure of dubious value.

Of course, insurers and hospital cartels aren't rent seeking!

trgn2• 10 years ago

That struck me too:

No mention of doctors, lawyers, civil engineers, architects, librarians, actuarians, dentists, pharmacists .. in that article.

These all professionalized in the late 19th/early 20th century, to great benefit of practitioners in these fields, in terms of remuneration or job security or even both. If those get to benefit from rent seeking, it is not surprising that others would seek the same advantage.

ethbro2• 10 years ago

To be fair, as someone with a fair number of doctor friends, the other side of the equation is equally important.

In the US, we have a fair number of "must be this well educated in the field to work" legal requirements in these fields. In terms of, if someone walked in off the street, tried to X, and screwed it up, then there would be fairly serious consequences of the screw up.

We expect excellence (or at least competency), which means education, which means substantial upfront monetary investment in oneself to prepare for profession X.

Certainly there's a lot of archaic & unmodernized baggage in these fields, but the basic bargain of "if you put up your own money (or borrow) to successfully train yourself in these fields, then we will provide some stability on the demand side to bound your risk."

And before it gets tossed out, no, the amount of education to become a practicing software engineer in the US is nothing like any of the above fields in terms of financial risk and calendar time learning.

zafka• 10 years ago

Is there a rent seeking problem in the medical and dental fields too? <p> Take a look inside any Medical device company (or Pharma) So much time is spent on FDA compliance most engineers spend 85% of their time killing trees.<p> Now these companies charge extremely high prices for their goods, but no new company can afford to spend the THree to five years getting something to market.And Here I am talking simple devices, not drugs.<P> While the industry complains about the FDA, It is just this problem that builds a moat around the industry.

coldtea2• 10 years ago

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

Western countries with same or even stricter bars to become a doctor/dentist etc manage to have 1/3 to 1/10 the prices the US has.

So I don't think it's "rent seeking" that's responsible for this. I'd put the blame more on insurance companies and the bizarro US ideas about employment insurance and healthcare.

Nor I think "occupational licensing" for e.g. cabs which can be considered rent-seeking is the same as requiring higher levels of education from doctors, lawyers and such things.

rogerbinns2• 10 years ago

So I don't think it's "rent seeking" that's responsible for this.

It isn't entirely responsible, just as no other factor is entirely responsible. But they sure do reinforce each other. For example rent seeking by the AMA means that doctors cost more. Because doctors cost more, more people who need doctor services will need a payment obfuscation service (aka "health insurance"). Because "health insurance" is doing a lot of the paying, it encourages other parties (eg medicine and equipment) to rent seek against them, as it is easier to convince one party than every patient. I'll stop here, but can keep going!

bzbarsky2• 10 years ago

So I don't think it's "rent seeking" that's responsible for this.

It totally is.

The AMA get to accredit, or not, medical schools. They also get to set rules for doctors with non-US training to be able to practice in the US.

The result is that the number of medical school slots has historically not remotely kept pace with population growth, while doctors from other countries face a pretty uphill battle unless they go to medical school in the US. The net result is artificial limits on the number of doctors who graduate from medical school.

This has several effects, of which the most important are the insane hours demanded from medical residents (and all the errors they make as a result) and the high pay of doctors. This last provides the incentive for the AMA to not increase the number of available medical school slots and leads to the observed differences in the income doctors get in the US and elsewhere.

Of course, in the wake of new rules to limit the insanity of medical resident hours the number of medical school slots in the US went up by 30% or so in the last 6 years. We'll see what that does to salaries going forward, but I'm pretty sure the effect will be downward salary pressure.

WalterBright• 10 years ago

The history of licensing of doctors and dentists is covered in the book "Competition And Monopoly In Medical Care" by Frech. Much of the motivation for licensing was reducing the number of doctors so they could raise prices. Licensing also enabled pervasive discrimination against Jewish, black, and female doctors (pg. 54).

"one benefit of licensure requires that it confer monopoly rents upon physicians." pg. 58

There's a lot more in the book.

brightball• 10 years ago

Exactly. We don't have a cost problem, we have a supply and demand problem. Larger supply of doctors, nurses, generic drugs and competition will naturally drive down price.

All of the other mechanisms in place prevent that.

_delirium• 10 years ago

I can believe that was a motivation, but it's quite possible to have a licensing system for doctors and at the same time keep costs in check. For example European countries typically have much lower healthcare costs than the U.S. (even after taking into account tax money spent on the sector), despite still stringent licensing requirements for doctors. The U.S.'s system is a particularly bad case of letting the inmates run the asylum, so to speak, both on the occupational licensing side, and on the drug side (the other half of the cost equation, where e.g. Medicare is statutorily prohibited from negotiating prices with pharmaceutical companies).

lucaspiller• 10 years ago

One of the issues in the US vs other countries is that the licenses for a lot of these sort of things are per state and the requirements vary drastically. There was an article here a while ago about a nurse who moved state, but had to transfer her qualification too which took about six months. In the UK nurses must register with the governing body, but any qualification from the EU is equally valid [0].

[0] https://www.healthcareers.nhs.uk/i-am/outside-uk/information...

dragonwriter3• 10 years ago

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

Wait, are you suggesting that the regulatory barriers to private competition in medicine and dentistry are higher in the US than other developed countries?

gozur88• 10 years ago

https://news.ycombinator.com/item?id=11041340

Animats2• 10 years ago

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

x5n1• 10 years ago

Every city needs an area of town which is commercial, owned by the city, and heavily subsidized to promote social welfare, art, and commerce. For the people that don't want to participate in society on the terms of Capitalists. In such an area you can sell wares, food, whatever. And office space and retail space is available cheaply to anyone running a bona fide business.

Unemployment is quite a bit more expensive to governments than subsidizing retail and commercial space. Buying land when it's very cheap and holding on to it forever, as part of the city's bylaws. And perhaps doing sponsorships deals with big business in the city, to generate additional revenue to support the properties.

paulddraper• 10 years ago

I don't understand. How is this different?

brbsix2• 10 years ago

Local governments have been doing this for decades with outrageous subsidies for stadiums, resorts, sporting goods chains, Walmart, and the like. These corporations game competing towns for the best perks, with promises of jobs and tourism. Of course it's mostly nonsense and small local businesses are hurt the most. This is foolishness of the highest order.

sitkack• 10 years ago

Many farmer's markets in Eastern Europe are like this.

gnarbarian• 10 years ago

Almost all the rental prosper in Anchorage is owned by Wiedner. It sucks because it drives up rent.

petercooper• 10 years ago

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

pcrh• 10 years ago

Can't you write depreciation against profit?

Animats2• 10 years ago

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

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

flashman2• 10 years ago

Property is an investment. Can you get deductions for other types of investments?

shin_lao2• 10 years ago

If they changed the tax code to let businesses get a deduction based on property they buy or build, ownership would be so much more diverse.

I suggest you get another accountant. What happens is that the costs are spread over several years but you do deduce the costs.

crdoconnor• 10 years ago

He's pretty clearly intentionally only focusing on labor income.

It seems to be a rehash of this: http://www.aei.org/publication/the-terrible-economic-burden-...

timr3• 10 years ago

Not just commercial real estate: in most cities I've lived in (including SF), a handful of large conglomerates own a big fraction of rental real estate, too.

In my experience, these landlords are amongst the most scummy to deal with -- unresponsive, inflexible and unrelenting on rent increases. They'll take months to fix anything, but damned if they won't raise your rent by the maximum legal amount at every opportunity, and there's very little room for negotiation. Given a choice between losing a good tenant and maybe getting more rent, they'll choose the latter. It's like having Comcast control your living situation.

The corporatization of our residential real estate market is just one more step toward the future predicted by Terry Gilliam in Brazil.

prostoalex• 10 years ago

Multi-family residential real estate has been securitized for quite a while with fairly major REITs (AVB, ESS, APTS, etc.)

There is some institutional money chasing single-family market as well (AMH, ARPI, soon to be merged into a single entity, and a few others), we'll see how well that model scales to single family residences.

mooreds3• 10 years ago

It's like having Comcast control your living situation.

That sounds like a nightmare!

PS what do you mean maximum legal rent increase. I am in Colorado and as far as I know, the only limit on a rent increase is the market. Does SF have laws around this?

marincounty2• 10 years ago

I'll second that, and include with San Francisco, beautiful Marin county. That liberal enclave north of SF.

My neighbor is renting out a studio apartment.(1/4 of a basement. One room. $30 dollar parking tickets/ per night.) He's getting $2500 month. That was one, or two years ago. I don't want to guess what he's getting now. I know there's a procession of renters. I can usually hear the wife of one of the victims begging for baby sitting work from their balcony.

He weaseled the house from a very lonely lady. "I'll remodel the house, if you give me half ownership, and give me your portion in your will. She got cancer. He got complete control of the house, and her kids got nothing. Why did I out this guy; because the way he gets his money is immoral. Getting money this way is immoral. That it--it's just wrong.

As to alternatives, section 8 is closed. Even if you do get a voucher, and get put up in a ghetto, you need to sign the most one sided lease I have ever read, that's 43 pages long. Yes--43 pages of "can't do this". Down to a covered lid on your garbage can that has to reside only under your sink. Two, or three day notice if a relative wants to spend the night. Absolutely no work on your vechicle in the parking lot. I hope a lawyer eventually brings Marin Housing to their knees.

O.k. move! Many people in my county have been here a long time. The one, or two people who care if they are breathing live here. Some are just old.

O.k. Pitch a tent. Where? There not one campground that accepts full time campers. The minimum fee is, I believe $25/night--no shower, just a out house. Don't stay more that three days!

I don't have an answer. These towns weren't built to scale, and there's a lot of NIMBY's. It not just the NIMBY's, it's small town code enforcement squads that make remodeling a room very difficult/expensive. Plus, traffic on 101 has not improved.

I can't fight everything. My gripe is landlords whom are immoral. It's time to out them. It's time to call people out on their greedy behavior, in all aspects of life. I've never bought this, "If it's legal--I'll do it!".

I see you people daily, and don't like you. I see you in ties at work. I see you with a stethoscope around your neck. I see you going out of your way to screw someone. Someone usually with not much power.

You are not fooling anyone. We see whom you've become. Ever wonder why you are so lonely? Why people don't give you the respect you think you deserve?

jonesb63• 10 years ago

This is particularly bad in college towns where almost all development is being done by a small handful of companies, who lure in students and then raise the rents for new tenants year over year until inflated rental prices become the norm.

aidenn0• 10 years ago

And at least where I went, you would never get your security deposit back, regardless of the state of the building, despite the fact that most they would do when you leave would be putty and paint.

onetwotree3• 10 years ago

This is a huge problem for residential real estate too. Among other things, a felony in a town where a real estate company controls nearly all of the cheap apartments is basically a condemnation to homelessness. While private landlords are often willing to consider the circumstances of the felony (being young and dumb, having been addicted to drugs or alcohol, etc.), corporate landlords won't. Credit scores are another problem -- a private landlord will often accept proof of income in lieu of a credit check, but if you have even one bad item on your credit report, you'll never get a place from a corporate landlord. And of course, they jack the rent prices all the way up thanks to a monopoly or near monopoly. If you're poor or you did something stupid when you were young, you're really fucked in these towns.

EGreg• 10 years ago

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

http://m.youtube.com/watch?v=8q71hrwUcu0

Shivetya2• 10 years ago

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

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

mschuster912• 10 years ago

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

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

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

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

jimbokun2• 10 years ago

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

mschuster912• 10 years ago

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

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

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

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

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

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

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

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

zanny3• 10 years ago

I'd argue corporate welfare in large part enables Walmart to push out local businesses so easily. A lot of Walmart locations have gotten subsidized building permits because counties think they attract a lot of business and grow the economy. They do - in the short term - just due to scale, until every other business withers and dies. You get a slight boost from cheaper prices before you realize rather than having an internal money cycle between small businesses you now have minimum wage workers at Walmart making the Walton's rich off your communities wealth which is rapidly going away.

But Walmarts core business depends on the ability to use state aid to subsidize their employees - pay them barely above minimum wage, give them all the welfare pamphlets to get medicaid coverage, food stamps, electric subsidies, etc - and that lets them outcompete everyone since they don't have to assume any burden as a multinational business operating in a local market where their economies of scale and corporate efficiency mean nobody else can compete with them on goods pricing. Their employees make unnaturally high relative wages because they spend so much effort hooking them up with state programs to subsidize their starvation wages.

And a large part of why these cities are in crisis is because archaic and overzealous zoning and building codes, and an immense amount of property-as-an-investment movements in the economy for the ultrarich since 2008 put up immense barriers to natural business growth. When you have all these regulations in your way it becomes way too much of an opportunity cost to try, especially when regulations are often intentionally written to be impossible to interpret for a non-lawyer, and even remain nebulous intentionally by the corporate sponsors who had them enacted as a means to stifle competition.

Most of us here are in software - why? What keeps the software industry growing so much compared to almost any other business? Part of it certainly is innovation and utility, but there is no way that tech valuations are realistic or that the frequency of unicorn startups is reflected at all in almost any other industry today. And I would certainly postulate that is in huge part due to the incredibly low barriers of entry to developing and distributing software as a product. Everything else has huge physical opportunity costs and often magnitudes more logistical and legal hurdles that make competition impossible, so it should surprise no one major entrepreneurial growth is disproportionately coming from software.

hwstar• 10 years ago

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

http://ordinary-gentlemen.com/2013/11/08/the-anti-rent-seeki...

http://ordinary-gentlemen.com/2013/11/11/the-anti-rent-seeki...

matt_wulfeck• 10 years ago

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

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

thirdsun2• 10 years ago

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

rezistik• 10 years ago

Originally the dealership model allowed car companies to rapidly expand their market without the costs of the infrastructure to sell to consumers, when they had enough money to do so they could easily strangle these businesses.

AjithAntony3• 10 years ago

right from the start

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

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

gaur6• 10 years ago

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

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

chubot• 10 years ago

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

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

Analogously, if you provide service X, you can seek "rent" in addition to the value you provide.

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

https://en.wikipedia.org/wiki/Rent-seeking

mcguire4• 10 years ago

While you're at it, look up 'usury'.

gaur6• 10 years ago

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

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

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

dota_fanatic2• 10 years ago

Alone has some nice writing on the moral hazard concept: http://thelastpsychiatrist.com/2007/08/the_moral_hazard.html

"If you behave badly because you know you'll get away with it, that's being "bad."

A Moral Hazard is different. If you behave "worse" than you would have otherwise, solely because you know that you won't have to bear the consequences, then you have a Moral Hazard.

I'll emphasize: the key is that your behavior is in itself not necessarily "bad." It is simply worse than your behavior otherwise would have been, because you know there won't be consequences.

Here's why it's called a Moral Hazard: if there are no external consequences, the only thing that would prevent you from behaving worse is an internal set of rules.

Where do these internal rules come from?"

gaur6• 10 years ago

Here's why it's called a Moral Hazard: if there are no external consequences, the only thing that would prevent you from behaving worse is an internal set of rules.

That sentence does not at all explain why it's called "moral hazard".

holmak• 10 years ago

I agree that the names are confusing or misleading to modern readers. The strange choice of words in both cases seems to be due to the terms being used in a technical sense with a more specific meaning than in plain English. Plus, they are both based on terms coined long ago, and the connotations (or definitions) of English words do tend to change over the centuries.

From the Wikipedia page on moral hazard:

[...] the term dates back to the 17th century [...] Dembe and Boden point out, however, that prominent mathematicians studying decision making in the 18th century used "moral" to mean "subjective", which may cloud the true ethical significance in the term.

From the Wikipedia page on rent seeking:

The word "rent" does not refer here to payment on a lease but stems instead from Adam Smith's division of incomes into profit, wage, and rent. The origin of the term refers to gaining control of land or other natural resources.

lawpoop2• 10 years ago

I agree. Do you have an idea for a more intuitive name? I feel I don't understand the phenomenon well enough to come up with one myself : /

gaur6• 10 years ago

"Getting something for nothing"? It's vague, but so is "rent seeking". From reading the examples in the Wikipedia article, it seems that almost any economic behavior in which one tries to get something for nothing qualifies as "rent seeking".

coldtea2• 10 years ago

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

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

Well, I, for one, seriously doubt that.

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

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

hibikir• 10 years ago

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

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

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

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

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

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

silveira• 10 years ago

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

collyw• 10 years ago

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

jackcosgrove6• 10 years ago

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

onetwotree3• 10 years ago

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

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

jackcosgrove6• 10 years ago

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

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

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

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

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

inopinatus• 10 years ago

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

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

feider• 10 years ago

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

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

J-dawg• 10 years ago

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

shostack• 10 years ago

What are the requirements to be a reseller? Can you just sign up as a regular affiliate, focus on getting your other stuff in order while driving zero sales, and then become a registrar?

bkovacev• 10 years ago

You can't be serious.

anovikov3• 10 years ago

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

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

_yosefk• 10 years ago

Low quality doesn't automatically follow from cutthroat competition, at least not nearly as automatically as it follows from a lack of competition. "Too much" competition might result in shipping too quickly to capture market share, but how bad the product that is shipped can be and still make profit is limited by what people will buy - they might as well decide to wait for a competitor's product instead, and typically the wait isn't very long. "Too little" competition, on the other hand, means you don't have a choice; it certainly gives vendors more time to perfect the product, and more money since they can ship later and charge more - but it also removes much of the incentive to improve the product since now it doesn't have to be better than a competitor's, it must only be better than nothing, which is not a very high bar.

Now it'd be nice if we could have an amount of competition that is "just right" - just enough to improve the product, not enough to ship half-baked stuff while desperately trying to conceal its problems. Unfortunately, I have no idea how to get there, and since all arrangements that I know of overshoot in one direction or the other, we have to pick one of the extremes, and I think "too much" is way better for the consumer than "too little."

Would society be better off if programmers managed to restrict entry into the profession as did lawyers and doctors? On general grounds, I rather doubt it as described above, but those programmers who're already in the profession would most certainly benefit from it!

nommm-nommm8• 10 years ago

What is a "non-scalable industry?"

daemin• 10 years ago

It is when effort and income are linked 1-1.

So where to increase income/profit you need to have more hours worked. So the only way for that to happen is to hire more people or work longer hours.

Shivetya2• 10 years ago

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

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

pluma6• 10 years ago

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

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

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

anovikov3• 10 years ago

Simple justification: limit the number of people in these industries by creating an artificial barrier of entry. Which is a necessity for every industry not having a natural barrier of entry. Otherwise, things net nasty.

For a good example of what a non-scalable industry without a barrier of entry looks like, go to every freelance programmer marketplace. You can compete in such a marketplace in just one way: working dirt cheap AND scamming your clients. Not a win for either freelancer or a client. If you needed to pay $1000 a month for being on the freelancer site (imagine there is just one freelancer site out there, i.e. we are speaking of cost of a license to be a programmer), things will turn out much better instantly. Same works for barbers and real estate agents.

pluma6• 10 years ago

ITT: HN arguing whether capitalism is better than democracy.

onetwotree3• 10 years ago

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

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

The Rent-Seeking Is Too Damn High

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