Must-Read: The very sharp Steve Teles’s implicit claim that the rise of the financial plutocracy shows that we need less financial regulation seems to me to be completely wrong. There are a huge number of important economic areas–health insurance, health care, education, pensions, defense, infrastructure, land use, social insurance–in which market failures are so pervasive and powerful that we have no choice but to regulate. The hope is that we can curb rent-seeking when we do. But saying that we reduce the problem of rent-seeking by reducing regulation misses the most important aspect of the problem: in those key areas we find that we are often creating other problems as well. If he were focused on reducing the “regulations” that are original appropriation and inheritance I might say he has a strong case. But there seems to me to be a little too much seeking of common ground that isn’t there with libertarians here…

Steve Teles: The Scourge of Upward Redistribution: “Start for simplicity’s sake with… the occupations of the top percentile…

…the huge over-representation of financial-service providers, doctors, dentists, and lawyers, all of which are professions characterized by large-scale market distortions…. Doctors, dentists, and lawyers are all licensed professionals, and licenses are an obvious barrier to entry and competition. In addition, the specific regulatory structures of some of these licensed professions (which are almost always functions of state-level regulations) serve to redistribute income upward…. Medicine displays a similar pattern because the law specifies tasks that only licensed doctors can perform, even though nurses are capable of performing them…. Licensing statutes frequently define “dental practice” or “veterinary practice” very broadly, allowing dentists and veterinarians to swallow up activities that involve none of the risks that justify licensing…. The bottom of the top 1% is full of owner-proprietors who, in a more deregulated market, would be lower-paid employees of larger, more efficient firms. Car dealers, for instance… burial services….

A concentration of high incomes also characterizes the field of government contractors… [in] industries are characterized by dependence on government as a nearly exclusive source of revenue, by extraordinary levels of lobbying, and by asymmetries of power…. Management consulting[‘s] outsized incomes of consultants do not come from their ability to recommend innovative practices to firms… [but] from performing a legally mandated due-diligence ritual…. Rents are pervasive in the fields of finance, entertainment, and technology….

Finally, rents also play a critical role in the increasing concentration of wealth among the already-wealthy few…. Matthew Rognlie… housing-price appreciation. Housing is a highly regulated and subsidized sector… constraints on housing supply relative to demand are especially severe in the areas with the highest concentrations of high earners…. By preventing housing supply from equilibrating with housing demand, insiders in these expensive housing markets… take resources from housing outsiders…

http://www.nationalaffairs.com/publications/detail/the-scourge-of-upward-redistribution