…Blogs have changed this. The reporting today on economic issues is so much better than it was then, and that is due in no small part to the interaction between reporters, the public, and academics willing to blog and put complicated, technical matters into terms that the general public can understand. Reporters have access to a much broader array of informed voices than ever before…. A few people who wrote about economics in the blogosphere, mostly non-economists, have moved on and I wish them the best of luck. But economics blogging isn’t dead, far from it…
Afternoon Must-Read: Cardiff Garcia: Jobs, Automation, Engels’ Pause and the Limits of History
Income inequality has climbed…. High profits have not been redeployed as significantly more investment. Anecdotal evidence of remarkable new technologies suggests that the effects on the economy will be profound, but it’s not clear how…. Sound familiar?… I’m talking about the UK in the first four decades of the nineteenth century, a period that economic historian Robert C Allen has labeled “Engels’ Pause”…. The lazy-but-common retort to the idea that technological advancement would massively displace workers has long been to accuse the fear-monger of having perpetuated the lump of labour fallacy. Luddites!…
The issue is worthy of serious discussion even without perfect foresight. The place to start is by asking what’s different about current trends versus those of the past…. Carl Frey and Michael Osborne….
Technology in the 21st century is enabling the automation of tasks once thought quintessentially human: cognitive tasks involving subtle and non-routine judgment. Through big data, the digitisation of industries, the Internet of Things and industrial and autonomous robots, the world around us is changing rapidly as is the nature of work across occupations, industries and countries…
Technology is infiltrating jobs that were thought to have resided safely in the realms of human thought and interaction…. Previously, automation technology replaced human muscles and the tiny brain space needed for simple computations. Now it might begin to substitute for the squishier non-mathematical parts of the human mind. If so, then people will be running short of “quintessentially human” qualities that are useful in work. Creativity, subjective cultural judgment and empathy would still be there, but we can’t all become entertainers, art critics and psychologists….
A few points are useful to keep in mind when thinking through history’s lessons for the issue of jobs and automation. 1. The sample size provided by history is very small…. 2. To whatever extent history can be of use, its lessons are unclear…. 3. If something radically new is happening or is about to happen, there’s a chance we won’t know for sure until well after the process has started…
A Note on Communications with the Federal Reserve: Focus
Adding to a point made in In Lieu of a Focus Post: March 2, 2015 (Brad DeLong’s Grasping Reality…):
Let me note that the estimable Tim Duy continues to watch a failure to communicate:
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Financial markets think that the Federal Reserve will either delay the interest-rate liftoff for at least another year or two or, if they do lift-off, find themselves reversing course within eighteenth months to try to restart a stalled economy.
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The Federal Reserve thinks financial markets have lost their moorings with reality, and that it will soon be appropriate to raise interest rates in a strengthening economy in which secular stagnation considerations are at best third-order.
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Elementary optimal-control considerations strongly militate for waiting to tighten: stimulating the economy at the zero lower bound is difficult; restraining the economy away from the zero lower bound is easy.
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The decision to adopt a 2% per year rather than a 3% per year or a 4% per year inflation target was driven in large part by belief in the Great Moderation; since we no longer believe in the Great Moderation, that decision should be rethought.
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The inconsistent behavior of the employment-to-population ratio and the unemployment rate makes for more than the usual amount of uncertainty about what exactly “full employment” is–and that, too, strongly militates for waiting to tighten.
Yet the Federal Reserve in its internal decision-making processes appears to be focusing 100% on (2), and 0% on (1), (3), (4), and (5). And that raises the question of why: Just what are the internal decision-making committee processes within the Federal Reserve that are leading to such an outcome? Ex ante, I would have expected many individual members of the FOMC to be very unhappy with such a possibly-premature tightening–what is the reason that they are not? That the Federal Reserve has failed to make its thinking clear enough to me for me to get where they are coming from seems to me to be a major failure–but whether of their communications policy or of my comprehension I am not sure…
- : Game On http://economistsview.typepad.com/timduy/2015/03/game-on.html
- : Humphrey-Hawkins Monetary Policy Report to the Congress http://www.federalreserve.gov/newsevents/testimony/yellen20150224a.htm
- : Stanley Fischer: Fed Closer to Rate Rises, But Exact Timing Remains Unclear http://blogs.wsj.com/economics/2015/02/27/fischer-says-fed-sees-rate-rise-sometime-this-year
- : [Fed’s John Williams Sees Door Open for Interest-Rate Increases Starting in June http://blogs.wsj.com/economics/2015/02/26/feds-williams-sees-door-open-for-interest-rate-increases-starting-in-june
- : Fed’s James Bullard: Delaying Interest-Rate Increase Much Longer Creates Risk http://blogs.wsj.com/economics/2015/02/27/feds-bullard-delaying-interest-rate-increase-much-longer-creates-risk
- : Remarks at the 2015 U.S. Monetary Policy Forum http://www.newyorkfed.org/newsevents/speeches/2015/dud150227.html
Things to Read at Lunchtime on March 10, 2015
Must- and Shall-Reads:
- : “Whether significant changes [to the Federal Reserve] are warranted should depend on whether the central bank’s interventions… aggravated the recent crisis, as they aggravated… the 1930s. But the Fed’s critics have been curiously nonspecific about what they regard as the Fed’s mistakes. And where they have been specific, as with the accusation that the Fed was fomenting inflation, they have been entirely wrong…”
- : “In a Washington Post column on the Trans-Pacific Partnership (TPP), Larry Summers raises the right cautions… a trade deal should have rules that prevent countries from… deliberately lowering the value of their currency… not be about special privileges for corporations… not jeopardize public health by raising drug prices. Nonetheless it looks like Summers is likely still going to come down for the TPP… rationale… making East Asian markets more open to the United States. This is hard to see…”
- : “A ruling for the plaintiffs would be bad news… lead to the collapse of the exchanges in [red] states, as more healthy people stop buying insurance…. [But] many of the one percenters in the health-care industry are card carrying Republicans who regularly buy tickets to top of the line fundraisers. These folks will not be happy about Republican state officials needlessly reducing the size of their trough… a powerful fifth column leaning on their representatives in the legislatures to create exchanges…”
- : Welfare Reform: A Plea for Better Journalism
- : Herd Behavior in Financial Markets
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: Power from the People: “While causality is difficult to establish, the decline in unionization appears to be a key contributor to the rise of top income shares. This finding holds even after accounting for shifts in political power, changes in social norms regarding inequality, sectoral employment shifts (such as deindustrialization and the growing role of the financial sector), and increases in education levels. The relationship between union density and the Gini of gross income is also negative but somewhat weaker. This could be because the Gini underestimates increases in inequality at the top of the income distribution. We also find that deunionization is associated with less redistribution of income and that reductions in minimum wages increase overall inequality considerably…” -
: The Rise of Residential Segregation: “The sweeping rise in both urban and rural segregation across communities in every region implies a significant drop in social interactions between black and white residents. Consider a city like Chicago… 1880 to… 1940…. Black residents rose from 1.2% to 7.7% of the… population. Unsurprisingly… 1% of white households had a black neighbour in 1880…. The percentage of white households with a black neighbour declined to only 0.4% in 1940…. The percentage of black residents with a white neighbour declined from 66% to only 5% over this period. This dramatic decline in opposite-race neighbours could have profound impacts on the evolution of racial biases and ultimately become self-reinforcing…. Changing racial attitudes requires interactions between the races. In this respect, the sweeping rise of residential segregation patterns over the 20th century may very well have created an environment that has allowed racial prejudices to harden and lead to the stubbornly persistent racial inequalities we see today.” -
: How the White House Learned to Be Liberal: “Dan Pfeiffer… has been involved from the outset in navigating the central contradiction at the heart of Obama’s public persona: He ran as a figure who could overcome partisan polarization, yet he has instead presided over more of it despite accomplishing the majority of the substantive agenda he promised. Obama and his spokespeople have spent most of their administration quietly at war with the conventional wisdom in Washington over the cause of this failure…. Structural forces… rising polarization… the disintegration of restrictions on campaign finance… the news media… people select only sources that will confirm their preexisting beliefs. All of this combined makes communication with Republicans mostly hopeless…. Demographic change will eventually force Republicans to compete with Democrats for some of the same voters, reopening a national political conversation…. The original premise of Obama’s first presidential campaign was that he could reason with Republicans…. It took years for the White House to conclude that this was false, and that, in Pfeiffer’s words, ‘what drives 90 percent of stuff is not the small tactical decisions or the personal relationships but the big, macro political incentives.’ If you had to pinpoint the moment this worldview began to crystallize, it would probably be around the first debt-ceiling showdown, in 2011…. Ever since Republicans took control of the House four years ago, [Obama’s] attempts to court Republicans have mostly failed while simultaneously dividing Democratic voters. Obama’s most politically successful maneuvers, by contrast, have all been unilateral and liberal…. ‘There’s never been a time when we’ve taken progressive action and regretted it.’ This was deeply at odds with the lesson Bill Clinton and most of his aides (many of whom staffed Obama’s administration) had taken away from his presidency. But by the beginning of Obama’s second term, at least, the president seemed fully convinced…”
Should Be Aware of:
Lunchtime Must-Read: Florence Jaumotte and Carolina Osorio Buitron: Power from the People
…This finding holds even after accounting for shifts in political power, changes in social norms regarding inequality, sectoral employment shifts (such as deindustrialization and the growing role of the financial sector), and increases in education levels. The relationship between union density and the Gini of gross income is also negative but somewhat weaker. This could be because the Gini underestimates increases in inequality at the top of the income distribution.
We also find that deunionization is associated with less redistribution of income and that reductions in minimum wages increase overall inequality considerably…
Morning Must-Read: Trevon Logan and John Parman: The Rise of Residential Segregation
The most important paper I have read this year so far, at least as far as changing my view of our history and thus of where we are today:
Consider a city like Chicago… 1880 to… 1940…. Black residents rose from 1.2% to 7.7% of the… population. Unsurprisingly… 1% of white households had a black neighbour in 1880…. The percentage of white households with a black neighbour declined to only 0.4% in 1940…. The percentage of black residents with a white neighbour declined from 66% to only 5% over this period. This dramatic decline in opposite-race neighbours could have profound impacts on the evolution of racial biases and ultimately become self-reinforcing…. Changing racial attitudes requires interactions between the races. In this respect, the sweeping rise of residential segregation patterns over the 20th century may very well have created an environment that has allowed racial prejudices to harden and lead to the stubbornly persistent racial inequalities we see today.
The U.S. job skills mismatch and up-skilling
In the immediate wake of the Great Recession of 2007-2009 the slow pace of job growth and the stubbornly high unemployment rate sparked fears that these problems in the U.S. labor market were structural. One main worry was that there was a gap between the particular set of skills that employers wanted and the skills that workers actually had. The truth of that narrative at the time was questionable and stronger employment growth since 2014 has alleviated these concerns over time.
But there remains something puzzling in the labor market data. The number of job openings have increased 111 percent since the end of the Great Recession compared to an increase of 41 percent for new hires, according to the Job Openings and Labor Turnover Survey from the U.S. Bureau of Labor Statistics. And the so called Beveridge Curve—a relationship between the unemployment rate and the jobs openings rate—still hasn’t shifted back to its pre-recession position. So is there at least some truth to the skills-gap hypothesis?
Examined through the lens of the Beveridge Curve, research shows that to be unlikely. A paper published by the Federal Reserve Bank of Boston breaks down the relationship between unemployment and job openings. What Rand Ghayard and William Dickens, the authors, find is that the shift in the relationship (the Beveridge Curve) is almost entirely driven by long-term unemployment. The relationship between the short-term unemployment rate and the openings rate hasn’t changed at all. That finding goes against what’d we expect if there were a skills mismatch—namely that recently unemployed workers are just as readily employed as before.
But what would explain the stronger growth in job openings compared to new hires? The answer might be that there is a mismatch between the skills employers ask for and the skills most workers boast. This is not because workers are the ones lacking in the desired skills but rather due to employers raising the bar as more people look for work.
New research by Alicia Sasser Modestino of Northeastern University, Daniel Shoag of the Harvard Kennedy School, and Joshua Ballance of the Federal Reserve of Boston find exactly that development. Their paper looks at what happened to employer requirements for positions during the Great Recession and the resulting recovery. What they find is that an increasing supply of unemployed workers leads to an increase in the requirements for jobs that employers posted. With a larger pool of talent to pick from, employers get to pick the cream of the crop.
To account for macroeconomic factors that could confound their analysis, the authors look at the return of veterans from the Iraq and Afghanistan wars. Their return was an increase in supply of workers that serves as a sort of natural experiment. Modestino, Shoag, and Ballance find that requirements went up more in occupations where veterans were more likely to be employed, exactly what would happen if we think an increase in the supply of workers leads to upskilling. They estimate that the increase in the supply of the job seekers accounts for about 30 percent of the increase in the requirements employers posted from the beginning of the recession in 2007 to the labor market bottom in 2010.
So the mismatch, as it is, really doesn’t come from unmet demand but rather from increased supply. And it’s not about a long-term trend of underinvestment in skills and talents but rather the result of a downswing in the U.S. economy. So when the new data on job openings are released later this morning by the Bureau of Labor Statistics, we’d all do well to remember this story.
Why Is David Brooks So Opposed to Thinking About Policies for Equitable Growth?: Focus
The extremely estimable (but unfortunately ill: we very much hope that he and his doctors and nurses restore him to his normal superb weblogging and life-enjoying form quickly) Kevin Drum flags what he (correctly) calls “a bit of an odd column today”(http://www.motherjones.com/kevin-drum/2015/03/yes-education-matters-its-not-answer-growing-income-inequality) from David Brooks.
I cannot be the only one to find that David Brooks’s failure to either type links into his pieces nor find it worthwhile to refer to those he is criticizing by name makes his columns hard to decode.
But I think today it is worth the effort. Let us start with:
…were based on the theory that the key is to improve the skills of workers. Expand early education. Make college cheaper. Invest in worker training. Above all, increase the productivity of workers so they can compete. But a growing number of populist progressives have been arguing that inequality is not mainly about education levels. They argue that trying to lift wages by improving skills is an ‘evasion.’ It’s ‘whistling past the graveyard’…
Who are these “populist progressives”?
Well, they are, among others, Lawrence H. Summers:
…something very serious is happening in our society…. I think the [education] policies that Aneesh is talking about are largely whistling past the graveyard. The core problem is that there aren’t enough jobs. If you help some people, you could help them get the jobs, but then someone else won’t get the jobs. Unless you’re doing things that have things that are effecting the demand for jobs, you’re helping people win a race to get a finite number of jobs…
It is the “whistling past the graveyard” that is the flag.
If you are an insider you know that Brooks is talking about Larry. If you are an outsider, you don’t. And if you are an insider, you also know that Larry Summers is much more often classified as a “neoliberal” than a “populist progressive” in intellectual beastiaries. So something is going on here…
Brooks continues:
The real problem, some of them say, is concentrated political power…. Others say the problem is stagnation… the private economy isn’t generating jobs. Or it’s about corporate power…. People in this camp point out that inflation-adjusted wages for college grads have been flat for the past 14 years. Education apparently hasn’t lifted wages. The implication? Don’t focus on education for the bottom 99 percent. Focus on spreading wealth from the top. Don’t put human capital first. Put redistribution first…
And here I gotta say two things:
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No quote–not from Larry, not from anybody else. The “don’t focus on education for the bottom 99%” isn’t Summers–or any other “populist progressive”. It is Brooks’s research assistants failing to find words in the record, and Brooks resorting to putting words into the mouths of others.
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If Brooks had insisted on a quote from the author of the “whistling past the graveyard” phrase, he would have exploded his thesis sky high.
From last month:
: Report of the Commission on Inclusive Prosperity: “Many kinds of public investment–including spending on public transportation, water, power, education, and research and development–have positive social rates of return when executed well… and such investments may even pay for themselves…. …Expand educational opportunity to increase human capital and support economic mobility: Supporting early childhood education: …Evaluations of high-quality preschool programs in Boston, Massachusetts, and Tulsa, Oklahoma, for example, showed that children gained an additional year of learning in language, reading, and math. These gains in the early years go on to positively affect everything from high school graduation rates to lifetime earnings… make the most profound difference in the lives of low-income children and children of color….
Eliminating financial barriers to higher education: As recently as 1996, the United States had the second highest share of adults who earned postsecondary education credentials and the highest share of adults with university degrees…. The United States is also showing more-pronounced downward educational mobility. Twenty-nine percent of American men and 17 percent of American women had less education than their parents, compared with the OECD average of 19 percent for men and 13 percent for women…. We should make higher education virtually free at a community college or a public four-year college so that all high school graduates and their families have no doubt that they can afford higher education….
There is a clear need to develop and expand the skills of workers who do not go to university…. Apprenticeship is good example of skills training that has worked in many advanced economies…. Switzerland, Germany, and Austria have long-established apprenticeship systems that are renowned for their high quality. A majority of young people from these three countries enter the workforce through apprenticeships, which are available across a wide range of sectors and occupations…
Does that sound like: “Don’t focus on education for the bottom 99 percent. Focus on spreading wealth from the top. Don’t put human capital first. Put redistribution first…” to you?
I thought not.
Those quotes from the Center for American Progress’s Report of the Commission on Inclusive Prosperity are as accessible to Brooks’s research assistants as is the “whistling past the graveyard” quote, which comes from Summers’s argument that education policies have limited–not zero, limited–purchase on reducing inequality. Not limited purchase on spurring growth, mind you. Limited purchase on reducing inequality.
So then Brooks half-backtracks:
Over the past few months a stream… have moved from the human capital emphasis to the redistributionist emphasis. (It’s a matter of emphasis, not strictly either/or)…
But then re-reverses and says not that the need for redistribution is overemphasized but rather that it is “wrong”:
Unfortunately, this rising theory is wrong on substance and damaging in its effects….
And Brooks then proceeds to make a remarkable statement:
Since 2000, the real incomes of the top 1 percent have declined slightly. If you limited your view to just those years, you’d conclude that there is no inequality problem, which is clearly not true…
He is looking at the white-triangles line in this graph from Piketty and Saez–a graph he does not link to, and which he does not cite:
Brooks does not remind his readers that the year-2000 was a boom year, in which capital gains realizations boosted the incomes of the financial sector and of the superrich in general above their trend, while 2013 was not. A global warming denier might look at the white-triangles line and say that there is a sense in which the rich today have lower incomes and are less well-off than the rich of 2000. Nobody else would.
And, indeed, if Brooks had printed that graph alongside his column, he would have exploded his thesis sky high–for the trend of the income of the top 1% since 2000 has not been a slight decline but a rise.
I find it… distressing and disturbing… that Brooks refers to this graph without providing his readers with a link to it.
I find something else more disturbing: Only somebody who knew that starting in 2000 misrepresented current trends would even think to start in 2000–rather than in 2003, for the past ten years of data, or 1995 or 2001 or 2004, to compare mid-business cycle observations. Only somebody really up on the data would know that the just-released 2013 Piketty-Saez estimate is lower than the 2000 number. This is not a calculation that you would think to make and report unless you already knew that it tended to produce a distorted impression in your readers.
Makes it damned difficult to have a good faith, substantive policy dialogue.
Just saying.
Brooks continues:
The redistributionists seem to believe that modern capitalism is fundamentally broken. That growth has permanently stagnated. That productivity should no longer be the focus because it doesn’t lead to shared prosperity. But their view is biased by temporary evidence from the recession. Right now, jobs are being created, wages are showing signs of life. Those who get more skills earn more money. Today’s economy has challenges, but the traditional rules still apply. Increasing worker productivity is the key. Increasing incentives to risk and invest is essential. Shifting people into low-productivity government jobs is not the answer.
It’s clear why Clinton might want to talk redistribution. On substantive policy grounds, it would be destructive to do so. And, in the general election, voters respond to the uplifting and the unifying, not the combative and divisive.
As somebody who works for a think tank called the Washington Center for Equitable Growth, let me say that what we–and every single other “populist progressive” I can see right now, including Lawrence H. Summers–want is equitable growth. That has two parts: The first is equitable–which involves distributing the fruits of the economy less unfairly than the past generation’s trends have led them to be distributed. The second is growth–in which education has, as Larry and Ed point out at exhaustive length, a major role to play.
Brooks is, I think, playing a particular rhetorical game here.
His point is to claim that anybody talking about the “equitable” part at all is unconcerned with and ignoring the growth part. And so talking about the “equitable” part at all then becomes “combative and divisive”.
Now at some level he knows that this is not really true. We know that from the absence of quotes downplaying education from really existing “populist progressives”. We know that from the parenthetical half-backtrack of “(It’s a matter of emphasis, not strictly either/or)”. I, at least, sense a little uneasiness here–as if Brooks knows that he has gone over the line.
This is, however, another weight pointlessly added to our burden.
There will now be New York Times readers roaming the earth who have read David Brooks in good faith, and who will repeat sound bites like “the top 1% today are poorer than they were in 2000!” and “Hillary Rodham Clinton’s political advisors are opposed to spending more money on American education!”
This makes it harder for those of us who are trying to carry on a substantive policy dialogue to actually do so.
And let me give the last word to Kevin Drum, who–more politely–is as dismayed as I am at the unhelpfulness of this contribution by Brooks:
I don’t quite get who Brooks is arguing against here. Larry Summers… has been clear that he thinks education is important, both individually and for the economy as a whole… just doesn’t think… [it] likely to have much impact on growing income inequality…. Brooks never even pretends to address this. I don’t think there are any prominent Democrats arguing that education isn’t important. Pretty much all of them are on board with good early-childhood education and better community colleges… [to] help individuals and make the American economy stronger. But will it rein in growing income inequality? As long as inequality is driven primarily by the gains of the top 1 percent–which it is–then it won’t. To address that particular problem, we have to look elsewhere.
Lunchtime Must-Read: Jonathan Chait: Dan Pfeiffer on How White House Learned to Be Liberal
…He ran as a figure who could overcome partisan polarization, yet he has instead presided over more of it despite accomplishing the majority of the substantive agenda he promised. Obama and his spokespeople have spent most of their administration quietly at war with the conventional wisdom in Washington over the cause of this failure…. Structural forces… rising polarization… the disintegration of restrictions on campaign finance… the news media… people select only sources that will confirm their preexisting beliefs. All of this combined makes communication with Republicans mostly hopeless…. Demographic change will eventually force Republicans to compete with Democrats for some of the same voters, reopening a national political conversation….
The original premise of Obama’s first presidential campaign was that he could reason with Republicans…. It took years for the White House to conclude that this was false, and that, in Pfeiffer’s words, ‘what drives 90 percent of stuff is not the small tactical decisions or the personal relationships but the big, macro political incentives.’ If you had to pinpoint the moment this worldview began to crystallize, it would probably be around the first debt-ceiling showdown, in 2011…. Ever since Republicans took control of the House four years ago, [Obama’s] attempts to court Republicans have mostly failed while simultaneously dividing Democratic voters. Obama’s most politically successful maneuvers, by contrast, have all been unilateral and liberal…. ‘There’s never been a time when we’ve taken progressive action and regretted it.’ This was deeply at odds with the lesson Bill Clinton and most of his aides (many of whom staffed Obama’s administration) had taken away from his presidency. But by the beginning of Obama’s second term, at least, the president seemed fully convinced…
Occupational Licensing and Antitrust Revisited: Teeth Whitening at the Supreme Court: Focus
Last week I noted my wife Ann Marie’s:
>…a poster child for the clear articulation and active supervision standards required to determine whether an anticompetitive policy is indeed the policy of a given state, and entitled to immunity…. North Carolina’s Dental Board functioned more as a trade association with super powers granted to it by the state–apparently with an open-ended portfolio of responsibilities relating to dentistry in the state…. The dissent argues the delegation was valid….
>Whatever you think of the dissent, Justice Alito is spot on when he notes that the majority opinion is potentially quite disruptive for state medical licensing boards… long… under full sway of the regulated health professions…. We have almost no tradition of genuine state regulation of doctors, dentists, and optometrists other than the North Carolina Dental Board model…. If we aim to take it over it will not be a taking it back, but a taking it on–an invention out of whole cloth.
Now we have the sharp Rebecca Haw Allensworth and Aaron Edlin in the *Wall Street Journal**:
>…In 2006… the North Carolina State Board of Dental Examiners banned salons, spas and other businesses from offering teeth-whitening services…. The FTC sued, arguing that the move constituted unfair competition…. The upshot…. Many professional boards in the U.S. will be vulnerable to antitrust suits for anticompetitive regulations…. The stakes are high, as roughly 30% of the U.S. workforce needs an occupational license….
>The changes that states must enact to immunize boards from litigation will make regulation more transparent…. Boards comprised of some licensed professionals–not a majority–and rounded out with members representing other interests such as consumers or safety experts are more likely to be immune from lawsuits…. States could also avoid antitrust lawsuits by actively supervising board activities… review the substance… not simply the procedure…. The states have another option: Do nothing…. If board regulations are designed to address real problems, as the professionals often argue, they have little to worry about…. The Supreme Court… has taken an important step toward restoring competition in these licensed professions.
The remarkable thing to me is that [the dissent](http://www.supremecourt.gov/opinions/14pdf/13-534_19m2.pdf) drew three–THREE!–votes: Alito, Scalia, and Thomas:
>The Court’s decision in this case is based on a serious misunderstanding of the doctrine of state-action antitrust immunity…. The Sherman Act does not prevent the States from continuing their age-old practice of enacting measures, such as licensing requirements, that are designed to protect the public health and welfare. The case now before us involves precisely this type of state regulation…. The Court [says]… the Board is not structured in a way that merits a good-government seal of approval… is made up of practicing dentists who have a financial incentive to use the licensing laws to further the financial interests of the State’s dentists….
>Professional and occupational licensing requirements have often been used in such a way…. [In the] Parker immunity… [case] the very state program involved in that case was unquestionably designed to benefit the regulated entities, California raisin growers. The question before us is not whether such programs serve the public interest. The question, instead, is whether this case is controlled by Parker…
Justice Kennedy–and the other five–would presumably reply that the California Agricultural Prorate Act did not delegate the state’s powers to a group of raisin growers and then cloak that group of raisin growers in the state’s antitrust immunity, and that if it had then Parker would (or should) have come out differently. And I, at least, would find that reply convincing.
What I do not find convincing is how Alito and company’s declaration in the first paragraph I quote that states are allowed to regulate commerce in the interest of “public health and welfare” has morphed by the end of the second to “the question is not… the public interest”. If you craft an exception so that states can serve the public interest, isn’t the scope of that exception properly drawn when actions taken under it do serve the public interest? What else could the question be?
And we have Alito, Thomas, and Scalia’s Parthian Shot:
>When the Court asks whether market participants control the North Carolina Board, the Court in essence is asking whether this regulatory body has been captured by the entities that it is supposed to regulate. Regulatory capture can occur in many ways. So why ask only whether the members of a board are active market participants? The answer may be that determining when regulatory capture has occurred is no simple task. That answer provides a reason for relieving courts from the obligation to make such determinations at all. It does not explain why it is appropriate for the Court to adopt the rather crude test for capture that constitutes the holding of today’s decision.
Again, this seems to make no sense. It is highly likely that regulatory capture has taken place when it leads to the delegation of state powers to a group of professionals drawn from only one side of a market. It is much less likely that regulatory capture has taken place when a regulatory board has members from diverse constituencies and when its actions are supervised by those elected by the voters. That the test is “crude” does not mean that it is a bad test–in fact, a crude test that is almost optimal is almost always a much better test than a complex one that would be optimal if it could be costlessly implemented. And that some rent-seeking and regulatory-capture remains outside is no more an argument for *laissez-faire* in this case than it would be for dropping laws against fraud.
Rather, Alito, Thomas, and Scalia’s opinions here seem to tie in rather well to one of Thomas Piketty’s major arguments. In a plutocracy, Piketty argues, the principal aim of government power is to preserve the rents that the rich have acquired and hold, not to advance societal welfare via increasing the efficiency of a competitive market.
Back when I first noticed the existence of right-wing law-and-economics as a movement, it argued that judges should make decisions to maximize the consumer surplus generated in a market (taking account of producer surplus would, it was thought, provide too much encouragement to rent-seeking). Then over the decades it shifted to maximizing the total of consumer plus producer surplus (as higher producer surplus would spur innovation, an activity with positive spillovers). Now it seems that the argument has become that judges should act not to enhance economic efficiency but rather simply to preserve property, even if the property is in the unusual form of the right to use the state’s antitrust immunity to shut down one’s competitors.
This is an interesting intellectual journey we seem to be on…