When I assess President Trump’s economic policy, I generally give the highest grade to his tax policy.
But as I pointed out in this interview from last year, there’s also been some progress on regulatory policy, even if only in that the avalanche of red tape we were getting under Bush and Obama has abated.
But perhaps I need to be even more positive about the Trump Administration.
Deregulation Under Trump
For instance, I shared a graph last year that showed a dramatic improvement (i.e., a reduction) in the pace of regulations under Trump.
For all intents and purposes, this means the private sector has had more “breathing room” to prosper. Which means more opportunity for jobs, growth, investment, and entrepreneurship.
To what extent can we quantify the benefits?
Economic Growth
Writing for the Washington Post, Trump’s former regulatory czar said the administration has lowered the cost of red tape, which is a big change from what happened during the Obama years.
Over the past two years, federal agencies have reduced regulatory costs by $23 billion and eliminated hundreds of burdensome regulations, creating opportunities for economic growth and development. This represents a fundamental change in the direction of the administrative state, which, with few exceptions, has remained unchecked for decades. The Obama administration imposed more than $245 billion in regulatory costs on American businesses and families during its first two years.
The benefits of deregulation are felt far and wide, from lower consumer prices to more jobs and, in the long run, improvements to quality of life from access to innovative products and services. …When reviewing regulations, we start with a simple question: What is the problem this regulation is trying to fix? Unless otherwise required by law, we move forward only when we can identify a serious problem or market failure that would be best addressed by federal regulation. These bipartisan principles were articulated by President Ronald Reagan and reaffirmed by President Bill Clinton, who recognized that “the private sector and private markets are the best engine for economic growth.”
But how does this translate into benefits for the American people?
Let’s look at some new research from the Council of Economic Advisers, which estimates the added growth and the impact of that growth on household income.
Before 2017, the regulatory norm was the perennial addition of new regulations. Between 2001 and 2016, the Federal government added an average of 53 economically significant regulations each year. During the Trump Administration, the average has been only 4… Even if no old regulations were removed, freezing costly regulation would allow real incomes to grow more than they did in the past, when regulations were perennially added… The amount of extra income from a regulatory freeze depends on (1) the length of time that the freeze lasts and (2) the average annual cost of the new regulations that would have been added along the previous growth path.
…In other words, by the fifth year of a regulatory freeze, real incomes would be 0.8 percent (about $1,200 per household in the fifth year) above the previous growth path. …As shown by the red line in figure 3, removing costly regulations allows for even more growth than freezing them. As explained above, the effect, relative to a regulatory freeze, of removing 20 costly Federal regulations has been to increase real incomes by 1.3 percent. In total, this is 2.1 percent more income—about $3,100 per household per year—relative to the previous growth path.
Here’s the chart showing the benefits of both less regulation and deregulation.
The chart makes the change in growth seem dramatic, but the underlying assumptions aren’t overly aggressive.
What you’re seeing echoes my oft-made point that even modest improvements in growth lead to meaningful income gains over time.
Daniel J. Mitchell is a Washington-based economist who specializes in fiscal policy. This article appeared at fee.org.
A bipartisan anti-tech fever has taken hold in Washington with Left and Right alike calling for greater regulation of America’s digital giants such as Google, Facebook, Amazon, Twitter, and others. This so-called “techlash” threatens to undermine the massive benefits associated with the rise of the Internet and the Digital Revolution by putting antitrust lawyers and regulatory bureaucrats in control of fast-moving tech companies, whose apparent crime is giving the world affordable, high-quality services.
Worse yet, some tech companies appear ready to cut deals and cozy up to regulators here and abroad. For example, Facebook’s Mark Zuckerberg recently penned an essay inviting increased oversight of his sector, which is easy to say once you’ve made your billions and want to close the door on new competition with the help of expensive new mandates.
Joseph Schumpeter must be rolling in his grave at the sound of all of this. Writing over 75 years ago, the Austrian-born economist laid out a vision for how dynamic competition and innovative economies develop. In doing so he gave us a model for how to think about public policy in fast-moving tech markets—and how to get all new markets and technologies.
Two Lessons
If Schumpeter were alive today, he’d have two important lessons to teach us about the techlash and why we should be wary of misguided interventions into the Digital Economy.
First, Schumpeter would remind us that textbook theories of static “equilibrium” and “perfect competition” do not represent reality. Economic change is instead “an organic process” that “never can be stationary.” What really matters, he argued in his 1942 book, Capitalism, Socialism and Democracy, is “competition from the new commodity, the new technology, the new source of supply, the new type of organization,” because it is that sort of innovation, “which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.”
This was Schumpeter’s now-famous model of “creative destruction,” and it perfectly explains much of the intense competition we see at work in the modern Digital Economy. “This kind of competition is much more effective than the other,” he argued, because the “ever-present threat” of dynamic, disruptive change, “disciplines before it attacks.”
We can summarize Schumpeter’s first lesson in two words: Change happens. But disruptive change only happens in the right policy environment. Which gets to the second great lesson that Schumpeter can still teach us today, and which can also be summarized in two words: Incentives matter. Entrepreneurs will continuously drive dynamic, disruptive change, but only if public policy allows it.
Schumpeter explained how entrepreneurs are in a sort of quest for a prize. The primary prize he identified was profits, of course. Entrepreneurial gains—even supranormal short-term profits—need to be tolerated if innovation is to occur. Innovators will only take risks if they can expect the potential for gains from it. But there are other “prizes” entrepreneurs are in the game to “win”—novelty and notoriety are two other big drivers. Other times entrepreneurs dream of changing the world to advance an important cause or personal desire.
Regardless of the prize, public policy must not discourage these races or else fewer innovators will be willing to risk everything in an attempt to unseat dominant market players. Instead, regulatory attempts to micromanage markets and limit entrepreneurial rewards will give us stasis and retard market change by undermining what Schumpeter referred to as “the most powerful engine of that progress,” i.e., profits. Denying those in the race for the potential for profits or other rewards means that society will be stuck with yesterday’s technologies and industries when what we really need is all new players and innovations.
Constant, Unexpected Change
This is the formula that helped power the Digital Revolution and topple Analog Era giants in the process. Think back just 15 years ago and consider the markets for video rentals and cell phones. In 2005, the Federal Trade Commission pressured video rental firms Blockbuster and Hollywood Video to call off a proposed merger. Antitrust officials were defining markets so narrowly that they didn’t even see the coming online video tsunami, which would wipe local video stores off the map thanks to Netflix and other innovators.
Around the same time, regulatory pundits were worried about the growing power of firms like Motorola, Nokia, Palm, and Blackberry in the mobile phone market. The idea that computer or Internet companies like Apple and Google could displace those giants was unthinkable at the time. Today we laugh about ever being concerned about those old players.
Similarly, starting around 2010, upstarts Uber and Airbnb rolled the dice on risky gambits to enter local transportation and hotel markets respectively to square off against dominant incumbents who benefited from decades of special rules. Few people gave these Sharing Economy innovators much of a chance, but they are now firmly in the race and offering consumers new choices we previously never enjoyed and will never relinquish.
These case studies represent Schumpeter’s “creative destruction” in action. Moreover, those disruptors inspired countless other innovators who used these new digital platforms and capabilities to give us a growing constellation of “apps” and other corresponding services. Again, this all happened over the course of just 10-15 years.
Change is Still Possible
Critics always have the same response: But this time it’s different! They again take their static snapshots of current market conditions and tell us we have settled into an unassailable monopoly situation. Oh sure we foolishly thought AOL-Time Warner and MySpace were social networking monopolies a short time ago, but this time Facebook really has conquered the world! At least that’s what the pessimists want us to believe.
Again, Schumpeter had an answer for the skeptics: there is no discernable end point to the process of entrepreneur-driven change—so long as creative destruction is not replaced with cronyist public utility-style regulation. If Washington really wants to see challenges to today’s tech giants, then policymakers should not be cutting deals with them or crafting policies in a backward-looking fashion to preserve the old markets those firms dominate.
Instead, policymakers should be clearing away regulatory barriers and tax obstacles so that entrepreneurs can usher in the next wave of innovation, competition, and job opportunities. For example, every convoluted federal, state, and local licensing regime represents a potential barrier to competition and innovation.
Meanwhile, new data collection regulations will limit the ability of new digital ventures to take on tech incumbents. Big incumbents can bear the cost of complying with all that red tape; upstarts cannot.
America’s seemingly inexhaustible supply of entrepreneurial spirit will surprise us with better alternatives than any regulatory wrecking ball Washington devises to demolish existing players or markets. Heed Schumpeter’s lessons and let change happen by getting incentives right such that another wave of creative destruction can work its magic.
Adam Thierer is Research Fellow at the American Institute for Economic Research and a Senior Research Fellow at the Mercatus Center at George Mason University.
Over the last year, news of crypto hacks and heists became so prevalent that the new breaches were hardly worthy of reporting anymore. Among the headliners, however, was the Coincheck case, the Japanese exchange that lost over $530 million worth of the NEM cryptocurrency, as was Zaif, another exchange also from Japan, that saw $60 million worth of digital currencies vanish. Bancor, an Israeli-Swiss decentralized exchange lost $23 million to a hack this past summer, while BitGrail, a small Italian cryptocurrency exchange lost $170-195 million worth of its customers’ digital assets. All in all, nearly $1 billion was lost to hackers from exchanges and other platforms in just the first nine months of 2018, according to research by blockchain security firm CipherTrace.
An increasing number of ICOs also has come under the spotlight and attracted the attention of government agencies throughout the world. By July 2018, around $1.3 billion had already been invested in fraudulent ICOs, according to a report by Satis Group. The list of ICOs that turned out to be scams is long and it keeps growing. Among the most high-profile cases was OneCoin, an Indian operation that scammed investors for around $350 million, as was the Centra Tech, a heavily promoted and celebrity-endorsed swindle that raised a $32 million through its ICO, only to be indicted for securities fraud. Overall, even when looking at the projects that were not blatantly fraudulent or had their founders vanish with investors’ money, more than 55% of ICO-funded endeavors failed within 4 months, according to a study Boston College.
Source: Satis Groups LLC
All in all, some of the blame can be assigned to the extraordinary levels of greed that prevailed in the market, along with irrational optimism and a serious lack of attention to detail. Many of the investors who fell victim to the fraudsters didn’t even bother to read the corresponding white papers or do any kind of research before climbing on the bandwagon. It is also important to bear in mind that, much like in any other bubble, a considerable number of people who entered the market after the rally made headline news did not even have a basic understanding of the principles behind Bitcoin or any other coin they were investing in. Key concepts and mechanisms critical to the function of most crypto-related projects were and still remain largely elusive. For example, in the general public, 80% of people who have heard about the blockchain, have no idea what it actually is, as an HSBC poll showed.
“Doesn’t do what it says on the tin”
Beyond regulation and security issues, one of the main obstacles that many projects in the sector faced is that their products simply didn’t work as they were supposed to. Functionality is the bare minimum any investor and ordinary user would reasonably expect for their money and that expectation in many cases was not met.
A prime example is Bitcoin, originally promoted as a new, better, decentralized currency. While it performed exceedingly well (for some) as a speculation vehicle, it was a dismal failure as a currency. It was so badly designed and so unfit for this purpose, that the more users it attracted, the less usable it became. It goes far beyond Bitcoin too. According to an analysis by “Invest in Blockchain”, out of the top 100 cryptocurrencies in terms of market cap, less than half serve any useful function or actually have a working product.
The way forward
At the height of the crypto-rally, there were many who compared Bitcoin to gold and claimed that it could replace the precious metal. Of course, with the benefit of hindsight, such an idea now seems quaint and ludicrous. This was especially highlighted by the comparative performance of both Bitcoin and gold during the recent volatility extremes and investor anxiety levels in the stock market. As is historically the case, investors running for cover and seeking a safe haven turned to gold. As for Bitcoin, it became clear that it just does not enjoy the same trust from investors and not even the recent turmoil in equity markets could suffice to halt its descent.
The crypto-crash was a painful lesson on greed and on the downside of bandwagon mentality and it provided a much-needed reminder that “a fool and his money are soon parted”. However, it also served as an important catalyst for the industry. This dramatic thinning of the herd, eliminated many operations that were either fraudulent, unsustainable or simply not competitive enough. Much like the DotCom bubble, that eventually cleared the board for giants like Amazon to thrive and to fundamentally change the consumer landscape, this crash has also paved the way for the truly great ideas to flourish, the ones with the potential to impact significant change in the way we do business and interact.
The new and better ideas that the crash has made room for, is not the only reason to be optimistic about the future of the sector. It has also made a difference on the funding side. The significant drop in investment is not necessarily detrimental to the industry in the long run. For one thing, the excesses and waste that were facilitated by the exuberant investments and irrationally high valuations during the 2017 rally are now a thing of the past. The projects that survived and those that will be launched from this point forward face serious pressures to be operationally lean. As speculators and naive investors who were focused on “get rich quick” pitches have largely left the crypto arena, the focus has shifted to sustainable, functional and effective solutions that provide real value to their users and reliable profits to their investors. Thus, from an investing point of view, the crypto sector, as it matures, is bound to offer much more, much greater and much healthier opportunities to those seeking dependable growth.
After all, we must keep in mind that the blockchain technology and its currency applications that we’ve seen in the recent past are two different things. Bitcoin and the hundreds of other cryptocurrencies are but a single facet, just one of many possible uses for the distributed ledger technology. Blockchain has a wide variety of potential applications, already being developed, that hold great promise for cross-industry innovation: communications systems, industrial uses, quality assurance, logistics, law, trade applications and beyond.
As outlined in my previous article on this topic, there is no need to see precious metals and the crypto sector as competitors. If anything, the various solutions that are likely to emerge from the burgeoning industry, especially those with a monetary or transaction-facilitation focus (as we will examine in an upcoming article), are much more likely to threaten the future of government-controlled, fiat money. As the internet irreversibly separated our physical lives from our online activities and as the latter continuously gains ground, it is becoming clear that the tools we used so far to navigate and interact in both domains are no longer fit for purpose in an increasingly connected world.
The concept of national currencies, centrally controlled and manipulated by governments, is antithetical to the culture and the entire point of the internet. On top of that, fiat money is simply not as functional in online transactions as a specifically designed alternative, native to that realm, would be. Thus, we are bound to see the rise of “internet money”, with private and competing cryptocurrencies, able to offer stability, usability, security and convenience, providing much better and much more efficient solutions. Such a shift toward private initiatives and new concepts that enable commercial activity and online payments could soon push fiat money back into the confines of the increasingly irrelevant physical world.
On the other hand, physical precious metals will return to play their essential role as the most liquid and best store of value, as they have done for thousands of years. For investors and savers alike, the appeal of gold is timeless, as it is the only vehicle that has proven to protect and preserve purchasing power, especially in times of crisis.
We are still only beginning to realize the changes, the level of innovation and the vast array of new opportunities that a fully decentralized financial system could bring, operating peer to peer, cutting out the middle man and by doing so, destroying the government monopoly on money. Such a seismic shift would shake the current centralized power structures to the core and soon render them irrelevant. In the meantime, I believe it makes sense to keep an open mind and to familiarize oneself with these new technologies. I do see a lot of potential in systems and concepts that are geared towards digitalizing real assets, such as a physically gold-backed cryptocurrency that can be traded online, bypassing today’s centralized and government-regulated financial system, with its high fees and with transaction times of several days.
It seems to me, that the goal of this generation will be what Friedrich August von Hayek had in mind several years ago: “If we want to maintain a free society, we have to take the money monopoly away from the government”. This process has already begun and it can no longer be stopped, neither by mandate, nor by force.
Americans can’t seem to agree on much these days. But even amid all the apparent differences that keep us ideologically separated, everyone hates parking tickets. In many ways, these infractions are the great unifier. Parking tickets are a common annoyance that almost anyone can relate to. But luckily, advances in technology are making legal defense resources more accessible than ever.
Seattle resident Dan Lear was understandably frustrated after returning to his vehicle after running an errand, only to see a ticket placed under his windshield wiper. On any other day, Lear may have chalked this up to bad luck, accepted the ticket, and moved on with his day. However, Lear, who is himself an attorney, felt misled by the signage on the street where he parked, which inspired him to fight the grounds on which the ticket was given.
After doing a bit of research, Lear discovered that there were actually companies dedicated to fighting unjust parking tickets. But by utilizing these services, it doesn’t mean that you have paid to retain a group of attorneys. Instead, “lawyer bots” fight your parking tickets for you.
DoNotPay, WinIt, and TurboAppeal are just a few examples of new businesses that are encouraging individuals to challenge the state when they feel they have been on the receiving end of injustice. By helping people fight back against unjust parking tickets and property tax discrepancies online, more people have now have the ability to challenge government overreach, rather than simply lie down and take it. This is huge when it comes to balancing the scales of power.
While each respective company has their own unique platform, DoNotPay, which Lear used, asks users a series of simple question to gauge rather or not there is grounds for a legal fight. Asking whether a parking sign was easy to read or even if perhaps some of the details on the ticket are incorrect, the site then compiles all the information you provided into a letter. Serving as a formal legal defense that can be mailed or uploaded online, users now have a legitimate case against the state.
As if these services weren’t enough to entice us all to fight the next parking ticket we may receive, the services available through DoNotPay are free of charge, making legal defense readily available to anyone with a wifi connection. Other services, however, do charge a small fee. Already, DoNotPay has helped dismiss over 450,000 parking tickets in the United States and the United Kingdom alone. This accounts for about $13 million in fines that individuals did not have to pay to local governments. In fact, when it comes to the success rate of DoNotPay, their users win their cases more than 50 percent of the time. For those who try and fight their tickets without the use of these types of services, the success rate dropped to around 21 percent in New York City and 35 percent in California.
The creator of DoNotPay, Joshua Browder, is a hero among individualists. However, local governments have started referring to him as the “Robin Hood of the internet” by the BBC. But before anyone starts feeling sorry for the government, Browder is quick to remind us that tickets are, “used as a source of revenue, which is wrong, and something I’m trying to change for the longer term.” He also admitted that when it comes to local governments they “generally don’t like me.”
Browder’s model is so appealing to so many people, that it was able to raise $1.1 million of funding. Currently, the site exists primarily to help users fight parking tickets, but the long-term goal is to expand services into other legal spheres. For example, Browder would like to help users fight property taxes and even file for divorce without having to retain costly attorneys.
What is, perhaps, most fascinating about this project is the decentralization of the legal sphere. In addition to this type of tech, blockchain technology is also getting rid of the need for attorneys. By using algorithms to enforce contracts, blockchain technology is making lawyers in this realm almost entirely irrelevant. But, it is also giving individuals more access to legal tools they may not have been able to afford on the traditional market.
All in all, this technology is allowing individuals to live a more free, decentralized life, which is truly the key to individualism.
For over two decades, “China Fun” was a culinary staple in the Second Avenue neighborhood of Manhattan. Known throughout the community as the go-to spot for peerless soup dumplings and piquant General Tso’s chicken, many locals were heartbroken to learn that their favorite restaurant had decided to close its doors forever last year.
The decision to shut down the family-owned business was not an easy choice to make. However, the Wu family claims that excessive government regulations left them no other option.
In a letter posted to the front doors of the restaurant last week, the owners wrote, “The climate for small businesses like ours in New York have become such that it’s difficult to justify taking risks and running — never mind starting — a legitimate mom-and-pop business.” The letter continued, “The state and municipal governments, with their punishing rules and regulations, seem to believe that we should be their cash machine to pay for all that ails us in society.”
The sentiment reflected in the Wu’s farewell letter sheds light on the great regulatory burden afflicting many small business owners across the country today. In addition to the numerous licenses, permits, and fees required to open a small restaurant like China Fun, government-sponsored healthcare programs and mandatory increases to the minimum wage disproportionately affect these mom and pop establishments.
For small business owners operating within the state of New York, these regulations are only getting worse.
Interestingly enough, the closure of China Fun coincided with the implementation of New York’s new increased minimum wage policy, which is set to incrementally rise each year until it reaches $15 an hour by 2021. As Albert Wu, the son of China Fun owners Dorothea and Felix Wu explained, these types of costly mandates have forced the restaurant to significantly raise its prices over the years.
“When we started out in 1991, the lunch special was $4 a plate,” Albert explained. “Now it’s $10, $12. The cost of doing business is just too onerous.”
Instead of recognizing the fact that these regulations cost local business owners both money and numerous hours spent filling out the necessary paperwork, a spokesperson for the de Blasio administration responded by saying, “The NYC Department of Small Business Services makes it easier for businesses to start, operate, and grow, including by helping businesses navigate important City regulations.”
Albert Wu and other small business owners disagree. “In a one-restaurant operation like ours, you’re spending more time on paperwork than you are trying to run your business.”
Unfortunately, the Wu’s predicament is not an isolated occurrence and it demonstrates the unintended consequences that overregulation has, and will continue to have, on entrepreneurs.
Imagine attempting to open a bakery that specializes in cakes. But before the business can even get off the ground, the government pays you a visit and informs you that unless you also bake and sell pies in addition to the cakes, it will not allow you to legally open your bakery.
This sounds silly to you at first, but the government insists that since pies and cakes are traditionally both sold in bakeries, that is just how the law works. You can either comply or abandon your dream of owning a specialty cake bakery.
Regulations Are Stranger Than Fiction
While this may be nothing more than a fictional scenario, regulations this outrageous do exist. And what is worse, they prevent many from obtaining their entrepreneurial dreams. In fact, a similar situation is currently happening in North Carolina, where one makeup artist’s dream of opening a cosmetology school is being stifled by a peculiar occupational licensing law.
North Carolina resident, Jasna Bukvic-Bhayani wants to open a school where hopeful cosmetologists can come to learn the tools of the trade. As a makeup artist herself, Bukvic-Bhayani found teaching makeup artistry to others to be both rewarding and lucrative. But the state shut her down before she could even begin.
As a certified cosmetologist, she has already obtained all the permits and licenses necessary to practice her craft in exchange for compensation. But even though she is permitted to practice cosmetology she is forbidden from teaching this craft to others unless she also teaches esthetics.
The field of esthetics involves procedures like microdermabrasion, body waxing, and facials, none of which Bukvic-Bhayani desires to teach at her school. Even still, the North Carolina Board of Cosmetic Art Examiners told her that unless she intends on turning her school into an esthetic school as well as makeup artistry the state will not allow her to open up for business.
But incorporating esthetics into her curriculum isn’t as easy as simply taking a few weeks to go over the basics. Instead, this will force her to spend at least $10,000 on esthetic equipment in addition to the hundreds of wasted hours she will spend teaching a skill she doesn’t want to teach. For a student to be a state-certified cosmetologist they must complete at least 600 hours of esthetic training, whether they want to practice this skill or not.
Bukvic-Bhayani has insisted that esthetics is not a part of the business model for her school, but the state doesn’t care. Since many cosmetic schools also teach esthetics, the state claims that this should be the norm for anyone wanting to open a school involving cosmetology in any way.
Surveying the Competition
What is even more disturbing than the fact that Bukvic-Bhayani is being prevented from reaching her entrepreneurial dream is how the state came to learn of her school’s existence in the first place.
In order to attract prospective students to her school, Bukvic-Bhayani paid for online advertising. Unfortunately, the North Carolina Board of Cosmetic Art Examiners makes a habit of monitoring facebook ads in an attempt to catch those who may not be following their rules. This is exactly how Bukvic-Bhayani came to be on the board’s radar.
And this type of monitoring is not specific to the realm of cosmetology. A year ago, a mother was fined after a health inspector caught wind that she was selling Ceviche that was not first approved by the state’s health department. By scouring facebook groups that serve almost as digital farmer’s markets, these regulatory boards have prevented many individuals from earning a living.
These boards also encourage a dependence on the state before one is able to put forth an entrepreneurial idea and getting ahead in life.
In the Road to Serfdom, F.A. Hayek even warns often of the dangers that follow when a state bars entry to certain vocational fields. It is certain he would be disgusted today to see just how far this practice has expanded.
These regulations are usually crafted by those already in the field. By setting all these hefty regulations, they can limit who is allowed to enter the field. In other words, they are given the unjust privilege of deciding who is allowed to compete in the free market, and who is not.
Luckily, the nonprofit organization, Institute for Justice has come to Bukvic-Bhayani’s aid and is helping her fight for the right to earn a living. And they have found a rather creative way to combat this regulation.
The First Amendment protects an individual’s right to speak for a living. But this protection does not extend only to the individual’s right to speak out against the government. It also extends to one’s profession. This serves to protect speakers, authors, journalist and yes, even makeup artists.
Institute for Justice has a long track record of doing its best to fight for the rights of those who want nothing more than to earn a living without fear of government intrusion. Hopefully, this story will end with the opening of Bukvic-Bhayani’s cosmetology school.
Heather Kokesch Del Castillo was unsatisfied with her career. Instead of resolving herself to a life of unfulfillment, she took a risk and made the bold decision to live the life of an entrepreneur.
In 2014, she started “Constitutional Nutrition” in California. As a nutritional coach, she provided her clients with one-on-one dietary counseling. She spent years establishing herself in the field and was able to build a profitable business with a large clientele base. But that was before the government shut down her business.
Now, Heather must endure a bureaucratic circus and pay a large fine before she is legally allowed to reopen her business and earn a living once more.
It sounds almost outrageous to think that the government would stand in the way of an individual’s quest to provide for themselves. But it happens all the time. And in Heather’s case, it happened because she didn’t first obtain an occupational license from the state.
When Heather started Constitutional Nutrition, she was living in California. While California is generally heavily regulated, it does not have any license requirements for aspiring nutritionists. Those wanting to start consulting in that realm are free to do so. They are even free to call themselves “nutritionists.”
But regardless of the law, or lack thereof in the case of California, Heather still went out of her way to get licensed by an independent firm. Though not mandated, it was still an effective way to gain the trust of consumers. Constitutional Nutrition eventually took off and the clients came pouring in. Heather’s risk had paid off and she was able to create value for many willing consumers. But when her husband’s career in the air force resulted in a cross-country move to Florida, Heather’s business was threatened.
Heather did not even think to ask the state of Florida for permission to continue operating her business after she had relocated. Since there were no excessive regulatory obstacles in California, she had no reason to assume there were any elsewhere. She also didn’t think twice about calling herself a nutritionist. That was her profession.
Unfortunately, the state of Florida was not so understanding. In May of 2017, Heather received a cease-and-desist letter from the Florida Department of Health. The letter stated that she was being fined $754 by the Department of Health and demanded that she stop conducting all business related to Constitutional Nutrition immediately. Part of the state’s complaint dealt with her advertising herself as a “nutritionist.” In Florida, you are only allowed to label yourself as such after you have satisfied all the state requirements.
Heather and her husband were shocked, to say the least. They did not even know this law existed in Florida, yet they were being slapped with a sizeable fine. But even worse, the state was revoking Heather’s right to provide for herself.
In order for Heather to reopen her business, she would have to spend thousands of dollars and several additional years in school. This is the only way she can legally obtain a “license to give nutritional advice” in the state of Florida.
But Heather has already proven herself more than capable in her field. This is evidenced by her consumer base. She was able to build a profitable career and provide a service to many willing consumers. Since being forced to close down, Heather has had to turn away clients eager to exchange money for her services.
And even though her business was completely legal in one state, Heather is now left fighting for her right to earn a living in court. Joining with Institute for Justice, Heather is taking on the Florida Health Department. But sadly, her case is not unique.
With over 30 percent of the workforce heavily regulated by occupational licensing, many individuals lose their right be entrepreneurs. And in many cases, these licenses and their corresponding regulations are created by those already in a given field. In fact, many of those responsible for crafting these policies are members of trade unions directly impacted by these licensing procedures.
Many of these regulations are adopted in the name of public safety or protecting the consumer. But that is hardly the case. These licenses act instead as barriers to entry by restricting the number of professionals vying for consumers in a given sector. In other words, it restricts true competition.
In order for entrepreneurs to have the freedom to innovate and create value in the marketplace, we need less government regulation. Hopefully, the courts will understand this, and side in favor of Heather Kokesch Del Castillo, so that she may continue earning a living.
Humans are imperfect beings. Try as we may, each of us is subject to some degree of inconsistency in our own thought patterns. Even the greatest champions of liberty who have made invaluable contributions to the study of classical liberalism have fallen prey to error. And while these heroes and geniuses may come to an inconsistent conclusion every now and then, our admiration continues.
Hayek wasn’t infallible. And in chapter three of The Road to Serfdom, he makes some arguments in favor of “harmless” market intervention that call for scrutiny.
No Such Thing as Harmless Regulation
As I made my way through chapter three, I did a doubletake after coming across this passage:
To prohibit the use of certain poisonous substances or to require special precautions in their use, to limit working hours or to require certain sanitary arrangements is fully compatible with the preservation of competition.”
In this chapter, Hayek regularly uses the word “competition” to mean free market. He also asserts that “planning” is, in and of itself, the enemy of competition. Hayek argues that not all state action qualifies as “planning” and as an encroachment on “competition.”
Hayek reasons that since these types of regulation do not interfere with the means of production themselves, it is fully compatible with free market capitalism. He has also argued that since these are “blanket” regulations—no one can use these substances— and not individual regulations—only this group can’t use them—they do not inhibit the market’s ability to function freely. In Hayek’s mind, for example, the state limiting the number of widgets you can produce is far more intrusive than outlawing certain harmful substances.
Those of us alive today are blessed us with the gift of hindsight. This has allowed us to recognize (hopefully) that these types of policies necessarily rig competition in favor of one group over another. In fact, when it comes to the market, there is no such thing as a neutral intervention.
The Overtime Rule that Almost Was
For example, last fall, the Department of Labor set new regulations regarding overtime pay. Concerned that the American worker was being exploited, the department declared that those earning an annual salary of $48,000 or less would only be allowed to work 40 hours a week. If for some reason more than 40 hours of work was needed, the employer would be mandated to give overtime pay.
This kind of regulatory policy was explicitly conceded by Hayek as acceptable in the abovementioned passage.
But instead of safeguarding workers, the overtime rule would have hurt their ability to get ahead in their careers. The salary threshold that the Department of Labor had agreed upon disproportionately impacted entry-level workers. Since work hours were to be limited, young professionals no longer had the ability to work long hours in order to prove their dedication to their career and improve their chances at a promotion. As Jeffrey Tucker wrote:
“To really make it in an industry, you need more than a connection and a credential. You have to show that you have the stuff. You need to demonstrate your personal commitment. And you will typically be tasked to show this while living on a low salary — not so low as to qualify for overtime but not high either.
This exemption from overtime rules is what makes the Prada economy work. It permits workers to strut their stuff without imposing new financial burdens on employers. This is what the new rules would abolish.”
This would put young workers at an unfair disadvantage relative to those who had been in the workforce longer and had already put in the hours needed to move up the corporate ladder.
In fact, so concerned was the American worker about the negative impact this new overtime rule would have on their careers, that it ended up being killed before it was enacted.
Beware of Slippery Slopes
Another problem with “benign interventions” is that the state is incapable of self-restraint. This is why so many governments fall victim to tyranny and oppression. Once those in authority are given even the slightest increase of power, they will use it as precedent and leverage to incrementally take more until true freedom exists in name only. In other words, if you give the government an inch, they will take a mile.
Mises made this same point in Human Action:
“But whoever is ready to grant to the government this power would be inconsistent if he objected to the demand to submit the statements of churches and sects to the same examination. Freedom is indivisible. As soon as one starts to restrict it, one enters upon a decline on which it is difficult to stop. If one assigns to the government the task of making truth prevail in the advertising of perfumes and toothpaste, one cannot contest it the right to look after truth in the more important matters of religion, philosophy, and social ideology.”
Such has been the case throughout history, and such will always be the case so long as governments are invited to regulate on behalf of consumers and workers alike.
This is why constant vigilance should be practiced and even “moderate” regulatory practices should be fought at every step. For even the most moderate of policies, with the most “rational” of justifications, will result in the unforeseen consequence of a controlled economy. As Mises wrote:
“All varieties of interference with the market phenomena not only fail to achieve the ends aimed at by their authors and supporters, but bring about a state of affairs which—from the point of view of their authors’ and advocates’ valuations—is less desirable than the previous state of affairs which they were designed to alter. If one wants to correct their manifest unsuitableness and preposterousness by supplementing the first acts of intervention with more and more of such acts, one must go farther and farther until the market economy has been entirely destroyed and socialism has been substituted for it.”
“In a brilliant bit of economic reasoning in his classic essay ‘Middle-of-the-Road Policy Leads to Socialism,’ Mises showed how even such a seemingly-minor intervention as a price ceiling on milk would inevitably lead to full-blown socialism, if the government pursued it to the bitter end, and if it undertook further interventions to try to deal with all of its negative consequences, as well as the negative consequences of those and all subsequent interventions. Thus, Mises called interventionism ‘a method for the realization of socialism by installments;’ or, as we would say, ‘socialism on an installment plan.’”
Hayek understood such dangers as it pertained to the collectivist mindset. The entire second chapter of the book was dedicated to warning that all forms of collectivism necessarily lead to tyranny. We would be wise to extend this wariness to even seemingly benign forms of intervention as steps, however small, down the road to serfdom.
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