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A welcome summer surprise from Team Obama (via the FT):
From auctioneers and barbers to scrap metal recyclers and travel guides, the number of jobs requiring a licence has been expanding rapidly across US states. Now the White House is warning that the occupational licensing requirements imposed by individual states are getting so burdensome that they are holding back the overall US economy, by lifting costs to consumers and erecting barriers to workforce mobility. In a report, the administration called on states to scrap unnecessary regulatory requirements and to harmonise more requirements across state lines, as it rolled out suggestions for better practice in the area. The White House Council of Economic Advisers, Treasury and Department of Labor report cited estimates suggesting licensing restrictions cost millions of jobs nationwide and have boosted consumer costs by more than $100bn. America’s obsession with occupational licences sits awkwardly with the country’s reputation for free market capitalism, but a quarter of US workers require a licence to do their jobs.
This is an issue many center-right reformers, including myself, have been highlighting for some time. More than once I have pointed to an Institute of Justice analysis of 100 low- and moderate-income occupations that found 66 jobs with greater average licensure burdens than EMTs, including interior designers, barbers, cosmetologists, and manicurists. The White House suggests several reforms including a simpler application process, easing exclusions for workers with criminal records, “sunrise and sunset” cost-benefit reviews, and public membership on licensing boards, but this, I think, is especially important.
Allow Licensed Professionals to Provide Services to the Full Extent of their Current Competency. When licensing is deemed appropriate for a given occupation, policymakers must also determine the boundaries of the licensed activity, or “scope of practice.” Typically, this becomes an important issue when multiple licensed occupations provide complementary or overlapping services. For instance, physicians and nurse practitioners may both prescribe medicines in some States. According to the Pew Health Professions Committee report in 1995, policymakers should endeavor to allow practitioners to offer services to the full extent of their competency and knowledge, even if this means that multiple professions are licensed to offer overlapping services.
Research suggests that restricting what nurses do raises health care costs but doesn’t improve quality. Allowing nurse practitioners and physician assistants to do more could be a key way of creating a more efficient and productive US health care system. Innovation guru Clayton Christensen:
Many of the most powerful innovations that disrupted other industries did so by enabling a larger population of less-skilled people to do in a more convenient, less expensive setting things that historically could be performed only by expensive specialists in centralized, inconvenient locations. … Take nurse practitioners and physicians’ assistants. Because of advances in diagnostic and therapeutic technologies, these clinicians can now competently, reliably diagnose and treat simple disorders that would have required the training and judgment of a physician only a few years ago. Accurate new tests, for example, allow physicians’ assistants to diagnose diseases as simple as strep infections and as serious as diabetes. In addition, studies have shown that nurse practitioners typically devote more time to patients during consultations than physicians do and emphasize prevention and health maintenance to a greater degree. But many states have regulations that prevent nurse practitioners from diagnosing diseases or from prescribing treatment that they are fully capable of handling.
Indeed, health care is perhaps the most heavily-licensed sector, and as health care grows so therefore will the share of workers needing approval to work.
Zipcar founder Robin Chase has an HBR piece, “Who Benefits from the Peer-to-Peer Economy,” where she discusses how workers are faring in the collaborative/peer-to-peer/on demand/sharing/gig economy, defining one as “marked by many platforms that engage a diversity of peers to contribute excess capacity which can be harnessed for greater impact … new platforms increasingly give the small the powers of marketing and distribution that were once reserved for the very large.” Same goes for manufacturing with 3-D printing, for instance, or MOOCs. But, she adds, policymakers must engage this new aspect of the US economy:
Governments need to recognize and prepare for this new third way of working which is neither full-time nor temporary part-time, but a new way of life. The Internet exists and everything that can become a platform will. Local and federal governments need to start tying benefits to people and not jobs, ensuring that labor is protected during this disruptive and swift transition. In a world struggling to cope with incessant disruption brought on by fast-paced technical innovation, climate change, urbanization, and globalization, Peers, Inc. is the structure for our times. It enables us to experiment, iterate, adapt, and evolve at the required pace. I’m happy this flexible new tool has come to exist. But while we are reaping the economic benefits brought on by individual contributions, we need to proactively share the productivity and innovation gains with individuals, too.
While I think the scope of the problem here has been exaggerated, Chase makes good point, especially about tying benefits to people rather than jobs. Which is why mandating new benefits and employer costs is the wrong way to go. From my recent The Week column:
There is no free lunch here. Employer benefit contributions come out of worker wages. As Democratic economist Lawrence Summers wrote in a seminal but simple paper on the subject, “Mandated benefit programs can work against the interests of those who most require the benefit being offered.” For instance: One common criticism of employer provided health care is that workers pay two ways, through premiums and through wages that are lower than they would be otherwise. Similarly, most economists think that both the employer and employee shares of Social Security taxes are really borne by workers.
Why double down on such an approach, especially during a time of supposed wage stagnation? Let middle-class workers keep more of what they earn and make it easier for them to save their own dough to meet the ups and downs of life — as well as build wealth. Maybe even nudge them through mechanisms such as, say, auto-enrollment into retirement plans. And if some workers simply don’t make enough to save, then the rest of us should subsidize their earnings. And let the on-demand economy continue to mature and evolve and perhaps create new models for employer-employee relations.
View related content: Pethokoukis
In his recent book, “The Conservative Heart,” AEI President Arthur C. Brooks urges conservatives to stop behaving like a rebellious minority and instead to claim the majoritarian values of fairness and compassion. Brooks writes:
It is neither fair nor compassionate to content ourselves with an economic recovery that only accrues to top earners. It is neither fair nor compassionate to threaten the solvency of the core safety net by extending it boundlessly upward into the middle class. And it is neither fair nor compassionate to saddle future generations with ruinous debt. Fairness and compassion are the words that should appear in every speech and article.
Natalie Runkle is an AEIdeas intern.
View related content: Pethokoukis
On July 28th, the Conservative Reform Network launched “Room To Grow: A Series.” The original “Room to Grow” was published last year with a number of policy ideas for the areas of health care, education, tax reform, and more. Now CRN has put together a series of 18 policy essays, covering everything from immigration to cronyism to poverty, and just released the first three essays on higher education, the environment and entrepreneurship.
At the launch (watch the video below), Kate O’Beirne sat down with Neil Bradley, Yuval Levin, and AEI’s Ramesh Ponnuru to discuss the series. When asked about the impetus for the series, Bradley and Ponnuru noted that lately there has been a kind of exhaustion with the conservative program. Conservatives had developed a very successful program in the late 1970s to meet the challenges of that time, but it hasn’t been updated even though the circumstances have changed (and have changed in part because the program worked). It’s time for conservatives to come up with “a set of new proposals rooted in conservative principles to address today’s challenges,” Ponnuru said. Enter “Room To Grow: A Series.”
The thrust of the series’ policy proposals is perhaps best summed up with Levin’s remarks:
[Conservatives and liberals] differ about how to solve problems. … Conservatives think that it’s unlikely that the kind of immense body of knowledge that would be necessary to address some of the large national problems we have would be found in the hands of a few technical experts gathered together in Washington, however benign and well-meaning their motives are. It’s not likely they’re going to be able to solve the problem in a centralized way.
It’s more likely that problems like that are going to be addressed in a bottom-up way, by letting people on the ground try different ways of addressing the problems as they confront them. See what ways are working, let consumers choose, let beneficiaries choose, let citizens choose, and keep what’s working and drop what’s not working. The structure of many federal programs doesn’t allow for any of that to happen – doesn’t allow for experimentation with different solutions, doesn’t allow for people to make choices for what’s working for them, doesn’t allow failures to go away.
A lot of the solutions you find in these proposals involve moving away from those kinds of centralized programs to the other model – the model that lets people make choices and lets those choices matter. A lot of the more familiar conservative policy ideas look like this. That’s what school choice is, as opposed to our existing K-12 system, that’s what conservatives want to do in health care, it’s what we want to do in welfare and you’ll find in a lot of these proposals that’s what conservatives want to do across the board: let people make choices that matter. Not because we have some kind of fetish for choice but because we think that that is ultimately more likely to arrive at solutions to genuinely serious and difficult problems than thinking that if we just get the right people in a room in Washington they’ll come at it.
These are actually difficult problems, the answers are not obvious. And the question is how do you address these kinds of challenging problems. We tend to think that experimenting, letting different kinds of solutions get worked out and tried is just more likely to succeed. And I think that’s a much more aggressive way of trying to transform the way the federal government works than cutting some money off the top.
The Conservative Reform Network (CRN) launched its Room to Grow Series on Tuesday afternoon at Google’s Washington, DC headquarters, with a panel discussion on start-ups and entrepreneurship. (Watch it here.) The lecture series builds from 18 “briefing books,” released over the course of this summer, which present data and policy solutions in response to what Reihan Salam, the host of today’s panel, called an “aching need for domestic policy reform.”
The panel featured James Pethokoukis, columnist and blogger at AEI, Kristen Soltis Anderson, Daily Beast columnist and founder of Echelon Insights, and Pete Snyder, entrepreneur and a Republican active in Virginia politics. In his opening remarks, Pethokoukis, author of the “Start-Ups and Entrepreneurship” briefing book, emphasized the “deep magic” in the American economy when it is fully free to create new jobs, build companies, and make the marketplace more competitive and dynamic. This, he said, is a critical part of American exceptionalism. He cautioned, however, that Silicon Valley spreads a false impression that innovation is growing. Available data point instead to a 30-year decline in start-ups, coinciding with a decline in productivity growth. Only by reducing regulation to produce “maximal competitive intensity” in the marketplace will companies, incumbent and new, develop the risk strategies and healthy fear of failure that drive a growing economy.
Piggybacking on how to reach “maximal competitive intensity,” Anderson highlighted the benefit to the consumer derived from competitive markets. “Not everyone wants to be an Uber,” she said, but everyone benefits from an environment in which Uber can make a disruptive innovation. In response to the issue of regulation, Snyder insisted that “each industry offers its own stranglehold” and that all new businesses face high barriers to entry put in place by both government and the lobbying of rich incumbents.
The panelists also breached the subject of how championing start-ups might allow the conservative movement to gain traction with young voters and increasingly entrepreneurial minority populations. Citing the Republicans’ support of Uber in Virginia, Snyder stressed that traditionally-conservative principles of free enterprise attract 18-25 year olds profoundly dependent on technology and less concerned with vested interests. Anderson too added that any such mobilized effort could powerfully strip the GOP of its “grand old” connotations and help move conservatism towards a successful twenty-first century program.
The hour moved to a close by discussing what measures, beyond deregulation, government can take to improve the “ecology” for entrepreneurial behavior. Pethokoukis remarked that a social safety net is essential to encouraging individual risk-taking: the social safety net must protect the individuals who start businesses. It cannot protect companies, who instead should constantly feel the threat of another company’s innovation. Snyder added that discomfort is necessary and good: “Rarely do entrepreneurial ideas come from happiness and comfort.”
The FT’s Ed Luce takes a look at the “quarterly capitalism” or “short-termism” issue, concluding that it has merit as well as political legs. He points out that “US investment is at its lowest since 1947″ but that last year “S&P 500 companies spent more than $500bn on share buybacks.” He doesn’t, however, think further raising the capital gains tax rate for short-term investment is an effective solution — as Hillary Clinton wants to do — versus reforming executive pay:
It is doubtful such tinkering would be enough to alter investors’ time horizons. The lure of a bird in the hand would still outweigh two in the bush. Many big investors, including pension funds, are already exempt from taxation. Nor is [Clinton’s] proposal likely to deter shareholder activists, whose gains from holding C-suites to ransom will outweigh any new penalties. As long as chief executives’ compensation packages are set by the share price, little is likely to change.
I am more positive that, at the margin, tax reform can help — as I recently told Ben White of Politico. But generally experts who have proposed similar plans would also deeply cut cap gains rates the longer an investment is held, maybe even to zero for investments held 5 to 8 years or so. Clinton’s approach would raise the ceiling but not the the floor. Of course, cutting taxes for wealthier Americans is anathema to Democrats so she is forced to offer a bizarre version of what could be a pretty good idea.
Now Tyler Cowen questions whether short-termism is really even a thing and cites a couple of studies. I would add to the debate with a new paper, “The Macro Impact of Short-Termism” by Stephen Terry of Boston University, which concludes that short-termism from investor pressure “distorts long-term investments and imposes costs on firms and the broader economy” although “the presence of discipline may provide benefits if managers are motivated by agency considerations such as a desire to shirk or to empire build.”
Also in the FT, McKinsey’s Dominic Barton and Mark Wiseman of the Canadian Pension Plan Investment Board note research that has found “privately held companies, free to take a longer-term approach, invest at almost 2.5 times the rate of publicly held counterparts in the same industries. This persistent lower investment rate among America’s biggest 350 listed companies may be reducing US growth by an additional 0.2 percentage points a year.” I sure would love to see more research on this subject.
Then there is this interesting bit from an Economist story on Silicon Valley on why more startups are staying private longer:
It used to be extremely rare to find a startup valued over $1 billion, but today there are 74 such “unicorns” in America’s tech sector, valued at $273 billion. That is 61% of all the unicorns in the world by number, according to CB Insights, which tracks the private market. Many entrepreneurs view life as a public company, with its quarterly appraisals and activist shareholders, as akin to being the giant effigy at the focus of the annual “Burning Man” gathering in the Nevada desert: yes, you may be quickly built into the biggest thing around, but the experience promises more than a little pain. And drumming up capital without the help of the public markets is unprecedentedly easy. In the face of low interest rates, investors have scrambled to find any sort of yield. Mutual funds such as Fidelity and T. Rowe Price are investing in unicorns in late-stage rounds, as are hedge funds, sovereign-wealth funds and large firms.
Of course, maybe voters would take the issue more seriously if the politicians talking about it were also attacking short-termism in government, which is a far worse problem.
View related content: Pethokoukis
In his recent book, “The Conservative Heart,” AEI President Arthur C. Brooks asserts that conservatives should care about social justice. The conservative social justice agenda, writes Brooks, is about making earned success possible:
Fighting for people doesn’t mean a massive catalog of new government programs. It does not mean occupying a park and railing against the “1 percent.” It means thinking carefully about who is in need and how their need can best be met. In some cases, such as caring for the truly poor, the right solution may well involve the government. In others – such as needy children caught in ineffective schools and entrepreneurs struggling to start businesses – the proper conservative answer is for the government to stop creating harm and get out of the way. In both cases, conservatives can and should be bold warriors for vulnerable people.
Natalie Runkle is an AEIdeas intern.
The Economist has a blow-out piece on Silicon Valley, with some really marvelous charts. I know what the data say — and this is just one sector — but it doesn’t feel like a Great Stagnation. It certainly would seem to be a sector with plenty of churn and dynamism (though we can have enough innovation and technological advancement, right?):
And the unicorns keep coming:
While the US is still the unicorn leader, the rest of the world is getting more productive:
You don’t have to tell MBA grads where the good jobs are:
View related content: Pethokoukis
AEI recently had the privilege to hear from a key contributor to the Elementary and Secondary Education Act rewrite – Senator Lamar Alexander (R-TN), Chairman of the Senate Health, Education, Labor, and Pensions Committee – about his next project, higher education reform.
Alexander asserted that while “it is never easy to pay for college, it’s just easier than most people think.” Still, he said, “I don’t pretend that our system is not in need of reforms.” Alexander therefore listed four goals for a bipartisan Higher Education Act (HEA) rewrite, which he hopes will make high-quality, affordable postsecondary education more accessible for everyone.
1. Reduce the burden of regulation. Two years ago, in an effort to reduce the cost of complying with federal regulations, Alexander and a bipartisan group of senators surveyed higher education institutions for recommendations, many of which they hope to include in the upcoming HEA rewrite. The study also found that overregulation also hurts students. According to one of the surveyed community college presidents, the unnecessarily-complicated Free Application for Federal Student Aid keeps many out of college.
2. End the federal collection and dissemination of useless data. The federal government’s demands for information are often unreasonable and wasteful, said Alexander. For instance, he pointed out that college consumer disclosures comprise as many as 900 pages of mandatory-to-publicize material. Despite government attempts to effectively disseminate this information, students rarely make use of it.
3. Improve the accreditation system. Alexander criticized accreditation for its encroachment upon institutional autonomy and for its lack of attention to quality. He recommended a “lighter touch” for high-performing institutions and closer scrutiny for at-risk schools. He also urged accreditors to evaluate student success instead of overanalyzing schools’ finances and safety codes.
4. Implement institutional risk-sharing. Alexander pointed out that according to the Department of Education, 17% of students with outstanding debt are in default. One way to address this problem, said Alexander, would be “to ensure that colleges have some responsibility to, or vested interest in, encouraging students to borrow wisely.” Colleges would take action, he said, if made to share financial risk with students and taxpayers.
Following Alexander’s presentation, a panel of higher education experts discussed several remaining questions, including the caveats of risk-sharing and the trouble with accreditation.
For instance, some claim that risk-sharing will limit low-income students’ access to education. In response, Ben Miller of the Center for American Progress asserted that mere “access” to higher education is not the goal. In fact, it would be best for institutions that consistently fail low-income students to stop admitting them. Panelist Kevin James of AEI agreed, and asserted that risk-sharing policies should reward schools where low-income students succeed.
While discussing accreditation, the panel addressed interplay between self-improvement and quality control. Under the current accreditation model, institutions determine whether their peers merit access to federal financial aid. Critics claim that accreditors favor fellow institutions and ignore serious infractions. James suggested that accreditation imitate charter school authorization, where private organizations authorize in tiers based on demonstrated success.
Miller, James, and Anne Neal of the American Council of Trustees and Alumni agreed that all-or-nothing accreditation creates problems. Loss of accreditation – and therefore of federal funding – can destroy a school, so accreditors’ leniency is understandable, said Miller. Instead, Neal asserted, the ideal accreditation system would mimic architecture’s LEED certification, which is independent, private, and denotes quality in levels.
Natalie Runkle is an AEIdeas intern.
In a Monday interview on CNBC, Disney CEO Bob Iger indicated that ESPN could go the way of Time Warner’s HBO and be provided directly to consumers within the next decade. “There’s an inevitability” to the change, Iger said. TimeWarner’s HBO and CBS Corporation have already invested significantly in direct-to-consumer services. Given the different business model of ESPN and Disney, it is unclear how their strategy might differ from those of these media conglomerates. As it happens, a Harvard Business Review piece from October 2014 argued that ESPN would be “unlikely” to “pull an HBO.” But a 2012 piece by Maxwell Wessell described cable television as ripe for disruptive innovation. As Wessell wrote:
“Destruction will come slowly. Academics have noted that disruptive cycles take place over periods of 15-30 years. Even if those cycles are faster than ever with the ever-falling costs of distributing information, educating the public about new ideas, and producing innovative products, it will still be a number of years before we see meaningful change. In the short term, it might appear that everything is stable in Hollywood. The key is to remember that no industry is invulnerable to disruption. Barriers to entry be damned. Innovation always finds a way to drive cost down and bring people into the market. Some industries are harder to penetrate than others, but change is inevitable. Even in television, ‘winter is coming.'”