Here's a good case study of occupational licensing, with economic lessons in barriers to entry, contestable markets, and government regulation vs. market competition:
In 2007, the city of Salem, Massachusetts lifted its cap on the number of psychics allowed to operate in the city and now some local psychics believe the 'Witch City' is getting overrun with too many competitiors. The views of two area psychics represent the two opposing approaches to the situation: a) more government regulation to limit the number of psychics, vs. market competition determining the number of psychics in Salem.
1. Barbara Szafranski, long-time psychic license holder and owner of shop "Angelica of the Angels," argues for greater government regulation:
"It negatively affected my business by 75%. I lost business because many stores opened up that were not in this field. They just opened up because they wanted to get the money from the readings. It just becomes a bunch of gypsies. Maybe I shouldn't say that word because they might be upset by it but those people are not necessarily always qualified.
I'm in favor of putting the cap on because there are so many psychics in the city now. When I first opened up my business 25 years ago I was just about the only one in this area and, of course, as you're seeing since then it's grown and grown and grown."
Szafranski wants Salem city leaders to do a better job controlling the number of fortunetellers and preventing charlatans from operating.
2. Christian Day, a Salem warlock who owns two shops in the city, lobbied the city council to lift the cap on Salem psychics and thinks the change towards greater market competition is good for the psychic industry:
"I feel like it creates this sort of sparkle effect where everybody's sort of raising the bar on one another and making everything more exciting. As a person who believes in the power of the free market, I believe that the free market should decide whether or not there are too many psychics. If we have too many, they won't make any money and they leave. It's just like anything else.
What we want to encourage is that quality people come and in my opinion the free market encourages quality. If you cap the number of licenses and keep those people with licenses protected you essentially guarantee that people with lesser talent are protected. It is rather interesting to me that people expect government to protect their business. Your ingenuity should protect your business. Your talent should protect your business. Your aggressiveness to succeed will protect your business."
MP: I'm with Christian Day on this issue, he believes in the "power of the market" and understands basic economic principles that "competition breeds competence" and intense market competition is usually the best and most effective regulator possible.
HT: Curtis Purington