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Depriving the Poor of Carrots
Conservatives all know that the welfare state muffles the punitive incentives the poor feel. It’s a subject we never seem to tire of talking about it. Less mentioned, though, is how the regulatory state suppresses the rewarding incentives the poor would otherwise feel. Why is this?
That people respond to rewards is such a basic element of human nature that it’s often taken for granted; it’s easy (especially for the conservative temperament) to focus on the punishments instead. Perhaps most of us never experience the kind of toxic situation or inner demons that makes all paths ahead seem like paths of punishment, but someone who has experienced that knows that punishment produces nothing useful if there isn’t an alternative reward. People who cannot trust that there are carrots lurking somewhere among the sticks often just give up.
Getting off welfare is hard enough for the average human soul. It’s made even harder when productive alternatives to welfare are illegal.
Suppose I’m a single mom on welfare in the Chicago ghettos. Since I’m caring for a kid anyhow, maybe I could make some extra money babysitting other single moms’ kids so that those moms felt more comfortable taking jobs of their own, knowing that their kids would be in my trusted hands. But if I get caught babysitting too many kids, or doing too good a job of it, I could be busted for providing unlicensed day care. Or maybe, like a lot of women throughout history, I know how to cook or do hair. But if I sell the food I make in my own kitchen, or braid others’ hair without a license, I’m technically a criminal.
A fair amount of this sort of economic activity already takes place off the books. Unfortunately, our side’s most audible complaint about this off-the-books activity is that it often coincides with welfare fraud. This misses the bigger point: It’s hard to grow your business and climb out of poverty when the business you run is made illegal by the state. (How do you publicly advertise? Who’ll loan you money for expanding your venture?) Sure, some drug lords make it big, but they sell an unusual product that faces little licit competition – and very few people are jonesing for good collard greens or a nice hairdo the way an addict is jonesing for his high.
Conservatives relish pointing out the martyrdom of the middle class to the regulatory state. When we’re not completely tone-deaf, we choose our representative regulatory martyrs from the lower middle class. But the poor who never go into business because of regulatory hurdles – or who can’t report their businesses because they’re illegal – go largely unnoticed, even by us.
Hernando de Soto noted of the poor in third-world countries that
Because [their] rights to these possessions are not adequately documented, [their] assets cannot readily be turned into capital, cannot be traded outside of the narrow local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against investment.
Much the same could be said for for the ghetto-dwellers in our own country running perfectly innocent, yet illegal, businesses – their rights cannot be documented because they’ve been outlawed. A burdensome regulatory state hurts the rich and middle class, obviously, but it especially hurts the poor, turning them into third-world citizens, even in a first-world country.
Many thanks to Tom, Mike, and Sal, who saw the first draft.
Published in General
Licensing is a plague in our country.
So is the income tax. If we had a national sales tax, employers would have much more leeway with employees and it would be much easier to hire — particularly temporary employees. There are many grunt labor jobs available for cash payment without a written contract. Right now, such employees are supposed to keep records and receipts for the IRS, but many ignore such laws.
There’s a large black market of labor out there now that doesn’t pay the government a dime. A sales tax would be easier and more reliable for both workers and government.
Midge, the argument you’re making is very much correct. On the other hand, I think public health/safety is a legitimate function of local government. I think both interests can be served without throttling the other. Change welfare law to allow for some earning as supplement (with time limits of course). Change licensing requirements so that they acknowledge varying levels and types of activity and potential damage. Establish room for startups without licensing by implementing a floor at which businesses must begin obtaining licensure. Review whether the licensing scheme is really providing protection or if it’s mostly just serving as a bar to entry.
Changing licencing to certification would go a long way. Allow people to work “uncertified.” Don’t outlaw ingenuity by declaring people must run a business a curtain way. You can regulate public health and safety independently of licencing.
Yes, that also unambiguously shifts the responsibility for risk to the consumer and away from the jurisdiction: “I know what I’m doing by using an uncertified person”.
Not that jurisdictions bear all or most of the responsibility for risk. Just to clarify.
You might be relieved to know, then, that the Institute for Justice, the organization which inspired this post, is not looking for total repeal of all health and safety regulation. Rather, they advocate lighter, less crazy-making regulation. No matter what your views on the ideal amount of regulation, their work is a big step in the right direction. People with differing ideals can go pretty far together advocating regulation reduction before they part company.
The current regulations are insane. Apparently, babysitting three children makes you a daycare provider in need of a license to operate. Three kids is so little it’s no wonder the licensing requirements often go unenforced. I recently asked an IJ lawyer just how many kids a poor woman would have to babysit before she risked attracting the attention of the authorities. The lawyer didn’t know, even though knowing was his job. Not because he was incompetent. But because regulatory enforcement really is that capricious.
Excellent post. This is true for people on SSI as well.
The government really strangles the poor in every way.
Yes you can. Even so, it seems like a lot of the restrictions on small businesses in Chicago, especially home-based businesses, are probably there because someone claimed they were “necessary for health and safety”.
A home business is subject to so many restrictions and inspections in the name of health and safety that even without licensing, it would be difficult for many home businesses to stay legal.
As far as I can make out, selling food from one’s home kitchen is flat-out illegal in Chicago – you can’t even be licensed to do it. Other weird restrictions, such as not having more than one non-resident employee or not serving more than ten customers per day in a home business, might well have been made in the name of health and safety – fire codes, occupancy restrictions… or who knows. It’s hard for a layman like me to tell.
I agree, just being pragmatic. :)
It’s gotten to the point where I sort of assume that the more inexplicable restrictions are there because someone somewhere once made an emotional appeal to health and safety.
Oh, all right:
Just a little further now… that’s it… almost there…
Excellent post Midge.
Very good post. I think your point about the adverse impact on the poor is true, to an extent, but I wonder if it doesn’t just impact those who would prefer to follow rules anyway. I can imagine someone who is just looking to make some money rather than establish a public business might not be deterred by regulations and licensing restrictions, esp if they have little to lose by trying. By contrast, someone in the middle class, with a mortgage and more visible status, might have more to lose by breaking the rules.
On the other hand, a friend frequently attends “underground dinners” in Chicago, hosted in the chef’s home with no licensing, offered primarily to find investors for a restaurant. These dinners are advertised via social media and I can’t believe that the health dept could be unaware that they’re occurring. To my knowledge, no one has gotten in trouble for hosting them. Perhaps, in the absence of an illness, the health dept doesn’t want to tangle with ticked-off foodies.
For the record, I favor voluntary certification and consumer education and common sense rather than most (all?) licensing.
It doesn’t just impact those who prefer to follow rules, though. You could be indifferent to the rules, but it’s hard to keep a really successful business private.
Lifting an entire family out of welfare-dependent poverty and into the middle class likely takes less money than most liberals imagine, but it still takes more than pocket change. Poor people will have an easier time rising out of poverty when it’s easier for them to expand little cottage industries into thriving concerns worthy of public notice.
Hmmm… picture went away.
Nobody wants to tangle with ticked-off foodies.
People in the middle class do have more to lose, but they also have more resources to draw on when the carrot hits the fan.
Suppose I’m an Ivy-League educated Women’s Studies major who, after a brush with the real world, decides to knock off with the theorizing and start with the cooking. I start an undeground supper club. If my underground dinners are busted, I might have lawyer friends or well-off parents who can help me. If I’m attracting the attention of restaurant investors, I might even have an army of well-connected pissed-off foodies on my side. Might be why the Health Department is less inclined to mess with people like me.
Try editing the comment and including the picture on the edit.
Fantastic post, Midge. If we’re going to insist people pull themselves up, we need to stop cutting their bootstraps.
Between this post and the presentation below from Megan McArdle on how poor folks’ decisions regarding capital and are rational, but ill-suited to becoming middle class, there’s a lot to think about.
The regs have gotten so pernicious that in some states you can’t even hold a bake sale because some of your food came from *gasp* a non-commercial kitchen. I know lots of poorer folks who have built little businesses for themselves by way of a plethora of odd jobs, all kept small enough to be under the regulation radar. They have to constantly hustle, they can’t get workman’s comp insurance (itself a corrupt nightmare) so they’re a liability for anyone who hires them under Ohio law, and they live in fear of the IRS. Lots of odd jobs for cash, but strictly by word of mouth.
“Uh, so you’re a poor person who actually wants to work?”
“Yeah.”
“Sorry, you’re a liability to us. Go home and collect a welfare check or something.”
I image that’s real encouraging.
Well-written and said, Midge….We’ll have an AMU on the 20th; if it fits for you, this would be a great topic…(Open invitation to all commenters here, too.)
It is VERY hard to unwind anything state-related.
On the other hand, as I continue to advocate, a new law that simply allows for people to enter into mutually-agreed contracts (excluding criminal acts) and waive ALL regulatory and legal oversight except what is in the contract itself, would do the trick nicely.
In this way, anyone could hire anyone else under any terms, or sell or buy any service under any terms – but they would both have to agree that they are doing it in the grey market.
Then you end up with parallel tracks, sort of like Uber and conventional taxis, AirBnb and Hotels. There is a market for both.
My Ex worked for a major corporation for many years. She finally got fed up and started her own in-their-home day care service. She had a degree in early childhood development she had barely used.
The business got so popular that she was watching 3 or 4 kids at a time. The parents all knew each other and were OK with the other kids being in their homes. They were all pre-schoolers.
The main thing was that it was all word-of-mouth, all local and all under the table. Good money, and no regulations. It required trust on the part of the parents.
Could such a law like that even work? Given all that’s happened since West Coast Hotel Co v Parrish, which ended the Lochner era, how could any contracts really be guaranteed free of government infringement?
I’m not a lawyer and I’m genuinely curious.
Just echoing others above, Midge: excellent post.
I have made specialty and wedding cakes for years. Were I to do it now, it would be illegal as I don’t have access any longer to a commercial kitchen. I still have a food handler’s permit and a business license but my kitchen doesn’t qualify.
Quite a lot of states have departments mostly dedicated to smacking down municipal regulations that are pre-empted by state law. It happens sometimes with federal law, too (as in Arizona’s immigration issues). iWc is talking about appropriate legislation, not about Constitutional protection, although the IJ has had some luck with constitutional litigation in this field.
The minimum wage is a pretty big one, too. Liberals always talk about it affecting Wal-Mart, but Wal-Mart loves it; Wal-Mart already pays dramatically more than independent retailers.
If you’re wanting to cobble together a business in which you’d be close to being self-employed, but need some help and you lack capital, you’re way more likely to be hurt by minimum wage laws than any wealthy person is. Obviously, those same laws also hurt carrot desirers in the classic way, too, forming part of the background to the uncomfortable rates of minority youth unemployment.
Yes, huge. It was at the top of my mental list, but I hadn’t had occasion to mention it specifically. Thanks for bringing it up.
It would be interesting to see high-quality data on how much the poor working in the underground economy pay each other. If poor people frequently pay each other less than minimum wage when there’s no regulator watching (and I suspect they do), then that would be evidence against the minimum wage that might be harder for some people to dismiss.
Poor people often pay each other in kind, which complicates matters. But I suppose the money value of in-kind payments could be estimated.
When I read “Off the Books”, I kept on wondering when the author would go beyond anecdotes and offer more hard data on the amount of wages poor people pay each other and so forth, but was ultimately disappointed in that respect. Still, in other ways, it’s an eye-opening book.
You should check out coyoteblog.com. The blogger, Warren Meyer, is an ultra-libertarian and I don’t agree with everything he says, but he has some great insights into owning a small business, the licensing racket, and gov’t regulation. He owns a small business that runs privatized campgrounds in state parks. His dealings with petty bureaucrats at all levels of government make for fascinating and depressing reading. He deals with a plethora of subjects (including being a force in the climate catastrophe denial club), so you should peruse the “categories” listing on the right-hand side to find things specific to business. Scroll down a bit to find the list.
Why would the State want to allow unlicensed child care? Such voluntary arrangements divert “clients” — and thereby divert demand — from welfare state institutions. There’s no child care “crisis” without them.
But what would make that legislation stick?
Couldn’t subsequent lawmaking sessions simply pass other laws that supersede that legislation – and why wouldn’t they? The pressure the federal government would feel to not pass a law like that, or to not override it after it’s passed, would be immense.
Moreover, wouldn’t a lot of people be interested in getting the Supreme Court to declare iWc’s law unconstitutional? And they could, I think. Not because it ought to be, but just because we have so many penumbras and so much precedent now in the other direction. A judge looking for an excuse to declare the law unconstitutional could no doubt find one.