One feature of an idealized model of a free market interaction is that market participants need to have perfect information. This is the microeconomic version of high school physics’ frictionless plane—something that helps illustrate the principles but doesn’t describe the real world. Consequently, faced with almost any actual situation one can almost always posit some ideal regulatory scheme that would improve on the actual market outcome. But this is really a version of the “instead of your actual cap-and-trade legislative compromise, we should enact my pure vision of a technically sound carbon tax.” It’s true that your pure vision of a technically sound carbon tax is better than my actual cap-and-trade compromise, but that’s an apples and oranges comparison.
So it’s always worth asking what regulatory schemes look like in practice. Does the Washington, DC tour guide licensing scheme do a good job of correcting important information asymmetries? Licensed tour guide Tim Krepp doesn’t buy the Institute of Justice’s constitutional argument against the scheme but says:
Sure, the Constitutional underpinnings are shaky, but why have a test in the first place? It was poorly written (although DCRA is in process of updating it), and poorly represents the body of knowledge commonly used in a DC tour. Taking a written test simply shows you can memorize a certain amount of knowledge.
I know many people, while not being licensed guides, could step out on the street today and talk intelligently about this city while conversely, I know, sadly, quite a number of fully licensed guides who fall for any ridiculous chain mail passed around. The license, in my opinion, is no great indicator of DC knowledge.
Nor is the license program enforced. I’ve never had someone ask to see it, nor have I even heard of someone doing so. Generally, a certain number of tours are around the monuments whose guides are unlicensed. Now, I will say most tour operators will ask to see your license before hiring you, but if there is zero enforcment, why bother getting one?
In the hands of the Cato Institute, this kind of argument becomes a universal acid that dissolves the case for any regulation of anything. That’s foolish. Regulators can do a better or a worse job, and in many cases even though it’s hard to create effective regulatory agencies there’s also know reasonable alternative to rolling up our sleeves and trying our best. Otherwise we get banking system meltdowns, pollution everywhere, poison in our food, etc. But though a free market in tour guides isn’t going to function perfectly, it ought to function well enough. If specific kinds of abusive practices becomes widespread, we can enact or enforce legislation to allow for ex post punishment of malefactors rather than relying on semi-arbitrary barriers to entry. Otherwise, you end up with schemes that are run for the benefit of incumbent firms, firms that are very interested in stifling competition but have no particular interest in protecting consumers from rip-offs.