A Capital Writing interview with the editor of Empowering the New American Worker.
As part of a project for Capital Matters, called Capital Writing, I’ll be interviewing authors of economics books for the National Review Institute’s YouTube channel. This time, I talked to Scott Lincicome of the Cato Institute about the book he edited, Empowering the New American Worker: Market-Based Solutions for Today’s Workforce. Below you will find an edited transcript of a few key parts of our conversation as well as the full video of our interview.
Dominic Pino: You call the book, “Empowering the New American Worker.” What makes the American worker “new,” what does that word mean in the title? What is it that is different about the American worker now than in the past?
Scott Lincicome: One of the reasons why we set out to write this book is that I really grew frustrated with hearing about pro-worker policy, or helping American workers via policies that were not only always about more and bigger government, but also tended to totally ignore the vast majority of the American workforce; tended to ignore pretty radical changes in the U.S. labor market, particularly during the pandemic, and ignored all sorts of survey materials and polling on what American workers value, what they don’t value, and quite frankly just the diversity of opinion out there. If you were to only watch Sunday shows or political speeches, you would think that there are basically two workers in the country. You have the unionized, nine-to-five, assembly-line, breadwinner male, probably in his 40s or early 50s, and then you have some college-educated, urbanite single or couple that maybe is considering kids. The reality is that while those stereotypes surely exist, they’re really not representative of the vast majority of the American workforce.
DP: I think that was a central tension in the book: It wasn’t between Democrats or Republicans or between conservatives and progressives. It was between politicians and normal people. What is it about Washington, what is it about being an elected politician, that for some reason creates these stereotypes that don’t actually hold up to reality?
SL: Some of it is just classic interest-group politics. When you have a large group of steelworkers from the steelworkers’ union knocking on your door, you’re going to be paying more attention to steelworkers and maybe be supportive of things like steel tariffs. Or, quite frankly, you’re trapped in the D.C. bubble, and staffers and policy-makers tend to think that everywhere has the same problems that Washington, D.C., has. For example, Washington has the highest child-care costs in the country. The numbers are absolutely insane, and a lot of that is due to really onerous child-care regulation, related to staff ratios or credentials — in fact, D.C. just upped the credential requirement for day-care workers just recently. And some of it is also, I think, the punditocracy. You read the same people, you read the same publications. Those publications have their own priorities, and that tends to seep through in policy as well.
A good example of this is on independent contracting. Maybe because of where people live in Washington, the only contractors they deal with are Uber drivers, but everybody seems to think that all independent contractors are gig workers. It turns out that, according to the IRS, less than 10 percent of all independent workers are gig workers. In fact, freelance workers find them to be more secure and satisfying than traditional employment. And they’re really lucrative. You can make a lot of good money doing this kind of work, and this is lost on a lot of Washington. President Biden’s labor department wants to dramatically curtail independent work, and it’s all based on this really incorrect stereotype about the nature of work.
And I would add one last thing: Most of official Washington is a gerontocracy, and I think that also gives them some distorted views about what today’s labor market is.
DP: One of those distorted views that I think this book does a really good job of beating back with descriptions of facts, not even with the policy recommendations, is the idea that the United States has been some sort of ultra-free-market economy. When people on the right are attacking free markets, they like to call it “market fundamentalism.” When people on the left do it, they like to talk about “neoliberalism.” This book does a really good job, I think, of laying out the fact that we have an extremely interventionist government in a lot of really important areas. They’re even areas that we just kind of take for granted. I think one of the ones that was interesting to me was the chapter on homeownership, which basically said there is no other country in the world that has as much government involvement in mortgages and home lending as the United States. Talk a little bit about that.
SL: This is the other big motivation for the book. The other big misconception in official Washington, and you hear it all the time on the right and the left, is that free markets are unfettered and have failed workers, that we have pervasive market failures in all sorts of areas, and thus we need pro-worker government intervention to fix it. Like you said, this really ignores the laundry list of state, local, and federal policies that exist in all sorts of areas, whether it’s occupational licensing or health care and child care or essential goods or homeownership and housing affordability. We have all of these preexisting policies in place that raise the cost of essentials, that distort markets, that prevent the delivery of top-notch services, and that make it harder for workers to adjust, to move from place to place or job to job.
You mentioned homeownership and mortgage subsidies. Owning a home can be great, but getting people into mortgages they can’t afford turned out to be a pretty terrible thing during the Great Recession. Especially when it inhibited people from selling their homes and moving to communities that might have adjusted more quickly or that had implemented better policies and were now thriving, and it trapped people in these struggling places.
Another great example is health insurance. We have this archaic tax preference for employer-provided health insurance that was basically an accident, dating back almost a century, and that has created what we call “job lock,” which really ties individuals to their employers. You hear all about employer bargaining power, but almost anyone will admit that one of the reasons they stay in a job or are afraid of losing their job is because they’re afraid of losing their health insurance for themselves or their families. This is totally a by-product of our current tax policy and tax treatment for health insurance. There’s no reason why your employer should be picking your health insurance. If you were to listen to official Washington, you’d hear that we have a market failure in health insurance, we need single-payer, or even on the right, we need all these subsidies, but how would we know that there is a market failure when we have so much government involvement? And it’s not just the demand side, but also the supply side. We restrict licensing for nurse practitioners. We restrict foreign doctors from practicing here. We have certificate-of-need laws at the state level that raise the cost of care and limit the supply. That makes the health-care market the furthest thing possible from a free-market-fundamentalist paradise. You can go down the list of issues that workers most care about, and if you scratch beneath the surface of that “market failure,” and almost always, you’ll find a bunch of government policies that are making things worse.
DP: There are so many graphs in this book.
SL: Yeah, I love charts.
DP: One of the things I didn’t realize until I looked at the graph is just the incredible increase we have in the proportion of Americans who have a criminal record, and the sizeable chunk of the workforce that has to deal with that problem. And a lot of these people didn’t do anything terrible, maybe they did something a long time ago, but it still follows them and makes it hard for them to get a job.
SL: One of the things you hear, particularly on the right, is about labor-force participation, how men in particular are not working anymore, and there’s a lot of focus on trade and disruption and the rest. But with occupational licensing and criminal justice, you see that just as the world was becoming more disruptive, just as depressed labor-force participation was becoming a bigger issue, we were dramatically increasing the scope and number of professions that required a license and thus had a government gatekeeper. We also were throwing a lot of people in jail, or at least giving them a criminal record. Like you said, looking at the charts, there are tens of millions of Americans today that have a record. There are millions more that have an arrest, not a conviction. The latest economic literature shows that a simple arrest on your record can dramatically reduce participation in the labor force.
We’re not talking about murderers. Millions of people affected here are dealing with nonviolent crimes, crimes that they committed when they were teenagers, or things for which they were arrested and eventually acquitted. Combine that then with occupational licensing. There are numerous occupational-licensing restrictions on people with any sort of criminal record, even if it was decades ago, even if it had nothing to do with the job at issue. That combination is a sort of witch’s brew preventing many people from fully participating in the labor force. We talk a lot, especially on the conservative side of things, about Social Security disability insurance, that people aren’t working because they’re on disability. It turns out that the criminal-justice nonparticipation is about three times as much. It’s almost two million workers affected by the criminal-justice stuff, compared to fewer than a million workers on the disability side. That’s not to say we shouldn’t reform disability — we should — it’s just to say that if we care about nonparticipation on that side, we should definitely care about this too.
DP: Underlying this entire discussion is the first chapter of the book, which is about the macroeconomic foundation for workers. The idea that economic growth is a good thing for everybody. There’s a lot of talk, especially on the left, about income inequality and how that undercuts this argument for economic growth, but there’s a lot of really good data in this chapter that shows how people who are not as well off really do benefit from growth. One of the other areas as well is the problem right now with inflation. That’s an issue that higher-income people don’t face as much as lower-income people. The importance of getting that macroeconomic foundation right, I think, needs to be a huge point of emphasis.
SL: This is the “do no harm” section of the book. You can talk all you want about these micro fixes. You can talk all you want about health-care policy or housing policy or fixing licensing or criminal justice or whatever, but if you mess up the macro stuff, none of it’s going to matter. We really need to be careful about not throwing the baby out with the bathwater. That’s what I note in the conclusion. After we implement these market-based reforms, after we see where there might be real market failures, even then, we really need to be careful to ensure that we’re not doing stuff that reduces labor productivity because that’s really what drives generational wealth.
One of the reasons we’re trying so hard to find market-based reforms in these areas is because redistribution, at the end of the day, just really isn’t moving the ball down the field in terms of generational wealth and living standards. Redistribution is simply insufficient to produce those kinds of long-term improvements in living standards. Things have, over the very long term, been getting better, and that’s thanks to general free-market, capitalist, economic principles, and we should really never forget that, regardless of all these other reforms we should pursue.
