The economy is rigged. Everybody thinks so. Donald Trump thinks so. Hillary Clinton thinks so. Bernie Sanders really, really thinks so. "Wall Street and the billionaire class," Sanders has said, "has rigged the rules to redistribute wealth and income to the wealthiest and most powerful people of this country." Even Charles Koch, Sanders’s go-to "billionaire class" villain, thinks so.
Well, not everybody thinks the economy’s rigged. Some Americans — 29 percent of them — don’t. They’re wrong. The economy is rigged. When Bernie Sanders and Charles Koch agree, they’re probably onto something. But how did the economy get rigged? We need an accurate theory of system rigging. We can’t fix the problem if we misdiagnose it.
Sanders thinks Koch and his billionaire comrades did it, more or less. Koch thinks an active, hands-on approach to economic regulation — an approach Sanders strongly favors — has allowed interest groups to capture the regulatory process and rig markets in their favor. Sorry, Bernie fans: Charles Koch is a lot closer to the truth.
Why Bernie’s wrong
According to Sanders, failure to maintain a relatively equal distribution of income and wealth allows the rich to "buy elections," which allows them to exploit the political system to rig the economy in their favor — and to prevent non-rich voters from doing anything about it. His theory really is that simple. Look:
This is a poor theory, and it’s not very useful for helping us understand how we might unrig the economy.
The malign effects of money in politics are generally overblown, as Vox’s Dylan Matthews has explained. This year’s Republican primary vividly illustrated the dynamics that make it tough to "buy" an election. Ordinary GOP primary voters simply didn’t want the immigration policies rich Republicans wanted. That’s why all the billionaire cash behind Jeb Bush, Marco Rubio, and Ted Cruz was wasted, and why Donald Trump, who ran a shoestring campaign directly against the preferences of the Republican billionaire class, is the Republican nominee.
But it’s important to emphasize that the sort of split we see in the GOP between the views of rich donors and rank-and-file voters on the issue of immigration isn’t actually very common. Generally, the political preferences of rich voters aren’t all that different from those of middle-income voters. When rich and middle-income voters do disagree (and, again, it’s not that common), the rich prevail only about half the time. This does suggest a disproportionate influence on the system, but it’s much weaker than the sort of influence Sanders suggests.
In any case, the influence of the rich isn’t all in an anti-progressive direction. On some issues, such as the public financing of political campaigns, the rich are more likely to agree with Sanders than they are to agree with middle-income voters. But that hasn’t helped them get their way.
And many billionaires, such as Warren Buffett, Nick Hanauer, and George Soros, generously support organizations and politicians who favor exactly the sort of equalizing redistribution that Sanders demands. Others, such as the Koch brothers, oppose leveling redistribution.
The net effect of billionaires’ attempts to influence redistributive policy is very hard to gauge. Some of the mega rich squander titanic sums backing unviable political candidates, while others make small, targeted, strategic gifts that deliver outsize returns. That’s why comparisons of the raw number of left-leaning and right-leaning billionaire donors, or the size of their political contributions, can’t tell us much about the overall balance of effective political influence. The safe guess is that anti-redistribution billionaire cash neutralizes pro-redistribution cash, and vice versa. It’s probably close to a wash.
The case that the "billionaire class" blocks redistributive policies that the American public would otherwise support is weak. It’s closer to the truth to say that the middle class, entirely of its own accord, reliably opposes the high middle-class tax rates and generous progressive transfers that we see in the sort of egalitarian country Bernie Sanders would like the United States to become.
Some of this opposition has to do with America’s fraught race relations: Many white voters, who are more likely to be wealthy, dislike welfare transfers to black Americans, who are more likely to be poor. Some of it has to do with the unusual prevalence in the United States of the belief that effort is more important to economic success than luck.
Overturning Citizens United and taxing the hell out of Charles Koch may or may not be good ideas. But there’s little reason to think that limiting the influence of rich people on the political system would much affect the underlying causes of American opposition to leveling redistribution. Surely inequality is to some degree a consequence of our rigged economy. But it’s not the primary cause.
So what is?
How trampling on economic liberty led to a rigged economy
The first step on the path to wisdom is to give up on the idea that there’s any such thing as the economy, exactly. What we have instead is a dizzying array of interlocking markets that function (or don’t) to meet consumer demand for specific goods and services, and a vast body of law that defines these markets and regulates their operation.
The economy is the sum of this incomprehensibly complex ecosystem of human exchange, and is far too variegated and decentralized to "rig" all at once. So it gets rigged little by little, one market and one jurisdiction at a time.
The story of how the economy gets rigged is therefore a bunch of homely little stories of people with nice watches screwing over people with less-nice watches. But it’s not class war. It’s not the mega rich against the rest of us. It’s insiders seeking and then protecting special privileges that give them a leg up.
Dentists rig the system against dental hygienists by working to make it illegal for hygienists to clean teeth without totally unnecessary supervision by dentists. Taxi medallion oligopolists rig the system against regular folks with cars who would like turn a buck giving people rides. Beauty school cosmetologists rig the system against hair braiders and sidewalk hair-clipper artistes. "Massage therapists" rig the system against anybody with strong hands who might want to give back rubs for cash.
About 30 percent of all jobs in the United States today require some sort of occupational license, up from 5 percent in the early 1950s. This rather dramatic shift is evidence that the economy has indeed become increasingly rigged — which is really just another word for "regulated."
But the rigging of the economy is not just the story of occupational licensing. It’s also the story of big-city gentrifiers who block construction projects that would reduce the cost of housing by expanding its supply, which has the effect of rigging the economy against workers who can no longer afford to live where the best jobs are.
It’s the story of petty restrictions on the freedom to buy and sell — to commit "capitalist acts between consenting adults," as the philosopher Robert Nozick once put it — which deny dignity and safety to those who work on the margins of the economy. Think of Eric Garner selling untaxed cigarettes on a street corner.
Small regulations create an entangling web
Many of these economic regulations seem trivial in isolation. So what if you can't just decide to give back rubs for money? But when you add up all the things you can't do for money without meeting costly, unjustifiable requirements, you get a dense web of restriction that acts as a suffocating structural barrier to economic opportunity, mobility, and equality.
Occupational licensing helps insiders keep outsiders on the outside by raising the cost of entry into their lines of work. When more and more lines of work impose licensing requirement, it pushes workers into competition for jobs in unlicensed fields. Ryan Nunn, a labor economist at the Brookings Institution, puts it this way:
Intuitively, licensing creates "crowding" in unlicensed occupations and labor scarcity in licensed occupations, driving a wedge between the unemployment rates in the two sectors. … Not only does licensing redistribute earnings from unlicensed to licensed workers; it also shifts the burden of unemployment away from licensed workers.
That is to say, licensing makes it less likely that unlicensed workers will be able to find a job at all, and when they can, those jobs will pay less.
The combined exclusionary effects of all these regulations push many of our society’s least privileged people into gray- and black-market work that courts abuse, dangerous interactions with law enforcement, and prison records that hurt their chances of ever finding less risky, legal work. To make matters worse, we’ve imposed more and more work requirements on public assistance, even as we’ve regulated away access to legally legitimate jobs.
A rigged health care system affects the job market, too
And it’s not just people in big cities who suffer from the knock-on effects of licensing. Take Arkansas, a poor, largely rural state undergoing an epidemic of obesity and diabetes. There aren’t nearly enough doctors to go around. More than half the population lives in an officially designated "medically underserved area," and more than one in five live in a "health professional shortage area" — places with fewer than one doctor for every 3,500 people. The American Diabetes Association estimates there are about 75,000 people in Arkansas who don’t even know they have diabetes.
Untreated diabetes can lead to blindness, amputation, kidney failure, and death. Diagnosing and treating diabetes is not especially complicated. But it is illegal in Arkansas for a nurse practitioner — basically, a registered nurse with a graduate degree — to treat patients without the supervision of a doctor, and nurse practitioners are banned from prescribing drugs needed to treat people suffering from diabetes.
Health and safety considerations certainly justify rules that prevent just anybody from setting up shop, examining patients, and prescribing insulin and antibiotics. Health and safety surely justify licensing requirements for, say, emergency medical technicians and nuclear engineers, too. Yet petty violations of economic liberty, such as the regulations that forbid Arkansans with diabetes from receiving health services from nurse practitioners, can hurt health and safety, too —and leave many people too unhealthy to stand a chance in the economy.
In 2007, the most recent year for which I could find data, 738 Arkansans had some part of a foot or leg amputated due to diabetes, and the trends for diabetes and amputation trends have only worsened since. Needless to say, being blind or not having feet is a serious obstacle to finding and holding down a job.
That Arkansas is second only to West Virginia in the percentage of the working-age population receiving Social Security disability benefits (8.4 percent) is no surprise. Rigging one important market, like the market for health services, can have serious ripple effects that stack the deck even further against those already in a precarious economic position.
No rational explanation necessary
The problem is that, as the law stands today, economic liberties are not considered "fundamental" enough to merit special legal protection. And that means regulations of the economic sphere are subject to the least demanding level of legal scrutiny — "rational basis." They are considered justified, more or less, simply by virtue of the fact that they have made it through a legislature or city council.
If Arkansas doctors want to protect their monopoly on the provision of medical services, they don’t have to provide any evidence that the risks of allowing nurses to treat patients outweigh the benefits. As a matter of fact, people are healthier in the states that allow nurse practitioners more leeway. But if Arkansas says the restriction on the liberty of nurses and sick citizens promotes health or safety, or anything else that states ordinarily promote, then it’s presumed to be justified. It doesn’t have to be true.
As a practical matter, this means that just about any well-organized professional group can pad its bottom line by lobbying legislators to suppress market competition on totally specious grounds. No doubt that’s why, in Michigan, it takes more than twice as many days of training to become a licensed massage therapist as it does to become a licensed emergency medical technician. Legally, restrictions on economic liberty don’t have to make sense.
And that, in a nutshell, is how the economy got rigged — from bottom to top, from occupational licensing for hair braiders to ironclad intellectual property protections for tech billionaires. American law does not consider economic liberties to be "fundamental" in the way that, say, the right to have an abortion or the right to get a same-sex marriage are fundamental, and so regulations of economic life aren’t required, as matter of law, to have any practical relationship to the goals they are supposed to achieve.
And that means there has been very little to keep interest groups, large and small, from slowly rigging our economy with self-serving regulations under the guise of the public interest.
If it ever does become possible to unrig the system, it will be because enough of us have come to agree about how it got that way and have set to work restoring our economic liberties in the same way they were whittled away: doggedly, democratically, one market and one jurisdiction at a time.
Will Wilkinson is the vice president for policy at the Niskanen Center.