Why License At All?
In a rather tortured post about how some companies make profits, Matthew Yglesias makes an aside that just points out the absurdity of licensure laws in general.
When you make it illegal to issue new liquor licenses in Adams-Morgan, you generate monopoly profits for existing license-holders.
The liquor licenses thing is definitely wasteful—instead of grandfathering certain business in and letting them generate monopoly profits you ought to auction the licenses and let the public capture the regulatory surplus.
I see what Yglesias is getting at, but all I could think of when I read this is “Why stop issuing liquor licenses?” For that matter, why have liquor licenses at all? After all, the laws on the books already make it illegal to sell to people under 21 and in most states limit the age of the people selling the liquor as well. So what’s the need for the license? The same thing goes for other businesses as well. For instance, why artificially limit the number of taxis? Why not let the market find the right level for a particular area? It simply makes no sense for the government to arbitrarily decide how many of a certain type of business there should be. If there are too many, then some will close. If there’s not enough, new businesses will come in.