Return on Investment

Why is there a tendcency to overlicense ? The Conversable Economist (via EconLog) suggests three reasons – restricting competition, worst-first thinking, and the illusion that this improves standards. While I think all three have merit, there is another reason why practitioners fight for regulation. This is their need to justify their own investments in becoming professionals.

Every person who makes a personal investment in their life, such as investing in education or adopting a limiting lifestyle for personal improvement reasons, will want to ensure that this personal investment was justified. We will sometimes see an insistence that the return be guaranteed (this is primarily by women) and otherwise as a demand that the return be conditioned on the investment. Either way the demand is that the personal investment must be artificially post-facto justified.

Another prominent example of this is the demand for educational credentials. If a promising young scholar can be given a position without earning a PhD then those who did earn a PhD to get thier positions wasted their time and resources in making this personal investment.

Feminst divorce law shows the same behavior when it insists on a full split of marital property regardless of who earned it and why the couple is divorcing. The woman made an investment by marrying, and they do not want the returns on that investment to depend on its wisdom, on fate, or on her continued investment.

The same motivation is seen whenever an existing system is replaced by a new one, either in a natural passage between generations or as a legal policy change. The old guard always argues for the necessity of holding the new generations to the same standards they were held to; they predict total collapse of the sector if the entry criteria are liberalaized (and sometimes they are right.) their angst is not caused so much by their concern for the performance of the relevant industry, but by their concern over their own personal investment. They had to work hard to get to where they are, and now they see the young men coming in without having to go through the same rigor. Their own efforts were meaningless.

Another area where this shows up is when people advise their young freinds to make the same life choices they did, even when they proved foolish. This is particulary true for people who held fast to a less appealing lifestyle, believing it to be right. They invested heavily, and the return they expect is to be seen as wiser people. They cannot advise others to do different, which is the worst possible repudation of their own personal investment.

Personal investment is the most important investment we make, and the scariest to get wrong. It is often easier to try to force the world to see our decision as correct than to face the possibility that our personal investment was unnecessary, or worse, counterproductive.

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