The net result of all these changes was economically incoherent in one important sense. Antitrust laws are rarely necessary in the case of purely private monopolies and cartels because, in an efficient market, it is difficult to enforce cartel arrangements or exclude new competitors. Cartels that charge prices much above competitive levels tend to lose market share and break down. But the cartel arrangements of government-sanctioned trade groups were legally enforceable, and government power could shield them from outside competition. By exempting state regulations from federal antitrust laws, the Court ensured that those laws would not apply precisely where they were most needed.
One consequence of this new system of government-by-special-interests has been a dizzying proliferation of occupational-licensing schemes. There’s an obvious health-and-safety justification for ensuring that drivers of automobiles are above a certain age and understand certain rules. There’s a rational health-and-safety justification for ensuring that those who offer to treat your bronchitis have some relevant training, even if people have every right to seek out faith-healers or acupuncturists instead.
But Texas requires 1,500 hours of cosmetics training for someone to be licensed to shampoo your hair. That’s as much as the flight-time required to pilot a commercial airliner. At some point, such licenses serve less to protect health and safety than to limit the number of workers entering an occupation, simply in order to drive up wages.
Some licenses serve to protect the public, but many serve only to injure the public. The New Deal left courts with no way to distinguish between the two.
In 2006, a North Carolina dentists’ licensing board issued a flurry of cease-and-desist letters against beauty parlors that had started to offer cosmetic teeth-whitening, insisting that such services could only be offered by licensed dentists. The Federal Trade Commission challenged the move on antitrust grounds. It took the position that without active government supervision, a state-created licensing board composed mostly of potential competitors could not require a license for a related service.
Earlier this year, in North Carolina v. FTC, the Supreme Court agreed with the federal government. But in a bewildering twist, the case scrambled the Court’s usual alignment. The four liberal justices—Ruth Bader Ginsburg, Elena Kagan, Stephen Breyer, and Sonia Sotomayor—voted with Chief Justice John Roberts and Anthony Kennedy to sustain the FTC’s position. Meanwhile, three conservatives—Antonin Scalia, Samuel Alito, and Clarence Thomas—dissented, siding with North Carolina against the FTC.
The three conservative dissenters championed states’ rights, insisting that state regulations are immune from antitrust enforcement. The majority agreed with the general principle that state commercial regulations are shielded from federal antitrust laws, but refused to recognize the Parker “state action immunity” doctrine, where market participants are afforded the unsupervised ability to exclude competitors. The latter, reasoned the Court, is not “state action” but merely a state-sanctioned restraint on competition by market participants.