Fortune-Tellers in Salem, Mass. Didn’t Foresee Greater Competition from Lifting Licensing Restrictions

In a town known for witchcraft and the paranormal, a conflict is now ensuing over psychics in Salem, Massachusetts. Long-time practitioners are upset that the lifting of a strict limit on the number of licensed psychics in the town a few years ago has led to a flood of competitors—and diminished profits.

The city started regulating fortune-tellers in 1930. During the 1970s, a perception that there were too many fortune-tellers led the city to restrict the number of psychic readers to five, plus about 11 existing fortune-tellers who were grandfathered in. The cap was lifted in 2007, and the number of licensed fortune-teller shops grew from four in 2006 to 24 in 2010 (including roughly 90 individual licensed psychics).

But many of the fortune-tellers who practiced before the ban was lifted are not happy about the new competition. The licensing cap “blocked a lot of people from coming in from all over the country during Halloween and looking to make a quick buck,” Diana McKanas, owner of the Salem Psychic Center, told the Salem News. “In my observation, these people . . . are not real psychics.” Never mind that, in many people’s estimations, no one is a real psychic.

A Boston Globe editorial had a more humorous take on the situation: “Some of the biggest supporters of reinstating the cap come from an unlikely source: members of the clairvoyant community themselves, who say the proliferation of new psychics is threatening their businesses. (As an aside: shouldn’t they have seen this coming? Just asking.)”

Although the quirky nature of the industry gives the story an entertaining twist, it is instructive about the true nature of occupational licensing: licensing is not so much about trying to protect consumers as it is trying to protect a group of existing practitioners from competition. Numerous economic studies analyzing a wide variety of industries have shown that licensing does not tend to improve product quality, and, in many cases, even reduces product quality because less competition means less incentive for practitioners to provide higher-quality services, passing licensing exams and other requirements do not necessarily mean licensees are highly-qualified, consumers seek out black markets to try to save money, or licenses give people have a false sense of security about with whom they do business, making them less careful than they otherwise would be about ensuring a practitioner’s competence. On the other hand, occupational licensing regulations do make it more difficult for new businesses entering the field, which allows the existing practitioners (who are typically grandfathered in and don’t have to meet the higher standards) to charge higher prices because of the reduced competition.

Some of the fortune-tellers in Salem understand how the system works, though. Christian Day is owner of the Hex and Omen occult-based stores, a board member of the Destination Salem tourist marketing organization for the city, and is described in the Globe editorial as a “local warlock.” Said Day in the Globe column, “I believe that the free market should decide whether or not there are too many psychics. If we have too many, they won’t make money and they leave. It’s just like anything else.” In addition, if “you cap the number of licenses and keep those people with licenses protected you essentially guarantee that people with lesser talent are protected.” I wouldn’t want to speculate on Day’s skills as a warlock, but he sure seems to understand economics.

Alas, the elimination of the fortune-teller license cap was not a total victory for free markets. When the cap was repealed in 2007 the city installed a new licensing scheme. According to the Salem News article, “The new licensing process includes a criminal background check, a check into consumer complaints, whether the business is in good standing with the secretary of state and often some light testimony in front of the Licensing Board.” [Emphasis added] Testimony in front of the licensing board? Really? What do they have them do, read the board members’ palms?

Asked about how Salem came up with the new regulations, city solicitor Elizabeth Rennard told the Salem News, “We found very few places (with psychic ordinances) when we were looking for a model to use here.” Maybe that should have been an indication that licensing fortune-tellers is unnecessary and wasteful, but the city was not to be deterred. Not to worry, it ended up modeling its law after San Francisco’s. (That figures.)

Say what you will about psychics, it seems the real scam is the onerous and pointless regulations foisted on businesses by the City of Salem.

” For a more in-depth discussion of occupational licensing issues and reform ideas, along with a ranking of the 50 states based on how many occupations for which they require licenses, see my study, Occpuational Licensing: Ranking the States and Exploring Alternatives.