When a government licenses an occupation, they are censuring everyone else. If you're a recurring reader of the Angry Economist, you'll know that economics and politics are frequently at loggerheads with each other. Yet again, this is the case.
New York City's Department of Consumer Affairs is saving us from ever having a bad tour (that would be sarcasm, y'see) by licensing tour guide. Just think about what this means. What if you were to drive around Manhattan and tell people about all the cool things you know about? In and of itself, that wouldn't be illegal. However, try to accept money from people in return for this favor, and you'll be in hot water! You'll be violating the law that says that tour guides must be licensed.
Can you think of anything more ridiculous? What would happen if someone got a tour from an unlicensed tour guide? What would happen if a Greyhound bus driver started talking about what he sees? Yes, nonviolent speech can violate a law, even in a country with a Bill of Rights.
Why has this obviously unconstitutional law been allowed to stand? Why is the right to free speech being infringed? I have no idea. The most likely answer is that the people who cannot pass the hurdle to become a tour guide do not have the resources to challenge the law.
The economic effect of licensure in general is to insert an artificial barrier to competition. Any time you reduce competition, you make the market work more poorly. You create conditions similar to that of a monopoly or a cartel. Everyone who is currently licensed has an interest in keeping anyone else from getting a license. Just as unions don't want too many union members, so, too, do members of a licensed occupation want too many people to get the license. Hence, you see New York City's making the test harder.
Conversely, any time an occupation becomes unlicensed where it had been licensed (can anybody think of this happening?), or the license restrictions are reduced, this allows more people to enter the occupation, and depresses wages. But oh! Depressing wages is bad, right? No. Depressing wages by eliminating interference in the market actually makes your society better-off. Many more people are made a little bit happier than the few who are made sadder. Unfortunately, the few who are made sadder are easily identified, whereas the people made a little bit happier are hard to find. Even if you could, they would probably have nothing to say about their benefit. And yet, the benefit is real even if it's hard to measure and politically hard to carry out.
That, in a nutshell, is the difficulty of a democratic society. The democracy is subject to the concentrated interest of all its citizens. Its tendency is to favor (at the same time!) group A over group B, and group B over group A. On the whole, both these favors make A and B worse off. However, the politician who recognizes this and tries to do something about it will incur the wrath of both A and B.
What do do about it? Well, help people to understand these types of issues. So many people think that economics is obvious because they can go to the store, buy something, and make change. It's not. Economics is subtle. Economics can be used to point to fallacies like rent control or minimum-wage laws. I'll write about both these topics in time. Right now, you can help by linking to the Angry Economist, and mentioning it in polite company when an economics issue comes up.
 update: Charles relates this example: for years, in the province of Saskatchewan, you had to have a Chauffeur's License to operate certain kinds of vehicles, including two- and three-axle flatbed haulers used to haul cars. Made no sense, but that was it. They took away that restriction; you can now get (say) a garden shed hauled away by a hundred different operators for thirty bucks where you might not have been able to have it done for a hundred before. The competition is /intense/ now; every tow-truck company has flatbed haulers and will happily haul anything they can drag onto them with a winch. I had a kid's playhouse hauled away last year this way.