How Inequality Shapes Our Lives, Part 2

My friend Bryan Caplan has a response to my recent post about inequality. I’m preparing to leave town for the Alabama Philosophical Society and so probably won’t have a chance to reply in detail until I get back. (This also applies to the comments section of my previous post, which I haven’t had a chance to look at.) But three short points just for now:

Organize and Take the Big Bag

a) Bryan’s response focuses on the ways in which free markets would solve the problems I point to if they were really problems. But the whole point of my position is that we don’t have a free market! Left-libertarians have pointed out in detail the ways in which the housing and labour markets, for example, are skewed in ologopolistic and oligopsonistic directions respectively. By ignoring these analyses rather than refuting them, Bryan in effect assumes the problems out of existence; he might just as well say “taxes can’t really be too high, because if they were, consumers would just switch to a rival protection agency with lower fees.”

b) The fact that workers can shirk, that tenants can be delinquent, etc., is beside the point. We already know upfront that each party to a contract can potentially screw over the other. The point is that, given that context, the contracts are then skewed to favour one side. That skewing isn’t counterbalanced by the other side’s capacity for delinquency, because each side has that capacity, and one side has the favourable contract in addition.

c) Yes, there are various regulations that purport to help the weaker party to the contract; but left-libertarians have argued in detail that those regulations in practice actually tend to help the stronger party instead. Maybe we’re right about that and maybe we’re wrong, but as far as I know, Bryan hasn’t addressed those arguments, and we can hardly be expected to pretend we haven’t made them.

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12 Responses to How Inequality Shapes Our Lives, Part 2

  1. T Barrett September 22, 2010 at 4:29 pm #

    Firefox 3.6.8 MacIntosh

    There is a “refutation” of your original post at The Libertarian Standard as well. I posted a comment there agreeing with you and using a personal anecdote as illustration. The post author replied with one of the most utilitarian arguments I’ve seen: that Verizon (my ISP) simply has too many customers to enter into individual agreements with each. It would be cost prohibitive.

    Which in my mind begs the question of how big such a company would get in a freed, competitive market. Certainly not so big that they can begin dictating completely one-sided terms to any and all customers. I think part of the problem is that the author seems to assume that we currently have such a market.

  2. Lori September 22, 2010 at 10:14 pm #

    Firefox 3.6.10 Ubuntu 10.04

    He also claims that landlords are easier to sue than tenants. I don’t know where that comes from. Process serving for consumer debts is one of the most routine functions of our legal system, and follows delinquency as sure as night follows day. It seems every right-libertarian argument is built to support the contention that big business is America’s most persecuted minority. A comment by one Silas Barta does explain something I’ve been complaining about for a while; that boilerplate, and sales and customer service tactics under actually-existing economic relations can be a means by which the assertive and extroverted extract economic surplus from the meek.

  3. James September 25, 2010 at 4:25 pm #

    MSIE 8.0 Windows 7

    He’s responded again (http://econlog.econlib.org/archives/2010/09/rod_replies.html), I left a comment

    “My thoughts:
    http://0welcometo1984.wordpress.com/2010/09/24/385/#more-385

    The summary: Long’s argument makes sense if people see the kind of contracts he describes as inferior goods, which is a reasonable enough assumption because they are low-quality and it’s possible to make higher-quality ones. We no doubt do have more recourse these days compared to an hundred years ago because we can afford it now.”

    You’re welcome to steal this IP of mine of you like :)

  4. Lori September 26, 2010 at 2:28 pm #

    Firefox 3.6.10 Ubuntu 10.04

    I see contracts as a value-subtracted feature. This is why ‘no contract’ can be used as a selling point by vendors of prepaid services, such as the 3g dongle with which I am posting the present comment. Does that mean there’s nothing tyrannical about boilerplate? I’m with Long that there is something tyrannical about one-sided contracts. But, the implication as I see it is that under the market system, freedom itself is a commodity, and has a price. That contractual relationships in which the vendor has specific obligations to the customer are inevitably ‘high-end’ products illustrates not only that rank has its privileges, but that rank, like everything else under the market system, is for sale.

  5. David Gordon September 28, 2010 at 9:01 am #

    Firefox 3.6.10.NETCLR3.5.30729 Windows XP

    Bryan Caplan’s response strikes me as stronger than you allow. In your original post, you argued that certain features of contracts reflect asymmetries of power which arise from government-created privileges that wouldn’t be present in a truly free market. This contention depends on the premise that people in a free market would be unlikely to make contracts with the features that you deplore. One of Caplan’s points is that this isn’t true. He hasn’t begged the question by assuming the existence of a truly free market, when the point of your post was to deny that a truly free market exists. Rather, he has thrown into question your assumption that the features of the contracts you criticize stem from differences in power.

    • Roderick October 1, 2010 at 4:21 pm #

      Firefox 3.0.19.NETCLR3.5.30729 Windows XP

      David,

      As I understand it, Bryan’s argument was this:

      1. If people really preferred fairer contracts, they’d pay more to get them.
      2. They don’t pay more to get them.
      3. Therefore they must not really prefer them.
      4. Therefore there’s no reason to think these contracts would disappear in a free market.

      But preference is always relative to available options. I prefer walking to driving, if the cost of fixing my car means I can’t eat this month. So in order to conclude (4) from (1)-(3), Bryan must be implicitly supposing that the actual constraints determining preference in the real world of (2) are the same that would hold in the free market of (4). Analogously:

      1. If I really preferred driving to walking, I’d pay to have my car fixed.
      2. I haven’t paid to have my car fixed.
      3. Therefore I must not really prefer driving to walking.
      4. Therefore there’s no reason to think I would drive rather than walk if I had twice as much money.

      But on the contrary, the opportunity cost of fixing my car would be much lower (i.e. it wouldn’t entail starvation) if I had twice as much money, and so my preferences would be different (or, more precisely, the same preferences would issue in different actions).

  6. Lori September 28, 2010 at 3:17 pm #

    Firefox 3.6.10 Ubuntu 10.04

    It looks to me as if Caplan is not questioning whether the contracts as drafted stem from differences in power, so much as he is defending differences in power, assuming ‘differences in power’ is what he means by ‘inequality.’ It’s certainly what ‘inequality’ means to me. Like much at the econlib blog it looks like a celebration of inequality; in this case saying customers benefit from ‘inequality’ in the form of lower prices. Sounds a lot like the Walmart PR to the effect that lower prices increase consumers’ standard of living, which sort of puts the cart before the horse, as earning is a prerequisite for saving. My own anagorist take on all this, again, is that under markets, equality (with other parties to a transaction, or equality of footing) is a privilege, not a right.

    • JOR September 28, 2010 at 8:17 pm #

      MSIE 8.0 Windows 7

      In the free market, rights are a privilege.

      Or, in other words, we do have a free market right now. The state is the Maximum Landlord/Employer. Do we have lower prices/higher wages with it than we would without it? Probably. But if we do it’s mostly because everyone in the western world is a net beneficiary of their states’ collusion with the oppression and extortion practiced on people elsewhere (particularly eastern and south-eastern Asia), not a direct result of ‘our’ states’ petty tyrannies in our own countries.

      If it’s true that the elite can only increase their power over workers by increasing wages, then Black American slaves or the laborers in the gulags should have been the highest-paid people in history. Their employers/landlords had far more power over over them than the elite of today’s corporate neoliberal nation-states have over theirs, after all.

  7. rmangum November 5, 2010 at 1:20 pm #

    MSIE 8.0 Windows Vista

    Caplan wrote, “Under laissez-faire, service providers, landlords, and employers would be free to adopt double standards more lopsided than current law allows.” Indeed, they would be free to, but, facing more competition with less government-imposed barriers to enter the market, would they be able to do so successfully? It seems obvious that a restricted market adds a great deal of leverage on the side of employers/landlords. What’s remarkable about assumptions like Caplan’s about the nature of bargaining power in contracts on a free market is that it is exactly the same as the typical liberal/progressive view. If we’re concerned about inequality at all, or at least give inequality greater weight than low rents and high wages (he really seems to be arguing that markets are superior because of their inequality ), reading Caplan’s post should convince us of the need for regulation.

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