How Inequality Shapes Our Lives, Part 3

Bryan Caplan has replied to my reply to his reply to my inequality post.

Others have weighed in as well; see David Heinrich, Jason Sorens, and Libérale et libertaire. I plan to address those too; but let me focus on Bryan’s latest reply for now.

Metropolis - Moloch

In his first reply, Bryan had argued that if consumers/tenants/workers (let’s say proles for short) were “willing to pay a premium for equal treatment” in the form of higher prices/rents or lower wages, then firms would “have every reason to offer it”; hence we should conclude that proles must “prefer the existing double standard to the extra costs of equality.” I had responded that this reply in effect “focuses on the ways in which free markets would solve the problems,” which is irrelevant since in our actual nonfree market “housing and labour markets, for example, are skewed in oligopolistic and oligopsonistic directions respectively.”

Bryan now responds that while he grants that markets aren’t free, he thinks that fact is irrelevant, since oligopolistic and oligopsonistic firms (let’s call them oligo-firms for short as well, so I won’t have to keep repeating the full cumbersome phrase) still respond to incentives: “Even a government-created monopolist still has a clear incentive to cut prices when its costs fall, and raise prices when its costs go up.”

I find Bryan’s response puzzling, since I’d never denied the obvious microeconomic truth he thinks I’ve neglected. But let me take a stab at guessing what he has in mind: my guess is that he thinks our disagreement is over whether oligo-firms would offer more egalitarian contracts if the proles were willing to pay more. But I don’t necessarily disagree with Bryan about that. (I think matters are a bit more complicated than Bryan does, since I take inequality to be in many cases a consumer’s good for firm managers; but I don’t assume that their demand for it is inelastic.) Let’s assume that oligo-firms would indeed offer more egalitarian contracts if proles were willing (or able) to pay more; and let us further draw the inference that proles’ unwillingness (or inability) to pay more explains the inegalitarian character of existing contracts. How does that constitute an objection to my position?

After all, my whole point is that governmental privilege on behalf of the oligo-firms explains why the proles are faced with the unpalatable choice between inequality and monetary loss. If I would rather be punched in the face than pay you a million dollars not to punch me in the face, that may explain why I’m getting punched in the face, but only relative to the background conditions that explain why these are my only options. Ignoring those background conditions makes Bryan’s position sound all too much like the next-best-alternative defense of sweatshops.

The same point applies to Bryan’s next remark:

Firms, landlords, and employers offer skewed contracts to make it harder for customers, tenants, and workers to screw them. And most customers, tenants, and workers happily accept these contracts because they sensibly prefer lower prices, lower rents, and higher wages to formal equality.

With the exception of the word “happily,” I have no dissent to express from this doctrine. But again it seems to miss the point. Oligo-firms have an interest in not being screwed by proles, and proles likewise have an interest in not being screwed by oligo-firms. How, then, given this mutual screwage-aversion, does it come about that the contracts are skewed to reflect one side’s screwage-aversion to a far greater extent than the other’s. It’s not clear to me what Bryan’s answer is to that question; my answer, of course, is that the range of alternatives for consumers, tenants, and workers has been artificially narrowed by government regulation.

This brings me to Bryan’s third point. In his original reply he’d maintained that “existing government policy tilts market outcomes in the direction that he [= Roderick] misguidedly favors.” To this I’d replied that while “there are various regulations that purport to help the weaker party to the contract … those regulations in practice actually tend to help the stronger party instead.” Bryan’s rejoinder: “Tell me how tenant protection laws actually benefit the average landlord.”

Here Bryan wins on a technicality; I can’t answer his challenge as phrased. But let me say why.

What I wish to claim, more precisely, is that regulations that purport to help the weaker party generally fall into one of two categories: either a) they actually benefit the stronger party instead, or b) to the extent that they do benefit the weaker party they are outweighed in their effects by other regulations, so that the overall effect of regulation is to benefit the stronger party.

When it comes to regulations purporting to protect consumers and workers, I can think of lots of examples of both (a) and (b). When it comes to regulations purporting to protect tenants, I can think only of examples of (b); there may be examples of (a), but none comes to mind offhand. (Suggestions, comrades? Rent control is an example of a purportedly pro-tenant policy that actually hurts tenants, but it hurt landlords too as far as I can see.) So by asking for specifically (a)-type examples in the specific case of tenants, Bryan has posed a challenge I don’t know how to answer. But I call this only a technical victory, because it’s easy enough to give (b)-type examples for tenants, and both (a)-type and (b)-type examples for consumers and workers.

(Incidentally, it’s an interesting question why the existence of (a)-type examples is so much more widely accepted among libertarians for the case of consumers than for the case of workers. Most Rothbardians, for example, accept Gabriel Kolko’s case (summarised here) for the claim that regulations purporting to protect consumers from business interests have actually had the opposite effect and intention (even if such Rothbardians often haven’t fully assimilated the implications of this thesis); but the rather similar claim that regulations purporting to protect workers have likewise had the opposite effect and intention (as Kevin Carson describes in his latest C4SS study) is met with incredulity by most Rothbardians. I’m not sure why that is.)

“Under laissez-faire,” Bryan insists, “service providers, landlords, and employers would be free to adopt double standards more lopsided than current law allows.” Certainly, if what Bryan means is that no law would forbid them from doing so. Likewise, no law forbids me from selling toothpicks for a thousand dollars each. (Actually, for all I know some law does forbid that! But certainly under laissez-faire there’d be no such law.) Still, in another sense I’m prevented from selling toothpicks for a thousand dollars each because no one will buy them at that price. Likewise, I claim, in a freed market firms might offer contracts as onerous as they liked, but they’d have a lot harder time finding takers.

(A final note: since some of my left-libertarian comrades seem to be convinced that Bryan is Satan, I’d like to draw their attention to some pieces of Bryan’s that they will think more kindly of: here, here, and here.)

More to come ….

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24 Responses to How Inequality Shapes Our Lives, Part 3

  1. Rad Geek September 30, 2010 at 6:52 pm #

    Chromium 7.0.535.0 Ubuntu 10.04

    Roderick:

    … regulations that purport to help the weaker party generally fall into one of two categories: either a) they actually benefit the stronger party instead, or b) to the extent that they do benefit the weaker party they are outweighed in their effects by other regulations …When it comes to regulations purporting to protect tenants, I can think only of examples of (b); there may be examples of (a), but none comes to mind offhand. (Suggestions, comrades? Rent control is an example of a purportedly pro-tenant policy that actually hurts tenants, but it hurt landlords too as far as I can see.)

    One point, which I’m a bit surprised you didn’t raise in this post, is that regulations may prop up the interests of actually-existing landlords, at the expense of tenants, in one of two ways: (1) by directly enabling landlords to screw tenants over; or (2) erecting regulatory barriers to entry that artificially suppress competition among landlords. (2) comes at the direct expense of the marginal would-be landlords who are shut out of the market, rather than at the expense of tenants. But of course it also indirectly harms the tenants, in that they are not able to form alternative exchanges that would have better met their needs than the actual exchange that they made under actually-existing rigged-market conditions.

    • Roderick October 1, 2010 at 4:26 pm #

      Firefox 3.0.19.NETCLR3.5.30729 Windows XP

      Sure, but Bryan wasn’t just asking about regulations that harm tenants; he was asking specifically about cases of ostensibly pro-tenant regulations that harm tenants. I wasn’t sure whether the examples you give fit that category (it would depend what justifications are ordinarily offered for them).

      • Rad Geek October 1, 2010 at 9:00 pm #

        Firefox 3.6.10 Ubuntu 10.04

        Roderick:

        but Bryan wasn’t just asking about regulations that harm tenants; he was asking specifically about cases of ostensibly pro-tenant regulations that harm tenants.

        Right; but my point was about the overlap of your type (a) and my type (2). If we have a regulation that does succeed in doing just what Bryan claims it will do — unilaterally drive up risk or fixed costs for the landlord, to the benefit of that individual tenant — then that regulation has an unseen effect, in addition to its seen effect: the ratcheted-up risks and fixed costs raise artificial barriers to entry against marginal competitors. In the nonce, the individual tenant who actively makes use of the regulation may be better off for it, but of course that doesn’t settle the question about whether tenants in general are better off for the existence of the regulation. That depends on (among other things) how accessible the “protections” really are for the average tenant, and how much the average tenant is harmed by an anticompetitive rental market. So even given a regulation that provides an ideal case for Bryan’s claim, the “pro-tenant” regulation’s effect on competition could perfectly well produce results much like putatively “pro-worker” minimum-wage or occupational-safety laws produce in the labor market, where the “benefit” to a limited subset of workers comes at the expense of (among other things) a harm to all other workers, who are shut out of opportunities by the increase in prices and reduction in employment.

        • Roderick October 6, 2010 at 4:19 pm #

          Firefox 3.0.19.NETCLR3.5.30729 Windows XP

          Oh yes, of course. I must have been having a fuzzy brain moment.

  2. T Barrett September 30, 2010 at 7:48 pm #

    Firefox 3.6.10 MacIntosh

    I’m not sure that a monopolist would have a clear incentive to cut prices when costs fall. What am I missing there?

    I think this would have made a good Cato@Liberty debate.

    • Roderick October 1, 2010 at 4:30 pm #

      Firefox 3.0.19.NETCLR3.5.30729 Windows XP

      I’m not sure that a monopolist would have a clear incentive to cut prices when costs fall. What am I missing there?

      A monopolist’s clients can’t switch to a competitor when they’re dissatisfied, but they can (in many cases) just not use the service at all. (Leaving aside cases where you’re actually forced to buy the service.) If my monopoly cable company starts charging $1000 a month, I’ll quit watching tv. So a monopoly still has an incentive to lower prices to retain competitors. Of course the amount of cost-cutting needed to compete with no service is less than the amount needed to compete with a rival service.

      • T Barrett October 1, 2010 at 9:25 pm #

        Firefox 3.6.10 MacIntosh

        Ok, I see that point but there’s a difference between not raising prices and not cutting existing prices. If the cable company is charging $100 per month currently and reduces their internal costs by 10% I really don’t see them lowering the $100 subscription amount they charge you. I mean, lowering costs is what businesses constantly strive for, and I’ve never seen a cable bill go down over time.

        I realize this wasn’t the overarching point of your post – I just don’t think it was a concession you needed to make.

        • martin October 6, 2010 at 4:51 pm #

          Opera 10.62 Windows Vista

          If the cable company expects the price cut to be more than compensated by extra subscriptions, they will lower the price.

  3. David K. September 30, 2010 at 10:31 pm #

    Firefox 3.6.10.NETCLR3.5.30729.NET4.0C Windows Vista

    Gene Callahan uses the behavior of the British East India Company as a proxy for the behavior of private companies in a stateless society. Looks like someone needs to learn some left-libertarian class analysis.

    • Roderick October 1, 2010 at 4:31 pm #

      Firefox 3.0.19.NETCLR3.5.30729 Windows XP

      Gene seems to have forgotten much that he once knew.

      • JOR October 1, 2010 at 8:26 pm #

        MSIE 8.0 Windows 7

        Somewhere during Callahan’s feud with LRC, he started channeling DeCoster. Even to the point of deciding that all the Reason and Cato folks he’d found LRC’s smears against so dishonest and unfair, were useless idiots after all.

        (He’s produced some good work on Rothbard’s unfairness to other thinkers, but it’s just an unfortunate fact that almost all the influential or innovative thinkers in history have been ruthlessly unfair, to the point of blatant dishonesty, about pretty much everyone else – and this includes his beloved conservatives).

      • Black Bloke October 2, 2010 at 11:07 am #

        Safari MacIntosh

        A new Victor Yarros?

      • Anon73 October 2, 2010 at 11:40 pm #

        Firefox 3.6.10 Windows XP

        But if Gene is Saruman, then who is the Gandalf he betrayed?

        • Roderick October 6, 2010 at 4:22 pm #

          Firefox 3.0.19.NETCLR3.5.30729 Windows XP

          Bob Murphy?

  4. Kevin Carson October 1, 2010 at 1:02 am #

    Firefox 3.6.10 MacIntosh

    It might well be that there would be the kind of tradeoff Caplan describes in economies with a wide range of degrees of freedom. That’s beside the point. If you graph the range of possible tradeoffs under the different systems, you get a variety of different curves. The specific slope of the relationship between the two variables varies with the respective bargaining power of the parties. The more the state intervenes to tilt bargaining power toward the employer, the more of a wage premium the worker has to trade for a given amount of autonomy. And so on.

    It’s similar to stating the basic direction of the correlation between taxation and revenue in the Laffer Curve, or between CO2 levels and temperature in the Greenhouse Effect. What matters is not just the direction of the curve, but the shape of it.

  5. dL October 1, 2010 at 6:11 am #

    Chrome 6.0.472.63 Windows XP

    Just to note, I don’t think Caplan is “SATAN” nor do I doubt the sincerity of his adherence to libertarian justice principles. As I discussed in my post, the differences between Caplan and “left” libertarians are primarily methodological. Left-Libertarians, for example, would contend that “Rational Irrationality” does not supplant “Public Choice” as an explanatory model of the systemic biases one finds in political governance, particularly in the US Model of political governance.

    Frankly, much of Caplan’s methodology strikes me as being more “progressive” than “libertarian,” although Caplan, of course, does not draw the same conclusions as progressives.

    To “T Barrett”:

    There was a Cato Unbound topic devoted to Caplan’s “Rational Irrationality” thesis back in 2006.

    • Roderick October 1, 2010 at 4:32 pm #

      Firefox 3.0.19.NETCLR3.5.30729 Windows XP

      Just to note, I don’t think Caplan is “SATAN”

      You weren’t one of the people I had in mind.

      • dL October 2, 2010 at 12:41 am #

        Chrome 6.0.472.63 Windows XP

        okay…my bad on the presumption

    • T Barrett October 1, 2010 at 9:30 pm #

      Firefox 3.6.10 MacIntosh

      Cato unbound… that’s what I was thinking of. The @Liberty is their blog. I’ll have to look up that debate.

  6. Nathan Benedict October 2, 2010 at 2:10 pm #

    Chrome 6.0.472.63