Archive | September 30, 2010

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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