Markets and Freedom: Common Mistakes

“Matthew Yglesias has a post responding”:http://www.slate.com/blogs/moneybox/2012/07/05/life_is_good_for_skilled_workers.html to my post below. My original intention was to roll it into an update – I then decided it was worth responding to on its own because it exemplifies a number of common mistakes in thinking about markets. In order:



(1) _Arguments about freedom do not equate to arguments about economic efficiency._

Libertarians (not all of them, but rather a lot of them), weave back between arguments about how markets maximize economic efficiency, and arguments about how markets realize human freedom. This leads to more general confusion about what markets are good for, especially because there is no very good reason to believe that libertarians are _right_ in their assumption that social affairs are so happily arranged that the most efficient social arrangement available is just that which maximizes human freedom. I don’t know of any better statement of this than “this old post by Cosma Shalizi”:http://www.cscs.umich.edu/~crshalizi/weblog/253.html.

bq. On the one hand, the sanctity of private property and private contracts is held to be a matter of inalienable natural right, guaranteed by the fundamental facts of morality, if not a basic part of Objective Reality; capitalism is the Right Thing to Do. On the other hand, much effort is devoted to arguing that unfettered laissez-faire capitalism is also the economic system which will produce the greatest benefit for the greatest number, indeed for all, if only people would just see it. Natural right therefore coincides exactly with personal interest. A clearer example of wishful thinking could hardly be asked for. It’s not hard to see what function this plays, rhetorically. Many people who are not persuaded by the natural right argument can be lead to go along with libertarian proposals by considerations of economic efficiency. (I imagine the number of people who are unpersuaded of the economics, but buy the sanctity of property, is much smaller.)

Thus, when Matt starts off his criticisms of a post about libertarians’ dubious understanding of workplace freedoms, by suggesting that it’s actually about ways to ‘enhance productivity,’ he’s making a category error, but one which is encouraged by a way of thinking which systematically confuses the two. As Cosma notes in his post, the best source _by far_ on the actual benefits and weaknesses of markets is Charles Lindblom’s book on the market system (Scialabba review), which is one of those books that every literate person ought to read or have read.

(2) _Market outcomes are not ‘natural’_

Matt treats the differences between professors’ rather nice work lives, and low-paid workers’ rather less pleasant work lives as the result of the fact that ‘some people are better off in general than others,’ and that the former tend to have skills that are in high demand, and the latter skills that are easily replaceable. His very strong implication is that it just plain growed that way as a result of natural market processes. And if those market processes result in some workers getting body searches and being denied use of the bathroom, and others not, all it tells us is that people are “better off having math skills and advanced educational credentials than not having those things.” Matt says nothing about whether being obliged to put out for your boss if you want to keep your job is another of those unfortunate yet inevitable forms of differentiation between the work conditions for people with low skilled and high skilled jobs. I’d hope that he doesn’t think this – but if he doesn’t, it fits very badly with the rest of his argument.

The underlying problem here is that his underlying suggestion that this is a process of _choice on the part of workers_, where they decide whether they are better off by taking the job with more pay and shittier work conditions, or with less pay and better work conditions – is incredibly naive. Adapting Marx, human beings make job choices – but not in circumstances of their choosing. This isn’t consumer choice in some idealized marketplace – it’s the product of an underlying political struggle. And it’s a political struggle that workers have been _losing_ over the last few decades. Even apart from rotten work conditions, the evidence on the changing distribution of the proceeds of cooperation within firms is emphatic.

(3) _Market outcomes have no inherent normative weight_

Really. The _very strongest_ claim that you can make for markets is that they can provide Pareto optimal outcomes. But this both (a) assumes an awful lot of hopelessly unrealistic conditions, and (b) isn’t very much good in any event. As Ariel Rubinstein “points out”:http://arielrubinstein.tau.ac.il/papers/77.pdf their weakness is demonstrated by the fact that one can obtain very similar results if one starts from the assumption that powerful actors exploit weaker ones. The normative case for markets depends crucially on initial allocation of resources. Rubinstein again:

bq. Overall, the relative comparison of the jungle [HF – exploitative] and market mechanisms depends on our assessment of the characteristics with which agents enter the model. If the distribution of the initial holdings in the market reﬂects social values which we wish to promote, we might regard the market outcome as acceptable. However, if the initial wealth is allocated unfairly, dishonestly or arbitrarily, then we may not favour the market system. Similarly, if power is desirable we might accept the jungle system but if the distribution of power reﬂects brutal force which threatens our lives we would clearly not be in favour.

Or, to approach the problem from a slightly different direction, one can make a good normative case for markets and contractarian mechanisms if and only if there is relative equality of resources and bargaining power among the relevant actors. When there isn’t such rough equality, the normative outcomes are likely to suck. And this is _exactly the situation_ in work relations. Saying that some workers are high skilled, and some are low skilled, and that the former are likely to obtain better work conditions than the latter is an empirical observation. But it relies for its force on an implicit theory of bargaining power, in which the former are relatively strong, and the latter are relatively weak. This _undercuts_ all but the most brutalism-meets-Panglossian claims about the normative attractiveness of working all of this out via contracts. People who want to have the best of both worlds by granting normative absolution to grossly unequal bargaining relations because they are market driven are liable to get people who care about power and politics deeply, deeply fucked off. Contracts in their majesty …

(4) _Actually existing markets do not clear by magic_

And this applies with _especial force_ to academic job markets. When Matt claims that:

bq. At the end of the day, GMU professors wouldn’t react to a lower-quality work experience with “sputtering, semi-coherent outrage.” What they’d do is quit and go work elsewhere because they have skills that are in demand in the labor market.

it suggests that he hasn’t read the post particularly carefully (he actually quotes, but doesn’t seem to notice, the bit about GMU economics professors “put[ting] up with it until they could find a job at some more enlightened institution,” which would seem to belie his interpretation). But it also suggests he doesn’t know much about how academic job markets work. Usually, there is _at least_ a year’s gap between someone (a) starting an academic job search, and (b) moving to a new position, and, very often two or three. And even this is decidedly optimistic: the prospects of a sudden surfeit of GMU economics professors in a decidedly thin market (not many economics departments see any great need to hire Austrians, for better or worse) would at best be uncertain.

The specifics are trivial – but the broader point is anything but. This particular mode of rhetoric assumes markets that clear perfectly and more or less instantly. Such markets appear in the opening chapters of introductory economics textbooks but are fleeting and rare in the real world. Where one can’t sprinkle Walrasian pixie-dust on labour markets, one has to pay attention to the real, substantial human costs that people have to pay, e.g. where they have to quit a job with lousy references because they refused to blow their supervisor. Which brings us, finally, to

(5) _Neo-classical economics, as it is usually deployed by policy technocrats, tends systematically to obscure rather than to enlighten_

In his closing sentences, Matt makes the rather remarkable claim that:

bq. The in-the-clouds conceptual argument about libertarianism, freedom, and coercion is semi-interesting in an academic sense, but as policy analysis it doesn’t show much.

I’d have said quite the opposite. Matt’s alternative – which is to come up with a bunch of just-so stories about how we oughtn’t regulate work rules, because there’s a hypothetical high paying firm that searches its workers to stop theft and then there’s a hypothetical low paying firm that doesn’t, and we shouldn’t be punishing the hypothetical high paying firm because it might hurt workers is about as up-in-the-clouds as you can get. It abstracts away the shitty conditions that people have to endure, the politics of why they have to endure them, and any possible politics of collective action and reform. Albert Hirschman’s _The Rhetoric of Reaction_ is right on target here – it deals at length with the bogus standardized responses (it will only make things _worse_) that people come up with in response to reform. There’s a more general sound principle here. One should always be very suspicious when someone proposes that others endure nasty sounding conditions for their own good, which the someone proposing would never dream of countenancing for himself or herself. The proposal may not be made in _bad faith_, but it’s not likely to be made with any very great imaginative sympathy for its intended subjects.