Labor Econ Versus the World: Further Thoughts By Bryan Caplan

Further thoughts on Labor Econ versus the World:

1. In my youth, I saw Industrial Organization as the heart of our secular religion. My history textbooks loudly and repeatedly decried “monopoly”; teachers, peers, and parents echoed their complaints. Since the late-90s, however, such complaints have faded from public discourse. The reason isn’t that plausible examples of monopolies have vanished. If anything, firms that look like monopolies – Amazon, CostCo, WalMart, Starbucks, Uber, Facebook, Twitter – are higher-profile than ever. But the insight I preached in my youth – the main way firms obtain and hold monopoly on the free market is reliably giving consumers great deals – is almost conventional wisdom. What modern consumer fears Amazon or Starbucks?

2. Another reason Industrial Organization has faded from our secular religion: Thanks to e-commerce and internet reviews, it’s now indisputable that reputation impels firms to treat their customers well. When people want to buy with confidence, almost no one asks, “Does the government regulate this?” Instead, they scrutinize the seller’s reputation.

3. Since moderns are satisfied with markets as consumers, it’s only natural that our secular religion focuses on producers. For the vast majority of us, “producer” means “employee.”

4. The main lesson of labor econ is that markets for labor closely resemble markets for other goods. Why then are people so eager to believe that unregulated labor markets are terrible? Part of the reason is that the little differences are occasionally traumatic. Wages don’t adjust like stock market prices, so involuntary unemployment is a real and frightening prospect.

5. Another important reason, though, is that markets where people trade vaguely-defined products for cash tend to be acrimonious. When products are vague, the side paying cash often feels ripped off, and the side receiving cash often feels insulted. In most markets, sellers strive to standardize products to preempt this acrimony. In labor markets, however, this is inherently difficult because every human is unique. As a result, employers often lash out at workers because they feel cheated, and employees often resent employers because they feel mistreated.

6. These problems are amplified by the fact that our jobs are central to our identities. So when we feel mistreated by a boss (or by co-workers the boss fails to control), we experience it as a serious affront. This in turn leads people to demonize employers as a class.

7. Once you demonize employers, it’s natural to (a) look to government for salvation from current ills, and (b) imagine that existing “pro-labor” laws explain why the demons in our lives don’t already treat us far worse. This isn’t just the root of our secular religion. If you take the demonization of employers and salvation by government literally, you end up with Marxism or something like it.