Libertarianism and the Workplace II

by  Alex Tabarrok in

Over at Crooked Timber Chris Bertram, Corey Robin and Alex Gourevitch are upset about what they call lack of freedom in the workplace. (Tyler offers his excellent comments immediately below.) They give a grab bag of peculiar examples such as workers can be fired for donating a kidney to their boss, carrying on extramarital affairs, participating in group sex at home, cross-dressing, and more. They seem especially incensed that workers can be commanded to pee or be forbidden to pee. (I will put aside that mandatory drug tests are greatly encouraged by the war on drugs.)

In other words, the CTrs have discovered that the most basic US employment law is at-will employment which means that workers can be fired for just about any reason, outside of a few protected categories such as race, sex, and age. Simply put, an employer can fire you if she doesn’t like you. This is a surprise? No one has a right to a job, a job is an agreement to exchange services for cash and compensation and both parties must agree to the exchange to make it legitimate.

The CTrs do not adequately acknowledge that workers have the same rights as employers. Workers can quit for any reason and they can refuse to work for any employer. If you don’t like the politics of Monsanto, or the NRA or Georgia-Pacific you don’t have to work or even apply for those jobs. Indeed, workers have more rights than employers since workers are not subject to anti-discrimination law; that is, employers are prohibited from discriminating against African American workers but workers are not prohibited from discriminating against African American employers.

If you think that the freedom to quit is without value bear in mind that under feudalism and into the early 19th century in the U.S. and a bit later in Britain employers and even potential employers could prevent workers from quitting and from moving. The freedom to quit was hard won. We should not disparage the liberation brought by a free market in labor.

Turning to the economics, the CTrs are so outraged by an employer’s legal possibilities that they fail to notice that most employers do not in fact fire their workers for having extra-marital affairs. Why not? The reason is that these rights are often more valuable to the employee than to the employer and thus both employee and employer can be made better off if the employee keeps the rights. If the employer values the right more than employee then the employer buys the right with a higher wage. If the employee values the right more than the employer then the employee retains the right at an otherwise lower wage. The employer gets the right only when the employer pays. The same thing is true of control rights, residual rights not explicitly noted in the contract (because of complexity and unforeseen events). The employer buys these rights from the worker when doing so maximizes the total value of the exchange. This is not to say that abuses do not occur, they do, as in all relationships and on both sides, but the CTrs lump abuses and mutually profitable exchanges together–that’s dangerous because in regulating abuses it is very easy to do away with mutually profitable exchanges.

The greater the productivity of workers and the higher their incomes the less workers will be willing to sell rights for higher wages (i.e. the more willing they will be to pay for better working conditions with lower wages). Workers gain more autonomy as they and their society become more productive. Thus, the best protector of worker autonomy is high productivity and economic growth. (The best protector not the only protector, unions can also serve a useful purpose in this regard as can shareholders and human resource departments.)

If the CTrs were merely arguing for greater economic growth there would be little with which to argue –who doesn’t want  bigger televisions and better working conditions? The CTrs, however, confuse wealth and political freedom. Bigger televisions don’t make you more free and neither do better working conditions, even though both goods are desirable.

A job is an exchange with mutual consent and benefits on both sides of the bargain. The freedom is in the right to exchange not in the price at which the exchange occurs. A worker who is paid for 8 hours of work is not a serf 1/3rd of the day. We all sell our labor and we would all like to sell at a higher price but that does not make any of us serfs. From the minimum wage waiter to the highly-paid sports superstar there is dignity in work freely chosen.

To understand freedom and true coercion let us remember that American workers have the freedom to bargain and exchange with American employers, a freedom that gun, barbed wire and electrified fence deny to many millions of less fortunate workers from around the world.

“Libertarianism and the workplace”?

by  Tyler Cowen in

Numerous readers have asked me for a response to this lengthy post from Crooked Timber.  Travel commitments limit me from offering anything close to a full treatment, but here are a few points:

1. Is the complaint that workers aren’t getting enough of the pie?  Let’s consider giving them cash instead of workplace regulations.

2. It would be nice to see an estimate of how much the workers cared about the issues raised in this post, say in terms of willingness to pay.  I would start with that number.

3. Is the complaint that workers are getting an inefficient mix of money and workplace freedoms?  Maybe so, but I’ve yet to see the argument.  And what if it turned out they were getting too many workplace freedoms and not enough money, say because of intra-family externalities and the intra-family tax rate on the money?

4. Is the complaint is that workers should be getting the mix of money that the authors desire to see in place, rather than what the workers themselves wish to have, taking opportunity costs into account?  If so, I’m probably not on board but in any case let’s see the authors fess up to that upfront and then defend it.  Let’s see how many of the workers they can convince.

5. How about a brief mention of the fact that labor-managed firms are mostly not a big success?  Or that some rights can involve a notion of property?  I’d like to see an empirical paper on what kinds of workplace freedoms are allowed by labor-managed firms, more or less?

6. How about a brief mention of the fact that workplace regulations, in practice, very often are used to protect insiders and restrict employment for outsiders?

I find many (most?) of the cited restrictions on labor freedom, if that is the right phrase, defensible.  Consider this:

They can be fired for donating a kidney to their boss (fired by the same boss, that is), refusing to have their person and effects searched, calling the boss a “cheapskate” in a personal letter, and more.

The latter two seem obvious to me, and on the first perhaps it is better to give your kidney to a complete stranger.  Become friends later on, as Virginia Postrel did with Sally Satel, to avoid putting the other person in a conflict of interest situation.  (I do agree that a moral boss should have quit, but not that the firing should be legally prohibited per se.)  Presenting these and other mentions as self-evidently objectionable I don’t find so compelling.  I also see a big difference between “I can find a case settled like this” and “this is always the law” and on that we are left a bit at sea.

I am not comfortable with the mood affiliation of the piece.  How about a simple mention of the massive magnitude of employee theft in the United States, perhaps in the context of a boss wishing to search an employee?

When I was seventeen, I had a job in the produce department of a grocery store.  They made me wear a tie.  They did not let me curse.  Even if there was no work at the moment, I could not appear to be obviously slacking for fear of setting a bad example.  They had the right to search me, including for illegal drugs.  I suspect that “contract indeterminacies” gave them other rights too.

The company kept each and every one of its promises to me and they paid me on time every two weeks.  The company also taught me a lot.  I honor that company to this day.  I also did my best to keep each and every promise to them.

What I did observe was massive employee shirking, rampant drug use including what appeared to be on the job, regular rule-breaking, and a significant level of employee theft, sometimes in cahoots with customers.

I understand full well that’s only one anecdote and only one side of the picture, and yes the company did fire vulnerable workers and quite possibly not always with just cause.  Still I get uncomfortable when this other side of the story is ignored.  When I hear the phrase “workplace coercion,” the first thing I think of is employee theft, estimated by the U.S. Chamber of Commerce at over $50 billion a year.

Addendum: If I ponder my workplace at GMU, I see many more employees who take advantage of the boss, perhaps by shirking, or by not teaching well, than I see instances of the bosses taking advantage of the employees.  Make that two anecdotes.

More on Debtor’s Prisons

by  Alex Tabarrok in

In my post Debtor’s Prison for Failure to Pay for Your Own Trial I wrote:

Debtor’s prisons are supposed to be illegal in the United States but today poor people who fail to pay even small criminal justice fees are routinely being imprisoned. The problem has gotten worse recently because strapped states have dramatically increased the number of criminal justice fees.

I then discussed how a small debt can spiral out of control:

Failure to pay criminal justice fees can result in revocation of an individual’s drivers license, arrest and imprisonment. Individuals with revoked licenses who drive (say to work to earn money to pay their fees) and are apprehended can be further fined and imprisoned.

The New York Times is now on the case and gives an example:

Three years ago, Gina Ray, who is now 31 and unemployed, was fined $179 for speeding. She failed to show up at court (she says the ticket bore the wrong date), so her license was revoked.

When she was next pulled over, she was, of course, driving without a license. By then her fees added up to more than $1,500. Unable to pay, she was handed over to a private probation company and jailed — charged an additional fee for each day behind bars.

For that driving offense, Ms. Ray has been locked up three times for a total of 40 days and owes $3,170, much of it to the probation company.

Stephen Williamson has doubts about ngdp targeting

by  Tyler Cowen

Do read his entire post, it is full of content and difficult to excerpt.  I would make a few points:

1. A reasonable range of monetary regimes may not matter so much under good times, but we are choosing the regime for the occasional very bad time when a strong response is needed.

2. Williamson’s points about the instability of seasonal ngdp are good, but arguably considering seasonal cycles renders all or most macro theories somewhat incoherent.  Given the extreme agnosticism we should then end up in, what is a good policy rule?

3. I believe overnight financial markets could adjust to a variety of reasonable regimes, and indeed the evidence across nations appears to confirm this.

4. Scott for one would definitely admit the all-importance of eliminating interest on reserves.

5. I would add a Straussian reading of ngdp targeting: “The Fed won’t ever do it, because they don’t like to tie their hands.  But talking about it may steel their will, and give them a policy rationale, when more expansionary action would be desirable.”

Oddly Williamson does not consider what I consider to be the strongest objection to ngdp targeting, namely that in times of extreme crisis, when loan markets are collapsing, it may force the central bank into a dangerous-and-not-really-output-restoring ratio of currency/credit to meet the ngdp target.

On the off chance that Scott writes a reply to Williamson’s critique, I will link to it in due time.  Update: Here it is, I read it after writing my post.  It is interesting to compare our responses.

Hoisted from the Comments

by  Alex Tabarrok in

Here is John Thacker in a comment on my post Slow Speed Rail and the Infrastructure Deficit:

…consider the Southeast High Speed Rail Corridor. That’s mostly an upgrade of existing lines, combined with acquiring an abandoned line and rebuilding it. The environmental and planning work along has taken decades. The corridor was designated in 1992. The Tier I Environmental Impact Statement (EIS) was begun in 1999. That was completed in 2002, and received a Record of Decision. That cleared the way for the Tier II EIS, which began in 2003. The Draft Tier II EIS was finished in 2010 and signed then. That cleared the way for the Final Tier II EIS, which is expected to be finished by the states by the end of 2012, and then a Record of Decision from the FRA by the Fall of 2013.

Sentences to ponder

by  Tyler Cowen in

When the head cook of Viet Taste in Falls Church gets an order for a plate of Bun Cha Hanoi, he knows exactly what to do.

He has cooked the pork dish — with vermicelli noodles, greens and pickled vegetables — countless times and knows exactly how much fish sauce and fresh herbs to add.

Outside his kitchen, the customers, most of them Vietnamese, are expecting authentic Vietnamese cuisine. German Sierra, born in Honduras, makes sure they get it.

Here is more, interesting throughout.

Slow Speed Rail and the Infrastructure Deficit

by  Alex Tabarrok in

High speed rail, especially California’s project, looks to me to be monorail economics, a costly boondoggle whose appeal lies not in rational calculation (also here) but in the desire of some politicians (and voters) to feel visionary and sexy. In theory, CA HSR  might work but the inevitable reviews, delays, lawsuits and special interest payoffs make the prospects of a beneficial project look dim, demosclerosis kills.

Slow speed rail, however, i.e. freight transport, isn’t sexy but Warren Buffett is investing in rail and maybe we should as well. In particular, there are basic infrastructure projects with potentially high payoffs. Congestion in Chicago, for example, is so bad that freight passing through Chicago often slows down to less than the pace of an electric wheel chair. Improvements are sometimes as simple as replacing 19th century technology with 20th century (not even 21st century!) technology. Even today, for example:

…engineers at some points have to get out of their cabins, walk the length of the train back to the switch — a mile or more — operate the switch, and then trudge back to their place at the head of the train before setting out again.

In a useful article Phillip Longman points out that there are choke points on the Eastern Seaboard which severely reduce the potential for rail:

…railroads can capture only 2 percent of the container traffic traveling up and down the eastern seaboard because of obscure choke points, such as the Howard Street Tunnel in downtown Baltimore. The tunnel is too small to allow double-stack container trains through, and so antiquated it’s been listed on the National Register of Historic Places since 1973. When it shut down in 2001 due to a fire, trains had to divert as far as Cincinnati to get around it. Owner CSX has big plans for capturing more truck traffic from I-95, and for creating room for more passenger trains as well, but can’t do any of this until it finds the financing to fix or bypass this tunnel and make other infrastructure improvements down the line. In 2007, it submitted a detailed plan to the U.S. Department of Transportation to build a steel wheel interstate from Washington to Miami, but no federal funding has been forthcoming.

Longman points out that:

Railroads have gone from having too much track to having not enough. Today, the nation’s rail network is just 94,942 miles, less than half of what it was in 1970, yet it is hauling 137 percent more freight, making for extreme congestion and longer shipping times.

I believe that there are valuable infrastructure projects but I am dispirited by the fact that these projects have been valuable for a long time and progress is very slow. Why haven’t the gains from better infrastructure already been taken? Why haven’t the $500 bills been picked up? It’s worrying that the bullet boondoggles get all the attention while simple things like updating 19th century technology is ignored. And it’s not just rail, sewers and the water supply are another example. Consider:

The average D.C. water pipe is 77 years old, but a great many were laid in the 19th century. Sewers are even older. Most should have been replaced decades ago.

Does that sound like the infrastructure of an advanced nation?

We need better, more trustworthy, institutions for infrastructure investment. As I said in Launching:

Our ancestors were bold and industrious–they built a significant portion of our energy and road infrastructure more than half a century ago. It would be almost impossible to build the system today. Unfortunately, we cannot rely on the infrastructure of our past to travel to our future.

Hat tip: Mark at Observation Epidemiology.

Edward Lucas defends Latvia

by  Tyler Cowen in

Here is one part of a longer essay:

The IMF thought the new Latvian government should respond to the crisis by devaluing the currency, the lat, which is pegged to the euro. Supposedly that would have restored competitiveness and growth. Staying on the peg would be costly and futile (Krugman said devaluation was a case of when, not if).

Almost the entire Latvian political class thought otherwise. Devaluation would bankrupt the many households who had borrowed in foreign currency. It would devastate the country’s reputation. It would actually do little for exports. Whether that was right or wrong, it was not a case of the IMF forcing medicine on an unwilling patient. (The IMF’s chief economist, Olivier Blanchard, now says that Latvia was right to shun devaluation.)

Good points, and on top of that I would stress a different angle.  Latvia needs to prevent itself from being reincorporated into the Russian colossus.  That is priority #1 by a long mile.  That means doing everything possible to attach itself to the EU and eurozone, even if those policies might not otherwise be economically efficient.  Iceland does not have a comparable problem, as it is nestled quite nicely in the north Atlantic and protected by the United States.

Criticizing Latvian economic policy without mentioning this constraint is missing the point, and recognizing that constraint makes their recovery performance look better.

Similarly, I am puzzled by the reports that Angela Merkel got “rolled” at the recent summit.  My read was that she sees the current governments of Spain and Italy as the best working partners she is likely to get.  They were offered benefits to take home to their electorates, while at the same time receiving a more subtle message that if they truly jump on board with cost internalization, as Ireland has done, they will be rewarded.  (And yet, by the way, Germany still retains a future veto on how all that money gets spent, so no conditionality really has been relaxed, rather perhaps some power over conditionality was redistributed from the Troika to Germany, funny that.)  Ireland of course was the big winner from the summit, as Irish bond yields plunged and the country’s situation suddenly looks much more tolerable.  Ireland, like Latvia, is balancing both economic and foreign policy constraints.

I still doubt this new rescue plan can work, but at least it is more realistic than the “super fiscal policy” talk from various commentators.  It does at least signal that new forms of aid will separate banks and sovereigns, though probably this is too little too late.  And don’t expect the new euro bank regulator to be better than the old one, at least not anytime soon.

On Latvia, hat tip goes to Gideon Rachman on Twitter.  On the summit, I also recommend this piece by Wolfgang Münchau, “The real victor in Brussels was Merkel.”

Claims about private color perception

by  Tyler Cowen

“I would say recent experiments lead us down a road to the idea that we don’t all see the same colors,” Neitz said.

Another color vision scientist, Joseph Carroll of the Medical College of Wisconsin, took it one step further: “I think we can say for certain that people don’t see the same colors,” he told Life’s Little Mysteries.

One person’s red might be another person’s blue and vice versa, the scientists said. You might really see blood as the color someone else calls blue, and the sky as someone else’s red. But our individual perceptions don’t affect the way the color of blood, or that of the sky, make us feel.

Hard for me to judge, but you can read more here, if that click through doesn’t work for you use http://www.lifeslittlemysteries.com/117-if-blood-is-red-why-are-veins-blue.html, hat tip goes to The Browser.

*Face Value: The Entwined Histories of Money & Race in America*

by  Tyler Cowen in

That is the new book from Michael O’Malley, a colleague of mine in the history department.  Here is one of the book’s most controversial passages:

It should come as no surprise, then, to find that right-wing libertarians and proponents of the free market often tend to favor genetic accounts of identity.  The heroic individualism many libertarians imagine requires a self freed from all social constraints, but at the same time founded in nature — in natural rights and natural talents.  The libertarians account of individualism rests on imagining a person free of social and political power.  Ayn Rand’s The Fountainhead ends with her visionary ego-driven architect standing above the city: “there was only the ocean and the sky and the figure of Howard Roark.”  That is, nothing but nature and the heroic individual, standing above society: an intrinsic self entirely in possession of itself.  In this sense libertarianism embraces not freedom but a kind of genetic determinism, in which “merit” derives not from social whims but from intrinsic qualities and, again in which all hierarchies are “natural.”  Rand’s clunky Atlas Shrugged imagines a world in which all the creative and productive people have fled to a secret location, leaving the rest of us, “looters” and “parasites,” flailing helplessly like ants bereft of the queen.  Right-wing libertarianism in this way again bears a close relationship to its nineteenth-century antecedent, social Darwinism.  It stresses freedom, but also imagines nature as a set of stable confines and success as the proper reward for genetic superiority.

The book also offers an interesting discussion of the role of the gold standard in 19th century thought.  There are also sections which Brad DeLong would quote at length.

I was surprised to just learn that O’Malley has an interest in Eddie Lang.  I didn’t know anyone else still thought about Eddie Lang, there is YouTube here.