In Praise of Low Wages

Note: I started this post two years ago and then forgot about it, which is why it references a really old post. But the point is still relevant, so I decided to finish it.

Kevin Drum sums up his opinion of Wal-Mart:

So: Efficient operations, no problem. Economies of scale, no problem. Cheap generic drugs, hooray!

But: Poverty-level wages and benefits, big problem. That's the wrong way to keep prices low.

I think supporters of free markets too often defend low wages in an almost apologetic fashion: "You know, Wal-Mart's wages really aren't that low," or "Yeah, it would be great if cashiers could make $25 per hour, but it would drive prices through the roof." But there's nothing to apologize for. Low wages are good. Wages are prices, and prices are signals. Just as an above-market price for milk will give inaccurate signals to dairy farmers and result in a misallocation of farmland, paying above-market wages will give inaccurate signals to workers and result in a misallocation of human capital.

Manning a checkout line is a low-skill job. It requires minimal training and can be done by virtually anyone*. As such, it's a good part-time job for students, and maybe a good full-time job for someone with a mild mental handicap. But it's really not a valid career choice for an adult of normal intelligence. The fact that it pays low wages is the market's way of telling would-be career cashiers to learn a marketable skill and get a real job that creates more value. At $25 per hour, that signal would be lost, and many people would be content to spend their lives scanning groceries or working in some other low-skill job rather than put in the effort necessary to learn a more valuable skill.

This is not to say that there's anything wrong with being a cashier for your entire life if that's really the best you can do. Some people simply aren't cappable of doing more cognitively demanding work, and no one should be ashamed of doing the best he can do. But it's good that we have a wage structure that encourages people to do the most valuable work that they're able to do.

*I'm actually not 100% sure that this is true of this particular job, but if not then it's true of many other jobs.

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Not a Career


But it's really not a valid career choice for an adult of normal intelligence.


That was the great fraud of Ehrenreich's "Nickel and Dimed." She showed how "impossible" it was to live, say, as a Wal-Mart cashier but never mentioned that pretty much no one was making a career of it -- they're temping, retirees, students -- or are quickly promoted to higher-paying positions.

I also recall the opening lines of "Million Dollar Baby" -- "She knew she was trash..." Why should any competent adult in modern America "know they are trash" and deem themselves fated to work as a waitress forever? This isn't India and we don't have castes here.

KipEsquire, A Stitch in Haste

Shamed

I am actually personally embarrassed that this point never occurred to me before. The reference to milk prices really makes it hit home.

Prices are signals

True. But...

an above-market price for milk will give inaccurate signals to dairy farmers and result in a misallocation of farmland

This is a standard, familiar point and I haven't really seen much in the way of an answer (presumably because anti-capitalists are too busy trying to locate their own anuses to mount a counter-attack), but a few terms need to be defined, and once they're defined a counterattack might be possible.

Specifically, the statement is an evaluation. What is a "misallocation"? How much is "too much"? Well, we can say things like, "5000 calories a day is too much for a sedentary lifestyle", but that assumes a certain goal: if you want to keep your weight within normal range and if you want to maximize your espected lifespan, then 5000 calories is indeed too much relative to that goal. If you replace the evaluative language with non-evaluative language what you have is: 5000 calories a day (relative to, say, 2500) will cause a sedentary person to gain weight and will (on average) shorten his lifespan by X years.

People can and in this case (once they've located their anus) most likely will contest your evaluation. It's possible, though not easy, to replace evaluation with factual statements, thereby temporarily defending against that attack. But a purely factual statement does not by itself recommend anything.

The "inaccuracy" of "inaccurate signals" is meanwhile nothing other than it will induce a "misallocation". So the price signal is "accurate" only relative to an evaluation, since the judgment that a resource was "misallocated" is an evaluation of the allocation.

You can describe in detail what will (likely) happen if Walmart increases its wages in the hope that people will agree with your evaluation, and they might. But even if they agree, since the economy is an integrated whole they are free to lay blame for the misallocation somewhere other than the price increase.

What is a "misallocation"?

What is a "misallocation"? How much is "too much"?

Remember back during the New Deal, when, in order to counteract the misallocation effects of farm subsidies, farmers would incinerate pigs and chickens, let produce rot, and otherwise destroy the fruit of their labors because of quantity restrictions meant to keep prices high? Even today, we still have wealthy farmers being paid to keep parts of their land fallow. That is a misallocation. That is too much.

Doesn't map easily

The very fact that you are reaching back as far as the Great Depression for an example which people can agree about carries in it a seeming implicit admission that you're not all that confident that people will agree about the "misallocation" resulting from a rise in Walmart wages.

Furthermore, as I mentioned, an economy is an integrated whole, with many distinct parts coming together to produce the result. Effects are caused by multiple causal factors acting together. If pigs are incinerated, there are many potential causal factors to blame.

The very fact that a lot of people, including economists, are in favor of price controls in certain cases, demonstrates that people, even economically literate people, have managed to avoid mapping the pig incineration directly to modern interventions. The price control I have in mind is the minimum wage, which some economists are (so I have read) in favor of.

Furthermore, the more sophisticated can come up with scenarios in which produced goods are burned or otherwise wasted, in which that really is optimal. For example, when farmers sell produce to grocers, nobody knows exactly how much customers will end up buying. A certain proportion of it will inevitably rot on the shelf. Voila: there you have your wastage. But it might turn out that there is no improvement on this. For example, if grocers buy less from farmers, then this will on occasion be too little, which could well be an even worse outcome. Better that some milk spoil in the store (one might think) than that stores run out of milk.

Economists and the Minimum Wage

The price control I have in mind is the minimum wage, which some economists are (so I have read) in favor of.

This reminds me of another half-finished post I've been sitting on. Someone actually did a survey of economists who supported the minimum wage, and the reasons they gave to justify their position were illuminating. I should dig that up and finish it.

Remember the Invisible Hand

I thought you guys were economists. Here is how I thought it worked. In a free economy the prices are set by signals that occur when buyer and seller agree on a mutually beneficial exchange. The distortion occurs when a government third party intervenes, supposedly to serve some higher public purpose.

If the government purposely holds prices down a shortage will arise. Say, since children need milk, it is sold to mothers at 10 cents a quart. Farmers will then switch to a different product and the children will not get enough milk. Say, government supports high milk prices to protect the farmer. Then he will produce more milk then the consumer will buy and some milk may have to be disposed of wastfully. Of course additional government actions that will add additional distortions can be added to try to correct the distortions they first induced and so on ad infinitum.

Also, the polemics against Wal-Mart are a distortion as you can see from a personal real world example: A lady works at Wal-Mart She gets a condition that needs surgery, but doesn’t get it for a year because she (Guess what?) You are thinking I was going to say because of no insurance. No Wal-Mart has great insurance for full time employees but she is the sole breadwinner for her entire family consisting of three children and a husband who is a bum who doesn’t work. She needed to go to a medical center out of town and can’t afford to take the time off so she delayed, which may be very costly. Perhaps legislation can be crafted to address this and every other problem, but where does it all end?

The comments about lack of ability and planning gloss over the reality of family and other social obligations that many people face. Actually a lot of people do get educational and employment advancement later in life at great effort against some fairly steep obstacles, thanks to wage incentives. Bad luck or the cost of bad decisions dogs others. These are personal and not government problems. They are best addressed by individuals, churches and other local groups.

Dave

And?

Dave,

What are you replying to, and what error do you think you are correcting? I don't think anyone here is an economist, but you aren't saying anything new to anybody here, I'll wager. If you were more specific about the points you were addressing it might be possible for me to respond in a more targeted and therefore useful fashion.

Probably just didn't understand your phrasing

For example, if grocers buy less from farmers, then this will on occasion be too little, which could well be an even worse outcome. Better that some milk spoil in the store (one might think) than that stores run out of milk

.

My point is in the free economy you don't have to worry about these thing. They take care of themselves. I should have posted this on a left wing site ,but you risk getting banned.Dave

I agree

I agree. I have no problem with the way effort is allocated in the market, I think it's pretty darn good any way you slice it, and I think those who pick at it don't really have any strong basis for thinking government allocation would be better. What I'm pointing out is a gap in the argument which anti-capitalists will exploit (once they've managed to locate their --------).

There are always gaps like that however

I've argued with real breathing philosophical skeptics. People who think it's possible we are living in the matrix. If someone doesn't accept certain premises there is just no persuading them.

Another example, I've talked with people who don't accept the law of non-contradiction as a general principle. When you do that every argument has gaps. They feel free to continue believing regardless of any empircal counter examples or logical contradictions in their beliefs.

More traction

But the gap I'm talking about is a bit bigger. Mind, I'm not saying that the gap can't be filled, that the argument is unfixable. I'm saying that, as it is commonly given, the argument leaves a gap, because it's usually stated evaluatively, which leaves the field wide open to those who evaluate differently, or claim to. The word "misallocation" assumes that the market allocation is the correct allocation, which is a fine assumption but one not shared by enemies of the market. You can instead talk about "shortages", which is non-evaluative (supply and demand are non-evaluative, and a shortage occurs when the - presumably fixed - price is lower than where the curves meet), but (a) it's not clear how to identify a "shortage" in the Walmart case, which is presumably why Brandon falls back on the evaluative term "misallocation", (b) people may judge (evaluate) that shortages aren't as bad as the alternative, and (c) it is easy for people to blame other causal factors. For example, oil is going up for reasons which are not entirely clear but which probably involve greater demand from China (among other things), but a large part of this increase is anticipatory. People have certain expectations about the future and this affects the current price. Problem is, this lets people blame "speculators". There is a causal disconnect between the (anticipated) future and the present. The future does not literally cause the current price to go up. Rather, people's anticipations cause the current price to go up. This lets critics lay the entire responsibility at the feet of the anticipators. One might counter that the anticipation is justified, but that is hard to prove.

Subjective Value

In Austrian terms, isn't your criticism:

Value is subjective, therefore it is not meaningful to discuss the value of badly allocated investment--or even whether it is "badly" allocated.

To find evidence of 'missing value', we would have to look at some sort of statistical aggregate--such as percentage of bids not accepted, or relative economic growth--to determine objectively that value is destroyed.

The idea that "coercion destroys value" is either axiomatic, or at best made logically. It cannot be validated empirically.

Since I'm simultaneously putting words in your and the Austrians' mouths, I'm expecting to be chewed up over this...

Not sure

I suppose that someone could make that argument, but it's not the argument I was making. I wasn't appealing to the subjectivity of value, though I suppose that someone could ground some of the points I made in that appeal. I wasn't really trying to give an Austrian critique, I was thinking about how anti-capitalists have in the past reacted to similar arguments. There aren't a lot of anti-capitalists commenting in this blog, so it's easy to become complacent on that front.

But the Austrians do in fact attack mainstream economics, so I suppose that they might make the argument you've outlined.

If you're looking for

If you're looking for arguments criticizing Brandon's post, take a look at Patri's blog.

Not Quite

We're not economists, but we play them on the Internet.

This is not to say that

This is not to say that there's anything wrong with being a cashier for your entire life if that's really the best you can do. ... But it's good that we have a wage structure that encourages people to do the most valuable work that they're able to do.

Just to be clear, there's nothing wrong with being a cashier your whole life even if you're Warren Buffet. Markets encourage people to be maximally productive because that's where the self-interest of the members of the market lies. But (and apologies if I sound a bit Randian here) you have no moral obligation to work as productively as you can. (At most, I'd say that you have the obligation to work hard enough that you're not a net drain on society, if able).

But (and apologies if I

But (and apologies if I sound a bit Randian here) you have no moral obligation to work as productively as you can

The form is Randian, the substance quite the opposite.

Why no mention of union-busting?

It's not a long article, guys, so I don't know how you missed Drum's point: Wal-Mart depresses wages by depriving its employees of any meaningful way to exercise their right to organize.

Market forces work to optimize the allocation of resources, but they work within specific contexts. Thus, market forces will prevail on both sides of a prison wall, but the prevailing prices will differ (creating the famous opportunity for arbitrage).

An efficient market rate may prevail with labor protection laws; an efficient market may prevail without them. But if Costco abides by union laws while Wal-Mart evades them, you can't seriously argue that this will result in an efficient outcome.

There are arguments in favor of labor protection laws; there are arguments against them. But I have yet to hear an argument that says one firm should be bound by them while a competing firm should not.

Unions have nothing to do

Unions have nothing to do with the right to organize and everything to do with bullying and use of political force against employers.

But even if we were talking about a hypothetical, non aggressive union, which would be mere labor cartels, an employer should have the right to specify in its hiring contract that the employee should not participate in such associations.

As for Costco & Wal-Mart, Wal-Mart has the balls to resist the government, Costco doesn't, that's pretty much it.

Labor unions, in their current form, are morally indefensible.

It's not about unions; it's about integrity

Wal-Mart has the balls to resist the government, Costco doesn't, that's pretty much it.

Fair enough. And if Wal-Mart started dumping all its trash in your backyard rather than paying to have it hauled to the dump, I'm sure you'd cheer, too. Yeah, that may be illegal, but don't we all just love people with balls enough to Stick It To The Man?

I occasionally join these discussions because I'm surrounded by people who don't believe in the efficiency of markets, who argue that all this market talk is just a fig leaf for promoting the interests of crony capitalists. I do my best to dissuade them. But then they point me to discussions like this, in which people who purport to be defending the efficiency of market forces seem to be patently ignoring market failures.

I'm like the the Catholic after yet another priest/child abuse scandal hits the papers: I'm left to defend the faith even though I must repeatedly acknowledge that many proponents of my faith are charlatans. It's really pissing me off.

Don't like labor laws? Fine. But it's simply dishonest to say that Wal-Mart profit relative to other firms due to its efficiency when you don't control for the variable of labor law compliance. Like it; hate it; praise it; condemn it. Just don't call it a test of efficiency.

And more generally, if you summarize Kevin Drum (or anyone else), summarize him fairly. Is that too much to ask?

And if Wal-Mart started

And if Wal-Mart started dumping all its trash in your backyard rather than paying to have it hauled to the dump, I'm sure you'd cheer, too. Yeah, that may be illegal, but don't we all just love people with balls enough to Stick It To The Man?

In that case Wal-Mart would be attacking me, not the government, quite different story.

Wal-Mart is more efficient than Costco in overcoming government constraints, why should we discount that efficiency?

Equality

An efficient market rate may prevail with labor protection laws; an efficient market may prevail without them. But if Costco abides by union laws while Wal-Mart evades them, you can't seriously argue that this will result in an efficient outcome.

You have two sons, Jack and Bob. Jack ran and fell and broke his leg. Now Jack has a broken leg and Bob has two unbroken legs.

You think about this and realize that this is not efficient. If neither Jack nor Bob had a broken leg, that might be efficient. And if both Jack and Bob had a broken leg, that might be efficient. But it is obviously inefficient for Jack to have a broken leg while Bob does not. You start to move in the direction of Bob.

I am meanwhile observing you from a safe distance. I realize that you are insane and decide that it would be better not to try to argue with you about this. I turn my back and try to forget what I saw.

Sorry, Bob.

I feel lost in this

I feel lost in this argument; I don't know what specific claims you guys are making about Wal-Mart. How exactly is Wal-Mart "evading" labor protection laws? Does evading mean violating? And if so, why have they not been prosecuted?

Or is Wal-Mart just better than its competitors at convincing employees not to unionize, or better at making it more difficult for employees to unionize?

I share your dismay at libertarian bias against unions, but at the same time, I don't really understand the bias against Wal-Mart either.

Wal-Mart isn't depriving

Wal-Mart isn't depriving workers of their right to organize. It's just exercising (or advertising its intent to exercise) its own right to fire workers for any cause. You can't compare dumping trash on someone else's property to (non-coercive) anti-union tactics, at least not in any way that libertarians will recognize as legitimate.

I see the point you're making about inefficiency caused by inconsistent application of labor laws, but I don't think it holds in all cases. Unionization creates inefficiency, partly because it introduces red tape, and partly for the reason I gave in the original post. So when Wal-Mart flouts labor law and CostCo doesn't, the ineffiency created by that inconsistency is partly or fully (or more than) offset by the efficiency created by keeping Wal-Mart union-free.

Also, Wal-Mart and CostCo have different business models with respect to labor. Costco uses fewer but more expensive and higher-quality employees. Wal-Mart uses more employees (per unit of revenue) but pays them less, and therefore tends to get lower-quality employees. It's not even clear that they're drawing from the same pool of prospective employees.

Not what you'd expect

I see the point you're making about inefficiency caused by inconsistent application of labor laws

While I'm sure it's possible to concoct a scenario where that happens, it's not what I'd expect. Libertarians and especially anarcho-capitalists understand the value of political fragmentation, and a big chunk of this value involves laws not applying everywhere. What's illegal here isn't illegal over there, and that's a good thing. If we should expect it to be a bad thing in general then we should advocate a world state, the very opposite of fragmentation.

Laissez-faire is good. Suppose some regulation appears that takes us away from laissez-faire, but it is applied inconsistently: it is applied only to companies with names that start with consonant letters. Great: overnight companies change their names to start with vowel letters. Or, suppose it is applied only to Target. Great: a new company is formed, Shmarget, and little by little the people who worked for Target are hired by Shmarget as Target goes under. The very harmfulness of the regulation pushes Target under and therefore reduces the scope of the law itself, and in the meantime the market creates a substitute like Target but free of the encumbrance. When applied inconsistently, then, bad law self-extinguishes, producing laissez-faire. Fantastic! Inconsistent application of laws can be expected to be a good thing because, like water, the economy can flow around the bits of the economy that have been snared in government's web. Similarly, if somebody is going to attack the Internet by destroying routers, better that the destruction of routers be inconsistent (only some routers are destroyed) rather than consistent (all routers are destroyed), because the spottiness of the damage allows the Internet to route around the damage.

A fair reply to the above would be that inefficiency can be created by inconsistent law by means of FUD: if the inconsistency of the law is an inconsistency rendering prediction difficult, then it becomes impossible to route around and instead there is (or could be) a blanket chilling effect. But that's not what's being talked about here, and in any case, unpredictable inconsistent application isn't so much inconsistency in application of the law but rather an entirely respectable way of applying consistent law with limited manpower. That is, suppose you want everyone to obey the speed limit. Well, you can't be everywhere at once but what you can do is show up unpredictably in different locations at different times, leaving everyone uncertain exactly where you will show up on any particular day, and thus (you hope) inducing people to obey the speed limit everywhere. Unpredictability is also, of course, the technique of terrorists, who hope to make everyone afraid all the time by occasionally killing a few people here and there.

Frankly, the idea that the regulation should not be applied inconsistently strikes me as far too similar to arguments by protectionists that we should not have free trade unless there's a "level playing field" - thus that we should force other countries to adopt the same regulations that we've adopted before we will trade with them, so that trade will be "on a level playing field" and therefore "fair", with nobody "cheating. A lot of people find this a compelling idea. Sadly.

"level playing field"

Sorry to burden you, but you can count me as one more dupe for “efficiency.”

I understand classical economics to promote free markets because they tend to allocate resources optimally. That is, we tend to put our most fertile acre of land under cultivation first, because it produces the most return for investment. We tend to promote our best managers to managerial positions because they produce the most return on investment. And all society benefits because society gets the most return for its limited number of fertile acres and good managers.

If the most productive acre it taken out of cultivation NOT because it is infertile, but merely because of some arbitrary rule, all of society is harmed (relative to the optimal allocation). Yes, perhaps a different acre will be put into cultivation instead, but that will not eliminate the social harm. Similarly, if the most efficient manager is taken out of her position NOT because of doing anything wrong, but merely because of an arbitrary social rule against employing women, say, all of society is harmed (relative to the optimal allocation). Yes, some second-best manager may be hired in her place, but that does not eliminate the harm.

How do we know which acre is the most fertile, which manager is the most productive, or indeed anything else? If you’ve studied science, you know: You try to compare things by controlling for all variables except for the variable (the independent variable) you’re trying to analyze. If you don’t control for the other variables, you can’t identify a correlation.

Thus, I could imagine people trying to decide how optimally to allocation education resources among black and white schools in the Jim Crow South. “Gosh, the test scores show that black kids systemically under-perform white kids, so it’s pretty clear where we get the most return on our investment, right?” Well, were the kids tested on the basis of a level playing field? “No, but what does that have to do with it?” Yes, the test scores may well be clear. What conclusions you can draw from them, however, are not.

Again, whether you care about “level playing fields” depends on what you value. I value efficiency, the principle that economists point to for defending free markets. If you don’t care about that, fine. But then don’t expect people to share your enthusiasm for what you call a “free market,” because it bears no relationship to what economists call a free market.

Efficiency is not fairness

Sorry to burden you, but you can count me as one more dupe for “efficiency.” [...] I value efficiency, the principle that economists point to for defending free markets.

I think that your insistence on a "level playing field" in this particular case in this particular way is inefficient. I think you are advocating something which will be economically inefficient.

Just to explain my position. Your response to my position seems to have misconstrued it, so I thought I would explain. As to why I think you are not a dupe for efficiency, but a dupe for inefficiency, I have already given an explanation.

The rest of your response is wrong but so convoluted that I'm not inspired to respond. (I mean it's wrong as a response to my comment - not everything you write is wrong taken in itself, just, your thinking is a bit loose when it comes to connecting your points to my points you're trying to critique.)

Competition in which market?

Also, Wal-Mart and CostCo have different business models with respect to labor. Costco uses fewer but more expensive and higher-quality employees. Wal-Mart uses more employees (per unit of revenue) but pays them less, and therefore tends to get lower-quality employees. It's not even clear that they're drawing from the same pool of prospective employees.

I expect Wal-Mart and CostCo compete for executive talent, for investment capital, for retail space, for customers.... Surely libertarians will recognize that, to the extent that government intervention (labor laws, whether or not perfectly enforced) cause a distortion in one firm’s profitability relative to the other, it’s distorting the efficient allocation of resources.

It's not all that happens

Surely libertarians will recognize that, to the extent that government intervention (labor laws, whether or not perfectly enforced) cause a distortion in one firm’s profitability relative to the other, it’s distorting the efficient allocation of resources.

Better (more efficient) that one village be burned down than that both villages be burned down, even though this "distorts" certain things. The "level playing field" of both villages burned down is not to be preferred. Best of all would be that neither village be burned down, but if there is to be burning, better (more efficient) that only one be burned than that both be burned.

Fair point

Ok, it takes me a while, but I’m gradually getting it.

I regard labor laws as useful for, among other things, maintaining a middle class. Thus I regard Wal-Mart as a pernicious free-rider: It enjoys the benefits of doing business in a society with a large middle class, but it doesn’t bear its share of the cost of maintaining that society; to the contrary, it actively undermines competing firms that do.

However, if I shared the view that labor laws were simply a dead weight social cost, then I could see how flaunting those laws could create greater social benefit than obeying them. Sure, it would result in distorting the competitive market that exists, but it's an already-distorted competitive market. I think this is a fair point.

So, who supports making all contributions to the Democratic Party tax-deductible? Sure, it would distort the political finance market relative to the Republicans, but that’s not what’s really important, right? :-)

Walmart the benefactor

I regard labor laws as useful for, among other things, maintaining a middle class.

I find this doubtful.

Thus I regard Wal-Mart as a pernicious free-rider: It enjoys the benefits of doing business in a society with a large middle class, but it doesn’t bear its share of the cost of maintaining that society; to the contrary, it actively undermines competing firms that do.

That's based on a speculative theory of yours (above) that I find doubtful.

So, who supports making all contributions to the Democratic Party tax-deductible? Sure, it would distort the political finance market relative to the Republicans, but that’s not what’s really important, right? :-)

If I were the sort of person that would upset, then I might favor an opposite tilt - one in favor of the Republicans. I wouldn't necessarily favor equal taxation on both parties.

Also, if Democrats enjoyed tax advantages, then many Republicans would join the conservative wing of the Democratic Party, changing the composition of the Democratic Party. So politics might shift toward the Democrats, but the Democrats would simultaneously shift toward the positions of the Republicans. The result might be a wash.

Unions, the middle class, and second-best solutions

Wal-Mart isn't depriving workers of their right to organize. It's just exercising (or advertising its intent to exercise) its own right to fire workers for any cause. You can't compare dumping trash on someone else's property to (non-coercive) anti-union tactics, at least not in any way that libertarians will recognize as legitimate.

Of course, firing or threatening to fire an employee for seeking to organize a union is an "unfair labor practice" under the US National Labor Relations Act (NLRA) of 1935.

I sense the larger issue is that final one you raise: Do libertarians recognize the legitimacy of any restrictions on employer conduct designed to protect a right to organize? Perhaps not.

I understand that unions help members secure better wages/hours/working conditions by organizing monopolies on labor, and I understand various laws to facilitate such monopolies. And I believe that monopolies cause allocation of resources that differ from the most efficient allocation. That said:

1. Does the existence of unions cause a greater deviation from optimal allocation of resources than the non-existence of unions? That is, to what extent do non-unionized working environments operate efficiently?

2. To what extent are unions necessary for the maintenance of a large middle class, and to what extent is a large middle class necessary for the maintenance of a society that doesn’t become utterly corrupted by oligarchy and crony capitalism?

The upheavals of the 1960s have caused popular culture to regard the 1950s as some kind of standard of normalcy, but the 1950s were in fact an unprecedented period of growth for the middle class. After all, most nations have bi-modal wealth distribution characterized by a small, ruling upper crust, living in gated, guarded communities, surrounded by a sea of poverty. The US’s post-WWII prosperity coincided with the GI Bill, the rise of unionization, and the growth of the middle class. The subsequent decline of unionization has also coincided with the decline of the middle-class and the resurgence of bi-modal wealth distribution.

As we look around the globe, what nations seem to best model the libertarian ideal? And, perhaps more importantly, what nations would you like to live in?

My thesis: Government will always be corrupted to promote the interest of the group in control. Magna Carta was created not to promote “democracy,” but to protect the interests of the oligarchy against the king. The Declaration of Independence was designed to protect the rights of the US ruling class against the British ruling class. The Emancipation Proclamation was designed to promote the interests of the Union forces at the expense of the Confederacy. And the pattern continues right down to the Food Stamp program, which is administered by the Dept. of Agriculture – not the Dept. of Human Services – because it’s designed to promote the interest of the agriculture industry against all others. Most putative advances in “democracy” and the welfare of the “little man” have arrived not through some abstract assertion of autonomy but rather through the selfishness of some powerful social group. The middle class is by no means any less rapacious and greedy than any other social group. Its only virtue is that it’s the largest social group ever to wield a modicum of power, and therefore has distributed the benefits of power more broadly than any of the prior groups.

I recognize that not everyone will buy this thesis. Some will argue that laissez faire works, that free markets are actually free and don’t require any social intervention for maintenance, that all this focus of social groups merely distracts from the primacy of individual autonomous actors, etc. These are big discussions, and I don’t expect I’m going to persuade anyone who isn’t already persuaded.

My conclusion is simply that unionization may be a “second-best solution.” That is, while unionization tramples upon principles that tend to promote efficient allocation of resources, it may be necessary for the maintenance of the least pernicious viable social order that has an interest in promoting the efficient allocation of resources.

Jack & Bob, AT&T & MCI

You have two sons, Jack and Bob. They both enter the marathon. Jack runs the marathon in 2hr, 20 min. Bob steals a car and completes the race in a matter of minutes. You're the judge of the race. Do you tell Bob that he violated the rules? Or do you congratulate Bob on his superior "efficiency"?

I have not advocated for "equality." I merely say that in the absence of equality, you have no basis for determining whether Wal-Mart's success is due to its efficiency or its evasion of the law.

Once upon a time, there were two firms: AT&T and MCI. AT&T had a vision for providing telecommunications services, combining local service, long-distance service, video, internet access, and wireless. It was bold. And it was expensive. And MCI repeatedly reported earnings that were superior to, and more regular than, AT&T's. With all the investors flowing to MCI, AT&T couldn't compete in the capital markets. AT&T's operations were eventually broken up and sold for scrap.

It was later revealed that MCI had lied -- it did not in fact have the earnings it was reporting -- and MCI imploded in the biggest accounting scandal of all time. But it did outlast AT&T.

Now, was society made better off as a result of MCI's "efficiency"? Should we laud MCI because they they had the balls to Stick It To The Man?

I don't mean to dispute your values. All I ask is that we don't confuse cheating with efficiency. Efficiency is too valuable, too useful a concept to debase with this kind of analysis.

Hayek

Hayek was apologetic and you should be too.