Quotation of the Day…

(Don Boudreaux)

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… is from page 8 of J.R. Shackleton’s new book, Working to Rule:

Employment regulation is often justified in terms of some category of ‘market failure’ – an increasingly popular term which is interpreted to mean that free contracting by individuals and firms leads to economically or socially undesirable outcomes.  Such problems are frequently exaggerated.  Situations are sometimes honestly misunderstood: with markets already being distorted by pre-existing regulation, deregulation may be more appropriate than further interventions.  Proposed regulation can be badly designed, and will not produce the expected outcome.  Worse, it may involve knock-on consequences which create new problems.  Even quite sensible interventions can be mishandled and incompetently administered.

Moreover, such interventions, given our imperfect political process, in reality often serve particular interests, including privileged sections of the workforce, politicians who play on anti-employer prejudice and bureaucrats who benefit from larger regulatory budgets.

So we should never take as axiomatic that a ‘market failure’ will be overcome or alleviated by government action.  ‘Government failure’ … is also possible, even likely, in a world where incentives to honest and competent governance are often inadequate, and where even honest and competent governments do not have the detailed information necessary to perform efficiently.

DBx: Product markets are often criticized for inciting producers to cater excessively to every taste and passing whim of consumers.  Bernie Sanders’s indictment of markets for supplying multiple kinds of deodorant is only a relatively recent instance of such complaints – complaints issued by people on the political left and the right.  Consumers in modern market economies, we are often told, suffer (!) from too much choice.

The typical person who complains about too much choice has little understanding of economics and, as a result, misdiagnoses markets in general, and market choices in particular, from start to finish.  Yet whatever you think about having lots of choices, the existence of many choices reflects competitive market forces.  Executives at Kellogg’s and at Procter & Gamble routinely spend millions of dollars developing and launching new products because that’s the only way they can retain a good chance of continuing to attract consumer patronage.

Curiously, labor markets are assumed to operate very differently.  There’s no good reason for this assumption.  The same companies that are driven by competition to cater to every fancy and whim of consumers are assumed – mostly by people on the political left, but sometimes also by those on the right – to ignore the tastes and preferences of workers.

Labor contracts are commonly regarded as being written by employers and then forced upon a hapless or ignorant (or both) work force.  Employers are assumed to have inadequate incentives to take account of workers’ preferences for the likes of paid leave and workplace safety.  No matter how many labor contracts actually provide for paid leave, no matter how much attention employers pay to workplace safety, critics of markets assume that it’s not enough.

This assumption by market critics that real-world labor markets fail to supply adequate amounts of leave, safety, and even hourly pay for many workers sits very uneasily with the recognition that competitive forces in modern markets are so intense that consumer-product markets overflow with options to meet almost every desire, no matter how idiosyncratic.  This assumption by market critics reflects mostly their – the critics’ – faulty assumption that labor markets are uncompetitive or that ordinary workers are too daft to choose labor-contract terms that are in their own – the workers’ – best interests.