By Wilt Alston View all 5 articles by Wilt Alston Published 02/25/09  
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"In America everybody is of the opinion that he has no social superiors, since all men are equal, but he does not admit that he has no social inferiors, for, from the time of Jefferson onward, the doctrine that all men are equal applies only upwards, not downwards." ~ Bertrand Russell Well, that didn't take long. In the first official bill signing of his administration, President Barack Obama struck a blow for the equality of all workers! Or at least that's what he (and I reckon his supporters) think he did. There is much to discuss with regard to this issue, and I'll get to that, but before I do, I think I better head off some knee-jerk reactions that this essay might generate. No, I'm not a Republican, and even though House Republicans sought to block this bill, I am under no illusion that many of them have even a faint clue. (Even a broken clock is correct twice a day.) No, I'm not of the opinion that men and women should be paid differently for the same work, but frankly, that's not my decision to make. Given that value is subjective, I am not even sure what the term, "the same work" even means. (I will cover both of these issues below.) What Is Important versus What Is Not If anyone needed indication that many of the House Republicans who opposed this bill were just as clueless as many of the House Democrats who supported it, this quote should mitigate that confusion. Opponents contended the bill would gut the statute of limitations and benefit trial lawyers by encouraging lawsuits. They also argued that employees could wait to file claims in hopes of reaping larger damage awards. Maybe this is true, but who cares? The big issue is not such technicalities, although playing the system has become high sport. The best way to keep people from "gaming" the system is to have a lot less of it. (The government creates this system.) At some point during the glad-handing after the bill was signed, First Lady Michelle Obama said, speaking of Lilly Ledbetter, the woman for whom the bill is named, "She knew unfairness when she saw it, and was willing to do something about it because it was the right thing to do -- plain and simple." What does unfairness have to do with the work of government? If the State can root out something as nebulous as unfairness with the stroke of a pen, it's only a matter of time before they can finally stop not only lying and cheating, but also a legitimate concern, like say, tooth decay as well! I can't wait. The Basic Economics of Ownership and Private Property The real issue, the most important issue in this discussion, is the issue of ownership. It is an understanding of that vital concept that seems to escape everyone in control of the U.S. government. (In fact, the concept of ownership has been escaping statists for centuries.) I'm not sure if that's due to ignorance or stupidity, but it doesn't matter, nor do I care. At some point, the basics of human action have to become apparent to those who wish to use the guns of State to shape the world as they see fit. Employers are at liberty to pay anyone they like at any rate that they like, unless the job is owned by someone other than the employer. If that's the case, we're all serfs anyway. If the law requires that employers pay everyone the same wage, regardless of the employer's decisions, there will be negative and unintended consequences, many of them predicted by Austrian economics and all of them worse than the problem the legislation was intended to fix. The issue of equal pay comes down to one set of very simple truths, and unless I don't understand private property as well as I had hoped, they are unassailable. The fact that President Barack doesn't understand these truths can be deduced from this short paragraph from the Yahoo report linked above. "Obama cited Census Bureau figures that show women still earn about 78 cents for every dollar men get for doing equivalent jobs, and it's even less for women of color. He said Ledbetter lost more than $200,000 in salary, and even more in pension and Social Security benefits." Questions abound. What is an "equivalent job" and who gets to decide? If the owner of the job, the employer, doesn't know what is equivalent -- and the fact that a law is needed illustrates that he ostensibly does not -- how can a third party like the government, itself not subject to any oversight, do any better? How different must a job be before a different wage may be paid for it? In any trade -- of which the employee/employer relationship is but an example -- there are generally two actors. One actor, the employer, has a job that he wants done, at a wage he thinks is appropriate. (More generally, he has an upper limit above which he will make another decision versus pay that price for that job. This relates directly to the fallacy of the minimum wage.) The second actor, a prospective employee, has time that he is willing to offer in exchange for those wages. (He too has a lower limit, below which he would rather do something other than the prospective job.) These two actors must agree before the trade can take place. At the completion of that trade, both of these actors are certain that they have received more value than they traded, or they would not have done it. This concept, subjective value, is the very basis of free market exchange in the Austrian method of economics. (Might either or both actors change their minds later? Sure. That is part and parcel of voluntary exchange -- caveat emptor and all that.) Ben O'Neill spelled it out more elegantly in a recent and very educational Mises Daily Article, "On Private Tyrannies" with, "By virtue of the voluntary nature of this action, the workers clearly regard this trade as beneficial ex ante; if they did not, they would not enter into this role." Contra an erroneous assumption that Obama's quote illustrates, if the employer owns the job, it is his decision -- and his decision alone -- how much he pays for its completion. How then, can Ledbetter "lose" anything? More directly, how can she sue the employer for more pay after-the-fact for a job that she took voluntary at an agreed-to wage in the first place? Looking at it from the other perspective, could the employer legitimately sue Ledbetter for doing a "bad" job and get some of his money back if he later thinks her work was substandard? If not, why not? Wouldn't that be "fair" as well? The mind reels. While I genuinely understand the desire to force an employer to pay everyone the same thing -- I used to identify quite strongly with Obama's position -- I have come to recognize that such legislative actions simply cannot generate the outcome I desire. Much more important, the legislation tries to turn a knob that doesn't need adjustment. For example, what would happen if women were actually willing to work for less money and if the jobs they did were actually equivalent? Simply put, in that case the resulting unemployment rate for men should be very high. Stated differently, and as David Kramer observes, why would any employer in his right mind pay someone more for the same work? If Mexican workers "take away American jobs," due to their willingness to accept lower wages, then one could one could also argue that women who take lower wages take jobs away from men! (Maybe men should petition Congress for protection?) The unstated assumption, cultivated over a very long time, is that those who own enterprises will seek to unfairly take advantage of certain people while treating other people fairly. You know what? I won't even dispute that this might be true. However, that is simply another issue that enters into the consumer decision to patronize a business. Coercive State action cannot "fix" anything about the situation. Learning from History. . . or Maybe Not The Montgomery Bus Boycotts represent what I think is an educational example of exactly the wrong way to approach the issue. The fact that Montgomery also represents what most would call the start of the Civil Rights Movement, and with it a further enhanced role of government in actions such as this one by President Barack, makes it particularly germane to this discussion. To review, the bus companies in Montgomery, Alabama made it a habit, as did most business at the time, of treating black customers differently than white customers. In fact, this mistreatment was codified in the laws of the time. This treatment involved requiring black bus riders to begin loading from the back of the bus, and eventually to stand if a white rider wanted to sit down. In a now-famous gesture of defiance, (which, by the way, was not spontaneous) Rosa Parks refused to relinquish her seat and was arrested. Her act of defiance led to all the blacks in Montgomery boycotting the bus company for the next 14 months. Almost immediately after black bus patrons began to walk, the black community devised a network of carpools. The city pressured local insurance companies to stop insuring cars used in the carpools. Additionally, black taxi drivers began to charge ten cents per ride, a fare equal to the cost to ride the bus, in support of the boycott. When word of this reached city officials, the order went out to fine any cab driver who charged a rider less than 45 cents. Statist Lesson #1: Punish people for making their own choices and spending their own resources in the way they wish. Shortly after the black patrons began to walk, the bus company realized that it was losing money much faster than it could afford to. Ready to cave-in, the bus company received pressure from racists (and financiers) outside Montgomery to "keep those Negroes in their place." In an attempt to punish the boycotters the local White Citizen's Council took part in violence directed against boycott organizers. Statist Lesson #2: If people won't do your bidding voluntarily, use violence. Subjective Value: It's Not Just a Catchy Phrase Before I put this issue to bed, one other example seems appropriate. I hope it will illustrate how subjective value is not only a component of all trades, but also a requirement for a profitable and efficient free market economy. Let's look at air travel, specifically at tickets for air travel. Everyone who has flown knows, or should know, that tickets for air travel vary in price. Sometimes, in fact many times, these variations are quite large. Even on jetBlue, my favored air carrier, one can pay, for example, $350 or $700 for a round-trip ticket on a flight going from Rochester, NY to Burlington, VT. This is to say that people riding on an identical airplane, departing from and returning to an identical location, and enjoying exactly the same selection of Terra Blue Chips and/or Animal Crackers can pay prices that are 100% different. (Does President Barack know? Alert the media! Call an emergency session of Congress. Unfairness is alive and well and wearing a chipper smile and an elegant blue plaid scarf!) How should this obvious unfairness be dealt with? Using the example set by the President and his first piece of legislation, we get a few clues. Should the passengers who flew at a higher cost sue for the difference? Maybe they should sue the other passengers who only paid a fraction. Maybe both jetBlue and the other cheap-skate passengers should be named in a joint lawsuit. Should be the other way around? Maybe jetBlue, after finding that more than [place arbitrary number here] passengers booked early and took advantage of the non-refundable tickets, can go after some percentage of the cheapskate passengers. (I know. I know. The business is always the bad guy.) What if we empower a President's Special Council to set airline ticket prices? Ideas abound. This example illustrates that it is lunacy to attempt to fix value that is inherently subjective. I might be willing to pay more for my ticket, given the timing of my need to travel. You might be willing to pay less, and therefore book earlier. Maybe I'm just a chronic late decision-maker. Wait. Should jetBlue be allowed to "discriminate" against me? Yes, and that is because value is subjective and must be so! Only I, the person who is attempting to purchase a ticket for air travel, am qualified to set the price I'll pay. Only jetBlue, the owner (in our example) of the ticket I'm buying, is qualified to determine at what price they will sell it to me. Conclusion How different might our points of view be if the guns of the State hadn't been employed in Montgomery and thousands of similar places? Would there be a more vibrant network of black-owned bus companies all over the south? Would there be a network of black-owned car services in Montgomery? I wonder. Businesses rise to meet demand if not impeded by external forces. The State is the biggest impediment. (The irony of trying to use the State to fix apparent impediments is truly priceless.) How different might our points of view be if subjective value was attacked at every turn in a similar way as it appears to be in the case of at-will employment? Legislation that seeks to circumvent the ownership that each person should have over his labor or his possessions is at odds with the concepts of subjective value and private property. Such legislation always leads to negative consequences as well. From the minimum wage, which causes unemployment, to price controls for gas in Atlanta, which caused a gasoline shortage, to this latest boondoggle, which will simply lead to fewer jobs for everyone, agents of the State seek to sidestep the laws of praxeology. This initial piece of legislation signed by the President incorporates both statist lessons used by the Montgomery racists. Isn't that ironic? Call me a cynic, but that's about as far from "change we can believe in" as it gets. The fact that when he was a U.S. Senator, Obama did not himself follow this "equal pay for equal work" edict is simply an example of the Pot telling the Kettle, "Yes, I can. . . call you black!" |
Also by Wilt Alston:
Do the Economics of Coercion Make Sense? 01/21/10
Are Misplaced Incentives the Inevitable Result of Statism? 08/27/09
What the Heck is "Predatory" Lending? 01/22/09
Is Gun Control Racist? 00/00/00
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