Monday, November 4, 2013

Monopsony Jones

Is the existence of monopsony (single buyer, contrasted with single seller in monopoly) a dashing little bit of a priori theory or a revealed empirical fact? Or is it both? The most uncharitable interpretation of research that finds evidence to support employer shenanigans against their workers is that it's a snipe hunt: researchers with an axe to grind pour themselves diligently into a task that lends some space to exaggeration. I don't think that's the case though. It's my impression that much of the behavioral econ literature is correct in identifying values that underpin wage rigidities, and that even though a lot of the empirical work I've read leans a bit towards question-begging, it's perfectly plausible to me that low-skilled labor is systemically underpriced. In a Bayesian sense, I'd have to say that I have relatively strong priors that the question is difficult to resolve using mere econometrics.

I'd also admit to some waffling over whether or not poverty is a public bad. It's obvious that poverty is bad—it contributes to misery not limited to malnutrition, lower life expectancy, violence (maybe), and a host of petty insults linked to relative status and self-image. But just because something is bad and it happens to members of the public doesn't make it a public bad. To elevate the private discomforts of relative immiseration to a public concern, the advocate either draws on the sense of pity that slumbers in all feeling peoples or appeals to spillover effects, as one might with public health initiatives (scarlet fever might be spread thanks to collective action lacunas, eg). Recall that excludability is a necessary condition for public goods or bads. Let's assume that both the normative (pity) and the positive (spillover) case has been made and that yes, having poor people around makes everyone worse off.

I'll leave it as an exercise to the reader to decide who in this exercise has moral weight, if people born on the wrong side of a political border should influence either our tender spirits or whether the malaise of poverty slips the border patrol in the dark of night.

So if we accept premises (a) that a firm can be a monopsony buyer of labor and (b) relative poverty is a social rather than a private condition, by what logic might we arrive at the bramble of bureaucracy that penetrates poverty relief efforts that hover from local all the way to international? Imagine all the talent that could be freed by salting the earth where the thicket of wage intervention and in-kind transfers once stood in lieu of a universal guaranteed minimum income. Think about disconnecting poverty relief from work.

That's the bulk of my pitch for a basic income. I think it's probably not that much of a stretch to say that it would be more euvoluntary than the status quo. But what it's missing, why no one has seriously forwarded a proposal that would shutter big swaths of the federal budget falls afoul of the illusion of Tantalus. What looks like low-hanging fruit might actually be the jawbone of an ass wrapped in a palm leaf.

Paternalism is popular. And by "popular", I mean that even loopy libertarians harbor pretty strong preferences over what constitutes right behavior (they're just less inclined to wield the cudgel of the state to see their ideal world flourish). Disbanding state-run poverty relief programs disrupts the thousand little fingers folks use to prod others, be it in matters of recreation, mastication, or procreation. To my consternation, I have to admit that there's massive (misguided if you ask me) social benefit to lending state force to scolds, left and right (which side is in ascendance is probably more a matter of luck than anything), so efforts to muzzle leviathan will be met with thrashings of the beast itself over the frenzy of its handlers.

Then again, maybe I'm wrong about the relationship of work, income, paternalism, and poverty relief. What if the underlying purpose of minimum wage statutes isn't to make sure that workers break the spine of employer monopsony but to erect a palisade to segregate undesirables? What if Hume was right and the true purpose of leviathan is to encrease its dominions? Is it not futile to stand athwart both history and society, shouting "here and no further" as the beachhead of petite bourgeois dignity is worn underfoot? Is the universe of euvoluntary exchange better expanded by entrepreneurial endeavor or by resistance to the scope of state coercion? I'm not asking as a rhetorical device. I legitimately don't know the answer.

And to try to plumb it more, I'll do another post on Kirznerian entrepreneurship by the end of the week. Stay tuned.

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Do you have suggestions on where we could find more examples of this phenomenon?