Bryan Caplan  

Why I Am Not a Left-Libertarian

PRINT
Did the Recession End 15 Month... L-data and D-data...
As a radical libertarian, pacifist, champion of open borders, and mortal enemy of Columbus, I seem like an easy convert to left-libertarianism.  Proponents like Sheldon Richman and Rod Long are smart and earnest people.  Their motives are pure.  Still, their innovations are largely mistaken.  All too often, they make a mountain out of a molehill, then implausibly blame government for mountain-making.  I've criticized them repeatedly in the past (here, here, here, here, and here), but the latest example from Rod Long exemplifies my complaints:

Suppose you forget to pay your power bill (or your phone bill, or your cable tv bill, or your internet access bill, or your credit card bill, or whatever). What happens? Your provider disconnects you, and you'll probably have to pay an extra fee to get service reestablished. You also get a frowny face on your credit report.

On the other hand, suppose that, for whatever reason (internet glitches, downed power lines after a storm, or who knows), you suffer a temporary interruption of service from your provider. Do they offer to reimburse you? Hell no. And there's no easy way for you to put a frowny face on their credit report.

Rod's take on the facts is awfully slanted.  In the real world, firms give plenty of extra chances to delinquent clients; regulation often extends grace periods; and delinquent customers, unlike service providers, are hard to successfully sue.  But suppose Rod's view of the facts were exactly correct.  Then basic microeconomics shines a spotlight on a neglected side effect of the double standard: Prices fall.  When consumers have no recourse, firms are more willing to sell (supply increases), and consumers are less willing to buy (demand decreases).  Furthermore, if consumers are willing to pay a premium for equal treatment, firms have every reason to offer it.  The natural lesson to draw is that consumers prefer the existing double standard to the extra costs of equality.

Rod continues with an analogous example:

Now, if you rent your home, take a look at your lease. Did you write it? Of course not. Did you and your landlord write it together? Again, of course not. It was written by your landlord (or by your landlord's lawyer), and is filled with far more stipulations of your obligations to her than of her obligations to you. It may even contain such ominously sweeping language as "lessee agrees to abide by all such additional instructions and regulations as the lessor may from time to time provide" (which, if taken literally, would be not far shy of a slavery contract). If you're late in paying your rent, can the landlord assess a punitive fee? You betcha. By contrast, if she's late in fixing the toilet, can you withhold a portion of the rent? Just try it.
Again, this is an awfully slanted view of the facts.  Landlords are subject to many regulations that preclude punitive fees, and make it hard to evict tenants who don't pay.  And regulation aside, delinquent tenants are very hard to successfully sue.  But even if Rod's absolutely right on the facts, he totally neglects standard economic analysis.  Double standards in favor of landlords reduce rents - and the fact that landlords rarely offer single standards in exchange for higher rents shows that consumers prefer the status quo to formal equality.

Rod's last case:
Now think about your relationship with your employer. In theory, you and she are free and equal individuals entering into a contract for mutual benefit. In practice, she most likely orders the hours and minutes of your day in exacting detail. As with the landlord case, the contract is provided by her and is designed to benefit her. She also undertakes to interpret it; and you will find yourself subjected to loads of regulations and directives that you never consented to. And if you try inventing new obligations for her as she does for you, I predict you will be, shall we say, disappointed.
Once again, Rod's take on the facts is awfully slanted.  Employers may try to order workers' lives in detail, but in practice plenty of workers habitually shirk.  Even without regulation, a worker can effectively say, "Yes, I'm a bad worker, but it would be a real pain to find a replacement, and they might be as lazy as me."  With regulation, a bad worker can hide behind legal protections and threaten costly lawsuits.  But in any case, Rod misses the key economic forces at work.  Namely: If there is a double standard that favors employers, it raises wages.  And if workers really wanted equality, employers would be happy to provide it in exchange for lower wages.  The fact that they rarely do so shows that workers prefer the status quo.

Final point: In each of Rod's examples, existing government policy tilts market outcomes in the direction that he misguidedly favors.  Under laissez-faire, service providers, landlords, and employers would be free to adopt double standards more lopsided than current law allows.  And plenty of consumers, tenants, and workers would be delighted to accept lopsided rules in exchange for lower prices, lower rents, and higher wages.


Comments and Sharing





COMMENTS (32 to date)
MikeP writes:

Over the past 20 years or so, I've dealt with several telephone, cable and Internet companies, and I can complain about some of the times they've made me wait on line to talk to a representative or the six-hour windows they've given me for when a technician will arrive.

But I can honestly say that every time my service had been interupted for whatever reason, they have promptly given me credit for the time it was out without any hassle. In fact, I've gotten more credit than necessary since they gave me credit for a full day even if the service was out just a few hours.

Sam writes:

I don't know where Rod lives, but I know that reading the lease does not generally give an accurate representation of the landlord-tenant relationship. In a dispute, the tenant can often get provisions of the lease thrown out. In at least one city I know of, if the lease is sufficiently objectionable, the Landlord-Tenant Advisory Board (a sort of pseudo-court) will void the lease and substitute its own, standard lease.

John Jenkins writes:

I'm no economist, but I am a lawyer, and his understanding of how residential leases work is simply wrong. While regular contract remedies can often be harsh, it's quite difficult in most cases to successfully prosecute an FED action unless the occupant is seriously delinquent.

Most leases do not permit abatement of the rent for repairs you perform yourself, that's true, but that doesn't mean the landlord doesn't have to make you whole. Then there's the concept of constructive eviction (simply, if something necessary to occupy the home, like running water, isn't working, that's the same as a wrongful eviction).

Most employees don't have contracts at all (they are at will employees), so I am not sure what he's talking about there. Employees are generally free to leave as they see fit, if they don't like a change in working conditions (how is a new rule different from a new boss, if your old one quit or was promoted?). This is very childish, it seems to me.

For utilities, the biggest problem is people stop talking to the creditor. When you go silent, all they can do is cut you off (after observing a lot of regulations). As long as you're talking to them and trying to pay, they're not generally going to cut you off. They don't want to do it. It's a lot like foreclosures. The last thing a bank usually wants is to own your house.

David R. Henderson writes:

David Friedman makes Bryan's point in his article, "Law and Economics," in the first edition of The Concise Encyclopedia of Economics. Here are two paragraphs:
Consider a city ordinance restricting the terms of rental contracts. Suppose the government of Chicago forbids any apartment lease that permits the landlord to evict the tenant without giving him at least six months' notice. An obvious consequence is that tenants are better off, since they now have six months' security, while landlords are worse off, since it takes them longer to evict undesirable tenants.
While this is obvious, it is probably not true other than in the very short run. What the argument omits is the effect of the rule on the behavior of landlords and tenants. By increasing both the cost to landlords of providing apartments and the value to tenants of the apartments they rent, the rule increases the rent at which the number of apartments supplied by landlords equals the number demanded by tenants.

Franklin Harris writes:

I have, over the years, had my cable bill, phone bill, and Internet bill all prorated due to service interruptions. Mostly, it sounds like Long needs to shop around for better providers. (He also mentions power bill, which in the vast majority of cases comes from a government monopoly.)

david writes:

I think the microeconomic concept Long is alluding to is not supply/demand but principal-agent conflict. In effect, there are both efficiency losses and a transfer of endowments from the agent to the principal.

Kurbla writes:

The sides are not in the same position.

  • Let us imagine the situation without competition. One employer and 99 employees. Employer really needs one employee more, employee needs employer. No competition. However, marginal utility of their job contract is not the same: for employee, job means survival; for employer - slightly higher profit. This situation is almost slavery. Employer can squeeze employees as much as he wants, as long as they accept the rules of the game.
  • Competition can equalize that; it can even put the worker in better position. Theoretically. In reality, by very nature of the capital, there are more workers than capitalists and competition between workers will be always stronger than competition between capitalists.
It is similar in many other situations; landlords etc.

Hyena writes:

The primary reason that the market does not provide custom rental arrangements is that constructing the contract itself can be expensive. Good evidence is just how common specialized agreements are on much more valuable leases--like those on expensive reisdences or commercial property--and informal arrangements at lower property values.

As others have pointed out, service interruptions are commonly prorated, so I'm not sure what Long is talking about. However, I don't think you're correct here: for every example Long provides, there is a counter example amongst higher value contracts. Moreover, we've seen increasingly customized agreements as technology has improved, making them quicker to negotiate, manage, and advertise.

It all seems to hinge on transaction costs, not consumer recourse, because negotiating, formalizing and managing thousands or millions of unique agreements is itself expensive.

Sarge writes:

I've had exactly the experience with landlords that Rob Long says would not exist. Specifically, when I rented my first apartment. Part of the lease agreement was that the landlord would provide all repairs within 24 hours of notification, and on the same day if notified before noon. For every day that the repairs were not made, it would reduce my rent payment the next month. So if it took them two weeks to fix my stove, I'd only owe half rent the next month. This apartment was more of a drive from where I worked than some others I looked at, but that offer contributed to my decision to move in. Twice, I needed repairs, and both times the problem was solved swiftly.

Perhaps this was just a lucky quirk, but it seems to me that the market does provide the option. Bryan makes the case that it wouldn't be provided very often, because most people would prefer lower rents, and his case seems solid to me. But it does exist at least sometimes.

Telnar writes:

My experience also suggests that contracts can be customized at lower cost than it appears at first glance. The most typical mechanism is that the tenant/employee/... signals that he is providing something non-monetary which is not assumed in the contract and asks for something back in exchange. For example, a tenant with good credit or a good history at a particular property might ask for a couple of additional lease terms which are of more value to him than they cost the landlord, or an employee who has already demonstrated high productivity might ask for some existing work rules to be waved.

This type of bargaining works better with small organizations that large ones, but small organizations are common and economically significant, so individuals who care about customizing their deals will have the option to deal with them.

Peter Finch writes:

Hotels and "Corporate Housing" provide very tenant-friendly landlord-renter arrangements with a much higher level of service. They cost more, and are widely available.

Silas Barta writes:

I think a lot of you are missing the point about rental contracts' slavery-like provisions. Sure, they're unenforceable, and sure, you can get them thrown out. But how many people actually know this and are capable of getting this to happen? Most likely, they'll just assume they have to abide by the terms, and the case never makes it to court.

It's still a problem that people are putting language into contracts, knowing it can't be enforced, so they can take advantage of the weak. If you don't see that as a problem, I don't know what to tell you. Contracts should mean what they say.

With that said, Long is incorrect about this:

"By contrast, if she's late in fixing the toilet, can you withhold a portion of the rent? Just try it."

That *has* happened to me, and I *have* tried it. The apartment I was in offered emergency maintenance, and I called for it when the toilet wasn't working. Their on-call plumber wasn't responding to the dispatch, so I called up a private service in the phone book, who came out and fixed it. I explained this the next business day, and then included a copy of the bill in the next rent payment, withholding the amount of the bill.

No complaints, no frowny face, even though their plumber eventually called later the night of the incident. Still, I don't know if I would have done that without having read Clark Howard...

j r writes:

[Comment removed pending confirmation of email address. Email the webmaster@econlib.org to request restoring this comment. A valid email address is required to post comments on EconLog.--Econlib Ed.]

floccina writes:

Suppose you forget to pay your tax bill. What happens?

Often you get a huge penalty completely out of proportion to your tax bill.

And they make you keep track of what you own, and don't even make a mistake, because ignorance of the law is no excuse!

Lee Kelly writes:

Excellent argument! Very simply and eloquently stated.

John Thacker writes:

My lease contains various boilerplate language saying that, e.g., the Landlord is not required to fix really anything (but has to be informed.) In reality, we've let them know whenver anything has broken, and then we've arranged for repairs (with their approval) and they've been fine with us withholding it from the rent. (This is the only house that they rent, and they live in another state now.)

I know that *just try it* works a lot better in areas without rent control, for one thing. With rent control, landlords actively screw renters any chance that they get because it's the only thing that they can do-- when you can't keep the rents up by providing good value, you skimp on value and the condition of the place.

Changing prices are typical-- e.g., lenders are responsible for Good Faith Estimates on mortgages. Various consumer protection laws penalize lenders if the final cost comes about estimate (worrying understandably about lenders taking advantage of time inconsistency and the difficulty of changing lenders at the last moment.) One inevitable problem is that many lenders then state various "worst case scenarios" that aren't very likely to avoid the risk of penalty. For example, on transfer taxes they may estimate a value in the highest tax county in the state, and the value if the buyer pays all the transfer taxes instead of splitting as in most states.

Michael Wiebe writes:
In each of Rod's examples, existing government policy tilts market outcomes in the direction that he misguidedly favors.
This claim barely passes the laugh test. Please provide additional arguments.
Bob Lawson writes:

Last week the cable/internet/phone goes out. We call. They fix. It takes almost a whole day though. We ask for and receive $20 credit. Given that our monthly bill is about $200, this was way more than generous imo.

I get left's complaints about corporate welfare and crony capitalism, but to complain about corporations per se is too much.

Skee, WCU writes:

Long's comment does conclude in the way that it should, stating that regulation is the cause and free markets are the cure of inequalities. However, this statement cannot be deduced from the examples he uses. Long says that:

"They're cases in which some people are systematically empowered to dictate the terms on which other people live, work, and trade."
John should be empowered to dictate how Bill works if John is paying Bill to work. Likewise, John should be empowered to dictate how Bill uses his apartment if John owns the apartment in which Bill lives. A fundamental part of private property is for the owner to maintain control of how it is used. If renters of property ultimately dictate how the rented property is used, this contradicts the idea of private property.

It is easy to give opinions on economic issues based on one's moral outlooks without really understanding the actual economics behind it. This article is a good representation of doing so. Even with a basic analysis of the implications of corrupt, greedy, and selfish landlords and employers, we could assume that people will not live in their apartments or work for them. This wouldn't happen overnight, but ultimately, they would be driven out by new entrepreneurs who, in their search for revenues, come to understand what the consumer wants. This even takes place today with current regulations. It would just be emphasized and occur more quickly with a free market system. This just seems like a basic economic analysis that might easily be overlooked by a non-economist.

Furthermore, I believe that by using the examples that Long did, he became detached from reality. Not to beat a dead horse, but I have also experienced several instances in renting property and purchasing services (utility and other) where my dissatisfaction resulted in reimbursement in one way or another. Producers need consumers just as much as vice versa. For example, if my ISP screws my service up, giving them reason to believe I may switch providers (rendering them ~$600 less revenue per year), I bet they will work with me to resolve the issue.

hhoran writes:

Bryan's post (like many of Arnold's) miss the central issue about the "liberal"-"libertarian" divide, and the "collapsing center". The bridgeable divide is represented by "liberals who fundamentally respect free market concepts but know real-life markets can be seriously flawed" and "libertarians who want maximum liberty but understand that pure laissez-faire produces bad outcomes in many real-world situations." Their (potential) common concern is politicians/corporate interests to grossly distort competitive markets to create artificial rents that reduce both "long-term socially optimal resource allocation" and "economic freedom". The unbridgeable gap is between conservatives who have a quasi-religious faith in the ability of "markets" to solve every public problem and liberals who have a quasi-religious faith in the ability of government action to efficiently solve all of the same public problems. The center collapses when the former demonizes any attempt to solve rent seeking market failures as tax-and-spend socialism and the latter demonizes any unpleasant market outcome as Daddy Warbucks type exploitation. Whether the issue is bank bailouts or credit card fees or anything else, the first question is whether the alleged problem was produced by economic forces in contestable markets, or by governmental action at the behest of powerful market incumbents. The second question is whether there's past evidence of "market" solutions in similar cases. In the real world, almost all of these problems are messy, so the knee-jerk ideological solution is almost never the optimal answer.
Bryan's post didn't attempt to address Richman/Long's issue of landlords working in cahoots with politicians to create artificial contractual powers infringed on liberty or represented an efficient competitive market outcome. Richman/Long didn't address the magnitude of the alleged distortions or whether market actions could produce better solutions than political actions. No one expects magic solutions from blog posts, but unless you are actively rooting for the "collapse of the center" you should hope for responses a bit more constructive than these.

steep writes:
Suppose you forget to pay your power bill (or your phone bill, or your cable tv bill, or your internet access bill, or your credit card bill, or whatever). What happens?

Suppose your state forgets to complete your sales tax audit. What happens?

http://www.coyoteblog.com/coyote_blog/2010/09/incredible-thuggery-courtesy-of-the-florida-government.html

Utility companies are pikers.

Yancey Ward writes:

Just more examples of the Left's morphing voluntary contracts into something sinister. Nothing new.

MBH writes:

You assume that left-libertarianism entails laissez-faire. Yet, if certain state of nature affairs -- like derivatives market exchange -- require government intervention on behalf of the common folk's property rights, then left-libertarianism can consistently advocate for a mixed economy. So you still have reason to be a left-libertarian -- just not the reason you usually hear.

Professor Caplan,

This is an interesting and excellent reply to Professor Long which focuses on the economic consequences of the alleged inequalities. There is an excellent focus on the microeconomics implications of the alleged inequalities, how they either drive wages up or lower prices, and how consumers or employees demonstrate their preference for lower prices or higher wages instead of more equality.

Before reading your post, I had wrote a reply to Professor Long that dovetails with your analysis and criticizes his argument from a slightly different angle:

Is Inequality and Asymmetry Really Problematic?
http://www.libertarianstandard.com/articles/david-j-heinrich/is-inequality-and-asymmetry-really-problematic/

Miguel Madeira writes:

Franklin Harris writes:

(He also mentions power bill, which in the vast majority of cases comes from a government monopoly.)

But the point of Long is exactly that:

Some identify the free market as the cause of such inequality, and government regulation as the cure; for others, it’s precisely the other way around. I’m obviously with the latter group; all the phenomena I mentioned are made possible by systematic restrictions on competition.
Phil writes:

If Rod Long is that intimidated by rental agreements, he must be a landlord's ideal tenant. I wish he was our tenant when we were renting property. He could try being a landlord to gain a different perspective.

Sheldon Richman writes:

Part of what Roderick is getting at is that all this occurs in an interventionist context where -- thanks to licensing, building codes, zoning, taxes, regulations, and other entry impediments ad nauseam -- there is less competition and therefore less bargaining power for workers and consumers than would exist in a freed market. Invoking supply-and-demand responses misses that point.

Guy In the Veal Calf Office writes:

Suppose you forget to pay your power bill (or your phone bill, or your cable tv bill, or your internet access bill, or your credit card bill, or whatever). What happens? Your provider disconnects you, and you'll probably have to pay an extra fee to get service reestablished.

This is not necessarily true. In Wisconsin, if a tenant welshes on their utility bill, the amount gets added to the property tax bill and the landlord must pay it. Neither the Utility or Assessor make any effort to collect from the tenant.

Julian Gutierrez writes:

Do consumers and workers prefer the status quo? Perhaps. But I'm more inclined to think that market power founded in primitive accumulation deprives them of many meaningful alternatives.

Sam,

I don't know where Rod lives, but I know that reading the lease does not generally give an accurate representation of the landlord-tenant relationship.

Quite true. But describing one's legal remedies doesn't give an accurate picture of the landlord-tenant relationship either. If a landlord (and I have in mind specifically a multiple-property landlord, since that's where economic asymmetries tend to be greatest) can afford a lawyer and I can't, then I will go along with the lease even if I could have gotten it overturned in court.

John Jenkins,

Most employees don't have contracts at all (they are at will employees), so I am not sure what he's talking about there.

I think you mean something narrower by "contract" than I do. I'm talking about the job description, the agreed-upon conditions of employment, etc.

Employees are generally free to leave as they see fit, if they don't like a change in working conditions

And if you don't like paying taxes you can leave the country. That's an odd argument for a libertarian to make. When one's choices are artificially constrained by governmentally imposed oligopsony, appeal to one's freedom to leave misses the point.

For utilities, the biggest problem is people stop talking to the creditor. When you go silent, all they can do is cut you off (after observing a lot of regulations).

In what universe? The Auburn Waterworks division automatically turns off the water if you're two weeks late in paying.

David R. Henderson,

David Friedman makes Bryan's point in his article, "Law and Economics,"

Friedman is talking about the negative impact of government regulations given a fixed supply of housing. I'm arguing that the supply of housing would increase in the absence of government regulations. So Friedman's point seems orthogonal to the discussion.

Kurbla,

by very nature of the capital, there are more workers than capitalists and competition between workers will be always stronger than competition between capitalists.

Only if by "workers" and "capitalists" you mean "employees" and "employees." Removing legal barriers to self-employment and workers' cooperatives would allow workers to outnumber employers.

Hyena,

The primary reason that the market does not provide custom rental arrangements is that constructing the contract itself can be expensive.

Not relevant. Standardised contracts and one-sided contracts are not the same thing.

Sarge,

I've had exactly the experience with landlords that Rob Long says would not exist.

a) I didn't say it doesn't exist, I said it's far less common than it would be in a freed market.

b) My name isn't Rob.

Silas Barta,

Long is incorrect about this:

"By contrast, if she's late in fixing the toilet, can you withhold a portion of the rent? Just try it."
That *has* happened to me, and I *have* tried it.

I've known people who were evicted for trying it. Anyway, most leases say you can't do it; and as you say, even if they might not hold up in court, tenants often don't know this or can't afford the expense and hassle of taking it to court.

John Thacker,

I know that *just try it* works a lot better in areas without rent control

Also whether the landlord owns many rental properties or just one or two can make a difference as to how concerned they are to make you happy.

Bob Lawson,

Given that our monthly bill is about $200, this was way more than generous imo.

Given that fees are artificially high because of the power company’s monopoly, it's not all that generous.

Skee, WCU,

John should be empowered to dictate how Bill works if John is paying Bill to work.

Well, it depends what that means. If it means the same thing as in "Bill should be empowered to dictate how much John pays him if Bill is working for John," then fine and good. My complaint is about cases where the dictation is asymmetrical. See Kevin Carson's latest C4SS study on this.

A fundamental part of private property is for the owner to maintain control of how it is used. If renters of property ultimately dictate how the rented property is used, this contradicts the idea of private property.

But no landlord ever maintains complete control of the property. Otherwise there'd be no room for the renter. The whole point of a rental contract is that a landlord temporarily surrenders some aspects of her control over the property to the tenant in exchange for money.

It is easy to give opinions on economic issues based on one's moral outlooks without really understanding the actual economics behind it. This article is a good representation of doing so.

I'm not sure what you're talking about. I was giving an argument based on free-market economics.

Even with a basic analysis of the implications of corrupt, greedy, and selfish landlords and employers, we could assume that people will not live in their apartments or work for them. This wouldn't happen overnight, but ultimately, they would be driven out by new entrepreneurs who, in their search for revenues, come to understand what the consumer wants. This even takes place today with current regulations. It would just be emphasized and occur more quickly with a free market system. This just seems like a basic economic analysis that might easily be overlooked by a non-economist.

So your criticism of what I said is basically to repeat what I said and then endorse it? I mean, what you just said was essentially my whole point. How does it suddenly become an objection to my position?

hhoran,

The bridgeable divide is represented by "liberals who fundamentally respect free market concepts but know real-life markets can be seriously flawed" and "libertarians who want maximum liberty but understand that pure laissez-faire produces bad outcomes in many real-world situations."

Well, I don't think either Bryan or I fit into either of those groups. We're both hard-core libertarians and advocates of pure laissez-faire. Neither of us is criticising markets.

Since pure laissez faire doesn't currently exist in the real world, I'm not sure what it means to say that "pure laissez-faire produces bad outcomes in many real-world situations."

Yancey Ward,

Just more examples of the Left's morphing voluntary contracts into something sinister. Nothing new.

Just another example of the Right's smearing left-libertarian defenders of the free market as being opponents of the free market. Likewise nothing new.

MBH,

You assume that left-libertarianism entails laissez-faire. Yet, if certain state of nature affairs -- like derivatives market exchange -- require government intervention on behalf of the common folk's property rights, then left-libertarianism can consistently advocate for a mixed economy.

This doesn’t make sense. Either people's property rights are protected (laissez-faire) or they aren't. they can't be both at the same time. So violating laissez-faire in order to protect property rights is incoherent.

Thomas J. Webb writes:

Minor point, but though it may be true that workers accept lopsided contracts in exchange for higher wages, this is simply middle-class workers shutting out lower-class workers. If you stop thinking about the employer-employee relationship for just a moment and think of the middle-class employee-lower-class employee and large business-small business relationships, you see that being more numerous and being more prosperous, respectively, leads to more power to shut out those below you. Between numbers and money, the latter is more powerful, so when we look back at the issue of employers and employees, it is the employers who are more successful in limiting their own numbers. Employers are only slightly hurt by employees' limiting of their own numbers, but certainly employees and customers are more harmed by governmental intervention limiting the numbers of enterprises.

Comments for this entry have been closed
Return to top