26.10.08

Came across this...

So I'm reprinting it; I am finding it useful:

This is the html version of the file http://fluff.info/blog/argue.pdf.
Google automatically generates html versions of documents as we crawl the web.
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How to argue with a conservative
∗
B Klemens
July 7, 2004
Here are a few notes on what I feel are the best arguments to use when debating with a con-
servative. It covers that narrow slice of argumentation that is both a valid counterargument
to the average conservative’s claims and is also comprehensible to a conservative. There are
a multitude of other means of debate, but I feel that those discussed here are the most likely
to succeed.
I self-identify as an economist, meaning that most of the discussion here will be economic
[even including a few technical notes from basic economic theory in square brackets]. For
the social issues, however, have a look at Section 1 on externalities; if I had to oversimplify
and point to a single characteristic that distinguishes the liberal from the conservative, it
would be that liberals are more able or willing to internalize externalities, which affects both
economic and social issues.
As a final caveat, no two conservatives are the same, and it would be overblown to the point
of silliness to claim that a 6,000 word essay covers everything every conservative believes.
Having said that, I will spend the rest of the paper debating the imaginary conservative in
my head and pretending he represents all conservatives, without plastering the essay with
little ‘some conservatives believe that...’ warnings.
Uncle Milt It all began in the fifties or so, with a Mr. Milton Friedman, herein ‘Uncle
Milt’, which is what U of Chicago professors really called him when I was a student there.
Uncle Milt wrote this little book called Free to Choose, and the name basically describes
everything there is to know about the theory. If you have to choose among a few options,
an unconstrained choice is always better than a constrained choice. It’s almost a tautology.
Therefore, government restrictions on the choices available to people, be they consumers or
managers of businesses, are bad.
[This is often called the Neoclassical school, since it’s a reinvention of Adam Smith’s work.
∗
This paper is currently available at http://fluff.info/blog/argue.pdf
1
You know Adam Smith: he wrote A Theory of Moral Sentiment, which explained how a
market requires good will among its members in order to properly function. He also wrote
something about an invisible hand moving the market to an optimal state.]
Free to Choose is basically the Republican position on all economic (but not social) issues.
It’s appealing because it’s so simple: restrictions bad. But economics since the dominance
of Uncle Milt and the Chicago School has been all about the exceptional situations where
the simple logic of constrained vs unconstrained choice is too oversimplified to do reality
justice. Generally, regarding any issue where we in the modern day consider government
to be potentially relevant, one of these exceptional cases will come up. Pointing out the
appropriate exception is often enough to get a free marketeer to stop smirking.
1 Externalities
The biggest problem with the neoclassical view espoused by so many conservatives is that
it forgets about externalities. This is huge.
An externality is the effect you have on others that doesn’t directly affect you. When you
drive, every pedestrian has a little more trouble breathing. When you eat a hamburger, a
cow had to be killed. When you wear a low-cut dress, the boys who pass you on the street
feel a little bit better. [I swear, every econ class I’ve ever had used an example about cute
girls.]
From the economist side of things, there is no real solution to the externality problem, in
the sense that it’s supremely difficult to work out what the optimal behavior is, and how
you should go about getting people to engage in that behavior. Basically, if an agent can do
something that benefits it but causes a negative externality on others, then you’re guaranteed
that the agent will do too much (a suboptimal amount) of that activity.
If we could find a way to have people internalize their externalities, so that they simultane-
ously feel both the benefit they experience and the displeasure that others experience, then
the market mechanism would work just fine. Too bad that’s impossible.
Which is where government comes in. As a first approximation, there are taxes on ac-
tivities which produce negative externalities: gas consumption pollutes, and so is taxed;
alcohol consumption leads to some number of annoying drunkards, and so is taxed; cigarette
consumption makes other people’s clothes stink and leads to a rise in public health expen-
ditures.
1
All of these taxes proxy for the displeasure that the buyer is causing everybody
1
Taxes don’t have a will, so ascribing a motivation to a tax is a fallacy, but notice how far we can go in
justifying these taxes without describing any of them as ‘sin taxes’. After all, if taxes really were a puritanical
attempt to change people’s behavior, the puritans would also be taxing condoms—but the externalities from
condom usage are all positive, so you’ll only find no taxes or occasional subsidies on them.
2
else.
Barring a tax, the other means of internalizing the externality is making the activity illegal—
think of the fine from breaking the law as another form of tax. A good law curtails those
activities which have negative externalities and thus makes the world a better place. Exam-
ples: don’t litter because it’s easy for you but makes other people’s lives worse; don’t drive
drunk because it’s easy for you but makes other people’s lives worse; you can’t buy a car
with certain types of dirty engine because it’s cheap for you but makes other people’s lives
worse, et cetera.
The problem comes in when working out how much curtailing to do. When people say that
their lives are worse off because of somebody’s actions, they have absolutely no incentive
to tone down the whining. I think you’ve all been there—especially if you’ve ever had a
roommate. Back when I was a bike messenger, my roommate borrowed my bike for a stroll
along the lakeshore, and got a flat tire. He didn’t quite patch it right, and it went flat a few
more times over the course of the day. I lost work as a result, and by the time I got home,
I had prepared an extensive bitchy commentary for him about how his actions had ruined
my life. Yet he started yelling first, about how I’d left a nubbin of pasta at the bottom of a
pot, and now it was really stuck, and how I had thus totally ruined his life. He made it very
clear that losing business, patching an expanding hole, and walking part of the way home
was nothing compared to what he’d suffered at the hands of that blob of pasta.
It wasn’t the best roommate situation, but it mirrors legislative lobbying and debate pretty
well. Imagine the whining when the problem is bigger than pasta stuck to the pot, like
an issue of education and property taxes, or pollution. It basically becomes guesswork as
to what damage one person suffers from somebody else’s actions. The conservatives of the
world often latch on to this, and conclude that everybody is just lying all the time, and there
really are no externalities, or if there are, they aren’t nearly as bad as everybody makes them
out to be, so we should ignore them. ‘Buck up and stop whining,’ the conservative would
politely explain.
Anyway, behind a huge number of government activity and restrictions upon behavior, there
is an externality involved. It’s a fun exercise to ask yourself, for any law that comes to mind,
what harmful externalities that law is preventing; you’ll find something for almost all of ‘em.
For example, laws curtailing pollution exist because pollution damages property which is
either in the public trust or is intimately the property of a non-polluter (like the air in my
lungs). When people don’t get an education, studies show, they’re more likely to wind up
poor, annoying, and a criminal, which are all things that affect the other people that interact
with the uneducated. On the positive side: when you take public transportation instead of
driving, other people have clearer roads and lungs. When people tell you that government
should get out of these fields and the market will provide the optimal levels of pollution,
education, and public transport, tell them that they’re entirely wrong, because the market
can not accommodate the effects of the externalities.
3
Also, when the privatization people tell you that the bus system is losing money, and there-
fore needs to be severely cut and/or privatized, you should tell that that because of the
externalities, the system isn’t behaving optimally unless it is losing money. See also the
section on cost minimization below.
Law is often a blunt instrument, so if the optimal amount of an activity is less than current,
the law often simply makes it entirely illegal. But the optimum is probably not at zero
activity either. People often latch on to this, pointing to cases where somebody really needed
to do something which had a negative externality attached, and couldn’t do it because of
some law. But the question of degree is more subtle than that: zero is not optimal, but
neither is the amount you’d get if everyone were free to do all they wanted; which is less
suboptimal?
1.1 The choice of externalities
Both sides of the political fence complain about externalities, but different ones. For example,
social conservatives have lately taken to griping about how their marriages will be less
sanctimonious or something if gay marriages are allowed.
Externality arguments are usually made by social conservatives and economic liberals. Con-
versely, social liberals and economic conservatives (both of these categories include libertar-
ians) tend to ignore or belittle externalities. The asymmetry here is that economic external-
ities, which the liberals gripe about and the conservatives ignore, are about the things that
actually affect people’s lives; the social externalities, which the conservatives are up in arms
about, are typically aesthetic. In an ideal world, you could call a conservative on the relative
triviality of the externalities s/he chooses to care about. E.g., why are you bothered about
how your kids are harmed by gays, but aren’t bothered by how many kids are killed by guns
every year? Why do you think the market should be free to decide on whether to drill for
oil in Alaska, but don’t think the market can work out the optimal exposure of boobies on
TV without government oversight?
Another asymmetry is the exaggeration issue: when people suffer externalities such as job
loss, crime, disease or death (or even environmental damage), there’s something physical
that can be measured and compared to any hypothetical benefits, albeit imperfectly. But
when somebody says that they suffer because gays are getting married or because they were
subjected to the sight of female nipples, there is simply no way to measure the aesthetic
damage that the person is internally suffering. I’m not exactly sure how you can use this for
rebutting a fanatic conservative, but it gives some idea of how fanaticism can come about:
there’s nothing keeping anyone from the extreme position, because there are never facts that
get in the way of the claims of endless damage.
4
1.2 How not to argue: equality and fairness arguments
Here are some things which are generally true and often important, but which are simply
non-starters in debate with conservatives. They’ll never get it, so don’t waste your time
trying. In some ways, this is the most important section. A bad argument is worse than
no argument at all, and I’ve often been vicariously embarrassed by fellow liberals (Ralph
Nader) who argue the points below as if they’re persuasive.
Equality is, to many conservatives, just not important. There’s nothing much in the Bible
about it, and humankind got along just fine without it for centuries and centuries. Similarly,
many conservatives define fairness endogenously, so any outcome is always tautologically
fair: if you can grab more for yourself, then you deserve more and that’s fair.
A desire for fairness requires internalizing all externalities, which many people either have
trouble doing or explicitly don’t want to do. As such, I don’t think there’s any way to
convince somebody that equality in treatment or outcomes is a good thing. So don’t argue
that a certain rule or structure is fair; instead, consider the ways that it appeals to the
principles that our conservative pals find appealing, like efficiency (everybody likes efficiency)
or pro-U.S. nationalism.
For example, redistributive taxation. By keeping the poorer folks fed, the likelihood of
crime is lower, and kids are better fed and are more likely to be healthy and smarter and
more productive in the future. You could provide certain goods/services via inefficient social
services, or via the market by undertaxing the poor who are most likely to use those social
services. You can get pretty far without ever using the word ‘fairness’.
To give another example, the Unified School Districts of various areas insist that all schools
in a wide area (like LA) must get the same level of funding. Again, this improves efficiency:
another dollar to a school which needs to buy textbooks will go a lot further than a dollar
to a school which wants to fund one more field trip.
2
And why is it so easy to talk about
optimality when we want to talk about fairness? Because fairness is optimal. Another
dollar given to a wealthier person just isn’t as useful as another dollar given to a starving
person, so all else equal, the best allocation of a given dollar is to the starving guy. [Technical
version: Although not universally true, people are generally risk averse, meaning that we can
describe their preferences using a concave utility function. If everybody has equal weight in
our objective function and has the same private utility function, then the optimal allocation
is the perfectly equitable one.]
To summarize the section, fairness is an idea you learn as a kid, and if somebody doesn’t get
it by now, they never will. But you can argue for efficiency almost anywhere you’d prefer to
2
So why do LA’s schools suck so badly? Because property taxes in California are so low that they’re
effectively nil, so every school in LA is equally underfunded. It’s a paragon of where the conservative drive
for lower taxes at all costs will get you: the fastest drop in school quality you’ve ever seen.
5
discuss fairness, and you won’t have to ask the person you’re debating to make the mental
leap of internalizing the situation of other people.
The more hard-core libertarians take it all a step further, though, and believe that not only
is the empathetic desire for fairness a weakness (as Ayn Rand teaches), but the world would
be better off if we all went out of our way to eliminate empathy (i.e., the internalization of
externalities, which are assumed away in the free market model). By this point, it becomes
a religious issue (sometimes literally), so debating is useless; cut your losses and just don’t
bother associating with the person.
2 Public goods
Another common divide along the liberal-conservative spectrum is that liberals want more
goods provided by government and conservatives want fewer goods.
2.1 The fallacy of the self-made conservative
Many a conservative shoots for an individualistic character. Some take it to the extreme
of insisting that they are entirely self-made: their family did all the work of raising them
and sending them to a private school, then they paid for college themselves, never took a
handout, et cetera. They conclude from these broad strokes that government was unnecessary
in getting them to where they are today. Other conservatives don’t go this far, but are still
willfully blind to their reliance on public goods.
Direct benefits Part of the problem is that the government services that most people
enjoy are so fundamental that they’re invisible. If the water is clean, and you don’t get sick
when you go out to eat, and the gas lines under the street don’t erupt in flames too often,
then you don’t notice the inspectors, engineers, and bureaucrats on the government payroll
who made such a halcyon existence possible. The best government is one which is involved
in dozens of fields and yet is entirely unnoticeable.
Indirect benefits Leaving aside the person’s health and general well-being, there are also
indirect benefits to government spending which our conservative friends enjoyed, whether by
their choosing or not. They worked through school? There’s a good chance that they were
able to find a job because the federal Work Study program provides subsidies to make sure
that every campus has a larger supply of jobs. Even if our conservative friend eschewed such
handouts, the non-handout jobs had much less competition.
6
Our Conservative Hero doesn’t have any diseases, and is healthy and fit thanks to 100%
private health insurance? It’s also because of massive public health campaigns, both direct
(closing sewers and other basics that the U.S.A. worked out a century ago) and indirect, in
the form of taking care of the impoverished ill and advising them on how to get better so
they don’t cough up an infected lung on any conservatives.
Our Conservative Hero isn’t mugged every day? This is partly thanks to the fact that the
poor in the neighboring communities have government support that lowers their need to get
resources by illicit means.
The list goes on, but the gist is the same: by stabilizing and taking care of those parts of our
surroundings that are most at risk, those parts stay invisible to those who can take care of
themselves. But if those supports disappeared, then the at-risk may not remain so invisible.
2.2 Limited rationality and informational asymmetry
This is a bit of a digression, but it’s a good place to mention regulations requiring labeling,
full disclosure, and licensing.
Trademark laws are all about minimizing confusion in the marketplace: if your logo looks
too much like the other guy’s logo, then dumb people will get confused and buy the wrong
thing. There are loads of other truth-in-advertising laws, such as how stock brokers can not
guarantee that a plan will make money. And indeed, there are enough dumb people and
enough slimy stock brokers that laws like this have to exist.
In LA county (among others), all restaurants are inspected and must post signs giving
their inspection grade. Similarly, food manufacturers have to tell you basic nutritional info
and what’s in their food. Publicly traded companies have immense reporting requirements,
which keep many a lawyer and accountant employed full time. Generally, any sort of licensing
requirement is a requirement for full disclosure of important information.
All this seems fair enough to me: trade on equal grounds requires equal information. And
yet, there are loads of conservatives (not all, but a few) who think these are invasive laws
that condescend to the buyer. The emptor should caveat for his or her own darn self. Again,
all of these rules are based on hope for a ‘fair market’, which differs from the concept of
a ‘free market’. As above, you can’t argue fairness to a conservative who doesn’t already
believe it’s worth striving for.
Part of this is the Lake Woebegone effect, that everybody thinks ‘I’m smarter than aver-
age, so this law isn’t protecting me; it’s protecting the dumb people whom I don’t know.’
From my own experience, self-made conservatives are especially prone to this, which makes
any argument about how information is not perfectly disseminated at all times supremely
frustrating. I think your best bet is to either argue the extreme cases [should out-and-out
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scams be legal? When does hiding information become substantively different from lying?]
or use the grandmother argument [Would you want your grandma to have to sift through
this?]
3
However, my experience is that the Lake Woebegone effect combined with a refusal
or inability to internalize the difficulties of others makes this class of issues almost impossible
to debate.
The self-made conservative believes that he (and it is usually a boy) can fend for himself, so
everyone else is obliged to as well. But the self-fending is a delusion, because he is already
surrounded by a wealth of services which he directly and indirectly benefits. He doesn’t get
lied to not because he’s so supremely savvy, but (at least in part) because those he deals
with have laws they must comply with.
The question, then, is how these services which the self-made conservative takes for granted
should be provided, and the conservative always prefers private provision over public.
2.3 The fallacy that a profit motive means efficiency
Conservatives often work from the premise that if an organization has no profit motive, then
it will be inefficient. A business has a simple directive—maximize sales minus costs—and a
business which fails in that directive will lose out to other businesses which do a better job
of it. This logic is false in two ways.
Cost minimization The first part of the argument, that an organization which isn’t
maximizing profits has no motivation to be efficient, is simply false. The reason is that
profit maximization is equivalent to cost minimization. We could cast the problem of the
business as finding the cheapest way of producing its product; similarly, we could characterize
the goal of the bureaucracy’s manager as finding the cheapest way to achieve whatever its
goals may be. If the manager isn’t minimizing costs, then there’s something s/he could do
to save a few bucks and then apply that toward achieving the bureau’s goals. Why would
the manager of a government department pass up such a savings, while a business manager
wouldn’t?
Of course, there’s still the problem of defining the goals of the organization, and here gov-
ernment excels in the provision of things where the goal is ambiguous. The goal of a public
energy utility is to provide citizens with reliable and cheap power, while the goal of a private
company is to maximize profit for the owners of the company by providing citizens with
power. It’d be nice if these incentives aligned perfectly, but they clearly don’t, which means
that privatization often leads to disasters in the provision of public goods (e.g., everything
3
I don’t know why grandparents are always considered to be so dumb, but this debate is probably not
the time to work on dispelling stereotypes.
8
associated with Enron). Externalities matter here too: the profit-maximizing fee schedule
ignores externalities, and will therefore lead to a suboptimal level of service.
This may seem easy and obvious, but the privatization harpies forget all the time, and need
reminding: profit maximization and cost minimization both encourage efficiency, and neither
magically produces efficiency.
Zero profits The second part of the fallacy, the Darwinian part, assumes that if you’re not
perfectly optimal, you’ll lose money and will go out of business. But anyone who has ever
worked in a company’s office will attest that abject, persistent inefficiencies happen every
day throughout the business world, and yet these companies continue to keep their heads
above water. Liberals and conservatives alike agree that ‘big government’ in the sense of
‘over-bureaucratic’ government is a bad thing, and if there’s a more efficient way to achieve
existing goals, then that’s a good thing. But the same could be said of IBM.
Some folks used to tell me that zero-profits-plus-efficient-market means that racist hiring
would eventually disappear, since a racist manager is imposing a restriction on his choices,
which will therefore lead to suboptimal hiring on a regular basis, which will lead the com-
pany to go out of business. Maybe racist businesses go under more frequently than non-racist
businesses, but a few centuries have shown us that no, having racist policies does not imme-
diately condemn a company to bankruptcy. Similarly with any of a number of other mean,
irrational, and destructive policies that the businesses of today engage in all the time. Con-
versely, laws that force people to not be racist also don’t lead to businesses closing down all
over.
Theoretical economists assume that all businesses are on the verge of bankruptcy at all times
because they always assume that firms are all competing to produce widgets that are exactly
alike in every way—and there are often an infinite number of firms. But the assumption of
zero profits really doesn’t work in real life, as you can see by the fact that businesses exist,
and this means that any reasonably healthy business can afford to operate in a manner
that society deems acceptable, and can conform with laws about accounting, treatment of
workers, or environmental care.
Yet when a new regulation is put in place, the chorus of capitalists all shout out in unison,
‘I’m barely making ends meet and will go out of business.’ Sometimes the response is a bit
more moderate: ‘I’ll have to lay a few people off and reduce production,’ or ‘If you pass
regulations that I don’t like, I’ll just take my ball home and pout.’ After all, they’re right
on the verge of bankruptcy, so any new costs will put them under.
The reality of the situation is much more complicated. For example, New Jersey raised its
minimum wage one year, while Pennsylvania didn’t. Card, Katz, and Krueger took this to
be as good a natural experiment as you’ll ever get in the social sciences: the economies are
closely linked, the passage of the new law was quick and sort of a surprise, and C, K & K
9
managed to get a good picture of fast food joints on both sides before and after the law took
effect. The end result: there were more jobs created in New Jersey after the law was passed
than in Pennsylvania. It wasn’t much (and I don’t recall if it was statistically significant),
but it was definitely not a loss of jobs.
4
Why were there more jobs in NJ? Maybe people spent all their new minimum wage earnings
on fast food, or maybe more people entered the labor market, or maybe all those truckers
carting in goods which used to be produced in NJ factories needed a place to eat. Regardless,
the moral is that a new rule can often change all sorts of things in the economy, some good
some bad, so reducing it to a simplistic one-liner like ‘a higher minimum wage means less jobs’
is stating a falsehood. [For the theorists, here’s the moral: never trust a partial equilibrium
model.]
Regulations can be burdensome and annoying, just like not being able to pee in the street
is often burdensome and annoying, but somehow, we all manage it. However, not all bur-
densome regulations are destructive regulations, and if a conservative forgets that there’s a
distinction, be sure to remind him/her/it.
3 Monopolies and market power
With monopolies, two mantras of conservative economics collide. One says ‘competitive
markets are good’ and the other says ‘government intervention is bad’. So what do you do
when the only way to have a competitive market is through government intervention?
One of the main money-makers for the working economist are anti-trust proceedings, in which
one set of well-paid economists proves that a merger will allow a company to ‘unfairly’ use
its expanded market share, while another set of well-paid economist proves that this won’t
happen. Many a conservative I have met believes that this is all silly, and that if a monopolist
can find a price at which people will buy their goods, then the monopolist is clearly still
providing something valuable, so why is the government being all pissy about it? Leave the
companies to merge to their hearts’ content.
More generally, the idea of a monopoly gets to the concept of market power: the ability of
a single player in the market to influence the market itself. Most of neoclassical economics
assumes that every agent has zero market power, and is thus a price taker—they can’t
influence prices at all, just take them from the market.
4
CK & K’s arch-nemeses, Neumark & Wascher, wrote a reply in which they got another data set for
the NJ/Pennsylvania experiment, from the NRA—the National Restaurant Association. Their data set
conclusively found that the passage of the minimum wage law caused New Jersey to fall into the ocean. C
K & K asked to see the data so they could verify the results, and N & W refused, citing a non-disclosure
agreement with the NRA.
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First, there aren’t any theorems about the optimality and welfare-maximizing properties of
monopolists (that I know of). If the company can set prices, instead of just take them,
then all the Econ 101 proofs about optimality [not including Pareto optimality, which is
not really optimality in any human sense] are out the window. You can have a government
that doesn’t try to prevent monopolies, but then all the arguments about the virtues and
automatic optimality of the market are thrown out of the debate.
For example, say that there are only two or three media conglomerates, who offer cheap
television, radio, and print to every person in the world. Since there are only a few, a
documentary producer who wants his or her work to be seen has to get one or two of these
conglomerates to distribute the documentary. If all three offer the producer too little money
for the film, since they know the producer will have no one to make a lower bid, then the
documentary will never be seen. With more competition among the buyers and distributors
of media, there would be more variety in public debate, and content providers would make
more money, instead of having to accept whatever sum the distributors see fit to offer.
In short, the quantity and variety of content is larger in a competitive market than in a
monopsonistic one.
Another example of the sorts of problems market power produces: products often interoper-
ate with other products, meaning that a company which is doing wonderful market-pleasing
things in one field can exert its power to sell crappy goods in another market where it’s not
necessarily the best. I am thinking, of course, of Microsoft. The company, at this point, is
built entirely on the concept of lock-in, and spends most of its marketing budget trying to
convince consumers of two things: you should upgrade your existing Microsoft product, and
you shouldn’t switch to something else. Not much in the way of innovation going on here.
This is not the place to go into the computer geek details, but there are a wealth of alterna-
tives to the desktop-with-word-processor paradigm we all work in now. Sun Microsystems,
for example, had the idea of letting users run their word processor via their web browser.
But for this to work, everyone needed a web browser that would be technically compatible
with such a setup.
When it was being investigated for monopolistic practices, Microsoft’s argument to the
Justice department was that anti-monopoly regulations hinder their ability to innovate by
making incremental improvements and additions to Windows. But at the same time, Mi-
crosoft used its market power to ensure that innovation in the form of fundamental paradigm
shifts wouldn’t happen.
So what can you tell your conservative pals? That incremental innovation isn’t necessarily
a problem when there are monopolists involved, but innovation on a larger scale are blocked
when there are monopolists who can use their influence on standards and the basic operation
of the market to prevent that innovation.
With a few players, the market is no longer a clean, optimal environment, but a tangled
11
mess where customers are not free to choose (outside of the ‘my way or the highway’ option)
and those with market power can use that lack of choice to their advantage.
Employers as monopsonists Large companies are clearly not price takers, and conser-
vatives frequently need to be reminded of this. For example, Wal Mart negotiates the price
it pays on most (maybe all) of the items it sells. There is one Wal Mart, and dozens of
pretzel vendors, so Wal Mart can use this asymmetry to negotiate down the price it pays
for pretzels. The most important price for Wal Mart it the price of labor, and the market is
again clearly asymmetric: one Wal Mart, and millions of potential employees.
Setting a price is a negotiation over how surplus should be divided. If an hour of work is
worth $6 to Wal-Mart, and a person is willing to work for $4, then any wage between the
two would work, in the sense that the person would work the hour and Wal Mart would pay
the person and both would walk away better off. Uncle Milt stops here, content in the belief
that even if Wal Mart stands firm at $4.01, the employee is still better off.
The main problem with this is that the lowest wage a person will accept depends on the
conditions. Notably, because of what I will call the ‘food constraint’, any job is better than
no job at all. Our conservative pals forget the food constraint all the time, since it’s hard
to work in to a simple model of agents [discontinuity and/or nondifferentiable kink in the
utility function at zero], and it’s easy to forget that ‘agents’ means ‘people’.
Also, the wage Wal Mart sets is interdependent with any of a number of other things, such
as the wage the company next door sets. In the theory, there’s a menu of wages available,
so if you don’t like Wal Mart’s wage, you go next door to Sam’s Club and take the wage
they offer. But if Wal Mart and Sam’s Club set their wages in concert, and Sears and
K-Mart follow Wal Mart’s lead in price-setting, then the model falls apart again, because
it is impossible for people to negotiate the price of their labor by threatening to go next
door. This is not necessarily overt collusion; it is simply the ease with which a small group
of actors can imitate each other and wind up at a very stable equilibrium. The minimum
wage, ironically, helps immensely with this by providing a focal point for all employers to
set their wages against.
The solution to the asymmetry of the market, by the way, is unionization. One Wal Mart
and one worker’s union is a symmetric market, which has some hope of working as it should.
Conservatives often miss this, and only see that the union is a restriction on the behavior
of its workers and the employer. That it is, but it is a restriction that allows negotiation of
prices to work. Many conservatives have great difficulty wrapping their brains around the
idea that restricting a market can cause it to work better, so be patient in explaining this.
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3.1 How not to argue with conservatives: corporate conspiracies
Many liberals argue from the basic premise that small businesses are better than large
corporations, and that companies which are big enough to be international are especially
bad. The issue needs to be disaggregated into parts which can and can’t be argued with a
conservative:
Personalization and diversity Just as conservatives like smaller government which is
more representative of the people, we want smaller businesses which don’t force corporate
HQ’s worldview on its patrons. But conservatives will dismiss this by saying ‘if they don’t
like the bigger store, they’ll shop at the smaller, spunkier store next door’ and will dismiss
any further debate on this point. In other words, the cultural issue is a total non-starter.
Market imperfections As above, there is a natural asymmetry between labor and cap-
ital (many workers, few employers), and this distorts the market in favor of the few, the
monopsonists. As corporations grow and consolidate, the problem only gets worse. Some
conservatives get this, and will acknowledge that reduced competition is bad. The more
libertarian conservatives will abjectly refuse to accept this, and will cling to the idea that a
firm that abuses its market power will be deposed by a spunky startup.
The Spunky Startup argument is impossible to argue with, kind of like the ‘tomorrow will
be sunnier’ argument: there are enough examples where it’s been true that people can
say it with a straight face and be happy ignoring the fact that there are so many cases
where it was entirely not true. On the perfectly level imaginary playing field, the spunky
startup can definitely win—but in the real world, the profit-per-unit only goes up as a
company gets larger, network effects and lock-in make people more likely to buy the old thing
instead of the new, and if all else fails, the big and lumbering corporation can keep serving
Spunky the Startup with lawsuits for trespassing on Lumbering Corporation’s trademarks
and intellectual property until Spunky’s supply of optimism is entirely depleted.
To summarize, your best replies to arguments about Spunky the Startup are about the
market imperfections discussed above, most of which help companies which survived at the
start keep new competition out of play. But my personal experience is that it’s an uphill
battle, and an irrational faith in Spunky the Startup’s abilities is hard to dispel.
Competition with sovereigns A company which exists in multiple states will be able to
find the state with the least restrictive laws and register there. When ‘state’ means portion
of the U.S.A., this is Delaware; when ‘state’ means sovereign nation, this is any of a number
of islands in the Caribbean. Whether this is a problem to the conservative you have before
you depends on how much contempt the conservative has for the concept of a government.
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Some enthuse at the idea of a lawless world; others are a bit concerned by the prospect. As
with any issue involving sovereigns, there are enough thorny philosophical issues that you
have no chance of selling somebody if they disagree with you. But if you find that they do
believe some laws are worth having, then take advantage of that and ask how that law is
going to be maintained in a world where corporations get to pick the set of laws they are
beholden to.
In short, be sure to focus on the specific things that large firms can do that small firms can’t.
‘Bullying’ is too vague—stick with the specific mechanisms by which firms with market power
can unfairly use that power. There are abundant options to choose from.
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