Is Inequality and Asymmetry Really Problematic?
In “How Inequality Shapes Our Lives,” Roderick Long argues that asymmetric relationships between services providers and customers or employers and employees are problematic. Some examples he cites include creditor-debtor relationships (e.g., credit cards), service provider-customer relationships (e.g., your ISP), landlord-tenant relationships, and employer-employee relationships. Professor Long’s fundamental objection to these asymmetric relationships is the alleged asymmetry in consequences for failure to meet obligations.
Summarizing some of the alleged inequalities cited, Professor Long says that if you are late in paying your ISP bill, your service is disconnected and a negative entry is listed on your credit report; however, if there is an interruption in your Internet service, you are not given a credit and there is no easy way for you to similarly mar the reputation of the ISP. Lease-contracts are written by the landlord, and are not jointly written; they have far more stipulations about your obligations to the landlord than of the landlord’s obligation to you. If you are late in paying your rent, the landlord can assess a punitive fee, but if the landlord is late in fixing your plumbing, you cannot withhold a portion of your rent. Employer-employee relationships are characterized by the employer micromanaging the day of the employee and telling the employee what to do. All of these are examples of contract of adhesion, where social leftists ascribe an element of authority to one party in the contract.
Praxeologically, to state that a relationship is “asymmetrical” is to say that one party gains more out of it than another. However, to say this would require making interpersonal utility comparisons, which is impossible to do.
For several interrelated reasons, I do not think that these alleged asymmetrical relationships are a problem. First, it isn’t entirely clear that they are asymmetrical relationships, and there is an inherent problem whenever libertarians sympathetic to the left say this: how can you tell? Praxeologically, to state that a relationship is “asymmetrical” is to say that one party gains more out of it than another. However, to say this would require making interpersonal utility comparisons, which is impossible to do. This doesn’t mean that relationships cannot be criticized by say a psychologist or a friend as actually being detrimental to one party; the psychologist might say that although he patient benefits ex ante (hence the parties think they will benefit ex post), they are actually making errors and will continue to do so as long as they stay on their current course. However, you cannot legitimately say from an ivory tower that most of these relationships are “unfair” because they aren’t actually beneficial to one party ex ante. And even if they aren’t beneficial to one party ex ante, that hardly implies blameworthiness on the part of the other.
It may very well be the case that for both parties to benefit ex ante … more requirements may need to be made by one party than the other.
Second, Professor Long seems to be using an overly mechanical and rigid understanding of “asymmetrical”. He is concerned when one party in a relationship has to do more things to meet the terms of that relationship than the other party does. However, it may very well be the case that for both parties to benefit ex ante — to reasonably expect that they will benefit ex post — more requirements may need to be made by one party than the other. It is also overly mechanical to worry about asymmetric quantities of stipulations. Professor Long mentions the many stipulations of tenant obligations to landlords, but the few stipulations of obligations landlords have to their tenants. Part of the reason for this could be that landlords want to make sure they have their bases covered legally when they tell their tenants things like “stop playing loud music after 11PM,” after receiving complaints. However, it is also important to note that for most reasonable people, the only time they feel like they are meeting any obligations towards their landlords is when they pay their rent. Many stipulations are specified for tenants to follow because there are a very small minority of tenants who want to do unreasonable things, like knocking down walls in their apartment.
Third, these are relationships that are consented to and there are usually alternatives. Even in the case of there not being many alternatives, so what? The apartment would not be available for rent anyways if not for the entrepreneurship of the person who built and maintains it; what right have you to complain about the terms on which they rent out their property? Likewise with jobs, which would not be there if not for the employer. Because of landlords, prospective tenants can rent property; because of Internet, TV, cell phone, and other service providers, people can purchase these services; because of creditors, we can purchase items before we have the physical cash to purchase them, which is at times beneficial.
Inequality is necessary and beneficial.
Fourth, inequality is a necessary and beneficial part of all relationships, all market transactions, and all interactions between human beings. Market exchanges can occur when there is an opposite valuation of the goods or services being exchanged. e.g., for an ISP-customer relationship, the ISP values the money the customer is paying them more highly than the bandwidth they are providing and the customer values the bandwidth they’re receiving more than the money they’re paying. Relationships such as service provider-customer, landlord-tenant, creditor-debtor, and employer-employee are necessarily unequal, by definition of such relationship. (Note that a certain socialist convention is built into the hyphenated naming of these relationships: the party that the leftist would consider to have “power over the other party” is listed first. This is usually the most natural sounding way to describe these relationships. It is worth noting, however, that the employee objectively shares something in common with the service-provider, landlord, and creditor: he is being paid for a service or good provided.)
Regarding employers who micromanage, yes some do this; it happens most often when employees are more likely to slack off and need constant supervision and direction. Of course, even good employees may sometimes be micromanaged by overly controlling bosses. These bosses tend to be less productive because they cannot delegate efficiently and because they tend not to find ways to elicit and accept the advice of those with the most direct knowledge to the problems at hand. If they are not replaced, the company suffers. However, the employee always has the option to seek another job. They can also try to create their own business, which even in a free market would not be an easy task. Employees come to work, do their job and go home; they are paid a known amount. Owners are never truly “away from work” as they always have ultimate responsibility and are only paid after employee salaries and other expenses are paid; and of course they always have to think about the long-term feasibility of their business. Owning a business isn’t some carefree utopia. Returning to the employer-employee relationship, there is by definition a fundamental aspect of accepted authority there — as with the customer paying a business, the employer pays the employee for specific services, at their direction. Employers do not pay the employee to do as they please. Those who object to the somewhat dynamic nature of job-responsibilities as an employee have the option of being contractors, but will find out that is no utopia of perfect existence either.
The fact that there are few if any ISPs, landlords, employers, or creditors that will provide individualized contracts to all, suggests this is not something people are willing to pay for.
Fifth, regarding the creation of the terms of these obligations, Professor Long seems to think it is unreasonable that the contracts are usually created solely by the landlord, employer, creditor, service provider, or whichever side of the relationship it is that is setting the terms to be accepted or rejected. Actually, this makes perfect sense. Landlords, for example, have hundreds of tenants and for obvious reasons, it makes sense for them to have a standardized lease contract that all of them agree to — or perhaps a few different “classes” of lease contracts for different kinds of tenants — as opposed to having hundreds of different and unique contracts. ISPs have thousands or millions of clients, and need a set of standardized contracts. Likewise with employers and creditors.
If, as Aristotelean thought says, ought implies can, and to run a successful business you cannot have different individualized contracts for thousands or millions of customers, it is not reasonable to impose this as a moral obligation. What would happen if a company tried to do this? Undoubtedly, they would go bankrupt. They would either have to charge much higher prices than competitors with reasonable standardized contracts, or they would have to sell items or provide their services at a loss. The fact that there are few if any ISPs, landlords, employers, or creditors that will provide individualized contracts to all, suggests this is not something people are willing to pay for — or in the case of employees, accept lower pay for. Standardized contracts are good enough for the vast majority of people. Individualized contracts for thousands or millions of customers would require enormous amounts of overhead and create a tangled web of contractual uncertainty which would mean that companies would need legions of lawyers to determine their obligations.
This does not imply that standardized contracts are always great. Sometimes they are awful; this usually occurs when the landlord outsources the creation of such contracts — called “form contracts” — and does not have the knowhow to determine if he got a bad contract. Or perhaps he doesn’t want to pay for the creation of a better one. The creation of legal contracts is a service: good contracts don’t just materialize out of thin air. In many cases where lease contracts are horrible, it is simply a matter of incompetence or complacency, not malice. This does not necessarily reflect incredibly poorly on the landlord — if the standardized contract he has is “good enough” for the vast majority of cases, it may make sense not to bother with the expense of replacing it with a better one (this is similar to “rational ignorance”). It is all about trade-offs and transaction costs. A tenant — and even landlord — may find the current lease arrangement less than ideal. They can try to change it, but they may deem it not worth the cost. Or perhaps one party wants to change the lease contract, while the other does not — the result is that the tenant finds a new place to live, seeing as how the apartment belongs to the landlord. There is nothing wrong with this.
Many of these issues can be completely avoided by building up a cash balance.
Professor Long says that there is no redress for a dissatisfied tenant, debtor, customer, or employee that is comparable to assessing a punitive fee for late-payment, eviction, making a note in the debtor’s credit report, terminating your service provisions, or terminating your employment.
Examples of ways in which consumers, customers, and even debtors or employees can communicate about reputation would be Consumer Reports, the BBB, Epinions.com, various websites that rate employers, online blogs, Facebook, and of course word of mouth. A company’s most valuable asset is its reputation. Companies that develop reputation for horrible service, landlords that develop poor reputations, and even creditors and employees that have poor reputations are correspondingly punished by the market vis-a-vis those with good reputations. It is worth noting that when customers, debtors, tenants, or employees disparage the reputation of their corresponding relationship-partners, they can easily do so quite harshly.
Regarding some of Professor Long’s claims about landlords, most residential leases allow either party to terminate at will — after the minimum term period, you can get out an so can your landlord, given notice. This is why he can change terms from month to month: Every new month is effectively a new contract; therefore, very broad language is appropriate. Most jurisdictions allow a renter to withhold part of his rental payment to account for essential repairs that the landlord is obligated to make. Tenants can also take their landlords to court over these issues. Because of legal doctrines that discard various provisions from rental form contracts, the tenants may in fact be in a better position than the landlord is.
Looking at the situation of an ISP and its customer, there is no equivalence between forgetting to pay your bill — something under your control — and suffering a temporary interruption of service from your provider, which is usually not under their control. How often does that happen? Very rarely. Using a personal example, I have Time Warner Cable Road Runner and it is very rarely down. When it is down, it isn’t down for very long, an infinitesimally small fraction of the year. What happens if I “forget” to pay my monthly bill? That corresponds to 1/12th of the year for which I am late. It is not usually the case that ISPs will immediately write a negative entry in your credit report for being late to pay a monthly bill; most of the time, they will try to contact you first. And at least for credit-card companies in the US, they cannot report lateness unless it is 90 days overdue. If you contact your ISP or creditor and note that you will be late in making a payment, explaining your reasons, they will indeed sometimes extend a courtesy grace period to you, or even arrange to reimburse the late fee.
A company’s most valuable asset is its reputation.
Does your ISP credit your bill automatically when there is downtime? Not necessarily, but they may if you ask. Regarding web hosting service providers, almost all of them offer reimbursements for downtime. Hostgator will reimburse 10% of your monthly payment for downtime of only 0.2% of the month (1:28 hours). By more than 1% unplanned downtime (7:18 hours), they reimburse 100% of the monthly payment. HostPC reimburses 100% for any unplanned downtime greater than 0.3% (2 hours) monthly. (These downtime figures reflect only unplanned downtime, host providers do have to upgrade their equipment and software, which can require downtime).
For my TV, what happens when say a TV channel isn’t working? There is a number I can dial where there is usually a status update — “We are aware of a problem with service in the XYZ areas, and are working to fix it. To speak with a representative, press … ” — and they can address your problem. Sometimes, they have a workaround for channels not working (e.g., unplug and replug your box). This is a nice courtesy.
Finally, it is worth noting that many of these issues can be completely avoided by building up a cash balance and paying for services or goods up-front, or even in advance. It is usually possible to pay for rent, Internet service, phone-service, and a variety of other services in advance for a year or even more.
A Procedural Objection
One fundamental problem with the way in which Professor Long has laid out his argument is that it seems one-sided: it focuses on the issues that employees, tenants, debtors, and customers face, but downplays or does not pay attention to those that employers, landlords, creditors, and service providers face. He focuses on how the current system benefits employers, landlords, creditors, and service providers, but ignores how it handicaps them. There are many lazy employees, deadbeat tenants who abuse the property (the filth created by hoarders is a good example of this), debtors who declare bankruptcy and avoid their obligations, and likewise customers who are chronically late in paying their bills and are unreasonable and rude when contacting technical support. To focus explicitly on the case of debtors, retirement accounts such as 401(k)s and Roth IRAs in many states are shielded from the claims of creditors, except for contributions that are clearly made for the explicit purpose of sidestepping creditor claims. Considering the case of employees, even excellent employees sometimes need the direction or advice of supervisors, and it seems plainly obvious to me that every supervisor would rather have employees that never needed to be told to do their jobs.
Professor Long’s argument also ignores the benefits to these various adhesion contracts (this is not to say Professor Long is unaware of these, but simply that that particular argument does not present them). Providing constantly available Internet service is very difficult to do, a 24/7 job; likewise with power, cell phone networks, and many other monthly services that people pay for. People simply take for granted the high availability of these services. They don’t have to worry about it, and have peace of mind. As has already been noted, there are many advantages to being an employee. There are also, of course, advantages to renting vs. owning. These benefits all have to do with avoiding uncertainty: business owners have to deal most directly with the uncertainty and risk in the market, while employees receive a steady paycheck and can leave their work at the office. Likewise, landlords have to deal with unexpected repairs and damage, while their tenants can pay lower renters’ insurance rates, avoid a mortgage and down payment, and not have to bear the financial uncertainty of unexpected repairs.
I would like to thank Akiva, Gil Guillory, and Stephan Kinsella for their insights and comments on this article.
Bryan Caplan’s Reply
Bryan Caplan has also posted a reply to Professor Long. Professor Caplan’s analysis dovetails with mine and criticizes Professor Long’s arguments from a slightly different angle. He focuses 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.
David J. Heinrich is a libertarian anarcho-capitalist, pro-punishment pacifist, photographer, and tennis-lover.