Chris Bertram, Corey Robin and Alex Gourevitch have given us a lot to think about in their recent essay at Crooked Timber. There’s a lot I want to say about it. Rather than saving it all up for one large post though, I thought I’d take things one point at a time. And I want to start with the issue of employer cruelty.

One of the most striking aspects of BRG’s essay is the lengthy survey of the various ways in which workers’ freedom is curtailed, both inside and outside of the workplace. Bosses demand workers’ Facebook passwords, force them to pee in a cup, prevent them from peeing too often, prevent them from drinking or cross-dressing at home, and so on. It’s a long and motley list, but the overall effect is powerful. Employers come off looking like petty, power-mad little tyrants.

But looks can be deceiving. Consider the case of payday loans as an example. Payday lenders often charge fees that translate into an APR of over 400%. That looks mean. It looks like they’re taking advantage of desperate people in order to line their own pockets. But if you actually take a look inside those pockets – if you look at what kind of profits payday lenders actually earn – you find something surprising. It turns out that the typical payday lending operation isn’t very profitable at all – less profitable, in fact, than a typical Starbucks. Where does all the interest from those 400% APR loans go? Well, for starters, payday loans are usually short-term loans for small amounts of money, so the revenue isn’t as high as you would expect. And what revenue does come in is largely eaten up by high operating costs and high default rates on the risky loans that payday lenders make.

What this means is that, given the economic constraints they face, payday lenders have to charge high fees in order to make a normal rate of profit. If payday lenders don’t charge high fees, they can’t cover the costs of doing business. And if they can’t cover the costs of doing business business, their customers don’t get any loans at all. And this makes it very hard to interpret charging high fees as mean. Not only are the fees necessary for the payday lender to make a normal profit – surely not an unreasonable expectation for a businessperson to have – they are necessary for payday lending customers to get the loans that they so desperately want.

I wonder if a similar story could be told about many of the purportedly mean behaviors in BRG’s list. After all, if, say, limiting workers’ bathroom breaks hurts workers more than it benefits employers, then one would expect competitive pressures to provide some kind of check against this behavior. So what’s going on? Is it a failure of competition – some kind of market failure that allows bosses to get away with being inefficiently mean? Or is it a necessary check against employee slacking?

This, I take it, is the point of many of the questions Tyler Cowen asks. And they’re worth taking seriously, not just dismissing as the rantings of a libertarian ideologue. Maybe some of the things that employers do to their employees ought to be legally impermissible, even if they are rational responses to economic incentives. But this is something that critics like BRG need to face up to more squarely. If searching employees is as necessary for some firms to make a normal profit as charging high fees is to for payday lenders to do so, then what sorts of regulations can we impose that will end the indignity of searches without ending the benefit that workers derive from their employment?

Employer practices like those catalogued by BRG might really be wrongfully exploitative. But if it’s exploitation, it’s exploitation that occurs within the context of a mutually beneficial employment relationship. And designing policies that end the exploitation without undermining the mutual benefit is tricky business indeed.

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  • http://www.facebook.com/mark.lebar1 Mark LeBar

    In addition to these points, and to the point that we all have to recognize that there are bad actors in any set of institutional arrangements, it seems to me also worth noting that some of the most egregious cases cited were pursuant to governmental policies and agendas. Would employers care so much about what their employees pee if not for the War on Drugs? It’s hard to imagine that they would outside of obvious issues of liability for which some demands would not be crazy at all (we want airline pilots and surgeons to be stone-cold sober, for example). The noxious mickey-mouse stuff is offensive precisely because it is so arbitrary, but businesses with gratuitous nasty policies toward their employees will have an uphill battle retaining them over time.

    • http://www.facebook.com/people/Dan-Kervick/100000673155327 Dan Kervick

      “It’s hard to imagine that they would outside of obvious issues of liability for which some demands would not be crazy at all…”

      Apart from issues of liability, they care about drug and alcohol use because their interest is in extracting the maximum work output from the employee at the least cost. So they do not want their employees high, drunk or strung out – conditions which on the whole will make them less productive.

      • Damien S.

        That’s the claimed justification. But they don’t test for sleep deprivation, or having consumed alcohol, and they don’t test CEOs. (Nor do legislators impose testing on themselves as well as on welfare recipients.)

        • http://www.facebook.com/people/Dan-Kervick/100000673155327 Dan Kervick

          People in charge never impose the same constraints on themselves that they impose on the people of whom they are in charge.

          If there were a reliable way of testing for sleep deprivation, and the government permitted them to use it, they would test for sleep deprivation. As it is, repeatedly falling asleep at your desk would be grounds for dismissal.

  • good_in_theory

    “and designing policies that end the exploitation without undermining the mutual benefit is tricky business indeed.”

    I think that is a nice way of putting the problem.

  • David Versace

    Payday loans are bad because its zero sum. When people use payday loans is doesn’t increase the supply of things people need, it just increases the money being used to bid up the price of those things. And as you note, the entire process is mostly deadweight loss.

    If the government outlawed payday lending it would lead to a decrease in the supply of credit, and thus the price of goods people buy with that credit. It would also cause people to save more so they didn’t have to use payday lenders.

    A further note, I think people need to be careful when they think about proles. Proles literally lack the brainpower to understand many abstract concepts like interest. They are not capable of entering into many agreements “voluntarily” where voluntarily implies being fully informed and understand the decision one is making.

    Similarly with employment many proles are incapable of being self motivated or acting independently. Thus the monitoring of bathroom breaks and such. You’ll note that in higher end employment these things disappear completely. Higher IQ workers don’t need those controls to do their jobs.

    • 3cantuna

      If payday loans are profitable other lenders may jump in and cause the cost of money to decrease. In addition, if the loaned money leads to higher prices on “needed” “prole” goods–initially– it would also signal to entrepreneurs to get in the game of provision, and this would also drive prices down. Of course this depends on there being no artificial barriers to entry, etc.

      Further, it is good to remember that both the credit and goods on offer are speculative and come into being via future expectations. Nobody knows beforehand if profit will be had, or what the future picture of demand or supply in goods will be. Even what the “proles” do with the money is not pre-determined.

      A government ban will incentivize black market activities. You would pick a Whitey Bulger over a transparent payday lender?

      Any assumption of “zero-sum” is a little too deterministic for the logic of the economic situation. Innovation is always a possibility– resources are only finite until they are not. Besides: Capitalism, in the Austrian not Gary Chartier sense, defeats the zero-sum game. Increased capital + better technology = more output for less cost.

      Higher IQ may help one be autonomous, but it does not necessarily mean higher morality. All the worst criminals in the world right now, those at the top of the corporatist government banking war plunder pyramid, are extremely smart. Their densely superior craniums would definitely make a deeper thud hitting the floor, if they were to suddenly and involuntarily detach. At any rate, it is not that these people need more monitoring on the job. You are right. Rather, it is that it’s the nature of their jobs to act antisocial that should be of major concern. The “proles” want too many bathroom breaks? Ok. Well, the plunder classes spend all day pissing on everybody else.

      • 3cantuna

        re finiteness. I don’t mean that e.g. oil will never run out, but what of new sources of energy…

        • Damien S.

          What if there aren’t? Just solar and nuclear, both more expensive than formerly cheap oil.

          • 3cantuna

            Even oil could be used more effectively, and who knows what will happen with solar, nuclear and ?…. Even so, there is always the chance that man goes back to primitive existence. There are no guarantees. I can see Keynesians preparing job creation plans for that de-civilized future– killing draft animals, removing a blade or two from windmills, making fire a rationed privilege….

    • Damien S.

      ” Proles literally lack the brainpower to understand many abstract concepts like interest.”

      Wow, what utter classist bullshit.

      “many proles are incapable of being self motivated or acting independently.”

      More bullshit, on the order of slaveowners complaining about lazy slaves. Hey, maybe if you pay the ‘proles’ more you’ll get better performance.

    • purple_platypus

      What’s with the term “proles” suddenly becoming a commonplace in these blog discussions?

      First of all, it seems to be used exclusively for posting openly classist bullshit. And secondly, I can’t help but suspect at least some of it is a smokescreen for something even worse – the first time I saw it used (by a soon-banned poster on CT, not here) I’m pretty damn sure when he said “proles” the word he really wished he could use was “niggers”, and to one extent or another I suspect that of pretty much every instance of it. (Yes, including this one.) In any case, it adds fuck-all to the discussion, so whatever the reason, it’s certainly not because of its usefulness.

      But in any case, I’m really curious if there’s some specific source this meme has suddenly come from.

      • http://www.facebook.com/people/Eli-Rabett/1444417779 Eli Rabett

        You prefer the 99%, OK

        • purple_platypus

          That’s mostly true, but I think I’m saying a bit more than that, in particular that I strongly suspect the term and its use in this context of racist overtones. I also asked, like, an actual *question*; not that anyone’s under any obligation to answer it, of course, but I’d think it would be customary to at least *acknowledge* it.

          But all that aside, suppose you prefer the 1%, will defend to the death your *right* to post openly classist bullshit, and so on (in short, suppose you’re a garden-variety, non-bleeding heart libertarian…). There are plenty of ways to post that particular flavour of bullshit *without* the term “proles”. What precisely does its use *add* to the discussion, apart from making it clear that you’ve read but comprehensively missed the point of 1984?

        • valeriekeefe

          They have been, in my experience, more likely to conduct a transaction with me in which we both leave feeling better off and not embittered in any way, among other things. Capitalism works best when the counter-party has a similar degree of fear that you might decline the transaction. Also, they cheat less:

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  • HookaSmokinCatapilla

    David Versace says “Similarly with employment many proles are incapable of being self motivated or acting independently. Thus the monitoring of bathroom breaks and such. You’ll note that in higher end employment these things disappear completely. Higher IQ workers don’t need those controls to do their jobs.”

    Duh, we proles don’t like being forced to work for ugly greedy and selfish people. LOL so we choose to steal, goof off and act like fuckwits. Did you think that being docile and amenable to making a profit for others is the way high IQ people are? ROFL and LMHO. We proles is so smrt that we fool all of you conformist unimaginative lacking in creativity type people who start pay-day lender businesses.

    Matt isn’t it just plain stupid to start up a pay day lender business when it is obvious that it isn’t easy to make a profit and that it also damages the social life of the people who use it? Don’t try and say that we poor people need them! FFS, we might use them but we live in desperate times.

  • HookaSmokinCatapilla

    But really Matt, the answer is that employers are mean because they are human beings and the system within which they operate convinces them that being greedy and selfish will bring them some sort of success.

    Change your attitude toward greed and selfishness, honestly admire ‘social justice’ rather than paying lip service to it while still supporting the right of those who enjoy the exercise of freedom to screw the proles. In your example, no matter how you justify the problems of the employer, the fact is that powerless people are being screwed because someone was stupid enough to think they could make a decent profit from poor people.

    • http://www.facebook.com/people/Dan-Kervick/100000673155327 Dan Kervick

      Certainly some individual employers or managers might be needlessly mean. But for the most part they have excellent and rational self-interested motives for doing what they do. If they were permitted to attach an employee to an electroshock device, and shock them every time a visual monitor determined the employee was not working, many would do it – not because they are mean, but because it is the nature of the managerial function in a modern productive enterprise to maximize work efficiency – to get the most output at the lowest cost.

      If we don’t want any employers to be permitted to establish these kinds of work conditions, and recruit employees willing to work under them, then we must – horrors! – interfere with the freedom of contract in pursuit of the general welfare.

      I can already hear the Hayekians doubting that human beings are smart enough to make these social calculations, and telling me that we must stand back and allow the emergent self-organization and information processing of the private pricing and contracting system to solve the problem for us.

  • David

    The gap between your skepticism toward powerful actors who justify cruelty with ‘national security’ or ‘reasons of state’ and your credulousness toward powerful actors who justify cruelty with ‘reasons of economic necessity’ is quite striking.

  • billwald

    It is less than the Mob charges. Or is it a new, reformed Mob? Profit without needing to break legs?

  • http://www.facebook.com/people/Dan-Kervick/100000673155327 Dan Kervick

    Right now there is over 8% official unemployment. That is, even according to the government’s dubious manner of counting these things, 8% of the work force is involuntarily unemployed. We have an extreme buyer’s market for labor. Worker bargaining power is nearly a thing of the past. Worker ownership and management is almost nonexistent. So of course in such circumstances we are going to end up with a situation in which employers have the ability to set work conditions that are maximally advantageous to the ownership of productive enterprises, and minimally advantageous to those who own little, and only sell their labor to those enterprises. We have had such a situation for quite some time, made more acute since economists and policy-makers redefined so-called “full” employment as employment at the theoretically dubious NAIRU.

    This kind of outcome is an inherent tendency in the nature of private property-based market capitalism. The natural tendency of free and competitive markets is to evolve into oligopolistic or monopolistic markets. So long as we are willing to allow the terms and conditions of work to be set by those who happen to own the means of production, then we will always have the kinds of outcomes that offend the liberal sensibilities of those who bother to look. There is no guarantee in economic nature that the ownership of the means of production will always provide work and income opportunities sufficient to employ all those who want to work. Owners carry out production primarily for the sake of their personal profit. They produce things to exchange with others only If they covet other things they can acquire by exchanging the surplus output, and once they reach a plateau of aggregate satiety, they will have rapidly diminishing aggregate incentive to expand production further. If they have amassed enough power to a secure their property rights indefinitely, then a situation of mass unemployment, and poor outcomes for many of the employed, can continue indefinitely. If people want different social outcomes, they will have to consider reworking the laws and institutions of the system that is bound to produce those outcomes.

    Libertarians and classical liberals both insist on viewing things through a moralistic, rationalistic framework based on the fictional theology of natural, non-positive rights. High church liberals are the more hypocritical of the bunch: obtuse milquetoast moralists who are afraid of power and unwilling to challenge the most fundamental structure of laws and economic institutions in their society, and who seem to imagine they can fix everything with some combination of modest ameliorative laws and moral exhortation.

    I really have to chuckle about this spectacle of academics finally taking a look outside the quad and inside the cubicles of the outer world and finding themselves shocked, shocked to discover there is domination and subordination and hierarchy and oppression and humiliation and indignity baked right into the cake of the liberal capitalism they love in one way or another. I have some faith that we are finally going to see some agitation for significant change growing inside the academy, since even ivory tower academic can now descry a future in which the norms of capitalism are creeping into the academy – that last bastion of classical and medieval civilization. They can smell the coming day, not too far off, of sitting in their own cubicles of their transformed degree mills and career training camps, with their new 6/6 teaching schedules, no such thing as tenure, and no more “deans”, “provosts”, “chairs”, “chancellors”, “committees”, “senates” or the rest – just the usual gang of directors, VPs, executive VPs and presidents, each empowered to issue orders to those below them in the hierarchy.

    Academic libertarianism, the superstitious theology of property rights, is a privileged white boy’s indulgence that can and will endure among only that portion of the degreed class that can realistically see their interests as aligned with the interests of the ownership class in a radically unequal society. As that alignment is eroded by the commercialization of academic life and the transformation of the academic into something that even the self-deceived can no longer beguile themselves into thinking is anything other than a subjected worker, the academic love affair with property rights will come to dismay, and these jilted lovers will finally realize that these rights are made by social choice, not discovered.

    • http://www.facebook.com/people/Eli-Rabett/1444417779 Eli Rabett

      You obviously are not familiar with academic politics.

      • http://www.facebook.com/people/Dan-Kervick/100000673155327 Dan Kervick

        Been there in my former life as an academic. Academics have extraordinary levels of freedom and self-government compared to the corporate world.

  • Gordon Barnes

    The first problem with Matt’s post is that it is irrelevant to the point that Bertram and company were making. Their point was that employers can limit the liberty of employees to an astounding degree. That is the point of the list of ways in which employers can coerce employees. The issue is whether a self-described freedom-lover should favor
    the free market, given all of the ways in which it allows employers to
    deprive employees of their liberty. So the question of whether employers are “mean” is simply beside the point. With that said, the second problem is that Matt’s argument concerning payday lenders is a non sequitur. The argument seems to be that payday lenders are not exploiting people to line their own pockets, since they are only doing what is necessary to make a normal profit. The unstated premise of this argument is that if a person is doing what is necessary to make a normal profit, then they are not exploiting people in order to line their own pockets. But that proposition is subject to counterexample. The conditions of the market might be such that in order to make a normal profit in a certain area, it is necessary to exploit people. In that case a person might be BOTH doing what is necessary to make a normal profit AND exploiting people to line his pockets. That appears to be the case in payday lending. The fact that payday borrowers desperately need the loans does not contradict this assessment either. Exploitation commonly happens in just such situations. A simple example will suffice. I walk out onto a dock, and find Bill Gates drowning. I offer to throw Bill a life preserver if he will give me all his money. I am clearly exploiting Bill, and the fact that he desperately needs the life preserver does not in any way change that fact.

    • http://www.facebook.com/people/Dan-Kervick/100000673155327 Dan Kervick

      The libertarian will say that the employer cannot limit the freedom of an employee in any way that the employee has not freely contracted with the employer to permit. If you buy a ticket for a roller-coaster, you agree to let the operator strap you in with a locked harness. If you go to work for a firm, you agree to let the employer tell you what to do, including maybe when to go to the bathroom and what to view on the internet, on the understanding that your employment will be terminated if you don’t do it. The employer can’t put you in jail for going to the break room too often. They can only dismiss you.

      • http://www.facebook.com/people/Eli-Rabett/1444417779 Eli Rabett

        As Tennessee Earnie Ford said

        You load sixteen tons, what do you get

        Another day older and deeper in debt

        Saint Peter don’t you call me ’cause I can’t go

        I owe my soul to the company store

        There is more

    • http://www.sandiego.edu/~mzwolinski Matt Zwolinski

      Hi Gordon,

      Well, I think “irrelevant” might be a bit of an overstatement. I recognize that BRG were making a point about the limitation of workers’ freedom. But I don’t actually deny that workers’ freedom is limited by their employers in a variety of ways. So I didn’t want to take issue there. My question was more about why their freedom is being limited, and whether it is justifiable. The impression that BRG’s litany gives, whether they intended it or not, is that employers are limiting freedom in a way that is mean and unjustifiable. So I wanted to explore that.

      Regarding exploitation, I recognize (and have recognized in many posts here on the subject) that wrongful exploitation is compatible with the fact that the exploitative act meets a desperate need of the victim. The question about normal profits is more interesting. I don’t deny that, as a conceptual matter, an act can be both necessary for realizing a normal profit and wrongfully exploitative. That could be the case, for instance, in an industry the entire premise of which was exploitative – the slave trade, for instance, Or maybe in a case where any profit-making is inappropriate (charging Bill Gates a “normal” profit to rescue him?) But those are relatively special circumstances, and nothing like that seems to be going on in the payday lending case.Though perhaps you think otherwise?

      Anyway, thanks for the comment.

  • The Red Queen

    Dan Kervic, you say these people are ”
    finding themselves shocked, shocked to discover there is domination and subordination and hierarchy and oppression and humiliation and indignity baked right into the cake of the liberal capitalism they love in one way or another.”

    I think you are exaggerating and. I am less optimistic about their ability to see anything like this. Read the title. It says “Why are employers so mean?” Mean!!!?? I don’t think that the word ‘mean’ really acknowledges the depth of the problems that are inherent in a ‘philosophy’ that values greed selfishness and encourages capitalists to use all the other deadly sins ‘lust, pride, sloth’ etc as marketing messages to sell the crap they make and then pretend this crap – like big tv’s – is what the proles want and is making their lives better.

    There is so far no acknowledgement that it all is a crock for most of us and the rise of neo-liberalism has not brought about anything that I recognise as being valuable for the progress of the human species.

    Maybe Marx was right and we need another revolution, one that is about equality and fairness? It seems that the Brits are rehabilitating Marx.
    http://www.guardian.co.uk/world/2012/jul/04/the-return-of-marxism?newsfeed=true

    That could be interesting.

  • http://twitter.com/corvuseditions Shawn P. Wilbur

    Is the point that I was *supposed* to take away from this that your heart bleeds a lot more for the bosses than the workers? That, in fact, you think complaints about workplace power are trivial? Because, honestly, that’s the way this comes off, starting with the smart-alecky title. The side-issue of payday loans doesn’t really convince me that bosses aren’t “mean.” One can, after all, be mean *and* inefficient, and it doesn’t make you any less exploitive of a need to be unable to make the profits from it you might like. Payday lending is both an exploitive practice and a gamble. Is it really your position that we should just take for granted that gamblers have a reasonable return coming? You apparently take for granted that Starbucks is a reasonable foil for the payday lenders, which does not itself bring in questions of “meanness” when you talk about its profitability. The Starbucks Workers Union might have another view of things…

    Once again, as with the question of sweatshops, the take-away lesson seems to be that since exploitation would be hard to eliminate, we don’t need to look too closely at it. Honestly, “rational responses to economic incentives” is simply question-begging nonsense. Exploitation is only a “rational response” to an exploiter, or to someone who has simply failed to examine the alternatives seriously.

    You really should change the name of this blog…

    • http://www.sandiego.edu/~mzwolinski Matt Zwolinski

      The take-away lesson is precisely the opposite. We need to think very carefully about mutually beneficial exploitation, because eliminating the exploitation while preserving the benefit is a difficult thing to do.

      The point I meant to illustrate with the payday lending example was this. Suppose that

      1) you have an industry the business of which is not intrinsically immoral – it can be issuing loans like a payday loan shop, or selling clothes like a Wal-Mart;
      2) engaging in this business requires interacting with a certain group of people – employees in the Wal-Mart case, borrowers in the payday lending case;
      3) for some reason which is not the business’ fault, interacting with that particular group of persons is unusually costly (high default rate among payday borrowers, high theft rate among Wal-Mart employees);
      4) Because of (3), the only way for the business to interact with this group is to set the terms of the agreement in a way that is unfavorable to the group, unusually so relative to other interactions that are similar in nature except for the absence of the features referred to in (3);
      5) Members of the group willingly accept the interaction, and benefit from it, even given the unfavorable terms.

      In that case, I contend that the business’s activity is morally permissible. It does not constitute wrongful exploitation, because the business is not taking unfair advantage of members of the group.

      Now, I realize that there are a lot of stipulations in the above case that might not apply to any real world case we choose to consider. Theft might not really be a big enough problem at Wal-Mart or anywhere else to warrant these measures. Sometimes the business will bear some of the responsibility for the costly situation, and often there will be other alternatives available to the business besides imposing the unfavorable conditions. But in cases that do meet these conditions, I think we’re going to have a situation that looks, on the surface, to be mean, exploitative, immoral treatment by the business, but that really isn’t.

      • http://www.facebook.com/people/Eli-Rabett/1444417779 Eli Rabett

        Biblically (and in the Koran, and many other religious books) you run into the fact that interest on loans is a big no no. So why do you hate religious people (Yes Eli knows all about the sophistry that got the economy of the western world out of that blind alley but think about what the origin of those rules was before you go down to your local branch of The Associates)

      • http://twitter.com/corvuseditions Shawn P. Wilbur

        Funny. If I found a business which could only supply a given service at terms quite unfavorable to the group which supposedly “benefits,” it would seem obvious to me that I had not sufficiently explored things. The notion that capitalists are just “cruel to be kind” doesn’t seem adequate, and, after all, you can only actually claim that they *have* to be cruel to be profitable — or that what we might take as “cruelty” is “just business.” And that’s not terribly satisfactory.

        I’ll say again: the fact that nobody benefits much doesn’t mean behavior isn’t immoral, or that nobody is exploited. When even you acknowledge that we have an “unfavorable” “benefit” on one side and a barely viable economic profit on the other, isn’t the logical conclusion that there is something broken here which desperately requires more systematic fixing? Unfortunately, that conclusion doesn’t seem open to you, so you don’t have much choice but to apologize for the most inefficient sort of exploitation.

        In fact, under capitalism we have an immoral situation. Your arguments suggest as much, however much you resist the conclusion. And any benefit from an immoral situation — or any attempt, however unsuccessful — essentially has to be immoral.

        And, once again, it would be nice if having been gently called out for not understanding that Starbucks is a prime example of a bad actor for many of us, you didn’t just go the distance and make Walmart your next example. Like your apparent indifference to widespread unemployment and the conditions it creates, this sort of thing just suggests that you don’t really know what’s going on out here in the work world.

        • http://www.sandiego.edu/~mzwolinski Matt Zwolinski

          Do you think it is unjust that people with very good credit histories pay lower interest rates on their credit cards than people with poor credit histories?

          • http://twitter.com/corvuseditions Shawn P. Wilbur

            How does that address my points at all, Matt? Nobody, after all, is checking my individual credit score (or anything analogous) for a bathroom break, or a bag check when I leave work.

            And the payday lender isn’t charging 400% interest to individual borrowers because they are individually unlikely to pay back the loan. Instead, the cost of others’ non-payment is pushed off on borrowers who do pay back the loan. The lenders may not be “lining their pockets,” but neither, apparently, are they assuming the risk.

            Here’s an instance where you have an industry which is “mean” and apparently unprofitable, in which the lenders don’t actually seem to be serving much purpose. Perhaps your policy energy would be better spent considering the barriers to entry for alternative, mutual institutions which could serve the same needs without the meanness: a mutual insurance system for “community chest” type lenders, for example.

            Now, the credit and credit-reporting industries are another fine example of the sorts of industries which provide services necessary under capitalism in a manner which provides the least benefit (to provide the most “unfavorable” benefit, in the terms we’ve been using) to those who are arguably in most need of the service, and tends to maintain the basic class structure of capitalism. There is no particular reason to think that profitability is the best measure of the efficiency of credit or credit-reporting industries. From some free-market perspectives, it might make sense to focus credit precisely where profitability was the greatest problem, with an eye to strengthening the market overall by increasing the ability of marginal players to participate.

          • http://www.sandiego.edu/~mzwolinski Matt Zwolinski

            So, was that a “no,” then?

          • http://twitter.com/corvuseditions Shawn P. Wilbur

            Actually, it was an attempt to make sense of your question in context. After all, it probably doesn’t do much good for me to say “yes” or “no” about *justice* in lending, with so many other differences also on the table. If a higher interest rate is dependent on an individual history of poor credit and the lender is actually the one taking the risk, then I can at least see the grounds on which (barring other, perhaps systematic forms of injustice) we might call the deal “just.”

            But that doesn’t help with our payday lenders, who seem to be both mean and not particularly successful. And it doesn’t explain to me why you think the best response under the circumstances is to claim that this “benefit” that we seem to agree is “unfavorable” to the borrower is not, in fact, really mean.

            You see, in making sense of this as a situation to be addressed by policy, I would thing that at the very minimum, we would have to not only ask about the “meanness” of the lender, but also about the *desperation* of the borrowers. “Justice” sort of has to mean a little more than both parties got *something*, however unequally. Doesn’t it?

          • http://www.sandiego.edu/~mzwolinski Matt Zwolinski

            You note that payday lenders to not set their interest rates based on an individualized assessment of each borrower’s creditworthiness. Do you think customers of payday lenders would, on average, be better off if they did? Who do you think would pay for this individualized assessment? If customers’ credit histories are significantly better than payday lenders’ high fees tacitly assume, why do they remain customers of payday lenders, rather than going to a traditional bank where they can get a better deal?

            You continue to misinterpret my use of the term ‘unfavorable.’ The terms offered to payday lenders are unfavorable relative to the terms offered to other individuals seeking credit whose creditworthiness is better. But the terms are still favorable on net to payday loan customers. They get, or at least they expect to get, more than they give up out of the deal. Or are you assuming systematic irrationality or ignorance among payday loan customers?
            I can agree that justice means something more than both parties got “something.” But I have yet to hear a convincing account from you of what precisely you think is *unjust* about payday loans. They are voluntary, mutually beneficial transactions. Neither party is reaping a disproprotionately large benefit at the other’s expense. Neither party is deceiving or misleading the other with regard to the terms of the transaction. Yes, payday lenders are in a pinch for cash. But that in and of itself can’t be sufficient to make the terms of the transaction unjust. Surely, not just any transaction with someone in a desperate situation is ipso facto exploitative, is it? So tell, me, what’s unjust about payday lending?

          • http://twitter.com/corvuseditions Shawn P. Wilbur

            I think any transaction involving 400% interest involving someone in a desperate situation is probably ipso facto exploitive. That you don’t suggests that your notion of “justice” has nothing to offer to the borrowers in this case. All that payday borrowers “get” is, maybe, out of the their present jam, and the fact that many do not repay suggests that many cannot repay, which suggests that any meaningful benefit would have to address some larger context.

            You have simply avoided the notion that something can be “mean” even if nobody makes a profit. You simply assume that the fact that payday lending occurs means it must give sufficient benefit to be “mutually beneficial” in some way that presumably escapes “meanness,” which is not simply the borrowers exercising the best of bad options under circumstances which do not present them with good ones. The general economic context is apparently not up for any sort of critical examination.

          • http://www.sandiego.edu/~mzwolinski Matt Zwolinski

            “I think any transaction involving 400% interest involving someone in a desperate situation is probably ipso facto exploitive.”

            But this is just assertion, without any supporting argument, and without any response to the arguments I have given to show that it is false.

            I don’t feel like we’re making a lot of progress in this conversation. So I want to ask a direct question, and would like you to answer it directly.

            If a 400% interest rate is merely the rate necessary for a payday lender to cover his costs, is it still unjust to charge it? If so, what do you think the payday lender should do? a) Offer the loan at a rate that is less than sufficient to cover his costs, or b) not offer a loan at all?

            I have argued that payday loan arrangements arte mutually beneficial. Both parties gain from the exchange, and neither gains disproportionately at the other’s expense. You note that the benefit that payday loan customers receive is not necessarily sufficient to get them out of their long term financial problems. I don’t disagree, but I also fail to see the relevance of this point for the question of the morality of payday loans.

            Another direct question: do you believe it is the moral responsibility of payday lenders to solve their customers long-term financial woes? Do you believe that merely providing them with short term assistance is not morally permissible?

            In your final point, you bring up the question of the broader economic context. Let me be clear: I believe there are serious injustices in our economic system, and that these injustices are in some cases responsible for individuals being in the desperate situation where payday loans are their best option. And I am quite happy to discuss those broader injustices, and what should be done about them. But that is a *separate question* from the question of whether payday lenders are acting immorally. Yes, the broader injustices should be remedied. But given that they have not yet been remedied, are payday lenders acting unjustly? I answer that they are not.

          • http://twitter.com/corvuseditions Shawn P. Wilbur

            Your claim seems to be that payday loans must be both mutually beneficial (in some meaningfully sense) and potentially just, because they happen — because the market would provide alternatives and/or individuals would act differently if this was not the case. So that 400% interest is simply a cost associated with providing this just and useful service.

            Now, your “argument” is presumably one about the normal actions of market actors — which is precisely the grounds on which I suggested we should question the justice of 400% interest loans. The claim that I am making a bare assertion seems a little much. We are both drawing very similar logical conclusions based on what we think we know about the natural behavior of market actors.

            As you are describing it, payday lending is an exchange in which the minimally successful lender does not lose money — and presumably at least extracts a living wage, or else why would they do it — and the most successful borrower gains access to currency by paying several times its face value for the privilege. And part of what the successful borrower pays is not any cost associated with their own transaction, but costs associated with the nature of payday lending as we find it, which can hardly be an efficient business if 400% interest doesn’t cover expenses and defaults. Now, perhaps you want to argue that it is just for those who — for whatever reasons — have poor credit scores to pay their share and more of the risks associated with this particular business. But what does that mean in practice? If my best-case expectation is to have a thousand dollars in interest come in for every twenty-five bucks I lend, and I can’t make that work, then is it really just to expect the people desperate enough to make that kind of deal cover my inability to make it work?

            (I’m actually unclear now what your claims are about the profitability of payday lending. At the beginning, the claim was that it was not disproportionately profitable, with the average Starbucks franchise as the comparison.)

            It seems to me that, with regard to the question of whether payday lenders should make these loans, we might simply conclude that payday lending is a horribly inefficient means of providing currency to those desperately in need of it, either because payday lenders are inept and wasteful, or because the problem that they presumably address is too large for the service they provide. The industry is both mean and relatively unprofitable. If the profitability is as bad as you claim then the payday lender should in fact know that they are selling a service which only *works* perhaps a fraction of the time, but which they persist in selling at the highest rate the market will tolerate. If I was selling adulterated food to the starving at the cost of their enslavement, we could no doubt think of all sorts of reasons why the transaction might well take place, and by deciding to treat contexts as “a different problem” perhaps we could convince ourselves that it was a rational and mutually beneficial exchange.

            But it would seem a real stretch to call it “moral.”

            Nobody is *required* to solve anyone else’s problems. But I don’t believe that anyone is morally *permitted* to take advantage of them either. At the point where we’re balancing not much profit against the sort of debt which some high percentage of borrowers simply cannot pay, it seems to me that we’re pretty clearly talking about taking advantage. Presumably it is “permissible” to enter the market with products of dubious effectiveness — in the sense that it is not prohibited, and “let the buyer beware” — but at that point I don’t know how to separate the “moral” from “what the market will bear.”

            Presumably you want to make some point in the OP about “meanness” in the workplace, and have in effect defined the “mean” as some excess over and above the limiting behavior demanded by profitability. That is the thing that I have been objecting to throughout this exchange. If you are faced with transactions where meanness — or any situation involving widely disproportionate risks and rewards — seems necessary, then arguably the context is not a different problem. At the very least, the pragmatic policy question becomes: Is there an alternative which would serve the same needs in a more efficient and less mean way? The payday lending example illustrates a sort of desperation that is widespread in our societies. Payday lending can be both inefficient, mean, and as profitable as it is for the same reasons that employers in many industries can successfully make all sorts of new productivity demands on workers that they “have to” employ in increasingly precarious employment relations. In fact, some of payday lending’s dubious success is inseparable from increased unemployment, job precarity, etc.

            Now, I tried back up the thread to focus the discussion on something other than the need to make what you would undoubtedly consider impractical or utopian changes in the present system, and talk a little about alternatives to simply apologizing for payday lending as a necessary evil. You sort of blew that off, and you seem to have increasingly retreated to a position which justifies payday lending for no much stronger reason than the fact that it happens, and thus must be good enough for those who engage in it for it to be “morally permissible.” Since I don’t find that argument convincing, and since it appears to me that payday lending is a practice which depends on this broader context of precarity, unemployment and such, I simply don’t see any way in which the context can be set aside.

            I guess, ultimately, I would like to see the various issues — meanness, profitability, benefit, morality, and context — treated with the clarity and care that the question seems to call for. And I feel like you’ve lumped them together somewhat opportunistically. And I can’t for the life of me figure out why, or why you have so much resistance to saying that, for example: Payday lending sucks, and it’s mean and not terribly efficient, but appears to be necessary, under current unjust conditions, so people who care about justice for those who apparently need a mean service which at best addresses short-term needs at an enormous price should examine the reasons for payday lending’s relative success, in order to propose policies and institutions which could succeed less ambiguously, without the meanness and the enormous cost.

            You seem intent on arguing that “moral” and “just” institutions can be built in the midst of systematic injustice, and that those who question the justness or morality of building on such corrupt foundations are the ones who somehow don’t care about those who are systematically disadvantaged and disenfranchised. And that doesn’t sound very convincing to me.

  • Vern Imrich

    BLH has many posts on how the social/moral powers are overlooked in economics. I’d love to see this debate evolve to look at the flip side. Why is it that so many accpet the limitations of the law when it comes to social interactions? There’s no cry (particularly on the left) for laws that, for example: mandate certain rules of behavior or disclosure when dating or making friends, no attempt to guarantee a “basic level of companionship” or even fair treatment to all. In fact, we have gone in the opposition direction over the last century, with laws liberalizing divorce, getting rid of adultery as a crime and so on (generally applauded or at least uncontroversial to all).

    The social realm is filled with cruelty, inequality and unfairness. We accept the law’s inability to work in the social arena (and focus thus on other means). We allow a husband to ditch a faithful wife for a younger fling, not because we approve of it, but because attempting to prevent it with the law is worse than allowing it. Why then do we think the law CAN work in the economic area, for example, to prevent a boss from firing a worker without cause?

    In terms of basic needs, we are social beings, not just material beings. It seems to me that once we argue that economic activity is social, then all the limits of the law as a social equalizer would apply to economic interactions. Can we learn something about removing economic regulation by revisiting the fears/arguments we faced when de-regulating social laws?

    • darius404

      I love this comment. I would really like to see more written about the different approach to social issues; why people don’t think government intervention is called for in the social arena, but think it is in the area of employment.

      edit: And, as Vern mentioned in his last paragraph, what we can learn from it.

  • http://socialmemorycomplex.net Jeremy Weiland

    Can’t it be about power and not purely profit? Can’t this be a phenomenon that employers indulge in a less-than-perfect market because they get psychological benefits? And just because it doesn’t conform to our economic models, can’t we still recognize that there are other libertarian and a-libertarian reasons to oppose it.

    As a libertarian I couldn’t really give a crap about markets; it’s the social rules that govern both markets and society in general. When those rules are not constitutive to human flourishing in all its dimensions, it deserves to be challenged, not explained away as a glitch in a narrow economic model. When we see bad social rules persist — especially when it’s a purported market economy — we should ask what’s wrong with the situation, not merely check to ensure there’s a market involved.

  • http://socialmemorycomplex.net Jeremy Weiland

    And designing policies that end the exploitation without undermining the mutual benefit is tricky business indeed.

    Indeed. That’s why many of us see policy as beside the point; because it’s supposed to serve us and our ends, not the other way around, and when it adheres to that latter master there’s usually a good reason that bears looking into. It’s not the time to be dusting around the edges of the status quo.

  • MARK_D_FRIEDMAN

    I believe that the answer to BRG and other like-minded liberals is pretty simple, and runs along these lines. We as individuals are just as mean about who we associate with as employers are about who they hire, and nobody thinks anything of it, because it is our right. Absent a compelling argument to the contrary, employers are entitled to this same discretion. I don’t know about the rest of you folks, but if you wish to associate with me, you must bring something to the table. You must be intelligent, social, and otherwise enjoyable to be around.

    Everyone else is just SOL. Am I being mean to the dullards, boors, double-digit IQs, and socially inept people of the world? Maybe, but I don’t give a damn. My time belongs to me, and me alone, and I have the right to share it with others (or not) as I see fit. Jobs belong to employers, who can dole them out as they see fit. If you don’t like the conditions, then look elsewhere or go into competition with the idiots who wouldn’t hire you. But just as you have no right to my time, you have no right to a job or particular job conditions, absent an agreement to the contrary.

    Yes, I know…the employer supposedly has all the leverage and employees are serfs. Well, try finding a skilled machinist (most with only a high school education) to operate your million-dollar milling machine, and you will soon find out who is the master and the serf in that relationship. But more to the point, the existence of leverage is irrelevant. There is only one of me, so anyone who has their heart set on having me as a friend and is denied, is really out of luck. I have the ultimate leverage. Does this make me obligated not to disappoint anyone in the world who wants to befriend me?

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  • valeriekeefe

    … so you actually have no rebuttal to the egregious practices listed, but decided instead to use something irrelevant but seemingly similar (high interest as opposed to invasion of human dignity) to say maybe employers have a business reason for discriminating against trans people, (as I’m sure in the absence of a regulatory environment, they may also have a prisoner’s dilemma like reason for not discriminating against others as well), for firing employees who vote and volunteer for Democrats, (that to me sounds ever so slightly like regulatory capture), or for curtailing legal drug use.

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