Donald J. Boudreaux: Blame government, not markets, for injustice to consumers
Are employers in free markets more powerful than workers? Are merchants more powerful than consumers? Many people answer “yes.” I answer “no.”
An essential component of a market economy is freedom of contract. Yet a key feature of freedom of contact is freedom not to contract — to say “no,” which protects each adult from being made worse off by those who offer to deal with him or her.
If I don’t like an automaker’s price for a car, I don’t buy that car. If I don’t like a job offer, I reject that offer. By rejecting these offers, I’m not made better off, but nor am I made worse off. My veto power requires merchants who want my business, or businesses that want me to work for them, to offer me deals that, in my judgment, improve my well-being. This veto power of mine, in other words, gives me power to protect myself from even the largest, most profitable firms — and it gives them incentives to work to improve my well-being by offering deals that I judge attractive.
My veto power also means third parties are in no position to judge whatever contracts I enter into. Suppose I accept a job at an hourly wage that a third party judges to be too low. That third party’s judgment should be ignored. My willingness to take that job means that, in my judgment, my well-being is improved by working at that job. I could have rejected the job offer. But because I accepted it, I obviously believe that, however poor the job offer might be in some objective sense, it’s better for me than my next-best alternative. So, if the third party strips me of this job, he makes me worse off, regardless of his intentions.
It’s a myth, therefore, that within markets, firms have power over consumers and workers. Yet such power can be — and too often is — gotten when firms conspire with government to diminish competition or to otherwise constrict individuals’ options. If, for example, domestic automakers persuade government to obstruct automobile imports, options that I and other consumers might have found more attractive than those offered by domestic automakers are made artificially unavailable. I and other consumers become more likely to buy cars assembled domestically. And while those of us who buy domestically assembled cars are thereby made better off compared to not buying them, we are made worse off compared to buying the imported cars we would have bought in the absence of the import restriction.
An underappreciated danger of government action is that, unlike free markets, it frequently forces individuals into situations that make them worse off. Minimum-wage legislation forces many low-skilled workers into the ranks of the unemployed by denying them the ability to offer to work at hourly wages below the legislated minimum. They would prefer working at the lower pay to unemployment with no pay, but government arbitrarily strips them of this preferred option. Similarly, damage is inflicted on consumers who buy domestically produced goods “protected” by tariffs.
Any unjust power that firms have over individuals comes not from markets, but from government.
Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.