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Ed Dolan on the moral limits of markets

Written by Ed Dolan Monday, 02 July 2012 13:51
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Ed Dolan is the author There Aint No Such Thing As A Free Lunch

 

In his book What Money Can’t Buy: The Moral Limits of Markets, Harvard Professor Michael J. Sandel invites us to engage in a public debate on the proper role of markets in society. It is a question, he says, to which economists do not give enough thought. I agree. I am happy to join the debate.

First of all, I should make it clear that despite the title, the debate is not about what money can’t buy. There is little controversy about that. Sandel correctly points out that money can buy companionship but not friendship; sex but not love; or a statuette but not the honor associated with selection as the year’s best actor. The heart of Sandel’s argument is really about what money should not buy, or more precisely, what we should not offer for sale or buy if it is offered. The book covers a lot of ground—far too much to deal with all at once. This post will address the ethics of queuing, a method of allocating scarce goods that Sandel sees as morally superior to pricing for many purposes. I hope to take up other issues he raises in future posts.

 

A Maxim: Don’t sell what doesn’t belong to you

When I first picked up What Money Can’t Buy, I was hoping to find some tidy Kantian maxims defining what money should and should not buy. (A Kantian maxim is an ethical rule that you can live by, and at the same time, that you can want everyone else also to live by.) I was disappointed; Sandel rarely packages his views that clearly. He does, however, spend a good deal of time criticizing a maxim that many economists endorse, either implicitly or explicitly, namely, that consenting adults are ethically entitled to enter into any kind of voluntary exchange, provided doing so does not harm others. Examining some of Sandel’s objections to voluntary exchange provides a good starting point for discussing the ethics of queuing.

 

Even ardent fans of free markets agree that one thing you should not sell is something that does not belong to you, nor should you bid on such items if someone offers them for sale. Stolen goods are an obvious example. Goods or services that you can offer for sale only by violating a pre-existing contractual obligation are another. That restriction covers commercial corruption, such as sale of your employer’s trade secrets, and public corruption, such as a judge’s sale of favorable rulings in violation of her oath of office. It is not too much of a stretch to include purchase or sale of services that violate civil obligations or implicit social contracts. For example, buying and selling of votes would fall into this category, as would buying the services of a substitute juror, or offering your services in that capacity.

 

The maxim “don’t sell what doesn’t belong to you” is useful in dealing with several issues related to queuing. Consider scalping and paid line standing, behaviors that Sandel finds especially odious. Many economists are quick to endorse such practices on the grounds that they are mutually beneficial, voluntary contracts, and so they are as far as the buyer and seller go. However, that is not always the whole story.

 

One example Sandel uses is paid line standing or scalping of free tickets to New York’s Shakespeare in the Park performances. The tickets are much in demand, and long lines form in anticipation of their distribution. People who want to see the performance but cannot spend their working day in the queue sometimes hire line standers so do so for a fee reported to be as much as $125. What exactly is wrong with the practice?

 

My view would be that people who want to give tickets (or anything else) away for free or sell them below the market clearing price have a right to attach conditions to the gift or sale. In particular, they can attach a condition that the item must be used by the person who has stood in line for it. The organizers of Shakespeare in the Park explicitly express such a condition. In that case, the person who stands in line and receives a ticket owns the right to attend the concert, but not to transfer the ticket to anyone else. Reselling the ticket or transferring it in exchange for a line-standing fee violates the maxim against selling something that does not belong to you. I might add that the issue here is not whether it is legally or economically practical to enforce the nontransferability condition. Courts have traditionally treated gifts in which the recipient gives nothing in return differently from contracts. Even if it were legally possible to enforce a condition of nontransferability, the costs of a lawsuit could easily be prohibitive. Self-help measures like putting the line-stander’s name on the ticket and checking IDs at the point of admission can also be costly. Furthermore, checking IDs might spoil the atmosphere of a free performance in the park. Still, these are purely practical matters that do not affect the underlying ethical situation. The recipient of a gift has a moral obligation to abide by conditions expressed by the giver. The fact that it may be possible to cheat on them with impunity does not make it ethically acceptable to do so.

 

The same reasoning that works for Shakespeare in the Park could also applies to paid line standing for seats at Congressional hearings, another practice Sandel does not like. He quotes some members of Congress as finding the practice objectionable. If Congress as a body were to make that objection explicit, there would be no need to resort to the vague arguments about corruption of democracy that Sandel invokes. Furthermore, if Congress really wanted to do so, it would be much easier to set up a system of named tickets and ID checks for hearings, since entry to them already requires a security screening. I wonder if the real issue here is not  a fear, on the part of members of Congress, of offending the lobbyists and campaign contributors who use the paid line standing system.

 

However, Sandel does not invoke the simple maxim of not selling what is not yours in arguing against scalping and paid line standing. Instead, he gets into a muddle based on a slippery notion of fairness. Scalping and paid line standing, he says, “put ordinary folks at a disadvantage and make it harder for them to get tickets. When a line stander or scalper gets a ticket, someone behind him or her in the queue loses out, someone who may be unable to afford the scalper’s price.”

 

The argument from fairness fails completely. Whether those who receive tickets could afford to buy them if they were sold at a market-clearing price is not the issue here at all. It does not appear that Sandel himself would have any objection if a wealthy person took the time to stand patiently in line for a free ticket. Having high-priced lobbyists stand in line for their own tickets is just what he would like to see, even if they get in line before some ordinary citizens arrive at the queue. Furthermore, there is no indication that the organizers have any objection to wealthy or influential people who do their own line standing, as long as they don’t jump the queue. If it were the priority of the organizers to distribute tickets to the meek and lowly, they could ask for proof of income or distribute the tickets through agencies that work with the poor.

 

Really, the only ethical issue here is whether people, rich or poor, cheat on the conditions of distribution set by the organizers. If they do cheat, they are ethically in the wrong even if, as practical matter, the conditions are unenforceable. On the other hand, if the organizers don’t bother to set conditions to the contrary, it is hard to see why third parties should be offended by scalping or paid line standing.

 

Willingness to pay as an indicator of value

In another context, this time baseball, Sandel raises a different argument in favor of the superiority of queuing to markets—the idea that willingness to pay does not show who values a good most highly. Standing in line, he thinks, is a better indicator. Here is his argument in full:

Those who pay the most for tickets may not value the experience very highly at all. . .  I’ve noticed, for example, that the people sitting in the expensive seats at the ballpark often show up late and leave early. This makes me wonder how much they care about baseball. Their ability to afford seats behind home plate may have more to do with the depth of their pockets than their passion for the game. . . . This casts doubt on the economist’s claim that markets are always better than queues at getting goods to those who value them most highly.”

The trouble with this argument is that it slides back and forth between two very different meanings of the word “value.” Economists use “value” to mean a person’srelative desire for one good rather than another. The willingness to undergo an opportunity cost, such as standing in line or paying money, is per se evidence of relative valuation. Sandel, in contrast, has in mind some absolute hedonic measure of value—a “passion for the game.” The concepts are not at all the same.

 

Economists have traditionally been skeptical about absolute hedonic values, or “cardinal utility,” to use the technical term. For the sake of argument, though, let’s suppose that we can measure hedonic value with a brain scanner or similar device. Making that assumption shields Sandel’s argument from the objection that he is setting himself up as a purely subjective arbiter of who deserves a ticket.

 

Depending on how brightly our brain scanner lights up, then, we can measure hedonic value on a scale of 0 to 100. Given that ability, can we conclude that a person who stands in line for a $10 ticket and stays the whole game must experience a higher level of pleasure than someone who buys a $50 box seat and leaves in the third inning? Not at all, as some simple examples, based on the following cast of characters, will show.

 

  • Andy is a jaded playboy with a bottomless trust fund and no interest in much of anything. He hears that today’s Red Sox game will be an exciting one, and even though he has no passion for the sport, he decides, on a whim, to give it a try. He buys a scalped box seat for $100, but the game turns out to be a highly technical pitching duel that quickly bores him. He leaves in the third inning.
  • Brianna is a passionate Red Sox fan and superstar lawyer. She has moved heaven and earth, even jeopardizing an important business deal, to free up an hour in the middle of a busy business day. Her opportunity cost of attending even three innings of the game is huge, but her hedonic score for those innings is close to 100.
  • Charlie is retired, living alone, and has little to occupy his time. Baseball isn’t his favorite sport, but at least it gets him out of his apartment and away from the noise of his neighbor’s crying baby. Even though baseball only scores a hedonic 20 for him, staying home is worse. He not only stays the whole game; he would love to see it go extra innings, and even enjoys chatting with his fellow line standers while waiting for a ticket.
  • Denise is another passionate Red Sox fan, but not a wealthy one. Her hedonic score for baseball is near 100, but there are some things she feels even more strongly about, like visiting her ailing mother in a distant city.

 

It should already be clear that Sandel’s argument falls apart when we invoke this cast of characters. Yes, it is entirely possible that Denise, who queues for a seat in the upper deck, gets more hedonic value from the game than Andy, who buys from a scalper. But it is equally true that Brianna, who watches three innings of the game from her firm’s skybox, gets more hedonic value than Charlie, who stays till the last out. What determines a person’s willingness to stand in line and the number of innings they stay is the relative value they place on the game compared to the alternatives, and the opportunity cost they undergo to attend it. Line standing and early leaving offer no evidence one way or the other about hedonic values.

 

To clinch the argument, envision the following scenario. Denise has stood hours in line to secure a ticket for a critical late-season game against the Yankees. Her anticipation is so great that she has even suppressed her concern that she has not been able to afford a flight to visit her ailing mother. Ticket in hand, she heads for the turnstile; but before she gets there, Andy offers her $250 for her ticket. Without hesitation, she takes the cash and heads for airport.

 

Foul! cries Sandel. Arrest that scalper! By selling her ticket, Denise has clearly violated the precept that seats at the ballgame should go to those with the highest hedonic score. Yes, but somehow I am comfortable with the outcome.

 

Queuing and corruption

In his discussion of queuing and elsewhere, Sandel frequently expresses concern about social institutions that are corrupting. “To corrupt a good or a social practice is to degrade it, to treat it according to a lower mode of valuation than is appropriate to it. Charging admission to congressional hearings is a form of corruption in this sense.” In another passage he writes, “The ethic of the queue, ‘First come, first served,’ has an egalitarian appeal. It bids us to ignore privilege, power, and deep pockets—at least for certain purposes.”

 

Really? I spent a lot of time in Moscow in the early 1990s, when queuing was a way of life. I have never seen any market institution that came close to being as morally corrupting as Soviet queues.

 

To begin with, the queues themselves were corrupted. One of the most frustrating queues, and a difficult one for me to avoid, given the dearth of alternatives, was for the faculty dining room at Moscow State University. The “first come, first served” principle was subverted from the start as people let their friends in line. Needless to say, deans and vice-rectors could ignore the queue altogether. If you were not a vice-rector and didn’t have friends, you could bribe a waitress to hold a place for you; each waitress “owned” the property rights to a few places that they held empty for just this purpose. If you stood patiently in the expectation of first come, first served, more likely than not the best items on the menu ran out before you got to the head of the line and you were left feeling like a real chump.

 

Of course, even the right to stand in line for the faculty dining room was a sign of privilege, although a petty one. I dwell on it only because of the hours I spent in close observations of its inner workings. Other queues I observed more sporadically seemed to work much the same way.

 

Worse yet was the Russians’ elaborate system of privilege that allowed favored people to avoid queues by buying in “special stores” at work. For lower-level workers, the special stores might offer nothing more than a can of peas or a piece of sausage; for the real elites, they offered a full range of Western goods at cut-rate prices.

 

At every level, bosses used access to the special stores to control and manipulate their subordinates. Would you risk being seen in one of the anti-government demonstrations that were beginning to appear in the late Soviet years? If your boss or an office snitch spotted you, the penalty could well be the loss of your pass to the special store at work. The whole scene was, to use one of Sandel’s favorite expressions, morally repugnant.

 

The bottom line

“Markets and queues—paying and waiting, are two different ways of allocating things,” writes Sandel. “Each is appropriate to different activities.” Here is how I would summarize the ethical principles that can help decide when to use one and when to use the other.

  1. Respect the wishes of the owner of the goods or services that are to be allocated. Even if you, like I, are not a fan of queuing, but if the Shakespeare in the Park organizers want to hand out free tickets to those who stand in line, respect the rules they set. If they say they don’t want tickets transferred, don’t transfer them. Don’t scalp them even if you know you can get away with it. After all, you wouldn’t shoplift just because you noticed that a technician was working on the store’s security camera, would you? On the other hand, if the organizers of the queue don’t express any objection to subsequent transfers, feel free to scalp, and don’t let any third-party busybody tell you it’s wrong.
  2. If you have something you want to allocate to the people that you think will value it most highly in some hedonic or moral sense of “value,” don’t use a queue. Queuing, like markets, distributes goods according to relative values, guided by opportunity costs. The only difference is that one operates on the opportunity cost of time, the other on the opportunity cost of money. In either case, some “undeserving” person who either has lots of time or lots of money to spare may crowd out your favored candidates. If you want to give food to the poor, find a way to identify poor people; if you want to give Shakespeare tickets to the cultured, find a way to screen for culture; if you want to give university admissions to bright kids, give them an entrance exam.
  3. Don’t be such a fool as to think that people become less corrupt when you ask them to stand in line than when you ask them to pay money. Line standing does not magically erase privilege, power, and corruption. In fact, my personal experience is that it amplifies them. Money is a popular way of allocating things because it is efficient. Transaction costs are low, transparency is high, and although one person may have more dollars than the next, one person’s dollar is as good as another’s. Not so with queues. Because standing in line is itself an unproductive use of time, queuing is inherently a high-cost method of allocation. Alternative nonmarket methods of allocation, such as lotteries or coupon rationing, can have problems of their own, but even they are less wasteful of time. Because line standing is so obviously wasteful, people feel justified in cheating. The moral barrier to accepting a friend’s invitation to cut in line or to bribing your way to the front is significantly lower than, say, the moral barrier to passing a bad check or shoplifting, which would be the market equivalents.

Yes, there are good queues as well as bad queues. I remember standing half the night once in an astonishingly orderly queue for returned tickets to the Covent Garden ballet. As a lowly assistant professor at the time, I would not have made it into the performance if the theater had decided to auction the last minute returns to the highest bidder rather than selling them at face value, first come, first served.

 

Still, I can’t see that I would have had a moral right to demand that Covent Garden follow that practice. Selling tickets below the price set by supply and demand increased the need for subsidies. I was not getting a free good by standing in line; I was taking a subsidy from British taxpayers, not all of whom were wealthier than a visiting American academic. Covent Garden has vastly raised its ticket prices since that time, and on the whole, I will have to say that is not just a more efficient way allocate tickets, but a morally superior one, too.

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