Remembering the Lessons of Becker

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For an average observer, the past month in the United States has been characterized by a frenzy of oppressive government legislation designed to infringe upon personal liberty. While this has been true for most of the Obama administration, the maelstrom, whipped up by the media, on this specific issue regards a minor law passed by the state of Indiana and not the federal government. Given the social issues surrounding the genesis of the law, the legislation was immediately portrayed as a license to discriminate, and Indiana Republicans have been maligned for their support. However, in reality, the opponents of the law have been at best merely deluded and, at worst, willfully disingenuous. The law is not about sexual orientation but, rather, about property rights, which have been under assault for years. 

Known as the “Religious Freedom Restoration Act” (RFRA), Indiana’s legislation is rather straightforward in its intent. According to the digest text of the bill, the RFRA

Provides that a state or local government action may not substantially burden a person’s right to the exercise of religion unless it is demonstrated that applying the burden to the person’s exercise of religion is: (1) essential to further a compelling governmental interest; and (2) the least restrictive means of furthering the compelling governmental interest. 

Running a mere 3 pages in length, the bill arose in response to several highly-publicized cases across the United States where courts were compelling private businesses to act against the religious beliefs of their owners. Indeed, if anything, the bill was an attempt to claw back some legislative power from the courts and restore checks and balances, by explicitly delineating what was permissible for a private firm in the conduct of its business. A further implicit subtext was also that, given the Obama administration’s predisposition against businesses in similar cases, Indiana was making a preemptive strike to have state-level government protected from federal infringement.

Unfortunately, exercise of religious freedom is not a priority of the Obama administration, who has gone out of his way to attempt to override such rights in favor of his pet political schemes, paramount amongst them Obamacare. The administration and allied groups (including the media) seized upon the three pages of the Indiana law to portray the issue as (yet another) example of hate and discrimination against homosexuals. The successful media portrayal of the law leading to legalized bigotry has led to backtracking by the Indiana governor Mike Pence, as well as continued hysterics from the left on the all-pervasive nature of racism, hatred, and other thought-crimes in American culture.

However, the reality behind the legislation and, indeed, the motivation for the law is quite different than has been portrayed uniformly in the US media. Even going beyond the obvious issue of exercise of religious freedom, what is truly at stake here is a property rights issue. Does the government have the right to compel a private business to serve a specific set of customers? Put another way, is “the customer is always right” now a federal law in the United States, rather than just a good business practice?

From the actions of the Obama administration regarding Indiana, it appears that the federal government believes that a hierarchy of liberties exists, with sexual orientation trumping property rights (although this is counter to what Obama himself voted for before becoming President). This hierarchy was made even clearer by new evidence coming out this past week that the Obama administration in 2013 sued a trucking firm for terminating two Muslim employees for refusing to deliver alcohol, as it violated their religious beliefs. Thus, it appears in the current administration that sexual orientation> religious freedom> property rights, although some enterprising pundits have taken it upon themselves to see if the relative position of religious freedom of Muslims under sexual orientation is accurate (the jury is still out). In either case, the Obama administration has shown no restraint when it comes to advocating what businesses should be doing, and using force of law against them if they are acting counter to his beliefs.

The danger inherent in the mob frenzy stoked by government over this issue is that there seems to be little debate on the idea of property rights in general. Worse than a “slippery slope” argument, the case for property rights is more accurately described as binary: without property rights, all other rights are threatened, including freedom of speech and freedom of religion. History shows us that economic repression is often just the first step in political repression, as the inability to protect one’s home or business is followed by denial of the right to speak freely (death to kulaks and exploiters!) and abnegation of the right to influence the political process. This is because property rights are natural rights, moral and not contingent on the political process, and thus form a basis from which all other rights derive. This is an issue that America’s founders understood: as James Madison himself noted,

persons and property are the two great subjects on which Governments are to act; and that the rights of persons, and the rights of property, are the objects, for the protection of which Government was instituted. These rights cannot well be separated. The personal right to acquire property, which is a natural right, gives to property, when acquired, a right to protection, as a social right.

Sadly, this idea having no longer seems to be a guiding fact of American law at present, and the idea of property rights have been so hedged and qualified that they have lost all meaning. If your property rights are dependent upon subservience to the ideas of the ruling class, as the Indiana law has shown, there is not really a right to property. Moreover, it is difficult to talk about property rights as being exercised if their use stops where a protected class of citizens begins; you have property rights unless a politically-favored constituency demands something. In this sense, property rights must be absolute, whatever the reason, be it religious freedom or a whim, and not just for a select few.

The backlash against such an absolutist view of property rights can already be predicted, as it was part of the hysteria over the Indiana law. Simply put, there is a fear that private discrimination based on religious beliefs or any other basis, manifested in an exercise of property rights, would lead to new segregation of people and take us back to days of widespread official discrimination. Notwithstanding the fact that America’s previous bout with racism was institutionalized, sanctioned, and perpetuated by government, we are well-advised to go back to previous research to understand the likelihood of such an eventuality. In fact, a return to the gold standard in the field is warranted, the groundbreaking piece of work entitled the Economics of Discrimination written by Nobel laureate and sadly missed University of Chicago Professor Gary S. Becker.

Professor Becker’s work, written in the midst of America’s awakening from its racist governance in 1957, postulated that a “taste for discrimination” from a private employer would result in a cost to that employer (Becker also showed how, given a competitive labor market, that discrimination on average does not mean discrimination at the margin). If the goods market were truly competitive, such an employer would be incurring costs above and beyond those of his competitors based on preferences, and in the medium-term would likely be forced out of business. Thus, it was good business to keep one’s personal preferences out of the firm’s activities, as it would increase costs unnecessarily.

Of course, Becker’s models are over 50 years old, but still stand the test of time in regards to economic research. But coming as they are from a labor-market standpoint, they also may miss some of the issues from the goods market. That is, a firm that exercises its right to discriminate may find a niche via market segmentation, not because of selling to fellow bigots but through selling to fellow co-religionists or the same community. There is no reason why catering to a specific demographic, especially to the exclusion of others, would be a negative in the market. Asian supermarkets, Polish delicatessens, and vegetarian restaurants do it every day.

A brief example of this may help to illustrate the point. To come back to the specifics in Indiana , Christian bakers would be more likely to stay in business by playing up the “Christian” aspect of their business, attracting like-minded customers who wanted pastries for Christian events. Such a business would likely not have much success in San Francisco, but could have more business in Gary, Indiana. At the same time, “gay” bakers could make a niche refusing different-sex marriages and catering exclusively to gay weddings. This bakery would find few takers in Dubuque, Iowa but would likely make a killing in West Hollywood. Or, most likely of all of these scenarios, a bakery could serve both and all groups and not care what color of the rainbow was being serviced, so long as the American dollars were still green.

In short, property rights can determine what one business does, but the market will decide if that business is rewarded or not. That is the true beauty of the exercise of property rights, in that outcomes are actually determined by people voting with their wallets and not by a group of elites who “know” how your property rights should be exercised. The fact that this angle has been ignored in the debate over Indiana’s law is the real crime, with ramifications far beyond one bakery or one homos