Frustration with simplistic market analysis

So I spend a lot of time on this blog which is a stunning waste of time, since the commenters are disproportionately the simplistic wing of the libertarian party, with a handful of SwiftBoat types trolling from the Republicans. A brou-ha-ha there completely unrelated to markets (for once) reminded me that I meant to write this article, so here you go.

I’ve always been interested in, but not really affiliated with, libertarianism. Unlike the leftists that most of the suburban Republicans at my last job think I’m one of, I believe in the market. When things don’t work out, I usually look for market distortions first, rather than simply believing that capitalism is evil or that the market doesn’t ‘work’. The market is a tool, like a really good computer; it produces optimal outcomes if it has very good information, but sometimes doesn’t do as well with inaccurate or incomplete data. Most ills in our society, I think, can be fixed by improving those inputs, rather than through more onerous regulation.

Personally, I find looking at the imperfections of markets a very interesting thing, and am disappointed at how often self-identified libertarians fall back into an eighth-grade “market didn’t do X therefore no demand for X” philosophy. Essentially, they either don’t believe in or haven’t even HEARD of externalities, network effects, the “race to the bottom”, etc.

This applies especially to the various smoking bans being passed all over the country. (Pretend I’m talking about restaurants here rather than bars; I’m uncomfortable with a total ban on smoking in bars, but was very happy to ban it in restaurants). Short summary: the market didn’t provide any non-smoking airlines before the government made them go non-smoking; in most cities non-smoking restaurants were trivial embarassments until smoking bans passed. The simplistic view is to say that people didn’t value (non-smoking) more than (eating-out-at-all) or (flying), and this is technically true. But is it useful when you’re staring down the barrel of a referendum that you’re about to lose? Probably not – which is when it would be helpful, I think, to study the issue and find out WHY so few businesses made the switch before being forced, even given apparent overwhelming customer preference.

And then there’s the ‘remedy’ – again, the simplistic view is to say ‘do nothing’, but the voters in that referendum are going to ‘do something’ for you if you keep messing around. For a brief time, Julian Sanchez at least was willing to explore alternative ways to, in DC, provide more non-smoking venues, but he’s in the minority among the “Ban the Ban” types. To me, using the government’s incentive power to encourage movement towards what appears to be a huge consumer preference anyways is a legitimate use of power – the market is a means to an end, not an end in and of itself. Why don’t more people think of “how can I encourage the market to solve this problem” instead of “oh well, the market doesn’t want it”?

In reference to Austin’s bar smoking ban, I’d much rather have used the market to gently push a greater portion of live music venues and other bars towards non-smoking and still have some smoking bars available for the portion of the population that wants to smoke and drink; but the ban-the-ban-ers weren’t willing to listen to the “hey, a hell of a lot of people want to see music and not breathe smoke; why isn’t the market providing any of these kinds of venues” arguments, so they got a full-on ban.

In other words, with reference to the bar ban in Austin, I’d be most satisfied if substantial chunks of real live music venues existed in BOTH smoking and non-smoking camps. I’m not happy that there will be essentially zero smoking bars; this is heavy-handed regulation. But to say that the only other alternative was the status quo, i.e., NO non-smoking music venues or bars, is basically handing the referendum a guaranteed victory.

Economists study this stuff; I would think that libertarians, who believe in the market, would want to do it as well. It remains a mystery to me why so few are interested in figuring this stuff out.



9 thoughts on “Frustration with simplistic market analysis

  1. simplistic answer for your seemingly complex market example.
    Almost any resturaunt in the US that is in a state that allows smoking has a non-smoking section. And I am old enough to remember that when i was younger and smoked that the smoking sections tended to become smaller and smaller as the years passed…this was all a creation of the market.
    I also think that govenrment has become a new market onto itself…people seem to want to go to governent to force change before they even try the market. Rather then going to non-smoking resturants they go to thier represntives. The government is in esance acting as a surragate for what the market would have done anyway.
    Anyway nice blog…us “swifties” in the guise of libertarians enjoy thoughtfull discourse.

  2. “Almost any resturaunt in the US that is in a state that allows smoking has a non-smoking section.”
    Which are, of course, a complete joke, akin to the no-peeing section of your pool.

  3. I agree that certain markets are slow (inert) to accept health-based demands from consumers (seat belt laws). But I’m not so sure that the smoking ban in Austin is an example of this phenomenon.
    Two things:
    1) Your argument is based on preference, not health. Why should the government intervene in any market for the sake of some constituents’ preferences? Smokers prefer to smoke, and nonsmokers prefer not to smell it. Got it. But so what? Any referendum to ban African Americans in the town of Jasper would probably pass, but is that the business of government to help decide? What is the basis for “greater good” used there, other than simple preference? You make no mention of any health issue, which is most likely the only time the government should intervene in market movements, for the sake of the overall population. “Preference” is not a worthy cause for any ban by referendum, edict, proclamation, or otherwise. Do you believe otherwise? If so, on what basis?
    2) Even if I were to ignore the “preference” vs. “health concern” issue, I don’t see any room for compromise, post-ban. Prior to the ban, there WERE some absolutely-no-smoking venues (Austin Music Hall and Karma to name two – I don’t know where the whole “hundreds of nonsmoking venues” you mentioned might come from, because that, to my knowledge, was never the case, but there were venues around), and other venues OFFERED THEMSELVES TO PROMOTORS AND PERFORMERS as no-smoking (Mates of State made their Emo’s – EMO’S, of all places, a NO-SMOKING show). So to say that there has been no effort by the market to acquiesce to the nonsmoking request is an unfair statement. It did try, however brief the effort, and I believe it was properly rewarded with plenty of nonsmoking business. There was a definite shift in the thinking of several bar/venue owners, and it appeared as if they might start to actively court the nonsmoking contingency of boozers/show goers. But before any real momentum built up, some agencies/organizations preached to the Austin population that the nonsmoking initiative was taking too long to show complete market acceptance, and recommended that we all vote to BAN it altogether, under the guise of health protection, instead of waiting for the market to sort itself out. And with a rather narrow margin of victory, here we are with a complete ban (save for the 7 or so restaurants that survived the smoking ban in restaurants so many years back).
    So how is the ban a proper response to a market that was in the process of naturally adjusting to new requirements? Especially when the “basis” of the ban is supposed to be health, not preference? Is this an “ends justifies the means” situation? And I just don’t get it or what?

  4. Taking the most relevant chunk:
    “rior to the ban, there WERE some
    absolutely-no-smoking venues (Austin Music Hall and Karma to name two – I don’t know
    where the whole “hundreds of nonsmoking venues” you mentioned might come from,
    because that, to my knowledge, was never the case, but there were venues around),
    and other venues OFFERED THEMSELVES TO PROMOTORS AND PERFORMERS as no-smoking (Mates
    of State made their Emo’s – EMO’S, of all places, a NO-SMOKING show).”
    This was a typical response from pro-smokers, and it’s wrong. Austin Music Hall went non-smoking because the PREVIOUS ban made it impossible to have under-18 shows and have smoking. I don’t know about Karma; probably a similar story. Same thing with Emo’s, by the way.
    Similarly, anti-ban folks brought up the Cactus Cafe as another example of a non-smoking music venue which “the market provided” – forgetting that it went non-smoking because UT forced them to.
    A year before this latest ban passed, there were essentially zero non-smoking live music venues in Austin which went that way willingly. So, no, the market wasn’t solving the problem; the government was. And despite the Cactus Cafe packing them in every single show, none of the pro-smoking bars ever ‘got it’. (and no, having a really lame non-smoking show early Monday evenings doesn’t count; that’s a half-assed attempt which most of us saw through quite easily – try doing non-smoking shows for a POPULAR act on a FRIDAY night and see what happens).
    So the market wasn’t adjusting at all. Just like how essentially zero non-fast-food restaurants were non-smoking before that smoking ban passed (and I’m in DC right now and every restaurant we’ve been in allows smoking here).

  5. Even though you ignored the meat of my question to you (which is: how is your complaint against smoking IN BARS more than a request that your personal PREFERENCE be recognized?) I’ll go with your issue concerning the previous nonsmoking venues.
    Okay. For the sake of argument, let’s assume that all nonsmoking bar/music venues were legislated (one way or another) into being smoke-free by a pre-ban-ban (but the owners of Karma decided it would be smoke free, for their own reasons). No problem.
    1) Why is there a need for total banning if there was already partial banning? How much is enough? At what point would “compromise” be recognized? 50%? 75%? 99% of all Austin bars/music venues? When you say that you don’t prefer that ALL bars be smoke-free (“heavy-handed legislation), what OTHER kind of compromise (beyond the pre-ban-ban) are you considering?
    2) If the nonsmoking establishments have shown monetary success as a result of their ban (which is the ONLY way a market will move in that direction willingly), why has it not picked up elsewhere? Could it be that Cactus is packed because their booking agent is genius, rather than their air is smoke free? In other words, is it possible that while smokers did not show up as a majority at the polls, they are an easy majority at the bars/music venues? Therefore, they command more of that influence?
    Again, I’m letting the whole health vs. preference thing slide for the time being, because I understand that this discussion really is supposed to pertain to market behavior, not the possibly ham-handed implementation of potentially mis-footed legislation.

  6. As for ‘preference’ – if it were just MY preference, this would be relevant. But when, let’s say, 80% of the general population and 60% of the bar-going population doesn’t ever smoke, and yet NONE of the bars go non-smoking, it goes way beyond ‘preference’. The market is ‘failing’, in most peoples’ eyes. Whether you want to view it as a failure or not is irrelevant – those 80% will get a referendum passed, and you will lose.
    The non-smoking bars WERE packed, and yet the smoking bars STILL didn’t move that way. There are a lot of reasons this might happen which are studied by economists – I mentioned some of them (linked to wikipedia definitions at least).
    And as for ‘why a need’ – the reason is that the number of music venues were trivial before the most recent ban; and the number of bars where you can actually get liquor was near zero. It wasn’t “20%”; it wasn’t even TWO percent. The only way the pro-smoking jerks could claim so many was to include RESTAURANTS WITH ATTACHED BARS which had to go that way because of the restaurant rules — which doesn’t say anything useful about bars unless you consider TGI Friday’s a ‘bar’.
    At a basic fundamental level though, you have to answer the non-smoking airline and non-smoking restaurant questions if you want to win this one on the “the market will solve it” footing. The market didn’t solve either of THOSE cases; why would it solve bars?

  7. The “preference” of the majority should not become law based on itself, just because “the market” is reluctant to embrace it. That is a slippery slope to tread, and long proven ignorant and corrected by analysis of similar historical errors. If this ban was put into effect based solely on the “preferences” of the population, we would be wise to repeal it immediately before more logic-free legislation gets up to the block. We’re talking about personal freedoms here, not whether or not our state flower should remain the bluebonnet. Some things must be guaranteed to never be denied without SOLID, LOGICAL reason (yours and the majority’s preferences are not sufficient reason to curtail ANYONE else’s rights. Ever).
    Beyond that, and back to the market discussion:
    I don’t want to write your arguments off as baseless, M1Ek, but it simply doesn’t make sense to me. Where is the PROOF that the market was in fact ignoring the wishes of the moneyed majority? If nonsmokers were/are the moneyed majority in bars and music venues, and should therefore be catered to above the minority smokers… then why was there no hostility towards smokers when they lit up during the injunction? Why is every bar scrambling to build decks and patios that end up horribly overcrowded with smokers since the ban? Why are clubs like Club Deville (75% of which is an outdoor patio) multiplying in business while clubs like Spill (no outdoor space whatsoever) are complaining about a sharp drop (the numbers range, but 20-25% seems to be a decent consensus amongst the loudest crybabies)? If nonsmokers are the heavy hitters that were previously being ignored by this economy, why is the money following those pesky minority smokers around? Why aren’t the totally smokeless places tearing it up? They’re safe for the vast majority and all their majority cash now, right? Hm. I don’t see it.
    If this is honestly about the “will of the majority”, then where is the proof? Simply saying that the city is majority: nonsmoking means absolutely nothing to the bar/music venue market if they aren’t the ones going to bars and spending money. The market follows the money. If nonsmokers don’t show up, or show up and don’t spend more money than smokers, they probably will not be catered to. No motivation to bother. Simple economics.
    It almost seems as if, possibly, the fact that the ban was passed has become the de-facto proof that nonsmokers have always been the silent, moneyed majority. But it would be the only proof, and pretty brittle logic to boot.

  8. I can’t respond in similarly verbose fashion – a comments thread does not work for postings this long, but I’ll ask you to consider everything you wrote in light of previous bans on smoking in restaurants and on airlines, both of which had to be imposed by government (the market wasn’t providing a non-trivial number of EITHER).
    In order to win the no-smoking in bars argument, you either have to show that both of those bans are wrong and should be revoked, or show why this one is a lot different than those were. (I think the latter is the best bet; but is still difficult to win). Oh, and you also have to claim that minimum wage laws are wrong; and fire codes are wrong; and the 40-hour week is wrong; […] – in other words, you have to be willing to accept a lot of unpopular positions which _also_ impose on the right of the private business owner to run things however they like.
    The “all bans are evil” argument is an obvious loser because, again, you live in a country where the referendum is going to be voted on by people who don’t buy that argument. Whether it’s ideologically correct or not is irrelevant – if you really want to be able to smoke in ANY bars, you’d better figure out a way to have a non-trivial number of bars which DON’T allow smoking, or the ban’s going to get voted in. That’s all I’ve been trying to say.

  9. It’s not a bad point, but I don’t believe that compromise is the answer (unfortunately). Nonsmokers were welcome in far more places than smokers here in pre-ban Austin. I don’t think The American Cancer Society is interested in compromise on the small remainder of smoke-friendly interiors. Half-stepping and deal-making is just not how they want convey their message. And that’s understandable.
    You’re right though. This comment volley is not the most efficient method for discussion. Tirelessly interesting though. Makes my workday go by much quicker.
    I’m so late to this discussion. For various reasons, I sat out the first… fifteen rounds of debate on this issue. It’s pretty much moot at this point, so I’m just in the process of searching for solace, I suppose.

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