Jarndyce hits the weak spot in libertarianism – the labour market. There are so many imperfections in this that employers can (and do) tyrannize workers. Workers’ freedom to leave bad employers is curtailed in countless ways: a need to earn a living; loyalty to friends and neighbours; sunk costs.
He’s spot-on here. I’d add some other imperfections: wage inequalities are partly due to factors which bear only a weak (if that) link to productivity: height, beauty, weight, as well as race, gender and parental class. The difficulty of signaling ability means that good workers can stay out of work or in low-paid jobs. Insider power means bad workers can stay in well-paid jobs. And principal-agent problems mean hirers can sometimes indulge their tastes rather than pursue shareholders’ or tax-payers’ interests; how many of us have been rejected for a job because we wouldn’t fit in?
These problems mean the labour market does not function as a textbook free market. It's inefficient, as well as offensive to our instincts about of justice.
What’s the solution? It’s certainly not good enough to merely say that the low-paid should get an education. Jarndyce’s experience (partly) shows the glibness of that. And even if you have an education, the problem is that many other people do as well – so how do you signal your fitness for the best jobs?
Nor is the intelligent libertarian answer good enough. This takes Hayek’s line – that our instincts about justice are misplaced:
The idea that we have morally deserved what we have earned in the past is largely an illusion. What is true is only that it would have been unjust if anybody had taken from us what we have in fact acquired while observing the rules of the game. (Law, Legislation and Liberty, vol II, p94)
The trouble is, though, that few people think this is a good enough defence of free markets. People want to feel that there’s a link between what you get and what you deserve. And some of the more bone-headed defenders of the market economy insult our intelligence by pretending that this is the case.
Nor even is the social democratic solution adequate. As Chicken Yogurt shows, working tax credits are badly administered – which is related to their enormous complexity. And EU Rota shows that labour market regulation is associated with high unemployment.
There is, though, I think, an obvious solution here – a citizens’ basic income. In giving people an out-of-work income, they don’t feel compelled to work for tyrannical employers. Workers’ bargaining power therefore rises.
Many libertarians would have no objection to this, in principle. As Elizabeth Anderson shows, simple minimum constraints on income are consistent with the pure procedural justice that libertarians like Hayek and Nozick advocate.
Indeed, neither of those did oppose a minimum income. Here’s Hayek’s Law, Legislation and Liberty, vol III:
The assurance of a certain minimum income for everyone, or a sort of floor below which nobody need fall even when he is unable to provide for himself, appears not only to be a wholly legitimate protection against a risk common to all, but a necessary part of the Great Society.
And in Anarchy State and Utopia (p231) Nozick said that past injustices in the way in which wealth had been acquired “might be so great as to make necessary in the short-run a more extensive state in order to rectify them.”
I suspect that a basic income is not only consistent with reasonable libertarianism, but actually necessary for it. In increasing people’s bargaining power, such an income can replace minimum wage laws, working time directives and other regulations.
In this sense, equality doesn’t undermine a free market – it actively promotes it.