‘Trying to get rid of the price system is a few steps down the line towards full communism.’
Britain’s ‘equal value’ pay rules go well beyond upholding equal pay for the same work, and mean that tribunals have the power to ignore the market and decide that bin men and teaching assistants should, in fact, be paid the same. These rules bankrupted Birmingham City Council, and the big supermarkets are already facing claims worth up to £8 billion for back pay. Now the Government wants to expand the law further, adding race and disability to the list of grounds on which you can bring a claim.
This week on The Capitalist, I sat down with Alex Tabarrok, Professor of Economics at George Mason University and co-founder of the blog Marginal Revolution, who wrote a viral post in 2024 on Britain’s ‘Orwellian’ approach. He walks through the madness of trying to rule by committee on how to treat apples and oranges the same, and explains why trying to set a just price is like suing the weather.
He says we’ve somehow ended up in the worst of all worlds: instead of the old Marxist fantasy of a scientific bureaucracy making economic decisions, we have a tribunal system everyone can see is broken, spending years and generating hundreds of pages of documents to produce nonsensical outcomes. Tabarrok argues our pay rules are part of a much bigger pattern: well-intentioned rules piling up like pebbles in a stream, until the stream – the economy, innovation and growth – is dammed. And sometimes only a sharp rap on the head from reality can restore policymakers to their senses.
Below, you’ll find some short excerpts from our conversation.
Marc Sidwell
Editor, CapX
Do politicians need economics lessons?:
‘Everyone needs to read their Adam Smith. Adam Smith literally talked about these kinds of problems. He talked about, you know, what he called compensating differentials. In the Next case, which was comparing retail workers with warehouse workers, the warehouse has got all kinds of issues. It’s very noisy. It could be a little bit dangerous. But the tribunal had said, no, these jobs are equal. But the lead plaintiff of the retail workers said, if you want me to work there, you’d have to pay me more. What more can you say?’
On tribunals for apples and oranges:
‘The fundamental problem is that trying to get rid of the price system is really a few steps down the line towards full communism. I don’t want to sound hyperbolic, but it is true when you get rid of the price system. Essentially what they're trying to do is compare apples to oranges. ... How would you do that? … If I don’t sell my apples, I can turn them into apple pie or apple juice, but there’s no orange pie. So I can’t do that. So you have to compare that. Or there’s orange juice. Okay. But do people like orange juice as much? Just trying to even think about the innumerable comparisons that you would have to make shows you that this is why we have markets.
And suppose we get to a situation where we’ve decided, okay, we’ve got the just price between apples and oranges. We have solved the apple-oranges tribunal problem. Well, suppose then that it’s announced that oranges reduce cancer. Linus Pauling was correct. Vitamin C is good. Oranges reduce cancer. Now everyone’s going to want to buy oranges. Okay. Well, how are you going to get more oranges? The price has got to go up, right? But we just said we created the just price, and presumably the labour in apples and oranges has got the just price. But now how are we going to get more labour to produce oranges now that people want more oranges? Well, we have to pay more. We compared apples and oranges and apple workers and orange workers, and we said we were at the right number. But now we need a higher price of orange juice and more orange juice workers in order to get more oranges. So what are we going to do? We’re finished. Getting rid of the price system is a very, very bad idea.’
On the idea of a just price:
‘Hayek said, look, justice is about how we treat one another. The price system, in contrast, is not created by anyone. I didn't decide the price. You didn't decide the price. Tesco didn't decide the price. Okay, you might think they did, but no, everything is decided through this decentralised market system involving millions of people, most of whom you will never, ever meet. And a lot of situations, facts and figures, none of which people ever understand. It's like evolution. It's a decentralised process. And in that sense, justice just doesn't apply because it's not something that I did or something that you did. It's like the weather. So trying to make a just price is like trying to sue the weather for raining too much.’
On regulation as pebbles in a stream:
‘The first pebble you throw in, it’s fine – there was a good reason for it. Then you throw the second pebble, it’s okay. The third, the fourth, they all start to interact with one another. You’re building a more complicated and complex system over and over again. Each pebble might be a good idea on its own, but a lot of good ideas turn into a bad idea. And now you’ve dammed the stream. And the stream is the economy, the stream is innovation, the stream is growth, the stream is progress.’
