DRI-197 for week of 4-5-15: The Political Economy of Pizza Parlors, Flower Shops and Religious Freedom

An Access Advertising EconBrief:

 The Political Economy of Pizza Parlors, Flower Shops and Religious Freedom

This is how bad things are: Political polarization has replaced the weather as the default topic of conversation. A good operational definition of a “baby boomer” is as a person who can remember when “Hot enough for you?” was the popular conversational lubricant. Today, coffee shops are midwiving dialogues on race between their customers – as part of their business plans!

How did we reach the point the public’s pulse rate reads “seething hatred?” An explanation begins with delineation of the controversy du jour – the ongoing debate over “gay marriage,” recently revived by passage of state-level versions of the Religious Freedom Restoration Act in some 20 states.

Concise examination of the issues is best served by a question-and-answer format.

What’s going on here? Wasn’t the question of gay marriage settled by legislation?

In 21st-century America, nothing is settled until the Supreme Court rules – and sometimes not even then. As of this writing, Supreme Court rulings have tended to invalidate the state laws invalidating gay marriage – but in such a way as to leave room for doubt as to the ultimate outcome. Even more exasperating, the term “gay marriage” itself is disturbingly ambiguous, hence the quotation marks.

How can that be true?


All of us have a mental picture of marriage that tends to overlook its dual meaning in the different contexts of law and theology. In law, marriage is a contract. As such, it is a voluntary compact between individuals that binds both parties to certain duties and obligations under the law. It is altogether fitting and proper that government have the power to sanction and enforce the terms of contracts; that is one of the inherent purposes of a limited government. That is a key distinction between the state of law and anarchy.

But in theology, marriage is, or tends to be, a holy sacrament. A limited government has no authority to pronounce on the fitness or validity of religious doctrine, provided the doctrine does not infringe upon the legal rights of disciples or outsiders.

What is the relevance of this distinction to the current controversy?


Many states have passed laws preventing issuance of marriage licenses to gay couples. Proponents claim to be “protecting” the institution of marriage. Meanwhile, homosexuals of both sexes (as well as those whose sexual identity is undetermined) have organized into a political coalition whose animating spirit is that homosexuals are “discriminated against” by those who are not in sympathy with their sexual practices. This movement strives to enlist the power of government against this “illegal discrimination.”

Needless to say, these two sizable groups of people are in direct conflict with each other. And both groups are in error because they fail to appreciate – or deliberately ignore – the distinction between marriage in law and in theology. Each group wants to use government to impose its views on the other.

Why are the laws opposing gay marriage wrongheaded?


It is vital to distinguish between disapproval of homosexual conduct as such and legal refusal to sanction a voluntary contract between consenting adult individuals. A legal marriage contract between two consenting adults is voluntary. It does not infringe on the rights of third parties. Under the Declaration of Independence and the Constitution – the founding documents of our republic – freedom of contract is sacrosanct. Granted, this freedom has been abused at an increasing rate by big government beginning in the 19th century and throughout the 20th century. But there is no doubt that the state laws forbidding gay marriage constitute yet another flagrant abuse of freedom – as flagrant as any yet seen. In effect, they consign homosexuals to inferior legal status. The fact that homosexuals long languished in just that condition doesn’t change matters, any more than the existence of black slavery from 1776 to 1863 constituted an argument against the Emancipation Proclamation.

While proponents of anti-gay-marriage laws don’t tend to cite anti-sodomy laws, they do claim that they are protecting the social institution of marriage against disintegration. How do you reply to that claim?


They claim to be protecting marriage – but claiming it doesn’t make it so. When a gay couple marries, this does not affect the ability or proclivity of heterosexuals to marry. The existence of married homosexuals does not impair the ability or proclivity of heterosexuals to marry, any more than the existence of unmarried homosexuals does.

Politically organized homosexuals tend to argue that homosexuality is biologically (e.g., genetically) programmed, hence beyond the scope of individual control. Their opponents tend to argue that homosexual behavior is a matter of individual choice. There is evidence on both sides of the debate, but to the economist the debate is irrelevant. No matter whose view you endorse, homosexuality and heterosexuality are not economically competitive. Therefore, tradition marriage cannot be harmed by the existence of homosexuality, let alone legalization of gay marriage.

The practices would be competitive if an individual found them to be close substitutes for each other; that is, if he or she moved freely from one to the other based on small changes in the relative attraction of the two. To provide a concrete example, suppose a man is contemplating marriage to a girl when his state legalizes gay marriage. At this point, he says “No, I believe I’ll marry my friend, George, instead.” An economist would then say that he regarded homosexuality and heterosexuality as close substitutes, and a sociologist would say that legalized gay marriage had adversely affected the institution of traditional heterosexual marriage.

No scientific study has identified this as the general case, or even an empirically important case. No opponent of gay marriage would lean on bisexuality for support, either. And this should not surprise us, since homosexuality has existed side by side with marriage throughout recorded history. During this time, traditional marriage was born, became popular, reached its zenith and only recently hit the skids.

The evidence strongly supports the benefit of traditional marriage and family for childrearing and social cohesion. But laws nullifying the rights of homosexuals do nothing to improve matters. Neither desperation over the decline of traditional marriage nor disgust over the practice of homosexuality can justify the abrogation of freedom of contract.

You implied dissatisfaction with the stance of organized homosexuals as well. Where have they gone wrong?


That is an even longer story. Really, it encompasses not merely the rise of homosexuality as a political movement, but the growth of government as the political left prospered by catering to special-interest blocs. Each bloc became a constituent class of the left wing and the Democrat Party. This is the overarching political narrative of the 20th century. Homosexuals are merely a new addition to this collection of special-interest voting blocs.

The concept of “discrimination” looms large in the vocabulary of any aggrieved or victimized minority group. What part does it play in the claims of organized homosexuals?


From the beginning of their organizing activities, homosexuals have sought to hook on to the protected status enjoyed by blacks and women as “minorities” protected from “discrimination” by the majority. (This is particularly piquant in the case of women, who constitute a numerical majority of the population.)

To what extent does the notion of discrimination – as put forward by these groups – entitle them to special treatment by government?


To no extent. Indeed, the historic problem of discrimination has been one of securing protection from government. The classic cases were the infamous Jim Crow laws imposed in the American South and the colour-bar (apartheid) laws passed in southern Africa during the 19th century. Jim Crow eventually spread to the North and produced racially segregated schools and considerable segregation in hotels, restaurants and residential housing.

The seminal principle of the Rule of Law, dating back over a century in English common law, is equal treatment of all citizens by government and the absence of privilege. Thus, discrimination by government violates the Rule of Law.

Government occupied a unique place in society. It exists to protect individuals against coercion by others. To accomplish this task, it must be able to coerce those who themselves try to coerce. In economic terms, government must be given a monopoly on the use of force and violence. The existence of this monopoly accounts for our insistence that government obey the Rule of Law, so that government may not become a tool for some people to tyrannize over others.

But this same principle of non-discrimination cannot apply to private individuals.

Why not? Why shouldn’t we be forced by treat everybody alike?


The short answer is that only a totalitarian state could even attempt to enforce the principle of non-discrimination applied to all private individuals – and even the strongest dictatorship would fail in its attempt while making its population miserable in the process.

Everybody “discriminates” against the things (and people) they dislike and in favor of the things (and people) they like every day of their lives. We eat at one Italian restaurant instead of another one because we like one style of Italian food better than another. We eat at Chinese restaurants rather than Italian restaurants because we like Chinese food rather than Italian. We become vegetarians because we believe it is healthier – or perhaps morally preferable. It never occurs to us that we are guilty of “discrimination” against Italian restaurants or steakhouses. Before the word “discrimination” became a pejorative, it was a compliment to be called “a man of discriminating taste.”

Over fifty years ago, F.A. Hayek theorized that we form subjective theories about the nature of reality that govern our everyday life because our minds cannot absorb and retain the totality of objective reality. When we act on the basis of our theories, we discriminate as a way of compensating for our unavoidable ignorance. The pretense that government can somehow sort out what forms of discrimination are objectively valid in our private lives is just that – a pretense. Contemporary government adopts this pretense because it allows politicians to cater to special-interest groups by granting them favored status. This is a way of redistributing money and status in their favor; e.g., discriminating against the non-favored, from whom the money is taken.

Because markets collate and transmit so much information that is dispersed in the brains of billions of people and would otherwise never be known in usable form, they greatly improve the quality of our lives. They also punish us when we discriminate wrongly, on the basis of misperceptions or mistaken value judgments. If we refuse to buy from somebody we dislike, we may lose out on the purchase. If we refuse to sell to somebody we distrust or disapprove of, we may lose out on the sale. These disincentives apply because competitive private markets tend to equalize the ex-ante (planned) quantities demanded and supplied of goods and services. Thus, competitive markets have built-in penalties or disincentives for discrimination based on subjective, unfounded criteria.

Consider the matter from the perspective of the victim of discrimination – the person of the refusal. If somebody is turned down for a sale, they can always turn to others in a competitive market. By definition, there are lots of “others.” The same holds true for buyers looking for a seller. Indeed – to apply this concretely to homosexuals – a refusal to sell or cater to homosexuals would have the effect of creating a ready-made market, easy to identify with plenty of ways to reach it through advertising. We would expect entrepreneurs to rush into the breach, drooling with anticipation, at the prospect. Whether they personally approved of homosexuals or not would be beside the point – they would approve of the money to be made from the venture.

In contrast, governments do not face disincentives from practicing discrimination as sellers or buyers because they face no profit motive. Virtually by definition, limited governments face no competition for the services they provide, such as police protection, criminal justice and national defense. When they discriminate against some individuals and in favor of others, victims have nowhere to turn for relief or redress. Governments have no fear of discrimination being exerted against them because they possess a monopoly of force and violence. That is why the principle of non-discrimination must be rigorously enforced against government.

It is logical to wonder whether non-discrimination can be enforced against government when discrimination is ubiquitous in the private sector. It can be when government is rigorously limited in size and scope. That is one more reason why government must be confined to its constitutionally stipulated duties.

If the First Amendment to the U.S. Constitution guarantees the free exercise of religion, why is it necessary for over 20 states to pass laws called “religious freedom restoration” laws?


In November, 1993, Congress passed the “Religious Freedom Restoration Act.” (RFRA). In 1997, courts ruled this law invalid when applied to state governments, although valid at the federal level. (Essentially, Congress was allowed to modify or amend federal laws but not state-government laws, which explains the distinction.) Thus, individual states each passed a version of this law that would be valid in their state.

That explains the necessity for state laws, but not the rationale for the original legislation. What was it?


The original federal legislation was sponsored in the House of Representatives by Chuck Schumer (D-NY). Its companion version in the Senate was sponsored by Ted Kennedy (D-MA). The legal principle applied by the legislation was to invoke the principle of “strict scrutiny” whenever a law was found to burden adherents of a religion. That principle says that, to pass constitutional muster, the law must satisfy two tests. It must “further a compelling government interest,” which means it must relate to some government purpose specified in the constitution. It must also be the least restrictive means to achieve that purpose.

The general idea behind the law was to allow automatic judicial review of any law that had a link, however tenuous, to religion. Thus, to quote from The Wall Street Journal, “RFRA disputes typically involve Muslim prisoners who are told they cannot wear beards, or the inner-city Chicago churches that zoning laws prohibited from feeding the homeless in 2000, or the Arizona carillon bells that neighbors complained were too loud in 2010. They are about the Sikh who was fired by the Internal Revenue Service in 2005 for carrying a kirpan, the small knife that Sikhs believe is an emblem of justice.” They “very rarely implicate gay rights.”

It seems ironic that a law originated by hard-core liberals like Chuck Schumer and Ted Kennedy should now form the basis for laws used by conservatives as a tool to protect religious freedom – and demonized by liberals as a conservative plot to discriminate against homosexuals. How do you account for that?


Mostly, it is accounted for by the common desire of all politicians to recruit voters. Of course, the state most associated with anti-gay-rights rhetoric, Indiana, was at pains to pass a “revision [that] clarifies that [its] RFRA does not authorize a business to refuse to offer ‘services, facilities, use of public accommodations, goods, employment, or housing’ on the basis of sexual orientation or gender identity.” Why? “Indiana’s Republicans felt they had little choice lest the state suffer economic damage.” This is practical confirmation of the theory outlined above; politicians believe so strongly in that theory that they couldn’t wait to act lest it be confirmed.

How did Indiana come to be identified with anti-gay rhetoric?


A television news reporter solicited the opinion of a pizza-parlor owner about Indiana’s RFRA law. The owner said that, while she cheerfully served gay customers in her restaurant, she would prefer not to cater a gay wedding. The adverse public reaction to the statement coaxed from her led to threats and the closure of her business. (In turn, that has prompted donations from people sympathetic to her stance.) Despite the fact that Connecticut has its own RFRA, the state legislature there banned taxpayer-funded travel to Indiana to protest the alleged discrimination against homosexuals embodied in Indiana’s version. The President of the NCAA chimed in with a denunciation of the Indiana law, as did Wal-Mart in an official statement. Curiously, as the Journal noted, these reactions won the approval of the same liberals who customarily censure corporations for engaging in political speech.

Aside from the considerations you already adduced – citing economic theory and political philosophy – are then any legal considerations that argue in favor of enforcing anti-discrimination laws against people who – unlike the Indiana pizza-parlor owner – actually refuse to serve homosexuals?


If the people are private individuals working in the private economy, the answer is no. Andrew McCarthy wrote an excellent piece on the National Review website that cited the longtime common-law refusal to require what is called “specific performance” in contract law. In cases, where a defendant can show damage from a refusal to perform – that is, to honor an explicit or implied contract – a court will normally grant monetary damages as a way of making the defendant “whole” or righting the wrong. But requiring somebody to do something they find offensive is itself a wrong; it is characteristic of a totalitarian state.

The wording of your answer implies a role for anti-discrimination law. What is it?

In line with the earlier distinction between competitive markets and government, we should contemplate the case in which a service provided solely by government – rapid transit, perhaps – refuses to serve certain customers or deliberately degrades the quality of service provided. Now the case for requiring government to provide service to all is very strong. First of all, the monopoly status of the service means that the customer(s) lack competitive alternatives. Second, government as an entity is an abstraction, not a person with tastes and moral sensitivities that must be respected in the same way as those of a private individual. Of course, government employees are individuals, but there is no case for granting them leeway to discriminate since they are not required to work for the government – they have competitive employment alternatives in the private sector should they object to obliging the people served by government.

What about public utilities? In most of the world, goods and services produced by public utilities are provided by firms owned and run by government. Those firms are staffed by government employees and operated by government, so your previous answer would cover them. But in the U.S. and Canada, public utilities are private owned and operated as profit-regulated, privately owned firms that are regulated by public-utility commissions. Where do they fall on your anti-discrimination spectrum?


That is a very interesting question. Superficially, it might seem that since North American public utilities often exist in the private sector, we should rely on the market to discipline them for discriminatory behavior. But the fact that they are profit-regulated means that the profit motive no longer acts as a check on their behavior. If the utility were to discriminate against certain customers by (say) refusing service, it would not lose profits because the law allows it to recover sufficient revenue to cover its cost of capital; it could just raise rates on the remaining customers to compensate for the lost sales. The same government regulation that ostensibly protects the public against corporate rapacity actually subjects it to greater risk.

No doubt that is one reason why the doctrine of “universal service” was adopted as a regulatory mantra in such utility industries as telephone and electricity. This required utilities to cover all classes of customers provided they paid their bills. (If not, they would be unceremoniously dropped.)

But the great black economist Thomas Sowell has observed the historical tendency of public utilities to discriminate against blacks in their hiring practices. Again, a private firm would pay a penalty for discriminating against any class of people containing productive workers, because the reduction in productivity would hurt its bottom line. But a profit-regulated public utility can’t suffer a sustained loss of profit because it can raise rates as needed should its profit fall below the regulated level. Because it is a monopoly and there are no close substitutes for what it produces, customers will not drop its product or service in favor of an alternative provider when its rates rise. Its sales volume may fall slightly, but by a smaller percentage than the percentage increase in its rates.

Once again, we see the logic underlying the economic theory of discrimination confirmed.

Could you summarize the correct approach to the problem of discrimination?


The problem of discrimination exists when practiced by government against its citizens. The solution is to limit the size and scope of government and make it adhere to a constitutional Rule of Law stipulating equal treatment of all citizens.

Free competitive markets punish unfounded discrimination practiced by consumers or producers. This does not eradicate discrimination but it does provide the strongest possible disincentive to it. And after all, government regulation cannot hope to eradicate discrimination, either.

Does anybody agree with your solution?


Only Richard Epstein, who is described by The Wall Street Journal as “arguably America’s leading libertarian law professor.” His arguments on the issue of discrimination run parallel with mine. Otherwise, defenders of free markets seem intimidated by the assault on liberty. Even die-hard defenders of free markets like Reason Magazine and The Wall Street Journal’s editorial staff seem aghast as the virulence of the left-wing attack on freedom, religious and otherwise. The Journal’s editors assumed that the “speech and conduct… of sole proprietors in wedding industry, such as florists, bakers, photographers and singers” was “protected by the First Amendment.” Columnist William McGurn has discovered that political backlash from the homosexual movement “can mean an end to your small business; it can mean your church institutions – from schools to adoption agencies – can no longer run themselves according to their principles, and if you are a Silicon Valley CEO, it can mean you lose your job. Whatever else this is, it certainly isn’t live-and-let-live.”

Surprise, surprise. But the editors are reduced to tut-tutting that supporters of same-sex marriage will “lose… good will” by “illiberal[ly…] stomping on religious liberty.” People who seek government discrimination in their favor have long since ceased to care about good will.

Sooner or later, we must learn that there is no compromise in the defense of freedom.

How are we actually handling the problem of discrimination?


We are pretending to solve a problem that does not really exist; namely, the problem of discrimination in private markets. This pretense occurs through the medium of statutory and regulatory law administered by the federal government. This means that the federal government is running a massive system of discrimination against private citizens in the name of fighting discrimination. It is doing this to curry favor with the various voter blocs who have attained protected status under the anti-discrimination laws – blacks, women and now homosexuals.

Didn’t you say earlier that the federal government couldn’t operate such a system without creating a totalitarian state?


Correct. And so it has. As it stands, there is strong resistance to this conclusion because everybody knows that the United States are not governed by a dictator. How can we be living under totalitarianism if there is no dictator?

The great economist and social theorist F.A. Hayek developed the concept of “absolute democracy” in the 1970s. This is the form of totalitarianism he foresaw for the welfare states of the Western industrialized world, and this is what we have today in the U.S. It is a democracy because we vote on the leaders who govern us. But it is a form of absolutism because those leaders and the government mechanism they administer have virtually absolute power over us. The constitutional checks on the power of government have shriveled nearly to insignificance. The debate over discrimination is just the latest evidence of this fact.

Given this state of affairs, the extreme polarization afflicting the body politic is entirely understandable and predictable. Enormous sums of money are spent electing our leaders because nobody wants the “other side” to exert total power over them. Money has invaded and pervaded the realm of government as never before because everybody fears a government that has the power to do anything to anybody. Everybody is trying to curry favor with government and buy it off because everybody sees a binary choice – either government will discriminate in your favor or against you.

The only remedy for this “war of all against all” is a limited government in which competitive markets substitute for government whenever and wherever possible. That is the only regime mankind has invented that combines freedom with prosperity.

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