Undercover Economist

The scruffy economist

The Undercover Economist – FT Magazine, 12 November 2005

The other day I was hurrying to lunch on somebody else’s expense account at a very nice Washington restaurant, The Oval Room. I began to fret that clad in my weathered racing green leather coat, I had as much chance of talking my way into the White House across the street as getting past the maitre’d without a jacket and tie.

Summoning up indignation in advance, I angrily asked myself why anyone would turn away the guest of a paying customer. Scruffs pay the bill the same as anyone else, so isn’t the dress code of jacket and tie commercial suicide?

Actually, the smart restaurateur, armed with the swift feedback of market forces, does what governments tend to find rather difficult: balance the competing interests of different people. Some people will pay to eat a meal surrounded by the smart set. Other people will pay to eat a meal without having to dress up. The restaurateur gets to decide whose wishes count – the snobs or the slobs.

If he is wise, the restaurateur sets the rules to reflect the willingness to pay on each side. If the slob crowd is willing to pay more to remain underdressed, either because it is large or because it is militantly scruffy, the restaurateur respects that wish if he wants to stay in business. If the snobs are richer, more numerous or more impassioned about the issue, the restaurateur should swing the other way instead.

Dress codes are rare in modern restaurants, because few people care enough to pay to have them enforced. But dress codes are very common in nightclubs, because the main thing that a nightclub offers is the company of others. It is worth much more to go to a club filled with sexy people. The demand is evidently sufficient to compensate club owners for the loss of revenue from the dowdy.

Restaurateurs, diners, club owners and clubbers do not need the assistance of governments to help them work all this out. A law that insisted on jackets and ties in restaurants, or defended the rights of clubbers to wear cardigans and running shoes, would be a terrible law. A law that made jackets optional in restaurants but smart shoes compulsory in clubs would be better, but unnecessary at best.

Entrepreneurs, unlike governments, produce rules that are well-attuned to the will of the masses. Even better, the market satisfies niche demands. If you really want to eat lunch surrounded by suits, or to wear running shoes to a club, then you will find someone willing to provide that service. The law, by necessity, prescribes that one size fits all.

All of this makes it very clear that when governments ban smoking in restaurants, bars or clubs, the law is an ass. Entrepreneurs are just as capable of providing a smoke-free bar as providing a cardigan-free club, and will supply a variety of options to match demand.

If customers want smoke-free bars they will – and do – pay for them. My desire for a smoke-free environment is stronger than my desire for a cardigan-free club, but it is different in degree, not different in kind. If bar staff prefer a smokeless working environment then managers (and through them, customers) will have to pay them more to work in a polluted one. The scarcity of smoke-free bars is not an indication of the need for a smoking ban, but an indication of how much such a ban will inconvenience the ordinary punter.

Personally, I trust the market to provide a variety of solutions to suit all needs. When I reached The Oval Room, beloved of Washington’s top power-brokers, they allowed me and my leather coat in without batting an eyelid.