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"Squire" in this sense is used to mean "lord of the manor" (rather than "knight's armour-bearer"). The image is of offering respect to someone who only 'deserves' it through accident of birth, rather than by having earned it through their deeds. As Kuruharan says, whether or not the 'squire' is already obnoxious, getting unearned respect is going to push them that way.
Showing that respect - almost especially to someone who doesn't deserve it - is an act of humility. Given that Tolkien's greatest heroes - Bilbo, and especially Frodo and Sam - are kind of innately humble, I think we can take this as an attribute he was in favour of.
hS
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