In general I reject the 99 percent-1 percent divide, but it is useful to illustrate an important economic principle. That principle is: how do we truly give the most power to the 99 percent?
Taking money from the rich by force is a temporary measure that can easily create a new class of 1 percent and give no real power to the masses. This is easy to show: In 1915, the Russian czar and various Russian cronies had the majority of the wealth and nearly all of the power, and the 99 percent had nearly none. By 1935, Stalin and various cronies had the majority of the wealth and nearly all of the power, and the 99 percent still had none. So, changing bosses does not solve anything.
The real solution is to come up with a way to give the 99 percent the power. And it is the market that redistributes power best of all. In a truly free market, consumers have the majority of the power and the 1 percent live in constant fear of losing what they have. A truly free market — without government interference — empowers the majority.
First, let’s define our terms. “A truly free market” means a market for goods without government interference. Banking is not a truly free market and is a cartel protected by the government. This is why the bailouts were so evil: they benefited the 1 percent at the expense of all of us by redirecting our tax dollars to a few well-connected failed businesspeople.
Most health care is not close to a truly free market. Our system is primarily a third-party payer system with perverse incentives. If you have health care provided by your job, your health care is relatively cheap and you don’t have incentives to negotiate with your doctor. There is very little competition because the third-party payer system of insurance and Medicare and Medicaid has created small cartels where doctors play a constant game of gaming the system to get as much money as possible.
The areas that are free of the third-party payer system are the ones that are the least expensive and provide the best, most technologically advanced care. Lasik eye surgery is a good example: it is not covered by insurance or Medicare and Medicaid. I had Lasik eye surgery eight years ago, and it truly is a miracle. One moment you have bad vision, the next your vision improves, and by the next day you have brand new eyes. My Lasik surgery cost me $4,000 eight years ago, and it has come close to paying for itself because I haven’t had to get new glasses or contacts in all that time. Because the business is competitive — there are dozens of places to go in every metropolitan area — prices are cheap. Today, the same place that charged me $4,000 eight years ago charges $3,000 for the same procedure. You read that correctly: prices have decreased 25 percent in eight years. When was the last time you saw your health care costs go down 25 percent?
So, in a truly competitive environment — as opposed to the artificially created cartels of the third party payer system — we see the following advantages:
1)Technology improves.
2)Prices go down.
3)The consumer benefits and is empowered.
It is the third point that we sometimes forget. If we see rich eye doctors as part of the 1 percent (and they often are), the question is: how do we, in a free society, empower ourselves and not allow the 1 percent to consolidate more power? The answer is through consumer choice and competition. Eye doctors providing Lasik service are in a competitive industry. If they don’t innovate and provide better service, they will lose business. If they lose business, they will lose money and perhaps have to close their doors and go bankrupt.
Do you see what is happening here? Through the miracle of the market, we are empowering the majority and making the 1 percent constantly worry. And it is all voluntary. Nobody is forced to do anything. The majority have all of the power: they will voluntarily choose other eye doctors unless eye doctors innovate, provide good service and keep costs down. And we don’t need to have a third party (the government) step in to take money away from the rich eye doctors: all we need to do is allow the market to function.
But you say: “those rich eye doctors stay rich and that is not fair.” You are missing the point. In a free society, the rich eye doctors only stay rich if they provide good service, lower prices and better technology. They are providing benefits for their customers, and that is good for society. If another eye doctor lowers his prices and provide better service, then the rich eye doctor who doesn’t keep up loses business and becomes less rich. His only incentive is to satisfy his customers and put them in a position of power over him. The customer really is the king.
In fact, if you think about it, it is free markets without government interference that make you feel empowered, and it is the activities controlled by the government that make you feel disenfranchised. The market for computers and ipad and iphones is incredibly large and diverse. There are dozens of different kinds to choose from. Laptops and 10 times more powerful than they were just a few years ago, and can do hundreds of things they couldn’t do before. Ipads dominate the tablet market, but you can get a Nook or a Kindle for less money. The consumer really is the boss.
Everybody loves Steve Jobs even though he clearly was one of the richest and most powerful people in the world. Why is this? Because he provided voluntary choices for people that anticipated their needs and satisfied their demands. There are all kinds of cool things you can do with ipods, and ipads and iphones that you couldn’t do before. Have you ever used Facetime on the iphone or ipad? It is the easiest video conferencing system I have ever used, and it is free!!!! All you need is a wifi connection, and you don’t have to pay any per-minute charges, and you can talk to somebody anywhere in the world, and see them live!! It truly is a Jetson’s world: our videophones are significantly better than anything imagined 40 years ago, and they are free!!
So, why do even the Occupy people love Steve Jobs? Because he empowered them. He gave them choices and stuff they wanted.
But the key here is the additional point that everybody always forgets: Steve Jobs, by providing cool stuff to the masses, empowered the masses but also gave them power over him. If Apple stops innovating and providing cool stuff, it will go out of business.
What, Apple go out of business? It will never happen!
Well, have you ever heard of Research In Motion? They make the Blackberry, you know the product that everybody thought was so cool five years ago?
Here is a chart on RIM’s stock price:
The demise of the Blackberry is a fascinating study of the power of consumer choice. RIM stopped innovating, and the iphone and Android phones took away market share. The rich people running RIM are now much, much less rich, and many of them have been fired. Investors in the stock are red-faced with anger and embarrassment.
And let me repeat the point: the consumer was the one who had all the power. It was the consumer who decided to stop buying Blackberries. It was the consumer, the 99 percent, who caused so many problems for those rich investors and those rich RIM executives. The consumer literally destroyed the 1 percent, and a shot was never fired, nobody’s office was occupied, and there was no need to throw a garbage can through a window. Nobody had to go confiscate money from anybody else. It was all voluntary, an exercise in free will and market choice.
I could go on an on on this subject. One thing worth exploring is cell phone cost and why it is so high (it is government-created telecom monopolies). Costs are about to plummet as more and more people use wifi for free calls rather than relying on the monopolies. Again, the 1 percent in the telecom business will either innovate or die. The consumer will win.
Contrast the ease of Lasik surgery and the fun of Apple products with the absolute nightmare that is the process of getting a mortgage from your local bank. But you say: banks are private companies. You would be technically right, but banks are, these days, simply an arm of the government. They receive their capital from the Fed. If they make bad business deals, they are rescued by the government. They are, in effect, a government-controlled cartel.
Think about it: why should it be so difficult to get a loan? You have a good job. You have steady income. You have decent credit. It is simply a business transaction where you are offering to pay back the bank for 30 years with interest. Why do you have to fill out 50 different forms and sign over your life?
The answer is government interference. In the old days, there were one or two forms to fill out. It really was a simple transaction. Go ask your parents or grandparents. They probably paid their mortgages on time, and found the whole thing pretty easy to do. Over time, the banks have become completely disconnected from the idea that you are the customer and are therefore king. Instead, you feel grateful that the bank is giving you a loan. You, the customer, are not the boss. The bank, the monopoly provider, is the boss. They have all the power — you have none.
The lesson is clear: the more free the market, the more power the people have. It is government that gives power to the 1 percent who are rich and well-connected. The answer should be clear: free the markets and give power back to the people.
Note to commenters: I will be traveling and unable to monitor this post very much over the next week. All comments are being moderated. If this post makes you angry, and you just have to show the world how much you hate it, your comment will not be approved, so don’t bother. If you like this post or have a polite disagreement, your comment will eventually be approved but I am not in a position for a long debate.
I’m not sure the point you’re making works with the examples you are giving. In the case of both LASIK and iThings, these are luxuries. These work completely differently from regular healthcare and mortgages, which are considered necessities. People tend to find a doctor they are comfortable with and stick with them, regardless of price. Mortgage lenders appear generally the same across the board, with small variances (which are rarely paid attention to) in interest rates. Generally, like in healthcare, people go with the bank they already use for everything else. LASIK and PDAs are relatively easy to shop around, because you have no personal attachment to the seller.
Without a way to disconnect healthcare and banking from a unifying government system, which adds protections for the buyers as well as the sellers (though admittedly, for buyers much less), how can we make your two sides analogous?
Sounds good to me. I have loved my Blackberries, but the last one is a P.O.S. So I’ll probably buy something different next time. Them’s the breaks.
Actually, Istuff and Lasik does work here. There is necessary, and then there are things people think they need. IPhones are not necessary, although many would claim they could not live without theirs. Same with Lasik surgery.
It once was felt that Microsoft was a monopoly that would never go away. Guess what? It no longer is the monopoly it once was. Why? Because government stayed out of the way, and allowed innovation from Google, Apple and others to step in and take that giant advantage away from MS.
If healthcare was not run by the government, but rather government just opened the way for competition, then people could choose licensed insurance companies from any state, rather than the monopolies they now deal with. Government is now trying to force all companies to pay for contraceptives, raising prices on all of us. What if government got out of the way, and allowed me to either purchase insurance from whomever, or have a medical savings account wherein I could barter with my doctor and others for service?
Had banks been told that they could take risks, but would be responsible for their own risk taking, AND had government not pushed banks to do sub-prime loans, we would not have this housing crisis we do today. Instead the fed promised to bail them out AND pushed them to make stupid risks.
That is a multi-trillion dollar error made by the fed. We can no longer afford it.
Geoff,
I am with you. I think the real key for change is to educate and empower the people and make them think about the indoctrination they received in school. To which you are doing an excellent job.
Frank,
The points and examples are spot on. There is not much governmental regulation with LASIK and iThings. Healthcare and mortgages are heavily regulated to the point of being government controlled. We are meant to think that they are not part of the government but since the government controls them, they are. I recently learned a little about insurance. The government makes the rules and the insurance companies trip over themselves to be in compliance with the regulation. The government can change the rules at will and they frequently do. When the rules are changed the companies trip over themselves to be in compliance. The boss is the government and not the customer. There is no incentive for insurance companies to be competative because they all follow the same rules set forth by governmental regulation. You further your arguement by saying people are loyal to their doctors. I say they are loyal to their doctors in part because they want to stay with someone they like but also because there is no competition. You cannot go to another doctor to get services for a lower price since prices are controlled by insurance which are controlled by the government. Finally the way things are have taken a very long time to get this way. We were fooled by degrees and it still happens today. I hope we can change the government back to a body that cares about the constitution and personal freedom but it will have to be by degrees. Then hopefully we can disconnect healthcare and banking from the government system.
Nicely explained and hard to argue with. Do you agree, though, that sometimes it’s a proper role of the government to prevent or break-up monopolies, specifically in order to make sure there is sufficient competition to benefit the consumer?
Agellius had an excellent question regarding monopolies. His question, which I cannot get out of moderation for some strange reason, was: is there a role for government to regulate monopolies. My answer would, in today’s world, no. I cannot think of any company today that could create a monopoly if we were to allow the market to function. You could make an argument that Rockefeller and Standard Oil were true monopolies, but you would also have to admit that near the end of Rockefeller’s life his monopoly was ending, and it had little to do with government action.
Let’s look at the long list of companies that have been accused of being monopolies in the last 30 years or so. Wang Computer. Ha! Novell. Ha! Netscape. Pschaw. Google (under fire from Facebook and Microsoft — will not be anything near monopoly much longer). Intel. Nope. In case after case, it is the market that has destroyed the monopoly and benefited the consumer.
So, I am not theoretically opposed to government breaking up monopolies. I can imagine some dystopian future where GoogleAppleMicrosoft controls everything, and it might be appropriate for the government to step in. But we are far, far from that today, and it is the market that is saving the day.
From Wikipedia on Standard Oil: “Some economic historians have observed that Standard Oil was in the process of losing its monopoly at the time of its breakup in 1911. Although Standard had 90% of American refining capacity in 1880, by 1911 that had shrunk to between 60 and 65%, due to the expansion in capacity by competitors.[41] Numerous regional competitors (such as Pure Oil in the East, Texaco and Gulf Oil in the Gulf Coast, Cities Service and Sun in the Midcontinent, Union in California, and Shell overseas; all except Citgo have since either merged with a Standard descendant or was bought by a company that was itself later bought by a Standard descendant) had organized themselves into competitive vertically integrated oil companies, the industry structure pioneered years earlier by Standard itself. In addition, demand for petroleum products was increasing more rapidly than the ability of Standard to expand. The result was that although in 1911 Standard still controlled most production in the older US regions of the Appalachian Basin (78% share, down from 92% in 1880), Lima-Indiana (90%, down from 95% in 1906), and the Illinois Basin (83%, down from 100% in 1906), its share was much lower in the rapidly expanding new regions that would dominate US oil production in the 20th century. In 1911 Standard controlled only 44% of production in the Midcontinent, 29% in California, and 10% on the Gulf Coast.[42]”
I used to be a hard-core free-market guy like you, but am in the process of re-evaluating some of my political and economic positions. However I am still in the open-minded stage. I will keep a link to this post handy as a good summary of your side. One of these days I hope to make up my mind.
Just for the record (not that anyone cares), I’m still a Republican, for moral reasons, namely abortion. I’m quite sure nothing’s going to change my mind on that issue. The party that gets my vote will always be the one that gets it right on abortion.
I think we need to be more worried about companies that are “too big to fail” than monopolies.
If a single company, by itself, can threaten a national recession, we have a stability problem.
Tim, exactly right. The banks need to be broken up. They are a cartel created by government (the Fed). The best way to get rid of them is to a)separate normal banking from investment banking 2)reform or get rid of the Fed (certainly we can start with an audit, many liberals approve of this) and 3)getting rid of fractional reserve banking. These three changes would end “too big to fail” in a year.
There are times when government can help with monopolies. I think it helped with AT&T break up. Without that action, none of us would own our phone, we would still be on copper wire, and things like cells and Internet would not exist for most people.
That the breakup caused a massive change that has now created many companies that are bigger than AT&T was in 1980 shows how important it was to end that monopoly. That IBM was concerned about such a breakup, caused it to open source its operating system for the PC, allowing other companies to compete and for Apple to become the behemoth it is today. Without such government impact, the changes would have occurred much slower.
So, there are times to disrupt monopolies. However, government should use that option in rare instances, and not on a daily or even yearly basis.
Rame, AT&T was a government-sanctioned monopoly like many utilities. In 1900, there were hundreds of local telephone companies. AT&T bought many of them up. The government decided in 1913 it would be best, and most coherent given the technology, to create a monopoly (similar to what happened in cable and in electrical companies). Personally, I think this was a horrible decision, and the telephone business could have used competition. In any case, the 1984 breakup was really the government negotiating with itself on how to break up a government monopoly. It was the best thing ever for competition. But remember the government created the problem in the first place, so it’s “solution” was about seven decades too late.
Geoff, I agree with you concerning AT&T. That said, aren’t most monopolies created because government got involved and favored one group or company over another?
Look at today’s utilities. Almost all power, water, and gas companies are monopolies or near monopolies. Cable companies often are too, as well as state licensed insurance companies.
We create giant banks that almost equate to monopolies due to their vastness and the unfair competition for smaller banks to compete, especially when we bail out the big ones who are too big to fail.
Today, government favors certain lobbies or unions, creating near monopolies for the teacher’s union, trial lawyers, AARP, and other giant organizations that put a lot of money into lobbying Congress or state legislatures in order to maintain their monopolies.
It also happened with the robber barons of the 19th century. Government busted up union strikes, and favored creating monopolies. So, it isn’t a new thing.