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:
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.