The Conservatives’ Desired Law-Of-The-Jungle Economy
How do we efficiently stop the powerful few from using their massively unequal bargaining power to overcharge the weaker many?
By David Grace (Amazon Page — David Grace Website)
In the below column I discussed the damage done to the economy from prices that are materially higher than competitive market prices.
In this column I follow up with a discussion of conservatives/libertarians’ promotion of the unfettered right to charge higher than a competitive market price and why their arguments in favor of a law-of-the-jungle economy are little more than a self-serving advocacy of the toxic principle of a might-makes-right economy.
What Communists Believe
Communists believe that it is fundamentally fair for the very powerful many to use their superior political power to exploit the talent, labor, and wealth of the less-powerful few.
Most American strongly disagree with that idea.
Conservatives/Libertarians’ Opposite Theories Are Equally Flawed
Equally destructive, equally toxic to a free society and an efficient economy, is the conservative/libertarian notion that it is fundamentally fair for the very powerful few to use their superior economic power to exploit the labor, talent and wealth of the less-powerful many.
Who Are The Powerful Few?
When I talk about “the few” I’m not primarily referring to wealthy individuals as individuals. I’m talking about the very few people who not only have great wealth and power but who also control great wealth and power.
Consider any large corporation — Goldman Sachs, Allstate, United Airlines, Google, John Deere, Bank of America, Walmart, etc. and ask yourself, “How many individual human beings make the major policy decisions for those companies? How many individuals actually control how they operate and what they do?”
It’s not the tens of thousands of individual shareholders. The shareholders of public companies are almost entirely just along for the ride. It’s really the top executives, the board of directors, and the CEOs of the investment banks and pension funds that control huge blocks of stock that really run them.
There are probably fewer than one-hundred indivudals who actually exercise control over any of these corporations. You might be able to gain operational control over any one of them by replacing thirty to fifty individuals with people who were totally loyal to you.
So, “the powerful few” I’m talking about, the people who really control 80% or more of the corporate revenue in the U.S., are probably fewer than 30,000 individuals, fewer than one-tenth of one percent of the United States’ population.
For Conservatives’ & Libertarians’ Freedom Is The Freedom Of The Wolves To Eat The Sheep
Conservatives/Libertarians believe that if a seller has great enough bargaining power to collect a price that is massively higher than a competitive-market price and/or profitably deliver goods or services that are materially inferior to those that would be provided in a highly competitive market that the seller has and should have the inherent, unrestricted right to do so.
They believe that it would be wrong for the government adopt policies that would deter a seller from charging a price massively higher than the highly-competitive price or deter it from delivering products that are greatly inferior to the quality of a highly-competitive product.
Conservatives Want A Law-Of-The-Jungle Economy That Benefits The Powerful Few
Conservatives/Libertarians justify prohibiting the imposition of restrictions on the powerful few that would prevent them from economically exploiting the less powerful many with the argument that an economy should be operated under the law of the jungle, that the economically powerful few who are able to exploit the economically weaker many morally deserve the unlimited freedom to do so; that the wolves morally deserve the unfettered right to slaughter as many sheep as they want, because they can.
Conservatives/Libertarians often claim that the economic exploitation of the many by the few is justified because the powerful few have supposedly earned that right, that their exploitation is possible because they are smarter and more hard-working than those whom they exploit, and that therefore they deserve to be able to take as much of their money as they can get away with.
Conservatives/libertarians believe that it is wrong for the less powerful many to enact any regulations that would prevent the more powerful few from selling products or services at higher prices and/or poorer quality than would be provided by sellers in a highly competitive market because, through one strategy or another, they are able to do so.
The Justification For A Law-Of-The-Jungle Economy
Their argument is basically that the wolves deserve the unfettered freedom to slaughter the sheep because their superior teeth and claws give them the power to do so. It’s the tautology that because I can do something then I have the moral right to do it.
If the wife is too weak to be able to stop her husband from beating her, then her weakness gives him the right to beat her. Might makes right.
If the sheep don’t like being slaughtered, the wolves argue, they should fashion themselves sets of teeth and claws. If they’re too weak and stupid to figure out a way to defend themselves against the wolves, they deserve to be eaten.
If Joe Sixpack is too poor and stupid to be unable to buy insulin for less than $200/vial, then he deserves to either pay that price or die.
If Ward and June Cleaver are too powerless or stupid to avoid a hotel that at check-out charges them an extra $80/day for resort fees and parking fees, they deserve to be ripped off.
It’s the belief that the powerful few deserve the freedom to exploit the weaker many because they can, or that the many deserve to be exploited because they are too weak and stupid to figure out a way to avoid being exploited.
If you think that’s a good argument, then we’re done here.
The Powerful Few Don’t Deserve The Freedom To Exploit Everyone Else
But beyond pointing out the might-makes-right sophistry, there is the fact that the enrichment of the few usually does not derive from harder work or greater talent. They did not EARN the right to exploit the many.
Instead, the overwhelming economic power of the few is most often derived from the exploitation of the seller’s massively superior bargaining power which hugely disproportionate bargaining power flows from non-talent, non-hard-work factors such as family money, a large market share, and a level of control over market choke points such as distribution channels, access to raw materials, control of intellectual property rights, established high-capital production facilities, a large market share, etc.
The powerful few use their existing wealth and bargaining power and the wealth and bargaining power of the corporations they control to exploit the weaker many through a myriad of economic strategies including higher prices, extra fees, higher repair costs, reduced quality, reduced services and recurring charges.
Countering The Elites’ Massive Bargaining Power Through Boycotts Is A Fantasy
Please don’t waste my time with the fantasy that consumers can effectively avoid paying inflated prices through abstinence or boycott. Try that the next time you need insulin, gasoline, meat, or diapers and see how well it works for you.
Your medical insurance company refuses to fund the treatment you need, or the hospital bill you’re given includes a $50 charge for two aspirin. Object to that and threaten them with a boycott or a lawsuit and see if that solves your problem.
A ridiculous argument.
The “We’re Not Forcing You To Buy Our Insulin” Argument
The other right-wing argument in favor of the propriety of unrestricted monopoly/cartel pricing is that the seller isn’t doing anything wrong because it isn’t forcing you to buy the product. They’re not making you buy insulin at $200/vial.
“Yes, if I point a gun at you and force to you give me $5,000,” the right-winger argues, “that would be wrong. But, if you’re hanging on the edge of a cliff and I refuse to help you up unless you agree to give me $5,000, that’s OK because I’m not forcing you to hire my life-saving services.”
Contract law has always held that a valid agreement must be the product of mutual voluntary consent. If the consent of one of the parties is coerced, then that contract is invalid and unenforceable.
If I tell you that if you don’t sign an agreement to sell me your house to me for $100 I will shoot you dead then the contract you signed cannot be enforced because your consent was coerced.
If you are hanging over the side of a cliff and I tell you that I will walk away and let you fall to your death if you don’t agree to pay me $5,000, that agreement has been no less coerced.
Anytime someone needs a common product (not a unique item such as the Mona Lisa) badly enough that they must pay five, ten, twenty times the Cost+Overhead+Profit price their consent has, by definition, been coerced by the combination of the severity of their need coupled with the seller’s massively greater bargaining power.
Use The Profit Motive To Counter All-The-Market-Will-Bear Pricing
How do we efficiently stop the powerful few from using their massively unequal bargaining power to overcharge and under serve the weaker many?
We can make certain specific types of conduct illegal, but that’s a time-consuming, costly, and often ineffective whack-a-mole exercise.
No, we need to kill the problem at the root. We do that by taking the profit out of cartel pricing.
If the powerful few can’t get richer by increasing the gap between price and cost then they won’t have a motive to increase the price or reduce the quality.
We force sellers to make that pivot by imposing an excess profits tax which taxes profits in excess of 25% of deductible costs at 100%. Under that scenario, the only way that the seller can increase its profits will be to sell more units rather than by raising prices.
If we take the increased profit out of raising prices and reducing quality and instead leave the only path to higher profits being through selling more units, then sellers will lower prices and increase quality in the pursuit of their goal of selling more units.
If the powerful few can only get richer by selling more products at a lower profit per unit instead of selling fewer units at a higher profit per unit, then they will reduce prices and increase quality in order to sell a higher volume of products.
If the wolves are prevented from eating the sheep they kill, they will stop killing sheep and will learn to eat carrots.
Of course, the wolves think that is a terrible idea, but they don’t get to make that totally self-serving decision. Acting together, the sheep do.
— David Grace (Amazon Page — David Grace Website)
