the half-truth of the basic economic transaction

[unblock]

the real problem in our understanding of the workings of the economy is that the basic economic transaction -- two people voluntarily exchanging goods and services at a price satisfactory to both parties -- conceals that the actual price may be far more advantageous to one party over another.

and this price advantage invariably goes to the more powerful party, meaning big corporations, wealthy individuals, and otherwise powerful entities.

to illustrate, consider the consumer willing to buy a widget for up to $10, and a giant corporation able to make a profit if it sells a widget for at least $2. the free market idea is that they will agree to a price somewhere in between $2 and $10, and both parties will be better off, so the trade will happen and it is a "good thing".

and this is the basis for the argument that unfettered capitalism is an unambiguous and universal marvel, and how dare any government interfere.

but this conceals the implications of where the actual price ends up. one is left to imagine that the agreed price will be exactly in the middle, at $6, so each party profits by the equivalent of $4.

in reality, the big corporation spends millions ensuring that they know exactly what prices customers are willing and able to pay, and they take full advantage of this information. in this case, they might set their price at $9.50, so that they have a huge profit of $7.50 per widget. the customer will still profit by the equivalent of $0.50, so it will relucantly proceed with the trade, although none too thrilled about it.



this is the reality of capitalism in america. the powerful are able to become quite wealthy through large profits in each and every trade. the powerless squeak by, the land of opportunity presenting them with only lame choices that merely marginally improve their lives.

winning some sort of lottery seems to be the only way for the powerless to really break out. and when i say "lottery", i mean to include not just the government total luck lotteries, but also the athletic lottery, the entertainment lottery, and so on -- those magic tickets to wealth and celebrity that requires not only (in most cases) a crazy amount of talent and effort and dedication, but also a huge amount of luck.



unless and until the playing field is LEVEL, commerce continues to concentrate wealth into the hands of the already rich and powerful.


economic theory claims that in the long run, excess profits will lead to competitors coming into a lucrative industry and bidding down prices and profits. but again, the reality is that this does not really happen as much as one is led to believe. why? because the powerful, entrenched businesses spend a good deal of money erecting barriers to entry or buying up competitors or otherwise using their wealth to deter or prevent real competition. again, unless and until the playing field is made LEVEL so that legitimate competition can take place, once again, the wealth will continue to concentrate into the hands of the rich and powerful.



so don't let anyone tell you, based on faith alone, that free markets automatically work wonders. i am fundamentally a capitalist, i believe in letting people decide for themselves how to allocate their money. BUT, i am fully aware that this model only works properly, and only achieves the stated goals, IF there is an active government ensuring that buyer and seller are on a level playing field and that strong, serious, constructive competition is encouraged by all.

our economy is sorely lacking in such fairness, and until this is fixed, we will continue to have one crisis after another, and the poor will continue to suffer.

[postulater]

1. When you come right down to it, economics really starts right there.

[Prophet 451]

2. Well put

The power in any economic transaction is always with the manufacturer or supplier due to this.

[unblock]

3. it's with the more powerful entity. look at wal-mart vs. its suppliers

wal-mart makes a ton of money by screwing its suppliers because it's far more powerful than virtually all of its suppliers.
they are notorious for finding many, many arcane excuses for accepting a delivery of supplies and then shorting payment.

down to the point where if your truck arrives EARLY the dock you, and if the goods on the truck are stacked in the wrong order, they also dock you. their excuse is that this mucks with their just-in-time inventory system and so they basically fine the supplier until they get it right or go bankrupt trying.

you would be AMAZED at how many small suppliers think they've hit the jackpot when wal-mart picks them and places an order for 3 times their total sales, only to go bankrupt in a matter of months when they get the logistics wrong and wal-mart pays them next to nothing.

wal-mart doesn't care, they just pocket the profit and move along to the next supplier.


of course, wal-mart screws their consumers in a similar fashion. they're one of the few companies out there that has both near-monopolistic power (one of the few choices for consumers) as well as near-monopsonistic power (one of the few choices for suppliers).

[Prophet 451]

4. I stand corrected

I was thinking in terms of capitol vs. labour (where power always rests with the person offering the job) but you're right, that was too limited a reference.

[ThomWV]

5. Your premiss is as flawed as your title - making this jibberish from the start.

You talk about the failure of the "basic transaction" and then you completely mis-characterize it. You omit the single factor that makes it a basic transaction and then base the rest of your argument on that failed beginning. What you describe is a monopolistic situation, one in which there is no competition among sellers - all of whom are presumed to be able to produce for the same price. So if you got the groundwork for your argument dead ass wrong there really isn't any reason to read the jibberish that follows.

[unblock]

6. nonsense. there's plenty of room for a power differential well short of monopolistic status

perfect competition would imply something like a $6 stable price, where buyers and sellers "profit" equally from the transaction.
but even if the power differential is only slightly in the seller's favor, the stable price would be $6.50 or $7.00 or whatever. the stronger party profits more.

this is the reality of the basic economic transaction, unless you've completely drank the kool-aid. ok, maybe you need near-monopolistic status to get all the way up to $9.50, but that's missing the point. the more powerful party has an edge in negotiation, and that only serves to increase its power and its edge in future negotiations.

only genuine competition and a level playing field counters this -- something that nearly every big business works really hard to stifle and foil at every turn.