Sunday, December 9, 2012

Let the Buyer Beware ... Who Do We Trust? ... Ourselves or the Seller? ... Who SHOULD We Trust?

Free market capitalism is based on a simple but profound truth. When a voluntary exchange between a knowledgeable buyer and seller takes place, both parties to the transaction will see to it that it works to their benefit. When multipled by tens of millions of free and volintary market based transactions each day, this voluntarism is what creates a prosperous society for all of us. This assumes that each party to the transaction is properly informed.

This idea of freedom, voluntarism and acting in our self interest serves as the bedrock of capitalism. It was first described by Adam Smith as the invisible hand of the market in his epic 1776 book "The Wealth of Nations."

The idea of relatively equal power existing between the prospective buyer and seller is straightforward. It's MOM.

Rather than have one party to the transaction, such as government, take one side of the bargain and dictate terms, instead let the market allow free people to decide for themselves what to do or not do with their MOM.

The essence of free markets and capitalism is that the interests of willing buyers and sellers will both be advanced.

But what about market based voluntary situations where "assymetrical" information exists? That is, where one side has better information than the other and takes advantage of the situation?

Well, capitalism doesn't work well when one side is knowledgeable and the other side is ignorant. Or when one party is more engaged and interested in the outcome than the other. Or when one side is too trusting and relies on the other side to make him a fair deal. And that brings us to the all too typical used car salesman story. So I won't bother to tell it sonce everybody already knows it.

But what's the general point that we all can use in our everyday decision making? The point is simply that healthy self interest, self reliance, information, knowledge and MOM rules apply to any market transaction. Make sure you get a fair deal.

Who Do You Trust? describes the overall situation nicely:

"People who sell cars are considered the least-honest, least-ethical professionals, according to a Gallup poll released last week.

They were the only ones to rank lower than members of Congress.

Survey respondents also ranked them below advertising executives, stockbrokers, HMO managers and folks who sell insurance. . . .

Car sales people do not deserve our deepest mistrust. They only want to sell cars. They might try to sell you an overpriced car. They might try to stick you with a shoddy car. But once you know their game, they become very transparent.

Someone who sells you a car is not going to blow your retirement accounts, foreclose your home, deny you medical care, ship your job to China or shove the entire nation over a fiscal cliff.

At least the professionals Americans find the most honest and ethical are nurses. . . . But I still don't see why nurses are trusted more than pharmacists, who ranked second in the survey, and doctors, who ranked third.

Nurses and pharmacists are mostly going to do what doctors tell them, and doctors are mostly going to do what pharmaceutical-industry reps suggest over golf and dinner.

Engineers, who ranked fourth, are far more trustworthy than those in the medical profession. If they lie, we find out when it crashes.

Next in the rankings come dentists, police officers, college teachers, clergy, psychiatrists and chiropractors. I find it alarming that people trust dentists, who drill teeth, more than shrinks, who reassemble entire personalities. And I don't know what to say about a society that trusts cops more than clergy. But then we come to bankers.

The honesty and ethical standards ranking of bankers has skyrocketed from its depths following the 2008 financial crisis and ensuing bailouts. Twenty-eight percent put bankers "high" or "very high" on the scale—up from 19% in 2009. And they are ranked a full peg higher than…journalists. . . .

Ranking lower than journalists were business executives. . . .

Next come state governors. . . .

Next come lawyers. No one trusts a lawyer until they need one to sue somebody they should have never trusted in the first place.

The survey overlooks the fact that there are honest and ethical people in every profession, even car sales. If I had to rank anyone at the bottom, it would be people who begin sentences with the phrases, "To be honest," and "To tell you the truth."

This implies everything else they have said is not the whole truth. These are the people who cannot be trusted."

Summing Up

Free markets exist when free individuals are empowered to decide for themselves whether to enter into voluntary transactions with other people who also are free. Economic freedom and political freedom are joined at the hip.

It's no coincidence that we are the most free and most prosperous nation in the history of the world. It's all about free people and free market capitalism.

Caveat emptor. Let the buyer beware. Information rules. Do your homework.

Or as President Reagan said, "Trust but verify."

We need to trust ourselves, do our homework, become knowledgeable and then make rational reasoned choices about MOM.

If we do that, car salesmen, stock brokers, realtors, bankers, lawyers and politicians of all stripes will rank the same with us when it comes to honest dealing.

We'll have made the critical distinction between MOM and OPM, and we'll know that free markets will work best for us and our society at large.

So let's limit our government and maximize our individual learning.

Self reliance works best, and self reliance requires knowledge.

Thanks. Bob.

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