My college students have grown up mostly unfamiliar with the concept of the “free market.” For their lifetimes, markets have become heavily regulated. They have rarely had the pleasure of a voluntary trade between two people who have created value and want to enter into an exchange to increase the value even more.
Such transactions also enhance the dignity of both parties when they have approximately the same knowledge.
I don’t remember this, but I wouldn’t be surprised if my siblings would testify that when we were young children, we had trades where I gave them a nickel and they gave me a dime. They assumed the larger coin was more valuable.
But since I was older, I had greater information and knew the smaller coin was actually more valuable.
The primary challenge of markets throughout history has been uneven information between trading partners. Centuries ago, one person selling grain could make the scale unfair, and take advantage of an unsuspecting customer.
Today, we are faced with a surprising paradox. Never before in history has information been available to ensure both parties — especially the underprivileged — in an exchange are informed. But we have placed more and more regulations on markets.
Guess who loses most when such regulations are imposed? The poor.
The well-to-do have the ability either to influence the regulation to their advantage in the first place or use the regulation to their advantage in a transaction. It is no coincidence that income inequality has increased as government has taken a larger share of the economy out of the marketplace.
Some companies, using the Internet, are shining a light on these regulated markets that tend to be in the dark, meaning you have to take time and resources to learn about them.
For example, many of us have bought or sold a product on eBay. The website has greatly reduced the cost to the buyer and the expense to the seller in a fair transaction. How does the buyer know the transaction will be fair? Because previous buyers have “told on” any dishonest sellers who either had to become honest or people stopped buying from them.
The poor can participate equally as either buyer or seller on eBay, although they may need to use a computer at the town public library or other location.
Uber has really blown up extreme regulation that has hurt the poor. In New York City, for example, if someone wants to become a taxi driver, that person must purchase a “medallion,” which costs at least $700,000 today.
That clearly isn’t affordable for most people. The poor can never afford one and are forced to become laborers for taxi companies who dictate the hours they work and many other conditions of employment.
Then along comes Uber, allowing anyone the opportunity to start a driving business. Uber drivers can choose their own hours and work as much or as little as they like. Passengers find out through Uber whether the drivers are safe, honest, and reliable. Drivers find out the same about potential passengers.
Uber passengers can have the nearest available driver rush to them, usually at a far lower cost. Incomes and flexibility rise for drivers. Hillary Clinton’s economic advisor Alan Krueger recently published a study finding that Uber drivers “averaged more than $19 an hour in earnings, compared to $12.90 in average hourly wages for cab drivers.
This should be a no-brainer, right? Unfortunately, regulation always creates an entrenched group of people who unfairly benefit from the regulation, and lose their advantage if the regulation is eroded. It’s painful for those who have had the unfair advantage to lose it, but it is the overall right thing to do for society.
The operation of the Internet itself is an extremely good example of a relatively free market. Almost no regulation governs the iInternet and we all benefit from that, even if we each wish it had our favorite regulation. Craigslist, Angie’s List, and my personal favorite, Priceline, are all examples of businesses that operate in relatively free markets.
True information is a good thing and only enhances the quality of transactions and the dignity of those voluntarily trading value-for-value with each other. Relatively free markets provide the greatest opportunity for the poor to improve their situation and move into a higher income bracket.
Eric Dent is a business professor at Fayetteville State University who lives in Lumberton.