One of the most destructive misunderstandings in economics is the idea that markets are inherently "consensual" - i.e., that everything people do in the absence of government-based coercion is a "free" decision, and thus entirely the responsibility of the individuals involved.  This could not be further from the truth under the vast majority of circumstances, and in fact the typical model of a market exhibits degrees of coercion based on unequal bargaining power that overwhelmingly favor businesses and employers over consumers and workers - often to the point that consent is effectively nonexistent.  Your options are reduced to agreeing to the terms set by businesses, or else simply doing without whatever is being sold or offered due to the absence of viable alternatives: A situation where, as far as practical necessities are concerned, the "choice" is no freer than between giving an armed robber your money or taking your chances by fleeing or struggling.

I.  Economics background

We all hear the term supply and demand to describe the forces that guide a market, and learn in school that the balance of these two competing but complementary impulses are how wages and prices are established.  What is rarely explained, however, is that these terms have nothing to do with how many people demand or supply something, or how motivated they are to seek or offer it - only how much money is behind them.  At the extreme - which is a painfully commonplace occurrence in reality - if one person has $100 million in discretionary income, and a million starving people each have $1, the market interprets that one person's idlest hobbies as involving greater Demand than the million's attempts to seek food ($100 million vs. $1 million).

The resources of the marketplace are then allocated accordingly: Far more money to provide golden toilet seats and platinum toothpicks for 1 person than to provide food to a million people, and the ratio would be even starker for all other goods and services.  And since money sunk into luxury goods overwhelmingly goes to material costs and rarefied sectors of highly skilled labor, the resulting employment and alleged "trickle down" effect is a trivial percentage of what the same resources allocated to the needs and desires of the majority would produce.

But it's even worse than it seems at first glance, because even if those million people each had $100 to spend, and thus collectively had the exact same amount of money as this one super-rich person, the market would still overwhelmingly allocate resources to providing the latter with luxury goods rather than the former with anything at all.  Why?  Because the people with $100 each individually still have little or no bargaining power - their purchases are still dictated by necessity, and the number of consumers and workers vastly exceeds the number of suppliers and employers, so in the absence of large numbers of them bargaining collectively what happens is simply that suppliers are able to set a price or a wage that extracts that surplus from them permanently.  

The one super-rich person, however, has maximum bargaining power because none of their choices are dictated by necessity, none are limited by time or geography, and the entire range of possible options are at their disposal, meaning that suppliers must compete for their business.  And because they almost certainly own businesses themselves, the same bargaining power imbalance that extracts wealth from the vast majority of people transfers it into the hands of this one person.  In other words, it may be a cliche by now, but "the system is rigged."  No one has consented to a state of affairs where every option at their disposal results in their losing ground economically to those who are already privileged - they're simply given no alternative by the market.  Markets just inherently redistribute money to those who already have the most of it, which is why they fail to benefit society when put in the driver's seat, and why we must reassert the prerogatives of the majority to an economy that serves us rather than forces us to serve the few.

II.  Bargaining Parity

However, there is a very special, theoretical case that is relatively unusual in practice in real markets where consensual transactions do occur, and one that policies should be designed to promote.  When all parties to a transaction have more or less the same bargaining power, with no great advantage on any side or with the advantages being balanced out, then and only then does the marketplace produce mutually beneficial arrangements.  Because then, and only then, no side is able to put their finger on the scale and set terms that result in a zero-sum transfer of wealth.  This theoretical case is the basis for things like buyer's clubs and labor unions, although even their most powerful private-sector instances fall far short of granting their members parity with the businesses they negotiate with - it's just somewhat less to their disadvantage.

To achieve rigorous bargaining parity in such a way that the overall marketplace serves the needs of society requires a legal and regulatory framework that mandates it.  Not being an economist, and not wanting to wade into the quagmire of regulatory minutiae that would make such a thing possible, I'll leave the details to people who would be qualified to establish them - but we as educated laymen can at least state the clear fact that such a system is needed, in addition to a rigorous social safety net and public sector services.  

III.  Brainstorming Solutions

Still, some broad outlines can be reasonably drawn:

1.  Establish official labor pools that businesses must negotiate with in hiring, that are sized to achieve bargaining parity on whatever the relevant metrics are.  So, for instance, a small business wouldn't have to negotiate with a national labor union - only with the subset pool just large enough to have the same economic power, but something like Wal-Mart would basically have to negotiate with every single retail worker in America collectively.

2.  Attempt to equalize time-constraints on contractual negotiations so that both sides lose equally in a failure to reach agreement.  In other words, compensate for the much greater urgency of workers to reach an agreement than employers.  This is necessary for bargaining parity to exist, and can be achieved by any number of diverse means.  Just brainstorming: Requiring that "strike insurance" policies and operating loans be granted to both labor and business on equal terms, counterbalancing cash supplies used to tide over a business in lieu of a contract by providing the labor side with matching funds, etc.

3.  Establish a step-by-step process for forcing the commoditization of industries that have persistently exercised bargaining advantage over their consumer base beyond the point justified by fixed costs and technological innovations.  For instance, there's no excuse for perpetual cable, telecom, and broadband monopolies after they've recovered their original investment in an area and turned a profit, and these days companies like Comcast largely stand in the way of innovation rather than pushing it.  To the extent they charge exorbitantly for internet speeds that have become standard throughout the developed world, and just simply deny even the option to large swaths of the country, these companies are compromising the economic opportunities of the majority of the people.

IV.  Conclusion

The way the market is set up in this country, the closest analogy for most people would be a prison camp with no guards or walls, but vast expanses of unsurvivable wilderness on all sides.  Prisoners in such a camp may have a purely theoretical "choice" to leave, and subject themselves to the overwhelming probability of death trying to cross the wilderness to reach food and water, but the fact that this circumstance had to be arranged that way and their place in it coerced in the first place shows that it is in fact a prison.  

Likewise, we Americans never consented to a system where terms are dictated to us by the wealthy, nor would any human being ever consent to such a state of affairs if given a choice, and transactions that take place under such a framework are little different than plain robbery.  Unlike taxation, the "taxes" extracted from the American people by business in the form of unequal influence on prices and wages were never approved by a democratic process or elected authority, and as such have an unsurprisingly erosive effect on the United States Constitution and the liberties of the people.  In order to correct this phenomenon, we must not only focus on public sector programs, but on reorganizing the private sector to harness the potential of the market under proper, consensual conditions.

11:24 AM PT: A good point made in comments raises another possible area of action in promoting bargaining parity: Equality of information.  Worth exploring.

Originally posted to Troubadour on Sun Mar 24, 2013 at 08:51 AM PDT.

Also republished by Community Spotlight, Income Inequality Kos, TrueMarket, and ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement.


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