There are two economic concepts that get little public attention but make a significant difference on our lives when our domestic policies embody them. If as voters we used these two concepts as standards for judging the policy proposals of candidates, we would find marked improvement in our daily lives.
The first concept is that of voluntary trade.
Trade can either be voluntary in nature, or zero sum. We encounter voluntary trade every time we go to the store and buy something.
A voluntary trade is one in which both parties gain an individual benefit from making the exchange. A person who selects a TV at an electronics store and purchases it is gaining a TV that is more valuable to them than the money they spent on it. Of course, voluntary trade requires both parties to benefit, so the equation has to work on the other side of the transaction as well, and in this example it does. The TV seller finds the customer’s money more valuable than the TV he or she sold. Both parties, the TV buyer and the TV seller, engaged in a trade that made them both better off according to their own perception, or brought both of them value.
The robust and world-leading American economy is built on voluntary trade. Consumers can engage in purchasing what they choose at a price set by market economics, and people are equally free to enter the market and sell goods at that same price. The combined added value of all of these exchanges grows wealth in our country and this basic concept drives our standard of living, or country’s GDP, and our individual finances. This is free market economics!
The second concept is that of open information.
Consumers must be able to truthfully know and understand the products they are purchasing to determine whether the product will actually bring them value. Value added trade is about individual perceptions of value on both sides of the trade, but it doesn’t work if those perceptions are based on untruths. A consumer who bought a broken TV wouldn’t be gaining the value they thought. Thus, the two concepts go hand-in-hand.
Simple, right? So why are they so important for us to consider now?
Well, America’s two parties increasingly find themselves divided over the applications of these concepts in our domestic policy.
For example, there’s some chilling discussion from Democrats about enacting policies that target wealth holders and redistribute that wealth elsewhere in society. This type of forced transaction is an example of the other type of trade I mentioned previously: zero sum. If the government were given authority to do this, money held by an individual would be taken at their complete cost and given to another at their sole value. Thus defines zero sum: the amount taken from one side is the same amount gained from another. There is no added value in the transaction.
If the Democrats truly cared about making everyone in society wealthier, they would reconsider their approach. No amount of zero-sum wealth transfers can ever accomplish this because nothing is created in the process: wealth is simply diluted until everyone has a minimum. The left’s whole approach to “income inequality” is horribly misguided. Policies shouldn’t demonize wealth or profit – they should seek to encourage new wealth creation. The government’s best course of action is to get out of the way and let the free economy do what it does best: create more wealth for more people.
Only Republicans seem to recognize the creative power of the market. Democrats want government to act in its place.
When the government is large enough and directed to act as the marketplace, society immediately sees losses in the second important economic principal: open information. Consider the costly American healthcare industry. Consumers lack the ability to know the true price of goods and services and to shop around for the best deals.
The government-supported insurance industry has riddled our healthcare market with regulations that keep information from consumers. The true cost of a basic healthcare staple is hidden or obfuscated by design, and the service cost of a doctor or provider is often only advertised to the consumer after a procedure, when the bill is already due. If we can’t shop around, we as consumers have no idea what value one hospital or doctor brings to us over another, so we can never make the industry work for us as it should. And, considering most of our payment is made by a third party (our insurance company), we’ve also lost the ability to do our own bargaining. Prices remain artificially high.
Bravo to the Trump administration in November for tackling this issue: a new November directive requires hospitals to disclose prices negotiated with insurers and health plans to consumers. This requirement will allow for consumers to be more knowledgeable about what they are paying at a hospital, potentially shop around, and inject desperately needed price-reducing competition into the industry. Open information that leads to more voluntary decision making is what will fix our healthcare system and make it more affordable to more people.
Take any given issue faced by society and consider how these concepts make an impact when applied. Environmentalism: the more a consumer knows about a product they are purchasing, the easier they can select the one that is produced in an environmentally friendly way, which is a characteristic that has value to many modern consumers. Education: the more choice a parent has in where to send their child (or the more voluntary the decision) the more parents can spur schools and school districts to compete in higher quality education and better-paid teachers.
Voluntary trade and open information. The concepts may seem so simple we take them for granted. Yet, an informed voter base must insist on policies that reflect the greatest potential prosperity for everyone.
Bryan Griffin of the London Center for Policy Research is a lawyer and author who specializes in American policy in the Middle East.
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