RE: Greg's ideal -- the 'free' market

[Greg Peisert <gpeisert@jamesgregory.com>]

Margaret;

  Well...(long sigh)...

  I see we are still not communicating. My claim with respect to the free 
market is that it will better address the needs of customers of all stripes 
than government-controls, which almost invariably hurt the people they are 
intended to help. What we have below is a group of bankers who are trying 
to figure out how to better compete and serve their target market. They 
have identified who that target market is, and they are looking for ways to 
focus on those customers, to the exclusion of customers they are not 
interested in. There is no problem with that, and nothing wrong with it. 
You will probably claim that they have some moral obligation not to raise 
the price for "undesirable" customers. Why? They have a right to pursue 
whatever market they wish to pursue. Just like Ford. Just like Mercedes.

  What will happen in a free market is that smaller bankers will find a 
niche market for those customers not served well by the big, impersonal   
banks described below. When the big guy price small customers out of their 
services, the small banks will be able to take advantage of the situation 
and step in and serve those customers. One of the great things about 
information technology today is that it is so cheap and scalable. Small 
guys can "right size" it to make their operations as efficient as possible. 
In some cases, the _customers themselves_ may own the bank, as they do 
credit unions today.

  Every time you get big companies working for a certain segment of the 
market, no matter what it is, from clothing to automobiles to banking 
services, you open up niche markets for other players, and they will move 
in to fill the gaps. If you try to centrally plan and control that 
activity, you end up destroying the opportunity for smart entrepreneurs to 
fill those niches, and the very customers you want to help out end up worse 
off than if you just left the market alone and let it answer the needs of 
the customers.

  Of course, these notions rest on some fundamental assumptions:

1. Customers know better what they want than government bureaucrats
   know what those customers want

2. Entrepreneurs interested in making a profit and competing with
   each other for various market segments, regardless of the segment,
   will figure out innovative ways to improve efficiencies and
   better serve those markets. Robbed of the profit motive by
   government regulations, those entrepreneurs will employ their
   talents elsewhere, to the detriment of the customers they
   would otherwise serve.

3. Whenever a group of companies raises the prices for a given
   segment of the market, it opens up opportunities for
   entrepreneurs to jump in and satisfy the new need. Sometimes
   the customers themselves are the entrepreneurs.

  Free market thinking also relies on the crucial ability to think more 
than one move in advance. The typical government answer is to "knee-jerk" 
the problem, and thereby create new problems with all kinds of unexpected 
consequences. We see it over and over again. Actually, the 9,000 page tax 
code is a perfect example. Here we have a complete mess that has been tuned 
and tuned and tuned to try to force redistribution and keep people from 
taking advantage of the system, and it doesn't work at all. As a percentage 
of income, the poor STILL pay higher taxes than the rich. My claim is that 
it will never work. That's why a FairTax approach that takes advantage of 
market forces is so much more tractable. Anytime you can introduce market 
forces, you end up with a better product. (See for example the recent WSJ 
article on Charter Schools, and how the public schools in places like Mesa, 
AZ are beginning to feel the competition and respond to it.)

  So, I trust the free market to best address the needs of the customers. 
It is only the free market, in all of its vast complexity, that is truly 
sensitive to those needs.

  In earlier comments you seem to equate "free market" with "anarchy" or 
"lawlessness." As I have said earlier, free markets can only function under 
a rule of law, where contracts are enforced and where people are permitted 
to act as uncoerced free traders. I wrote a message to Jamie Love recently 
where I admitted to eating some crow on the Microsoft deal. That situation 
at first smacked of a few Microsoft competitors trying to obtain through 
misguided jurisprudence what they could not achieve in fair market 
competition. The revelations about Microsoft arrogance, the hubris of MS 
executives, in that case, reveals that they were indeed engaged in coercive 
business practices and that the DOJ is fulfilling a proper role in exposing 
and nixing those practices. Those practices are illegal. They must be 
stopped. The playing field must be level, as much as possible, in terms of 
business people and customers being free of coercion or threats. Only when 
the laws are _enforced_ can a free market thrive.

  What I still fail to understand is why these ideas seem so threatening to 
you. One could cite a thousand examples of products today that even the 
poorest among us can afford solely because of free market competition. 
(Another reason it is important to measure wealth on the basis of 
consumption.) Why, in the end, should banking be any different? If you 
trust government, why not trust individuals even more? Why are the 
individuals in government somehow "different" or more "righteous" or more 
"moral" or more "knowledgeable" than individuals anywhere? I submit to you 
that they are not.

--Greg


  "From time to time, we have been tempted to believe that society has 
become too complex to be managed by self-rule, that government by an elite 
group is superior to government for, by, and of the people. But if no one 
among us is capable of governing himself, then who among us has the 
capacity to govern someone else? All of us together, in and out of 
government, must bear the burden. The solutions we seek must be equitable, 
with no one group singled out to pay a higher price." -- Ronald Reagan, 1st 
Inaugural Address, 20 Jan 81. Amen.



On Saturday, February 13, 1999 9:56 AM, Margaret Tarbet 
[SMTP:tarbet@swaa.com] wrote:
> (reposted from another list.  Original source, the banking section
> on msn.com)
>
>
> "You charge them higher fees because you don't want them -- make
> them know
> they're not welcome."
> -- Seamus McMahon,
> First Manhattan Consulting Group
>
>
>
>  Bank Rate Monitor
> Unless you're rich, banks of future may not want you
> In the brave new world, we'll bank by phone and Internet and the
> financial
> institutions will have software up their sleeves to weed out
> unprofitable
> customers.
> By Lynda Edwards, bankrate.com
>
> In the banking battlefield of the future, it's the affluent who will
> survive while the less well-to-do are left behind to cope with huge
> fees
> levied by the few financial institutions that will even offer them
> any
> business.
>
> "You're in a war," John Groman, chief creative officer of Epsilon, a
> marketing software designer, recently told a roomful of banking
> executives
> in Las Vegas. "The battlefield is the Internet. Banks, retailers,
> news
> organizations are moving online fast. Executives that have 100
> meetings
> before innovation -- they'll be destroyed."
>
> ...<snip>...etc...