Saturday, April 18, 2009

Cut Out the Middle Man

Even in biblical times, they recognized the dangers of people making a living on derivatives and speculation. They were called "the moneychangers". In most Muslim countries it is illegal to loan money with an interest rate. Finally, in America many have been brainwashed to think people who handle money should make a lot of it.

Banks, insurance companies and the financial sector in general, are not real contributors to the GNP except possibly for their consulting and training services. The banks spend a ton of money advertising to appear to have a value greater than they deserve. Since all the successful banks do this, they simply pass on these costs to the consumer. Their marketing costs and profits are an inefficiency the world can no longer afford. Insurance companies were originally created to spread risk among members of a "group". Now they simply charge more to people who are at higher risk, defeating the purpose and they advertise, another inefficiency we pay for without any benefit.

Letting these industries operate as profit seeking ventures is like letting the accountant in your company keep all the profit and pay the CEO and others just enough to subsist. It is the tail wagging the do. Speculators are no longer dependable investors. Their money is daytraded and hedged to the point they destabilize markets and in some cases literally cause the fall of certain companies.

We are all now familiar with the recent practice of selling something twice, in the form of packaged derivative products. A bank sells a loan, derives interest, then additionally packages several loans, then sells stock in the performance of the collective package. The ultimate pyramid scheme. All of the money they make is money we could spend on improving the quality of life. All of these services are necessary to all citizens, therefore would be a natural fit for government administration.

Here are a few examples of how government can and does provide these services with near perfect efficiency. Medicare, whose administrative costs are 1%, outperforms its private counterparts by a full 29% as they don't have to advertise or pay out profits. Banks are allowed to issue loans guaranteed by the government, yet they charge healthy interest rates for these services. Direct lending to student and even small businesses cuts them out and saves unnecessary marketing costs and profits.

In many other countries, even if these sectors are private, they are highly regulated because they are considered a "trust", and entity entrusted with performing public service with guaranteed profits. It is truly amazing that Americans have justified private medical services and insurance to pay for it when they somehow consider the protection of property form fire or crime, a government responsibility. Everyone has health needs, some more than others, and none can be blamed for their health as if it is a choice. Why is it the public spreads the cost of police and fire departments among us all according to our income, while those services to protect your health are meant to be profitable?

Yes, doctors should make a good living, but once they have recovered their $100,000+ investment, why should they continue to become wealthy? Every company has an initial capitalization, but no other is guaranteed such returns. They are treating life and health as a commodity. If you can't pay their ransom, you die. This is why countries like Costa Rica, where there is no need for private medical insurance or doctors, can afford to provide quality health care even though the average income is $300 a month. A doctor lives well in Costa Rica. His education is paid for by the government and he is a public servant. A doctor of medicine and a doctor of philosophy are paid the same in government institutions. And they have no problem attracting enough people to the professions of medicine and education. We have something to learn from them.

Imagine how cheaply we could provide quality health, education and banking services, if the government simply acted as a conduit with no profit motive, only the goal of maximizing health, education and money management. All of these have become privatized and more are becoming so.

Even the military has been outsourced to contractors in Iraq for $100,000/year instead of $15-30,000/year for their government counterparts. The result, explosive war costs. Coca Cola and other beverage companies are in the process of privatizing water; yes, Coke is mostly water provided at a very low cost by the government, then sold back to people in bottles that will pollute forever. In Darfur and many other third world nations, companies like Coke take enough water out of the water table to dry up wells in the highlands. People have to migrate to the valleys and they are literally warring over water.

What is next? Let's reverse the trend and let the government manage those things that all of us must have to survive and thrive.

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