|Do Real Estate Agents Really Add Value?|
I think the events of the last few years have created a time to reassess capitalism and the market economy. We have seen the free market fail and, what puzzles me is the intellectual bifurcation that has occurred as a consequence. Since wide scale socialism is not an option anymore, we appear to have two separate strands of current opinion.
The first ‘believes’ in free markets as the superior system. It accepts that it has its weakness but that ultimately patching up the old ‘T-Model Ford’ with systematic bank bailouts, QE and collectivizing (a funny position for a free marketer to take!) bank and mortgage holders debts is the best policy. These things happen from time to time. Of course, that this position tends to preserve the moral and financial position of the already wealthy and powerful, should not be lost on the reader. Free market competition for all, but not in my back yard!
The second also accepts the system as imperfect but calls for greater equalization in the distribution of wealth created by the free market system. Of course, this view too, is fundamentally flawed because ultimately you need competition over resources and capital to make capitalism work. Creeping collectivization is, after all, more collectivization, not less.
Strangely, both favor increased public spending. The former wants to take on private sector losses and, the latter wants to better redistribute resources or stimulate employment gains. Even more bizarrely, both run contrary to the free market system that they purport to espouse. And they know it.
The Free Market System
What exactly do most people think of when they contemplate a market economy.
Is it Gordon Gekko? Slick haired salesman? Mitt Romney and private equity? Workers being laid off? The developed world losing jobs to the emerging world? Bankers taking the piss with bonuses and, gaming the taxpayer for bailouts?
I’d argue that, in their own way, both of the two groups above actually believe this. You only have to look at the negative advertising of Mitt Romney in the election to see this. You only have to see the emotional resonance of using Michael Douglas to spearhead a campaign against insider trading. The first group secretly celebrates their victory in getting their plaudits and rewards for their ‘success’ back on track. The second group wishes it could be like the first, accepts that it is not, but wants a more equally playing field.
But what of the real argument for a free market system? What of the ability to create social mobility. The ability of labor to command its true worth rather than have it dictated too. What of free trade and the benefits for all of the division of labor? Who really speaks for the free market?
How Free Markets Really Work
Well, I will make a feeble attempt. And, I will give a real life practical example.
It strikes me that we have forgotten why we love and believe in free markets. We love them because principally because they create better pricing and evaluation mechanisms than any other system. Ludwig von Mises and Friedrich Hayek both expertly articulated the benefits of using markets to price production rather than allowing centralization of this problem.
For them, the market is an epistemological device which insures that disparate and often totally unrelated, or even unknown information comes together to create a price. This kind of economic calculation simply cannot be replicated by a central planning body.
To summarize, we favor free markets because they allow for the better flow of pricing information. In a real sense, we could think of how the e-business market is creating more efficient pricing mechanisms as opposed to the information you would have got via walking into a shop.
So far, so good.
Realtors and Real Estate Agents are Anti-Capitalist
They are so, because they often work by restricting the flow of pricing information.
Consider the average
high street. It has five or six estate agents, all of which cover largely the same area. Their fees are largely the same. The price of their properties on show is largely the same. So why on earth are there so many of them? The answer is that owners and buyers like to try and differentiate on price, or rather, like to think they are doing this. They will go to one agent, he/she won’t get the price they want, then they go to another etc etc. Estate Agents like to try and withhold pricing information or rather convince the buyer that they are adding some ‘value’ with their service. London
The reality is that deliberately withholding price information and differential pricing is anti-competitive. In fact, many industries are regulated to specifically insure that this does not happen. It is certainly anti free market and, it is baffling why housing (usually the biggest expense in your life) is not subject to the same regulation.
Nationalize Real Estate Agents
I would argue that the solution is just to ‘nationalise’ estate agencies. One company could be created which displays information on the internet and via one branch on the high street and agents could be invited to work within in it on a commission basis. Buyers and sellers would still compete on price and without the dislocation created by estate agents trying to not disclose market information. Nationalising them, but based on market principles, is actually the best option.
Ultimately, we want free markets because they service us better. Its time we got back to understanding why.