Younger readers will not be familiar with the term.
In years past, small factory or mining towns, dominated by one major employer, would often pay the employees in scrip redeemable only at the company owned store.
Of course, they abused their monopoly pricing power, and held the hapless employees in thrall to their meager, overpriced menu of goods.
The solution is to have multiple producers vying for the customer’s dollar, to ensure lower prices and higher quality.
The company store is making a comeback. With a vengeance.
Think of the post office. Then think of Amtrak. Then extrapolate these thoughts to the much larger markets of home mortgages and college funding.
Then…be afraid. Be very afraid.
As a result of the 2007-2009 meltdown, we now have Uncle Sam as the virtual monopoly provider of home mortgages. Well over 80% of all loan originations are now guaranteed by the government, and the percentage is still increasing.
The firms we think of as loan originators are simply agents who have been subcontracted out to do the grunt paperwork. They can earn a profit from originating and servicing loans, but bear no risk. All risk is carried by the clueless taxpayer.
Ditto for student loans. Private lenders have fled this market, and are not likely to return. So we’ve nationalized and socialized virtually all college loans.
These are not just two random markets.
The three largest expenditures most families incur are: home purchasing, college loans, and health care expenses.
Naturally, the full might and weight of the imperium in Washington is now focused on health care, so that they will then have a chokehold on this last redoubt.
What distortions are created by having monopoly providers in these areas?
- Capital will be disproportionately diverted to residential real estate, at the expense of far more productive investments…due to the subsidized rates and ironclad guarantees.
- College expenses will continue to multiply at more than twice the core inflation rate, since demand will be artificially inflated and stimulated by the indiscriminate funding of anyone who can fog a mirror.
The result will be a generation of walking wounded graduates, carrying the equivalent of a luxury home mortgage when they graduate, but with no house securing the mortgage.
This will have implications on relocation, employment, marriage and family.
Your whole life, in other words.
We will, in effect, forever impoverish our children with a crushing debt burden.Neither housing or education will respond to the normal ebb and flow of supply and demand. By continuously goosing demand, we ensure both the scarcity of supply, and shoddy product offerings that could not survive in a state of equilibrium.
Be very afraid.