Nobody likes the person in the middle. Throughout the course of human history, imperfect communication and the difficulties of trade and logistics gave certain peoples the role of intermediary in transmitting goods and knowledge from one area to another. Such cultures sought to find some degree of legitimacy and permanence in inhabiting the spaces in between hostile but interacting realms, able to work between the two sides for one reason or another, whether because they had elements of sympathy or similarity with both sides or a reputation for neutrality or because they were somewhat expendable and marginal in their native environment. Yet such peoples and roles have never been viewed by others with a great deal of enthusiasm, and I would like to discuss why this is the case, at least briefly today.
How are we to best understand the plight of the middleman? Let us consider two examples in our contemporary world. I work with a lot of insurance agents, and such brokers are classic examples of middlemen, or indeed middlemen for middlemen. In the health industry, one has people who want medicare care as cheaply but as complete as possible, and in order to get that service from doctors and hospital staff and pharmacies, they need insurance. Yet this insurance is hard to understand, and so brokers connect people to the insurance companies that provide the product that allows people to pay for their medical care and cover the risk of catastrophic accidents. For their role in serving as intermediaries between customers and insurance companies, these brokers make a living based on the commissions received for the sale, and the level of commissions is commensurate with the value offered–fairly low for individual medical and dental plans, considerably higher for accident and critical illness and life insurance plans.
Are such middlemen legitimate? Yes, they are, largely because of the complexities of insurance care itself. The health care industry is bafflingly complicated on all levels, and this complexity breeds middlemen. Let us not forget that the insurance companies are themselves middlemen seeking to profit off of the desire of people to avoid risk while also burdened with the costs of dealing with routine care, while brokers are middlemen who match individual customers to insurance companies based on what sort of care is wanted and what cost can be paid. There are further middlemen who provide quoting engines to make this matching process more efficient, and so it goes. Even government’s attempted role in shoring up the system as a whole does not simplify the process, but rather adds another layer of middlemen who seek to regulate the entire process. Until and unless there is a commitment to simplification, we can expect there to be quite a few middlemen who are necessary to keep things going at all. A great deal of the costs involved come about because of this complexity, and because insurance may not be the most efficient and effective mechanism at providing for the desire of people for routine health care necessary because of chronic health difficulties like diabetes at a reasonable cost.
But not all middlemen have such an ironclad case for legitimacy. Let us look at another set of brokers, those who provide financial management for investors. In this case, such brokers appear to earn their entire livings at the cost of the customers they purport to serve. At its core, the stock market is not necessarily very complicated in its operations. Corporations have divided ownership of their firms into large amounts of shares, and those shares are sold at markets, and for every seller there must be a buyer. The long-term trends demonstrate that any gain in stock prices ultimately comes from the profitability of operations, as the short-term speculative bets end up a wash. An investor can buy very low cost index funds and ensure an average rate of return commensurate with the market as a whole, and more expensive plans that feature greater amounts of activity do nothing more than earn fee money for the people in the middle. Are such brokers legitimate? The case would appear to be a negative, because the supposed expertise of the stockjobbers and ETF software does nothing more than increase tax payoffs because of gains realized prematurely and lower the return to customers through fees and expenses. If there were a way for experts to demonstrate a superiority in returns to the average market, they would find a way to earn a legitimate place, for at present they are nothing but parasites on the profits of ordinary investors.
And that is the issue that middlemen face in general. To the extent that trading and communication become easy and efficient, goods become commodities sold at low profit margins, and middlemen and brokers have less and less place. Middlemen thrive in complex situations where a great deal of arcane knowledge is required to successfully manage a situation. Dealing with bloated bureaucracies or systems where fawning courtiers can smooth the process are places where middlemen thrive. Areas of study that require large amounts of specialized knowledge like law and engineering tend to allow middlemen to proliferate because this knowledge is not accessible to the ordinary person with ordinary time and interest in such matters. Indeed, the existence of a large body of middlemen enjoying a good lifestyle is a sign that there are large degrees of inefficiencies of some kind in an aspect of life. The legitimacy of the middleman depends on what they offer to their customers in exchange for the use of their arcane knowledge and personal connections. A well-trained guide in a foreign nation provides a worthwhile service to customers. So does a competent and fair-minded insurance agent when dealing with arcane insurance laws and products, or an engineer or architect who allows the vision of the customer to be built. But when middlemen profit at the expense of customers and offer nothing worthwhile, then they attack their own legitimacy and endanger the position they and others like them hold, because sooner or later they will be found out and rooted out for the parasites that they are.