America's Economic Problem: We've Overvalued the Middleman

When I held a job not long ago in education, I was quite excited at the opportunity. I had, at one time, acquired a great number of older computers in the hopes they could be applied in the education sector. After all, I was constantly hearing complaints about how poor school districts were, and how they were struggling on barebones budgets.

I didn't spend much time there, but I did spend enough time to find out that just isn't true. The truth is, there's a boatload of money out there, especially for rural schools and schools with high free lunch program participation.

I was then excited about the possibility of using my thrifty approach to spread the school's dollar further. Unfortunately, once a vendor knows you work for a school district, they get dollar signs in their eyes. I distinctly recall a vendor trying to push off computer models that were nearly 6 years old for $300 per unit. When you can get a reliable new machine for under $500 per unit, that's really not a spectacular deal.

But as I looked at the vendor relationships, I began realizing the key role the middlemen played in the business transactions. And that there were aa llot of them, many layers of folks dipping their hands in the till somewhere between the vendor and us. And I realized it's happening in a lot of industries, notably healthcare.

The problem we have is that the people who get paid the most are the people who do not actually PRODUCE anything. They certainly provide a value added service in expanding the market for a particular product, and moving that product. But they simply aren't worth the price they're asking.

I have worked, for instance, with resellers. Consignment stores and resale shops definitely provide a value in getting items to the market. But their margins, once in the 10 to 15% range, crept upto 25%. Even at 25%, it was still a value, as it saved me the hassle of finding a buyer for my goods. But after a "revelation" when they travelled to a larger city where commissions were 65%, they increased their commissions to 50%.

Now, some people may feel this is a good idea, but it doesn't work for me. If you pay me 50 cents on the dollar or less for the items I'm selling, well, then, I'll skip the middleman, sell it at 75% of my planned asking price, and save the buyer a bit while making more for myself. The middleman is just not worth that much.

And we've seen the trend in the current economy. While workers' wages have been stagnant, the wages for middlemen have increased. A business degree is still considered a "hot" degree despite an apparent overabundance of business majors. And it often seems that for every person doing the work, there are two or three people moving money.

I don't think middlemen are without value; they've certainly created a broader market with greater potential. But they've greatly increased the demands on returns on their investment to unrealistic and unsustainable levels. Until we get back to realizing that the wealth of a nation is in the workforce, not on wall street, this problem will not get better.