The Wisdom of the Market?

Lately, I've been having doubts about the perfect wisdom of the market. McDonald's comes to mind. McDonald's is the world's most successful fast-food franchise. It's certainly not because of their food. Their food is garbage. You could say that it's because of their speediness and service, but the fact is that every other fast food franchise offers commensurate speediness and service.

So what makes McDonald's so successful?

In a word, marketing.

This is not to say that I believe people should not be free to choose McDonald's if they want McDonald's. What I am saying is that people make objectively value-adverse purchasing decisions all the time. Furthermore, through the tools of influence available to them, companies who make garbage products are able to push them very effectively upon the public. I don't think this should be illegal, but it calls into question the efficacy of the market to address any and all problems. Think of the big media conglomerates: TIME, Turner, etc. They got where they are through the market, and remain where they are due to their ability to market themselves.

Don't get me wrong. I think people ought to be able to buy whatever they want whenever they want. But at the same time, I think there is room for a public sector. The key is judicious use of that public sector. Public agencies should be few and far between, but I think they can exist and be effective. Public and private concerns suffer from the same challenge: how to attain OPM most effectively. Public concerns have the benefit of the law to gather tax money; private concerns have to get by selling things. There are a lot of different ways to turn a profit, and every one of them has its own potential to end up a societal net negative. Innovation and added efficiency are the hoped-for outcomes of the market; both of these things cost money, of course, and the bottom line is always the first priority in any well-run business. If you can convince people the product you are selling them is in fact the product that they want, people will buy it not matter whether it is the ideal product for them. And more power to them. I'm just not sure that this mechanism, as historically imperfect as it has been, is the mechanism through which everything should be dictated.

B-Ran wrote:Lately, I've been having doubts about the perfect wisdom of the market. McDonald's comes to mind. McDonald's is the world's most successful fast-food franchise. It's certainly not because of their food. Their food is garbage. You could say that it's because of their speediness and service, but the fact is that every other fast food franchise offers commensurate speediness and service.

So what makes McDonald's so successful?

In a word, marketing.

This is not to say that I believe people should not be free to choose McDonald's if they want McDonald's. What I am saying is that people make objectively value-adverse purchasing decisions all the time. Furthermore, through the tools of influence available to them, companies who make garbage products are able to push them very effectively upon the public. I don't think this should be illegal, but it calls into question the efficacy of the market to address any and all problems. Think of the big media conglomerates: TIME, Turner, etc. They got where they are through the market, and remain where they are due to their ability to market themselves.

Don't get me wrong. I think people ought to be able to buy whatever they want whenever they want. But at the same time, I think there is room for a public sector. The key is judicious use of that public sector. Public agencies should be few and far between, but I think they can exist and be effective. Public and private concerns suffer from the same challenge: how to attain OPM most effectively. Public concerns have the benefit of the law to gather tax money; private concerns have to get by selling things. There are a lot of different ways to turn a profit, and every one of them has its own potential to end up a societal net negative. Innovation and added efficiency are the hoped-for outcomes of the market; both of these things cost money, of course, and the bottom line is always the first priority in any well-run business. If you can convince people the product you are selling them is in fact the product that they want, people will buy it not matter whether it is the ideal product for them. And more power to them. I'm just not sure that this mechanism, as historically imperfect as it has been, is the mechanism through which everything should be dictated.

Im kinda going through the same thoughts. My brother just got involved with a pyramid scheme, (although he doesnt think it is) and he wants me to join. I know there are some people who can make lots of money off these things, but in the end, I dont like the idea because it is not profitable to the American economy. I wouldnt be producing anything or providing a service for anyone. I would be involved in a scheme to sell things for a high price, get other people selling the expensive things and not benefit the economy. Some businesses prey on the stupid.

B-Ran wrote:Lately, I've been having doubts about the perfect wisdom of the market. McDonald's comes to mind. McDonald's is the world's most successful fast-food franchise. It's certainly not because of their food. Their food is garbage. You could say that it's because of their speediness and service, but the fact is that every other fast food franchise offers commensurate speediness and service.

So what makes McDonald's so successful?

In a word, marketing.

This is not to say that I believe people should not be free to choose McDonald's if they want McDonald's. What I am saying is that people make objectively value-adverse purchasing decisions all the time. Furthermore, through the tools of influence available to them, companies who make garbage products are able to push them very effectively upon the public. I don't think this should be illegal, but it calls into question the efficacy of the market to address any and all problems. Think of the big media conglomerates: TIME, Turner, etc. They got where they are through the market, and remain where they are due to their ability to market themselves.

Don't get me wrong. I think people ought to be able to buy whatever they want whenever they want. But at the same time, I think there is room for a public sector. The key is judicious use of that public sector. Public agencies should be few and far between, but I think they can exist and be effective. Public and private concerns suffer from the same challenge: how to attain OPM most effectively. Public concerns have the benefit of the law to gather tax money; private concerns have to get by selling things. There are a lot of different ways to turn a profit, and every one of them has its own potential to end up a societal net negative. Innovation and added efficiency are the hoped-for outcomes of the market; both of these things cost money, of course, and the bottom line is always the first priority in any well-run business. If you can convince people the product you are selling them is in fact the product that they want, people will buy it not matter whether it is the ideal product for them. And more power to them. I'm just not sure that this mechanism, as historically imperfect as it has been, is the mechanism through which everything should be dictated.

People choose. They do not always choose the choice that is best for them in 5 years or 10 years or 5 minutes, etc. However, it is people who are choosing what they find most valuable. Sometimes people are wrong about the assumptions that they make about a product that they are buying (like assuming that a Big Mac is good for your figure). However, people choose what they find valuable at the time. A market is made of of many people making choices to buy, trade, sell, consume, produce, etc. all at the same time. When people are choosing what to do in the marketplace, they are making choices that they believe will benefit them. Of course, they will not always make a choice that you or I agree with, but economics is not the arena to question someone's personal tastes or preferences.

Here is the beauty of the market: In order to get ahead and be able to profit, you need to have enough consumers agree to trade you money for what you trade them. Yes, sometimes those products can be misleading. For example, the Water4Gas kit... just kidding... I am not going there. But of course, when making a purchase, a trade, a sale, etc. each individual will not be omniscient. However, the more informed they become, the more profitable their transactions in the marketplace become. Ultimately, it is the individuals that are deciding what is most profitable for them.

So, while McDonalds might not align with my values right now, I might be in a rush to church on Sunday and desperately need a bite to eat before I get there (this happens almost every Sunday). Suddenly I value McDonald's and their sub-par breakfast food enough to fork over a few bucks to eat breakfast. The fact is, to me, they provided a service that I would not have if it were not for the marketplace (not to mention, buying from McDonald's is cheaper than I can buy elsewhere).

The same "lack of wisdom" can be said about many other products and services. However, if no one found value in the products and services, there would be no more profit made from such items.

Ultimately, central economic planning fails for two main reasons. I am sure you have heard of the first major problem that was discovered within Socialism: Motivation. I don't need to say more about that problem, as I am sure that you are all familiar with it. The second, and more important problem is that there are not market prices within socialism. Without market prices, optimal allocation of resources is impossible. Knowing if a department is profitable is impossible.

Side note: I am not claiming that everything ever needs to be run by the marketplace. I do not think that jails or the police department should be run by a company, for example. However, there are many departments in our government that could be eliminated and taken care of by the market.

While we have looked at the McDonald's and ponzi schemes, and realize that we might not find their products valuable. In fact, sometimes companies (such as those who promote ponzi schemes) who intentionally are deceptive and sell worthless services or products by promising something that is not true about their product. I realize that the market is not going to be perfect. However, the market rewards those who are knowledgable consumers. I also realize that the market has brought more innovative, more productive, and more valuable goods and services to the table in the last 100 years than central planning ever has. For example, the automobile, the airplane, the personal computer, television, and on, and on, and on. Not only has the marketplace produced these inventions, it has also improved these inventions to what they are today.

Two companies that take a lot of heat from whack-o's are Microsoft and Wal-Mart. Realize, that every transaction that has taken place at Wal-Mart from the beginning of that store, has been a voluntary transaction. Every customer that has walked out of those doors with a shopping cart full of groceries, tools, toys, whatever, has found it worth it to give their dollars to Wal-Mart for those items. The same can be said about Microsoft. Anyone who has bought Microsoft products had chosen that Microsoft was worth it for them to buy (whether it be in a bundle or a stand alone Microsoft product). This says a lot. These two companies have made it to the top of their market segments because of one reason: customers found it valuable to do business with them again and again and again.

You know why word of mouth advertising is the best form of advertising? Because you usually trust people who you know more than a person on TV. This makes sense. If my friend has been to a restaurant and told me the food was sickening, I probably will never eat there in my life (unless I know that my friend has messed up taste). If I hear a good recommendation from my buddy on a movie, I will be much more likely to check it out. Word of mouth has always been and hopefully will always be the primary form of advertising.

The market might not be the savior of mankind, but it surely is a great thing. I do not think it can solve all of our problems all of the time. However, the free market allows for each person to make their own decisions about what they value while rewarding those who meet others' needs.

The Brain Train wrote:Im kinda going through the same thoughts. My brother just got involved with a pyramid scheme, (although he doesnt think it is) and he wants me to join. I know there are some people who can make lots of money off these things, but in the end, I dont like the idea because it is not profitable to the American economy. I wouldnt be producing anything or providing a service for anyone. I would be involved in a scheme to sell things for a high price, get other people selling the expensive things and not benefit the economy. Some businesses prey on the stupid.

Yeah, there are a lot of scams out there. I don't think I would have the same problem with the scam as you would... but I still wouldn't do it. I don't look at my business transactions and try to calculate whether or not my transaction is good for the American public. Instead, (as long as its legal and moral) I look at how it benefits me. Most of these scams end up with the last people to join the scam losing money. That would be my problem with it. Plus, I wouldn't be able to sell something that I don't believe in.

I agree with everything you said, Enron. It is for those exact reasons that I am not a socialist.

Interestingly enough, I think democracy has a lot of the same attributes as the market. And, just like the market, democracies can get out of hand when people stop taking a real interest in how their government is doing at providing the services that it ought to be providing. A lot of the things one can say about McDonald's can be applied equally to government: adjectives such as megalithic, bloated, omnipresent, and unhealthful all come to mind. Interesting parallels abound.

I'm going to mull that over for a while. It seems important.

B-Ran wrote:I agree with everything you said, Enron. It is for those exact reasons that I am not a socialist.

Interestingly enough, I think democracy has a lot of the same attributes as the market. And, just like the market, democracies can get out of hand when people stop taking a real interest in how their government is doing at providing the services that it ought to be providing. A lot of the things one can say about McDonald's can be applied equally to government: adjectives such as megalithic, bloated, omnipresent, and unhealthful all come to mind. Interesting parallels abound.

I'm going to mull that over for a while. It seems important.

I agree with most everything you are saying too. The only thing that I want to point out is that a fatty Big Mac isn't necessarily a bad thing. It is a choice for people to choose from. Eating Big Mac's has positive and negative consequences, but I can't say with authority whether or not it is the right choice for someone else. Even if they are going to get fat and die from only eating Big Macs, maybe the joy that they get from those burgers makes it worth it for them.

It is funny though to see the comparisons between McDonald's and the government. Luckily McDonald's is only involved in voluntary exchange. Still, there are some interesting comparisons.

True, democracy (or really a constitutional republic), can be lost through apathy from the public the same way that good products could be lost through poor consumerism. However, if consumers want to be lazy, it is their right to choose laziness over researching the different options (which is sometimes the most efficient use of time). The market will eventually balance that out. If people start becoming more and more taken advantage of due to their lack of research, the incentive for researching products becomes greater. Also, the manufacturers have more incentive to educate the public regarding their competitive advantage. However, with government, when the people get lazy our freedoms are threatened. Once taken away, freedoms are hard to get back.

The free market helps solve itself. In order for us to have a clean free market, we need a small government that is run by a people that value freedom in the marketplace. Without people valuing a free marketplace, there are plenty of people who can find an advantage by encouraging the government to step in. This is exactly what has happened within the last 100 years in the uSA.

Quick thought: Did you purposely not capitalize the u in USA? Is that for a reason? Or just a typo?

The Brain Train wrote:Quick thought: Did you purposely not capitalize the u in USA? Is that for a reason? Or just a typo?

It wasn't a typo. That is how it is properly and originally written in the Constitution: the united States of America. It also shows a little about how the country was meant to be. Not one entity, but many joined by a common purpose.

"The moralists’ and sermonizers’ critique of profits misses the point. It is not the fault of the entrepreneurs that the consumers—the people, the common man—prefer liquor to Bibles and detective stories to serious books, and that governments prefer guns to butter. The entrepreneur does not make greater profits in selling “bad” things than in selling “good” things. His profits are the greater the better he succeeds in providing the consumers with those things they ask for most intensely. People do not drink intoxicating beverages in order to make the “alcohol capital” happy."

-Ludwig Von Mises

Enron wrote:

The Brain Train wrote:Quick thought: Did you purposely not capitalize the u in USA? Is that for a reason? Or just a typo?

It wasn't a typo. That is how it is properly and originally written in the Constitution: the united States of America. It also shows a little about how the country was meant to be. Not one entity, but many joined by a common purpose.

Love it.