Lots of people talk about free market economy. They claim that if government would just leave things alone, the law of supply and demand would act to set prices, achieve employment and create a better life for everyone. Even people who don't believe in anything supernatural may buy into the magical powers of supply and demand.
The theory, laid out by Adam Smith in The Wealth of Nations (1776), is that when there's plenty of something, the price goes down because the cheapest seller will attract the most customers. On the other hand, when something's scarce, prices go up because a seller will be able to find buyers who will pay more. When the corn crop is harvested, corn is cheap because everyone's selling corn, and you can shop around for the cheapest. But if you somehow save some of your corn, you can sell it for a higher price in February, because there won't be much corn around.
The big leap is the idea that these natural up and down changes in price will lead to a good outcome. It turns out this is true because in the Free Market mentality, a good outcome is defined to mean "natural up and down changes in price." For instance, not only will some people sell corn cheaper, but some will invent better corn in order to charge more. See? Isn't that great for society? Of course, if they can't really make better corn, they'll just touch up the photo and say it's better. Works just as well.
But there's a dark side. There are some things this simple theory ignores, such as:
1) Cheating - some companies will lie about their products or use inferior materials, even contaminated foods. The Free Market's response: Don't worry. These companies will go out of business once the word gets out.
2) Public Service - Some products, like drugs that can cure illnesses, should be inexpensive and widely available, even if market forces don't lead to that. The Free Market's response: The drug maker gets to control the supply and price.
3) Disasters - If you stake your life on the corn crop, and it's wiped out by an outbreak of corn blight, you're out of luck. Sure, corn prices will go up, but you don't have any to sell. The Free Market's response: Tough luck. You should have had a backup plan.
4) Redundancy - The very idea of competition means multiple people and companies trying to do the same thing. Can you imagine if all the iPhone and Droid engineers got together, what kind of incredible kick-ass phone they could make? Or if the drug companies pooled their resources to cure cancer? The Free Market response: Not going to happen.
5) Extra forces - Supply and demand don't cover everything. If marijuana were suddenly legalized, the supply might not change right away, but demand would probably go up. In spite of that, prices would sure as hell go down. Also, things like copyrights, patents, etc. only have value because of laws. If the laws are changed, all bets are off.
6) Wealth Concentration - Finally, a free market always leads to increasing wealth concentration. It has to. As backwards as it sounds, people with more money can always get things cheaper. You pay $1 each for a half dozen ears of corn for dinner. Total cost: $6.00.
A rich person might buy a thousand ears for $0.25 each, and then sell 994 of them for $0.75. Now their corn is free, and they've even made $497.00!
Rich people can also wait out bad markets. Trying to sell a house during a recession? No problem. Just close it up, live in one of your other houses and wait till the market improves.
So the rich keep getting richer, just as the saying goes. And the rest of us? We wind up rummaging through the attic and the basement, looking for stuff to sell at the flea market.
All posts copyright © 2006-2018, Peter Davis. All rights reserved.
Showing posts with label capitalism. Show all posts
Showing posts with label capitalism. Show all posts
Thursday, January 19, 2012
Monday, June 6, 2011
The Government They Deserve
The two pillars of the United States, democracy and capitalism, are both based on the concept of competition. In a democracy, as in capitalism, politicians and products compete for your votes or your dollars (or both) by trying to appear to be just what you need.
We, as good Americans, know that competition has to be fair. That means that the competitors, whether they be politicians or feminine hygiene products, have to be on a level playing field. If politicians were permitted to say things that are not true, for example, or if advertisers were permitted to make exaggerated claims, the system would not work. We'd have no good way to decide which douche or which feminine hygiene product to choose.
Luckily, as we know, competition forces everyone to be honest. No politician would ever mislead voters on a policy or cheat on a spouse for fear of being exposed in the media. No advertiser would downplay a product's safety hazards, or risk annoying a TV audience with obnoxious commercials, because that would just give the advantage to a competitor.
But this isn't natural selection. Darwin's form of competition is about species surviving or not based on their own strengths and abilities. In politics and sales, however, the winners are the ones who capture the hearts and minds of other people. There's no steel cage death match between Democrats and Republicans (though I'd bet the Nielsens would be through the roof!) There's no showdown between Coke's bottled tap water and Pepsi's.
It's only natural that our lives revolve around competition. We LOVE to compete. On TV, people compete at everything from ballroom dancing to cooking to answering trivia questions. If life doesn't give us enough areas to be competitive, we invent new ones, like Wheel of Fortune or Wipeout. We give prizes for Best Original Song in a Picture Adapted From Another Source and Hottest Singles Under 40 With Fewer Than 3 Dental Crowns. It seems the loftiest human goal is to find something at which you can be better than others.
That's why school athletics programs should be the last things cut when budgets are tight. Athletics are where kids learn about competing, from the examples set by their parents.
Remember, it's not how you play the game. It's whether you win or lose!
We, as good Americans, know that competition has to be fair. That means that the competitors, whether they be politicians or feminine hygiene products, have to be on a level playing field. If politicians were permitted to say things that are not true, for example, or if advertisers were permitted to make exaggerated claims, the system would not work. We'd have no good way to decide which douche or which feminine hygiene product to choose.
Luckily, as we know, competition forces everyone to be honest. No politician would ever mislead voters on a policy or cheat on a spouse for fear of being exposed in the media. No advertiser would downplay a product's safety hazards, or risk annoying a TV audience with obnoxious commercials, because that would just give the advantage to a competitor.
But this isn't natural selection. Darwin's form of competition is about species surviving or not based on their own strengths and abilities. In politics and sales, however, the winners are the ones who capture the hearts and minds of other people. There's no steel cage death match between Democrats and Republicans (though I'd bet the Nielsens would be through the roof!) There's no showdown between Coke's bottled tap water and Pepsi's.
It's only natural that our lives revolve around competition. We LOVE to compete. On TV, people compete at everything from ballroom dancing to cooking to answering trivia questions. If life doesn't give us enough areas to be competitive, we invent new ones, like Wheel of Fortune or Wipeout. We give prizes for Best Original Song in a Picture Adapted From Another Source and Hottest Singles Under 40 With Fewer Than 3 Dental Crowns. It seems the loftiest human goal is to find something at which you can be better than others.
That's why school athletics programs should be the last things cut when budgets are tight. Athletics are where kids learn about competing, from the examples set by their parents.
Remember, it's not how you play the game. It's whether you win or lose!
Monday, May 30, 2011
Stop Buying Stuff!
It's Memorial Day, a day when Americans traditionally honor those who have made the ultimate sacrifice for our freedom. We honor them in classic American fashion ... by going shopping. What better way to exercise our freedom?
Except that it's not. Shopping is not an exercise of freedom at all. It's what every capitalist enterprise in the land tries to manipulate us into doing. TV, news media and many Web sites all exist only to show us ads which try to pry our hard-earned dollars away from us. Defective products, software bugs and incompetent, indifferent or hostile service are all just the result of cost-cutting. The Geneva Accords may ban putting prisoners in stress positions as torture, but there's nothing to protect airline passengers. Banks can transfer billions of dollars around the world in a fraction of a second, but try getting through to customer service. ("Your call is important to us." ... just not important enough to actually answer it.)
These same banks are so busy wheeling and dealing with your mortgage that they ran themselves into the ground. So who did the government bail out? (Hint: Not you!)
This past weekend, I reserved a cargo van from a large moving van rental company. (Of course I can't mention their name, U-Haul, in this blog.) When I got to the appointed location to pick up my truck, I was told that I actually had to pick it up at another site, adding 40 miles and over an hour's drive to my already long trip. "Oh, we reserve the right to send you to another nearby location," they said. I guess nearby to them means "in the same timezone."
Ever read the End User License Agreement you're supposed to accept before using any commercial software? It basically says: "If this software doesn't work as promised, too bad. If it also destroys your data and/or makes your computer unusable, tough noogies." And we tolerate this, over and over again.
Businesses, by their nature, try to take in as much money as possible, and shell out as little as possible. That's what a business is. The only thing that can slow them is if people actually draw the line somewhere and say "No! I'm not going to fork over my money for some unreliable, poorly designed product or half-assed service." But we don't do that. We just go along, giving these businesses a license to keep charging more and delivering less.
That's why cable TV and Internet and phone rates keep going up, even though the technologies get cheaper all the time. That's why you have to buy a new iPad every year, and why everyone's pushing eBooks and on-line movies that you think you're buying, but never actually own. You are actually just paying for a license to use this content in ways the company sees fit. Other uses violate the license.
They say we're supposed to buy stuff to help the economy. What has the economy done for you lately? But really, when they say "the economy," guess what they're talking about. Businesses! The theory is that if you spend enough of your money, businesses will recover and start hiring, and you'll get a job in time to pay those credit card bills.
Some ads claim "your money back if not completely satisfied." Better yet, don't give 'em your money in the first place!
Except that it's not. Shopping is not an exercise of freedom at all. It's what every capitalist enterprise in the land tries to manipulate us into doing. TV, news media and many Web sites all exist only to show us ads which try to pry our hard-earned dollars away from us. Defective products, software bugs and incompetent, indifferent or hostile service are all just the result of cost-cutting. The Geneva Accords may ban putting prisoners in stress positions as torture, but there's nothing to protect airline passengers. Banks can transfer billions of dollars around the world in a fraction of a second, but try getting through to customer service. ("Your call is important to us." ... just not important enough to actually answer it.)
These same banks are so busy wheeling and dealing with your mortgage that they ran themselves into the ground. So who did the government bail out? (Hint: Not you!)
This past weekend, I reserved a cargo van from a large moving van rental company. (Of course I can't mention their name, U-Haul, in this blog.) When I got to the appointed location to pick up my truck, I was told that I actually had to pick it up at another site, adding 40 miles and over an hour's drive to my already long trip. "Oh, we reserve the right to send you to another nearby location," they said. I guess nearby to them means "in the same timezone."
Ever read the End User License Agreement you're supposed to accept before using any commercial software? It basically says: "If this software doesn't work as promised, too bad. If it also destroys your data and/or makes your computer unusable, tough noogies." And we tolerate this, over and over again.
Businesses, by their nature, try to take in as much money as possible, and shell out as little as possible. That's what a business is. The only thing that can slow them is if people actually draw the line somewhere and say "No! I'm not going to fork over my money for some unreliable, poorly designed product or half-assed service." But we don't do that. We just go along, giving these businesses a license to keep charging more and delivering less.
That's why cable TV and Internet and phone rates keep going up, even though the technologies get cheaper all the time. That's why you have to buy a new iPad every year, and why everyone's pushing eBooks and on-line movies that you think you're buying, but never actually own. You are actually just paying for a license to use this content in ways the company sees fit. Other uses violate the license.
They say we're supposed to buy stuff to help the economy. What has the economy done for you lately? But really, when they say "the economy," guess what they're talking about. Businesses! The theory is that if you spend enough of your money, businesses will recover and start hiring, and you'll get a job in time to pay those credit card bills.
Some ads claim "your money back if not completely satisfied." Better yet, don't give 'em your money in the first place!
Friday, April 8, 2011
Consumer Culture
From an economic point of view, we are all consumers. Our job is to buy stuff, to keep the wheels of Capitalism turning. Whether we're buying toilet paper or iPads, we're all just demographically appropriate targets.
I inherited an abiding appreciation for Consumer Reports magazine. My parents subscribed for as long as I can remember, and always kept back issues around the house. Many years' worth. I think the earliest ones had ratings of lanterns and horseshoes. They weren't as enticing as the stacks of National Geographics, but the collection of Consumer Reports certainly commanded respect. (Despite this lifelong relationship, however, we bought all our big ticket items ... cars, appliances, TVs ... entirely on impulse. But that's another story.)
Consumer Reports is known for devising ways to test various products and get accurate, unbiased results. They build special machines that have simulated baggage handlers throwing luggage around, simulated feet wearing out shoes on a treadmill, simulated noses blowing through tissues, and so on.
And these machines give specific, measurable conclusions. "This suitcase fell apart after being stomped 47 times by our simulated gorilla." "This car rolled over at 62 mph on a turn of radius 75 yards, with a driver who had a blood alcohol level of 0.125 and an acne problem." "This toilet paper failed after ... well, it failed." You can use these results to evaluate a product and make a buying decision.
But as the world of consumption gets increasingly digital, it becomes harder to develop tests like this. Sure, they have simulated fingers pinching and stretching on iPad screens, and simulated couch potatoes watching high-def TVs. But in the long run, they have to rely more and more on subjective impressions.
They can compare memory and screen size and that kind of thing, but what we really want to know is: How often is it going to freeze up? How much work can I get done while my teenager is downloading TV shows and chatting on Facebook? What's the annual replacement cost when I fling it across the room because it refuses to open my files?
Or, more to the point, how soon will I need to buy the next version?
I inherited an abiding appreciation for Consumer Reports magazine. My parents subscribed for as long as I can remember, and always kept back issues around the house. Many years' worth. I think the earliest ones had ratings of lanterns and horseshoes. They weren't as enticing as the stacks of National Geographics, but the collection of Consumer Reports certainly commanded respect. (Despite this lifelong relationship, however, we bought all our big ticket items ... cars, appliances, TVs ... entirely on impulse. But that's another story.)
Consumer Reports is known for devising ways to test various products and get accurate, unbiased results. They build special machines that have simulated baggage handlers throwing luggage around, simulated feet wearing out shoes on a treadmill, simulated noses blowing through tissues, and so on.
And these machines give specific, measurable conclusions. "This suitcase fell apart after being stomped 47 times by our simulated gorilla." "This car rolled over at 62 mph on a turn of radius 75 yards, with a driver who had a blood alcohol level of 0.125 and an acne problem." "This toilet paper failed after ... well, it failed." You can use these results to evaluate a product and make a buying decision.
But as the world of consumption gets increasingly digital, it becomes harder to develop tests like this. Sure, they have simulated fingers pinching and stretching on iPad screens, and simulated couch potatoes watching high-def TVs. But in the long run, they have to rely more and more on subjective impressions.
They can compare memory and screen size and that kind of thing, but what we really want to know is: How often is it going to freeze up? How much work can I get done while my teenager is downloading TV shows and chatting on Facebook? What's the annual replacement cost when I fling it across the room because it refuses to open my files?
Or, more to the point, how soon will I need to buy the next version?
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