Love of Liberty : free market

The Free Market Isn't "Dead"

ChrisR — Tue, 07 Oct 2008 19:19:00 GMT

Over and over I keep reading about how the free market has died...how our current crisis is the result of free market forces. Of course, nothing could be further from the truth. The crisis that we are experiencing is one of interventionism. It always strikes me as comical when I read that our financial markets have been operating on a basis of 'raw capitalism.'

But how can this be? Raw capitalism would not have a central bank. It would not have legal tender laws. It would not have regulations forcing banks to make loans to uncreditworty individuals. Unfortunately, these facts do not stop those who are just salivating at the possibility of another New Deal.

Could the free market ever be dead?

My response is: "It's not likely." We've seen many times that when governments regiment economic activities to a high degree, black markets begin to form. And black markets are actually free markets. Haven't you ever noticed that when hyperinflation occurs somewhere in the world, you always read the "official" inflation rates followed by the black market rates? The black market rates are always higher because the free market can't lie.

I even remember reading that were it not for the black market in the old Soviet Union, the poor Soviet people would have been much worse off. So if the free market wasn't even stamped out in the Soviet Union, I think it's kinda silly to already pronounce its death here.

All of the people making such proclamations may be jumping the gun a bit. It is during times of crisis that people become open to new ideas. When the Dow was trading at 14,000 and housing prices were doubling and tripling, trying to persuade people to free market ideas was tough...After all, they were comfortable.

But with the Dow plummeting, housing prices plummeting, and grocery bills climbing, openness to free market ideas are now on the table. Ears that were once closed are at least open. I'm not talking about the media or the news (even though Ron Paul has been on a lot lately) I'm referring to everyday people.

Those who yearn for another New Deal may be thinking they have another slam dunk ahead of them....and they might. But America in 2008 is not the same economically as it was in 1933...and the people may just be open for something that's really new:

A real free market.

In Defense of Advertising

ChrisR — Mon, 25 Aug 2008 13:59:00 GMT

Advertising receives a lot of criticism.

So I decided to put down my thoughts. Below is a fictional conversation that tries to get my views across:

Don't you hate how these big corporations make us buy their junk?

What do you mean by "make us"?

You know, they make us buy through advertising.

Hold on a second.

You mean to tell me that with the hundreds of milions of consumers out there, with:

different thoughts,
different experiences,
different tastes,
different personalities,
different value scales, and
different budgets

...are being forced to buy things through advertising?

You mean to tell me that corporations have somehow cracked the code, and individuality itself has been abolished?

OK...you make a good point, but what if you're wrong? What if advertising could make us buy?

Then there would be no such thing as a business failure.

Every company would be a smashing success. They could make anything they want...advertise it....and become multi-millionaires overnight. No need to worry about what the customers want. No need for questions, surveys, focus groups, trial balloons....No need for profits and losses...Just advertise, and the people will buy.

Does that sound like the world we live in?

So why is advertising such a huge industry? Obviously, many companies see an increase in sales afterwards. Isn't that proof that advertising makes us buy their stuff?

No.

One of the main purposes of advertising is to bring an awareness to consumers that a new product or service is available. If sales go up, it is an indication that the company has guessed right. Their projection turned out to be correct, and they've identified a way to satisfy customer wants.

Keep in mind that everyone doesn't see an increase in sales. Some companies project correctly, while many others miss the mark.

But don't advertisements try to persuade us to buy?

Of course!

However, there's a huge difference between persuading someone and forcing them. One involves a voluntary transaction; while the other doesn't. And if a customer is persuaded (i.e., convinced that the product will solve a problem, or fulfill a desire) then the situation is still a win-win. The customer values the product more than the money used to pay for it, and vice-versa for the company.

Why do companies have to put on such a circus? Isn't that proof that they're trying to manipulate us? I mean, just show us the product and move on. Why the big song and dance?

Let me ask you a question: What if Nintendo simply put a picture of the Wii on the TV screen...and that's it!

Would you know what it is? Would you know what to do with it?

No, of course not.

So instead, Nintendo shows people playing games on the Wii and having fun....and in the process explaining what the Wii is.

Companies want to show you how their product can satisfy a problem that you may have. And they want to do it in a memorable way.

How about when companies play an advertisement over and over? Won't people eventually cave-in and buy?

Not necessarily.

Have you ever heard of the Eddie Murphy film titled "The Adventures of Pluto Nash"? Well this movie had a production budget of $90 million dollars and an advertising budget of $20 million. And do you know how much the movie earned?

$4.41 million. About a quarter of the advertising budget!

Bombarding people with ads is not "the road to riches". Companies can lose a lot of money just throwing advertisements out there willy-nilly...which is why the more successful ones carefully choose where and when they will advertise, and pay attention to who will be watching.

In the end, without advertising, our standard of living would be much lower. We'd have very little idea as to what products or services are available...and thus many satisfactions that we take for granted would cease to exist.

Teaching & The Market Price

ChrisR — Sun, 17 Aug 2008 16:54:00 GMT

It's very common to hear something like the following: "How can someone like Adam Sandler make $20 million per movie, while a teacher makes a pittance?" This is usually followed by a declaration on how everyone's priorities are messed up, and how (somehow) Capitalism is to blame?

Today, I read a comment on another website complaining how Olympians are praised and put on a pedestal, while again someone like a teacher is not.

What is the problem here? And is Capitalism to blame?

In finding the answer, I think only one question needs to be asked: "Do teachers earn a market wage?" The answer is obviously "No.".....so right away Capitalism is not to blame, since a free market for teachers does not exist. How can Capitalism be blamed when teachers do not earn what the market is willing to pay them.

Let's imagine a scenario where exceptional teachers can earn a market wage:

Mr. Smith teaches an Austrian Economics class...He is a master at his subject, and has an uncanny ability at keeping the attention of his students....He's funny, charismatic, and an all-around superstar teacher. Unlike in years past, Mr. Smith is not confined to 50-100 students sitting in one classroom; for these classes are taught exclusively over the Internet.

As it so happens, Mr. Smith has 20,000 students taking his class each semester...and the number keeps rising. His ultimate goal is to have 100,000 students at one time.....Like YouTube, he's hoping to go viral.

But Mr. Smith is quite happy with his progress so far. Because of his superior skill in presenting Austrian Economics, and because of worldwide demand for understanding it, Mr. Smith earns several million dollars per year. He recently purchased an estate across the street from Adam Sandler.

I have no doubt that someday, stories similar to the one above will become reality. And just imagine what it will do for the teaching profession. The desire to become a teacher would most likely skyrocket! Creativeness and attention to the demands of consumers (i.e., parents and students) will be top priority. Teaching will be a competitive business like any other....and if the teaching market is truly free, we can expect the quality of schooling to rise, while the price falls.

Capitalism is not holding teachers back....If the desire really is to see teachers earn the salary of a movie star, then letting teachers earn a market wage is top priority.