
Why Free Markets Make Fools of Us - MaysonL
http://www.nybooks.com/articles/archives/2015/oct/22/why-free-markets-make-fools-us/
======
Asbostos
But what's the alternative? In many cases nobody really knows what's in our
best interests. So with any protection from "phishermen", you'd suffer from
other inefficiencies or harm caused by good opportunities being blocked. Just
the fact that research is still ongoing as to the effects of alcohol says that
nobody could really decide if it's a net positive or negative for each
individual.

You only have to look at laws forbidding marijuana use or homosexual acts to
realize that governments aren't competent to make these decisions since they
just reflect what the popular opinion of the "phools" already is.

~~~
TeMPOraL
> _In many cases nobody really knows what 's in our best interests._

I may not know what is in my best interest, but I know what isn't - someone
else lying to me and cheating me to pursue their own interest. The problem is
hard because perfect solution is AI-complete and pretty much requires mind-
reading. But we can at least try and eliminate the obvious problems. We could,
for instance, start punishing marketers and salesmen for lying.

~~~
Asbostos
I'm sure most developed countries do that by fining businesses for false
advertising, which would incentivise the businesses to pass the punishment on
to the staff who did it. Lies aren't really the problem though, fooling us
with truths we don't understand is.

About tobacco causing lung cancer? That's been widely known for decades but
rates of smoking are increasing globally so it's not just false information.

~~~
joosters
But smoking is increasing in countries where the health effects aren't as well
known, and decreasing in countries where they are.

Also, smoking companies spent a very long time making sure that the now
widely-known health effects weren't so widely known. Lies and confusion. Some
of it still happens, especially in '3rd world' countries.

~~~
cafard
I work with a fair number of expensively-educated persons in their 20s. A
surprising number of them smoke.

~~~
TeMPOraL
A surprising amount of doctors and paramedics smoke. It apparently helps them
to deal with the stresses of the job.

------
jevgeni
I respect Robert Schiller a lot. And I think there are legitimate areas where
people are being manipulated into buying expensive things (recent news on
pharma companies are a good example of this). But the book (as presented in
the article) is incredibly overreaching.

There is an easy solution to the phishermen/phools problem in many cases: _don
't buy what you are pushed by others to buy_. Combine that with the proverbial
"there is no free lunch" and you are more or less safe.

I remember when I was a student during the heyday of the financial swing that
led to the 2008 crash, I was walking thorough the Hamburg airport and a young
representative of American Express caught me and tried to convince me to sign
up for American Express Gold (afaik, a product tier two steps down from the
mythical American Express Black).

"What is your income?" she asked me. "I don't know. I'm a student, I live off
400 Euros a month." "Alright, I'll write 40 000 EUR annual income in the
form."

At that point not alarm bells, loud ass alarm sirens were going off in my head
and I've politely disengaged and walked on. And that was the suprisingly easy
way how I avoided crippling credit card debt.

The problem is really not in the free market per se, but industries that don't
allow robust competition and that aren't scrutinized by consumers. The first
part is achieved by regulation. When was the last time utilities, energy
companies, banks, and pharmaceuticals were challenged by a newcomer? The
second part is made possible by us not caring what we buy or _continuing_
buying something purely out of emotion. "What's that? Google now allows
companies to directly put ultra-targeted adds in your inbox? That surely
doesn't sound like legalized spam. And they say they're not evil."

~~~
bufordsharkley
I've been trying to live by the dictum "anything advertised is not worth
buying," and I've rarely been forced to find exceptions. Buy what you need,
and only what you need, and one can live very comfortably.

~~~
Swizec
> "anything advertised is not worth buying,"

Then how do you find out about new products or services? Remember, reading
about it in a news paper or a news site or even a blog is _also_ advertising.
Paid for one way or another.

Basically any time you hear a brand name or see a brand name or read a brand
name, that's an ad. A paid-for ad. Even your friends' t-shirts and computers
and cars and stuff having their brand name on them ... that's an ad.

So if you never buy anything advertised, what then do you even buy?

~~~
TeMPOraL
This is not what GP meant and you know it, but I'll bite :).

Almost everything is advertised - you might not have seen the ad, but it was
definitely somewhere at some point. The question is, whether or not you chose
to buy things that you've seen advertised _based on_ the ad, even indirectly.
Personally, I attach negative value to ads, i.e. every time I see the product
advertised, I purposefully _lower_ my opinion of it.

(EDIT because of nitpicking - that's a heuristic and not the _only_ rule I
use; e.g. some companies are extempt if they have earned my trust personally
and their advertisement are honest. My rule, born of experience that includes
working with marketers, is to assume advertising is purposefully dishonest
unless I know otherwise.)

> _So if you never buy anything advertised, what then do you even buy?_

So I've seen the product as used by a friend. Is that advertising? I've heard
my friends who use it talk about it - is that an ad? I read third party blogs
and forums on which I find recommendations by people who are experienced with
the whole classes of products (hint: non-profit forums and blogs are the
best). Is that an ad?

If so, then the word 'advertisement' here has acquired too much meaning and we
need to split it for the discussion.

I am totally fine with buying things that are "advertised" by trustworthy
actors who wish me well or at least are neutral to me. I reject buying on
messages sent by dishonest people or those who have interest in profiting at
my expense (e.g. salesmen, advertisers).

~~~
greggman
So I'm guessing that your participation on HN means one of your most hated
companies is ycombinator since HN as an ad for it

~~~
TeMPOraL
I understand the HN-YC dynamics and know enough about YC to have a specific
opinion on them that overrides the herustic described above.

------
alienjr
On the silly "inequality is getting worse" claim:

"Contrary to the author's claim that the rich are getting richer, not due to
underlying economic trends, but by using their power and influence to enrich
themselves, I have in this column more than once suggested that the real
reason is the enormous expansion of the world supply of unskilled and semi-
skilled labour brought about by falling transport costs and trade barriers.
With globalization, a billion or more rural people in Asia could be recruited
into the urban industrial sector and produce the tradeable goods that
undersell the goods hitherto produced in the United States and Europe. Until
this new Asian labour is wholly absorbed and its wages rise to Western levels,
U.S. and European unskilled wages will remain depressed and the share of
profits in value added will rise. Ironically, while this sharpens inequality
in the West, it promotes equality on a world scale as Asian and eventually
also African peoples are lifted out of misery."
[http://www.econlib.org/library/Columns/y2012/Jasayinequality...](http://www.econlib.org/library/Columns/y2012/Jasayinequality.html)

\+ Even if there exits market failures, we don't want to replace them with
government failures, which are usually even worse.

~~~
paganel
Which is great for those Asian people, in the last 30 years alone around 500
million Chinese people have been lifted out of extreme poverty. Let that sink
in, that's the entire population of present-day Europe.

But, as an Eastern European I'm of course biased. I grew up in the economy-
controlled '80s when we were experiencing toilet paper shortages, among other
things (question for the anti-free market people: how do you centralize the
production of things like toilet paper? How do you decide how much toilet
paper to make, in the absence of a free market?)

~~~
bildung
_> But, as an Eastern European I'm of course biased. I grew up in the economy-
controlled '80s when we were experiencing toilet paper shortages, among other
things (question for the anti-free market people: how do you centralize the
production of things like toilet paper? How do you decide how much toilet
paper to make, in the absence of a free market?)_

As Eastern Germany (where I grew up) was not experiencing toilet paper
shortages in the '80s, I'd say the main source of the problem wasn't the
planned economy per se, but other contributing factors.

Amartya Sen makes a strong case for _authoritarianism_ being the culprit, as
there are numerous examples of famines and shortages in market-regulated, but
authoritarian economies (like the 1943 Bengal famine, where millions of people
died).

~~~
alienjr
Nonsense, the entire era of Industrial Revolution happened during
authoritarian governments. Not to mention the economic success of Hong Kong or
Chile.

PS. Yes, there was huge shortage of toilet paper in Poland during 80's. Huge!
My family was standing in the queues for 2-3h to get it.

~~~
bildung
_> Nonsense, the entire era of Industrial Revolution happened during
authoritarian governments._

And whole generations lived in misery during that period. I thought that's
exactly what we were talking about?

 _> Not to mention the economic success of Hong Kong or Chile._

I don't know about Hong Kong, but in Chile the Chicago school free market era
under Pinochet ended in the collapse of the economy in 1982.

------
TeMPOraL
The way we accept this at the level of society is also worrying. See, if a
friend tried to do to you the things advertisers do all the time, you'd punch
him in the face. But somehow we have no problems being intentionally
manipulated, lied to and deceived by companies every day. In fact, we turned
it into a legitimate occupation.

~~~
pdkl95
[https://www.youtube.com/watch?v=oRzYJullFOs](https://www.youtube.com/watch?v=oRzYJullFOs)

Max Headroom, Season 2, Episode 13 "Lessons"

    
    
        Have you any idea how suc-suc-suc-cessful censorship is on TV?
        Don't know the answer?
        Hmm...
        Successful, isn't it!
    

Before something can be considered a threat (or even worthy of strong
opinions), they must first realize it exists. Systems that depend on people
forming such opinions - such as democracy and capitalism - should really
consider anything that blocks or corrupts the dissemination of knowledge as an
existential threat.

~~~
TeMPOraL
Indeed. Moreover, the fundamental glue of the society - the thing that enables
a peaceful governance, whether democratic or not, and flourishing free trade
is _trust_. Trust people have toward each other, trust they have in their
companies and officials. Lying is an existential threat to society itself.

Many people are surprised by anti-vaccination movements, or anti-GMO and anti-
nuclear crowds. One will say: "surely they must be stupid, they reject the
science, the well-tested and replicated results of countless of studies". But
they aren't, in fact, any more or less stupid than you and I. They had their
trust in the system broken. They've seen enough shit pharma does to stop
trusting doctors. They've witnessed enough scandals and have been victims of
enough frauds to stop trusting the government or the big bio/tech businesses.

Those "anti-science" movements are only a symptom of the greater problem, of
society losing trust in the authority. The trust that has been eroded by
constant and countless lies. So yes, if you're a journalist or an editor who
writes and publishes lies to "spice up the story", you're responsible. If
you're a marketer or a salesman or a businessman who lies to people to get
them to buy your product, you're responsible. If you're a scientist who
manipulates results to get publications, you too are responsible. As much and
as little as the system may have made you to do it, but you are responsible.
Responsible for the blood and the deaths, and the fall of the civilization if
it happens.

------
littletimmy
Despite this and all other evidence to the contrary, I don't understand how
some people still stick to the idea of efficient markets and speak against
government intervention. The market system must be our slave, not our master.

~~~
TeMPOraL
Indeed. There is this common meme among religious people that some men make
money their god. Sometimes it's even illustrated with people worshipping
riches. It always seemed to me to be a stretch. I've never seen anyone
worshipping money like they would worship a god.

But what I am seeing every day is people worshipping Moloch[0]. Men and women
so sure that The Market will save us if we only leave it alone. It's not the
money that's the deity, it's the perfect, efficient Market that promises
riches if only you could get that pesky government out of the way.

[0] - [http://slatestarcodex.com/2014/07/30/meditations-on-
moloch/](http://slatestarcodex.com/2014/07/30/meditations-on-moloch/)

~~~
pdkl95
You may be interested in Mark Blyth[1]'s take[2] on this, in which he also
blames the seductive quality of mathematical models. Math can give an illusion
of accuracy, when the real world is chaotic and often has far more confounding
variables than you know about in something as complex as "the economy".

Treating "efficient markets" as if it was a law of nature is probably
inevitable when you combine a trust of bad models with the greedy side of
human nature (Moloch) that is biased to overlook the differences between
reality and a model that tells you what you want to hear

[1] Prof. Econ. at Brown University, who is probably most well known these
days for his warnings about the dangers of "austerity" (e.g.
[https://www.youtube.com/watch?v=B6vV8_uQmxs#t=673](https://www.youtube.com/watch?v=B6vV8_uQmxs#t=673)
)

[2]
[https://www.youtube.com/watch?v=hmWbkPezgtU](https://www.youtube.com/watch?v=hmWbkPezgtU)

~~~
realquick81
> Math can give an illusion of accuracy, when the real world is chaotic and
> often has far more confounding variables than you know about in something as
> complex as "the economy".

I don't know what you folks are talking about on this thread branch (what with
"efficient markets") but Keynesian Economics is the "theory" that suffers from
this "illusion of accuracy".

I don't believe in efficient anything, but I know Free Markets Theory involves
no Math (only deductive methods like Praxeology).

~~~
TeMPOraL
> _I don 't believe in efficient anything, but I know Free Markets Theory
> involves no Math_

That's actually _not a good sign_. Math is refined thinking. If your theory
doesn't involve math, it's probably little more than handwaving and could be
significantly improved by being formalized a little more.

There is always the risk that people confuse the map with the territory, but
it's present regardless of whether you have a differential equation handy for
everything or you're just sharing campfire stories.

~~~
realquick81
The deductive process on which Austrian School theory is based, is itself
based on Logic. That's as formal as you can get.

> Math is refined thinking.

No, Mr. Poet. Math is an abstract science that can be applied to concrete
fields. So far no one has been able to meaningfully apply mathematics to
economics, or we would have computers that can simulate markets like we can
simulate tornadoes.

~~~
TeMPOraL
> _So far no one has been able to meaningfully apply mathematics to economics,
> or we would have computers that can simulate markets like we can simulate
> tornadoes._

That only proves those problems are incredibly hard - and require incredible
resources and work to think about in a formal, precise way. It's also worth
noting that you are therefore no more likely to be a good economist by
guessing and waving hands than you're likely to be a good meteorologist by
spinning make-believe stories about which way the weather should be. Failure
to understand the meaning of this point is a source of tremendous amount of
stupid decisions and pointless politics.

Also, don't confuse logic with math. The former is just a subset.

------
doorty
"If a company can make money by deceiving or manipulating people, someone is
going to create such a company, and it will prosper (unless the law regulates
it). And if it prospers, companies that do not deceive or manipulate people
may well be at a competitive disadvantage."

EDIT: I was just quoting the article for discussion purposes. There's no
reason to down vote.

~~~
jevgeni
And if a law does regulate it, the bureaucrat enforcing said law will prosper.

~~~
doorty
How will he "prosper"? You mean he will have a "job" because he's preventing
deception.

~~~
TeMPOraL
He may be well-compensated for _not_ enforcing the law in some cases.

------
UK-AL
I thought people were naturally pessimistic more than optimistic.

------
jordanchan
Anything can make fools of gullible people. Free markets or oligarchies.

~~~
TeMPOraL
The key insight being, every single human being is gullible when you attack
from the right angle.

~~~
jordanchan
Indeed. Everyone has their sensitivities, vulnerabilities and emotional/other
needs. A company that has figured out how to push the right buttons in its
sales pitch/ad has found its subset of "gullible people" \- who will be driven
more by animal passions than by reason. Humans are very well capable of
overlooking potential long term harm in favor of short term pleasure, or even
convincing themselves that the ill effects won't apply to them.

That being said, I wouldn't agree that every single human being is gullible
when attacked from the right angle. Example: there are many stressed out
people who don't smoke, it doesn't matter how or how much you try to convince
them. One can peddle snake-oil on the streets, but only a subset of passersby
will stop by and an even smaller subset will buy it - this does not imply that
only the most afflicted are the ones making the purchase.

~~~
TeMPOraL
> _Example: there are many stressed out people who don 't smoke, it doesn't
> matter how or how much you try to convince them._

I wonder if it isn't because companies are severely restricted in their means
of convincing people. Consider historical figures[0][1]. Between 1950s and
today smoking rates in US dropped from around half of the population to around
one in five person. Have the citizens of US suddenly became less gullible, or
did their lives became less stressful? Or maybe as smoking changed from being
a social custom to something despised (which can be partially attributed to
regulations, though some would say[2] they were just following the social
trend), 90% of smokers quit.

Manufacturing a social custom is hard, but if you can pull it off, it's
basically a superweapon. People will buy not because it's good or needed, but
because it's expected. De Beers has managed to do that for diamonds[3] decades
ago, and guess what people are still buying for engagement rings.

That's only one, albeit an extremely effective way to trick people into
parting with their money. There are others. Different people have different
needs so if they avoid one trap, they'll trip on another. Sometimes the traps
are less obvious. Let me give you an example.

I can honestly say there's no advertising that could convince me to chose the
grocery store on my street over the one little further but much cheaper. And
yet I often shop in the former one because they employ mostly nice, pretty
students, and I love to chat with them. Simple as that. I've bought many
things I didn't need only to have a pretext to go there and talk with the
crew. I've made friends with the entire staff, hell, I met my SO there. But
the point still stands that I've been tricked into economically worse option
by a simple management decision of hiring nice girls. _Everyone_ has their
weak spot.

[0] -
[http://www.cdc.gov/tobacco/data_statistics/tables/trends/cig...](http://www.cdc.gov/tobacco/data_statistics/tables/trends/cig_smoking/)

[1] -
[http://www.infoplease.com/ipa/A0762370.html](http://www.infoplease.com/ipa/A0762370.html)

[2] -
[http://www.paulgraham.com/addiction.html](http://www.paulgraham.com/addiction.html)

[3] -
[http://www.theatlantic.com/past/issues/82feb/8202diamond1.ht...](http://www.theatlantic.com/past/issues/82feb/8202diamond1.htm)

~~~
jordanchan
Agreed - everyone has their weak spot, but not for _everything_. Its like
everyone has their price, but not the fellow considerably richer than you.

As for smoking, if companies were allowed to actually misstate it is good for
you, there would be myriad other organizations working to prove it isn't. A
reasonable person might well do his own/independent fact finding.

Someone can say eating an octopus is yucky [it is actually used with salad in
many places] but for a large amount of money you can convince/bribe them to
try it. But if Warren Buffet says no, good luck bribing him. You can try
another [practical, not theoretical] incentive, but I'm sure he could buy that
too. One can say rich people must live certain lifestyles, but Steve Jobs
lived an almost monastic life [save the Mercedes and a couple of other things
maybe].

That inherent need has to be present for an advertiser to target/exploit it.
And the person has to actually buy the premise of the proposition. Many have
the guts to go against the crowd and some even take it as a badge of honor.

Valentine's day is a manufactured custom too. Many are religious about it,
many others abhor it - despite the concerted, and mostly successful, efforts
to create a romantic custom out of the day. Diamonds, I agree - in many
cultures, especially the US. But in many other cultures, such as the Nordic,
it is less common [1 - a forum thread]. That doesn't mean de Beers doesn't try
its level best to manufacture the same kind of social custom in Sweden. That
need for extravagantly showing off a romantic pre-commitment just doesn't
exist in that market.

Now let's reasonably assume your SO is well aware of the hiring-pretty-girls-
policy, and does not prefer you buying from that store given that there are
better economic alternatives, and add in a touch of reasonable jealousy. Do
you still frequent that store, given that you are happy with your SO?

Could I sell you an extravagant snake-oil panacea if I were a hot bird?

[1]
[http://www.thelocal.se/discuss/index.php?showtopic=32620](http://www.thelocal.se/discuss/index.php?showtopic=32620)

~~~
TeMPOraL
I don't think people like Warren Buffet or Steve Jobs are safe from being
manipulated. As you say:

> _That inherent need has to be present for an advertiser to target /exploit
> it. And the person has to actually buy the premise of the proposition._

The needs of people safe in monetary ways are often more nuanced and complex,
but they are there. Some rich people are still insecure about status, and you
can attack that. Others want to do good for the world, so they're perfect
targets for various "charitable" organizations (thankfully, GiveWell /
Effective Altruist movement tries to do something about that).

> _Many have the guts to go against the crowd and some even take it as a badge
> of honor._

Yeah, I know. But you know how nonconformists strangely look alike? Capitalism
has managed to go meta - being anti-capitalist has also been packaged and
shipped to stores.

> _Now let 's reasonably assume your SO is well aware of the hiring-pretty-
> girls-policy, and does not prefer you buying from that store given that
> there are better economic alternatives, and add in a touch of reasonable
> jealousy. Do you still frequent that store, given that you are happy with
> your SO?_

You got me here :). Now that my SO no longer works there, I neither feel the
need to visit the store that often (though I still pop in from time to time,
because I like buying in a place that is friendly to me, but not for extended
chats), nor would I like to give her reasons for being jealous :).

I guess we're still dancing around the point, so let me restate my assertion.
You say:

> _everyone has their weak spot, but not for everything. Its like everyone has
> their price, but not the fellow considerably richer than you._

I say: everyone may have a different set of weak spots, but everyone has them
and market economy does and will exploit _all_ of them. By saying "everyone is
gullible if you attack from the right angle" I didn't mean that angle is
universal for everyone. Different people respond to different strategies, but
there is a way to get to everyone.

> _Could I sell you an extravagant snake-oil panacea if I were a hot bird?_

If you were and I wasn't in a relationship, I'd encourage you to try :). Hell,
I might buy if it would make you talk some more :).

~~~
jordanchan
The idea of selling to people based on their needs _assumes_ that everyone has
needs/insecurities which, if correctly targeted, will result in a successful
sale.

To this extent, we're fully aligned. Take a step back. To the _theory of
needs_ , one of the earliest and best known variants of which was proposed by
Maslow. (There have been numerous updates to Maslow over the years [1]. A
common theme in all variants of the theory of motivation/needs is the concept
of self-actualization.)

If individuals' needs are the foundation of selling to them, someone motivated
by love and belongingness needs ought to be motivated by things that will help
him feel closer to others. Indeed, this is the base of the couple of examples
we discussed (pretty girl selling snake oil, and the supermarket with good
looking sales girls). Similar arguments can easily be put forward for each and
every kind of need - doesn't matter what the actual product is, what matters
is what the buyer thinks/believes it will help him achieve, ergo, what need(s)
will it is perceived to fulfill.

The crux of my counter-argument is based on the exceptions - the self-
actualized individuals, who admittedly form a very small fraction of the
population. You're right in the general case, of course. I'm saying there is a
proper subset which is an exception to the rule. Going by the theories of
motivation/needs, the self actualized people are driven solely by what they
believe their "purpose" in life to be. It is also supposed, in these theories,
that self actualized individuals either do not have needs (what you rightly
phrased as insecurities), or aren't driven/motivated by them.

In the general case: As long as there is an illusion that need x will be met
by a product y, people who are motivated by x can be sold y. In the case of
self-actualized individuals, it is harder to sell an illusion - which won't be
sustained in the face a logical/rational analysis. Since there is no
underlying need/insecurity to target, all that remains is a factual analysis
of what material benefits the product confers vis-a-vis what the self-
actualized individual's goals are.

So I guess it boils down to: what's your take on the theories of motivation
and the notion of self-actualized individuals?

[1] I found a good summary + a new approach at a Medium blog post, which seems
reasonably well researched and presented.
[https://medium.com/@faracrosstherubicon/rethinking-
maslow-a-...](https://medium.com/@faracrosstherubicon/rethinking-maslow-a-
postmodern-theory-of-motivation-b6e36ecf5795)

