A few years ago when I taught economics, I used this example of how a free market system works about as well as it can: This morning I enjoyed a simple nutritional breakfast that cost me less than one dollar. It consisted of a bowl of cereal. The fresh milk was produced locally, the bran flakes came from the Midwestern U.S., the blue berries arrived from Europe, the bananas came in from Central America, and the zero calorie sweetener was the product of a research and development laboratory that represented a marked dietary improvement over the recent past. Even the bowl and spoon that I used were delivered to me clean and sanitary thanks to a dishwasher built in Korea that conformed to U.S. inspection standards for hygienic cleanliness. All the components also passed at least random sampling for quality and freedom from contamination. It is unlikely that even Adam Smith ever visualized such a convergence of products and services so perfectly blended to bring me a safe and nutritional breakfast at such a low cost.
I also pointed out that one example does not constitute a good enough sampling of an entire economic system upon which to pass a judgment. Here is another example from the other end of the “good to bad” continuum of examples: Today I received an offer from an automobile insurance company for insurance for my car. In their offer I was assured that their data showed that the typical new purchaser saved an average of $479 per year in premiums by switching from their current carrier to them. On the surface this sounded like something worth looking into. They were a highly reputable company, and I could certainly benefit from a savings of more than $400 dollars. But, of course, I did not bite on their offer. And why not? The reason was because I had also received, or read, or watched similar offers from at least a dozen different companies, and they all proclaimed that I could save about the same amount by switching to them! Moreover, their data collection methods and their analytical procedures were proprietary and could not be revealed, else they would be severely hampered or stripped of their competitive advantage in the marketplace for doing so.
It was possible that their lowest risk customer with the least coverage could save $479 annually over their highest risk customer with the most coverage, and somewhere deep in the fine print of their offer such a comparison could have been noted. I did not know, nor did I care. What was clear to me was that 12 different companies could not all save me hundreds of dollars annually for the same coverage. I could only conclude that the old axiom held true : Caveat emptor! Let the buyer beware. And if I could not trust 12 large and reputable companies to come clean with honest facts and data, who and under what conditions could I trust any seller of goods and services?
The prudent consumer, I cautioned, cannot trust advertisements at all. Each of you—for better or worse—is left in the position of having to evaluate every offer when meaningful dollar amounts were involved. Otherwise, you will find yourself on the receiving end of a very large screw inserted into openings in your bodies that would leave you bleeding and in need of serious help. Also, do not buy into that bull crap that you are unpatriotic or unAmerican for doing so. Bravery does not consist in taking big screws, but in avoiding them and fighting back. The weapon in your defense is called “critical thinking,” and that is the lesson we will cover tomorrow. It is the antidote to a long list of bloody screws coming at you from all angles. It is also one chapter in Adam Smith's treatise about free markets that was not included.
"Critical thinking" indeed. Certainly a sore lacking ingredient in much of contemporary societies 'pied piper' mindsets. Your cogitations, here, appeal to the logic of this reader. rlc
Another axiom that people often miss. The lowest bid is not always the best bid. When someone low balls an estimate, it is often from inexperience or sloppy calculation. These people either produce low-quality work, under do the job, or request more money before they are through because they initially left out key items. If someone is unable to give you a written, detailed estimate that you can check for errors and omissions, I wouldn't hire their services unless they had a good track record with you from earlier, smaller jobs. Foreigners often do the best work for the lowest cost. However, they are reluctant to do good written estimates in English and often will only work for cash.
You are right on with the way that advertising is misleading. Déjà vu… I got that very same offer and my auto insurance situation is much different from yours. Something that really irks me is when they say "30% off." In my mind I always say, "Off of what?" Retail merchants have traditionally raised the prices of their wares well before a holiday, so that they can cut prices just before the holiday to make it look like their "sale" is legit.
Our courts have repeatedly lionized the right to lie by intent or omission as an essential cog of the First Amendment. Thus it was also not mentioned that our cocoa beans come from child slave labor, that screw drivers are made in China and that all of those marvelous savings are created on Madison Avenue (at last something 'homegrown'). Adam Smith was a Scotsman who may have been 'plain speaking' in his day but desperately needs someone like you to bring his ideas into the current century's version of the English creole. Critical thinking is most often free of charge or at least worth the effort. Well said.
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The Wealth of Nations' Missing Chapter
