Sunday, 20 November 2016

You Voted For Failing Businesses


In a recent blog post I wrote about how our individual market decisions are what create wealthy people, and as a side-effect, in-country inequality. This blog post is also about our individual market decisions – it’s about how we collectively punish failure by the nature of our voluntary spending.

While it’s true that in the short term when businesses close or industries shrink the people directly involved feel the cost - for society as a whole it is good when inefficient firms go under because it’s society’s way of signalling that our preferences have changed.

The next time you’re thinking it’s bad news when a firm can no longer survive, console yourself with the fact that we democratically voted it to be that way with our buying habits, and that what it actually means is that a competitor is doing well at the expense of someone’s else failure.

We’ve probably all noticed how the newspaper industry has diminished in recent years as more and more news is disseminated online and through more numerous television sources. I happened to notice on Forbes the other day just how much it is diminishing with the following graph charting its decline:
 

As long as there is no foul play, and as long as industries aren’t being hamstrung by politicians, then every instance of failure is a good thing. It’s we the buying public that have decided the world got to a point where it had too many newspapers being printed, too many VHS recorders, too many fax machines and too many landline telephones. And that’s all fine and dandy, because the main thing the market is good at is changing its shape, pace and structure according to the aggregation of every mutually beneficial transaction that occurs in society.

Incidentally, I’ve often pondered whether the reason a lot of people are so averse to the market is because it is so proficient at dealing with failure. Many people are quite risk-averse and they are disenchanted by the nature of competition, which may be why they see the market as a cold and uncaring system, when in reality it's the opposite.

The other thing that may be a factor is that a lot of people have control freakery when it comes to society. They can't stomach a free society where individual transactions shape the landscape rather than rulers from on high. The human mind simply does not have the breadth and cognitive wherewithal to coordinate anything as dynamically complex as an economy – we have to be guided by supply and demand and the price-signals it engenders.

It is those signals that tell us about preferences for newspapers, twixes, comedy shows and mobile phones, and many people feel pretty insecure by the fact that billions of market choices based on trial and error are infinitely better at running an economy than any human minds that try to govern it.  

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