Do free-market capitalists really disregard the importance of well-informed, -educated consumers?

In a previous question I asked about the role of education in capitalism, I was trying to get at the fact that if markets are to be efficient in providing the best products, then shouldn’t education be a central part of capitalism (i.e. you need well-informed consumers to buy the “good” products in order for the market to continue to innovate/provide better products).

The response I got from a lot of people was that free-market capitalism says nothing about providing the best products or progressively better products, rather they posited that free-markets are good only in their efficiency at getting/rationing the product (any product) to the consumer in the most efficient fashion.

I’m still thinking about this though. Do proponents of free-markets really not posit that free-markets spur the creation of newer, better, and safer products? I ask this because in my experience has always been in talking about the detriment of, say, fast food, that the response from most conservatives is “If there is something wrong with the product, people will stop buying it, and the market will shift.”

Doesn’t that mean education should play an integral role in the promotion of free-market capitalism? Doesn’t that mean that being well-informed about the actions of the companies, ingredients or materials of the products, the environmental impacts, etc. is a civic responsibility of the people in a capitalist country?

What am I mixing up here?

In my opinion, a perfect free market assumes perfect knowledge as well (or access to such).

Example: Sony and Visio both make computer screens. One cost $100 and the other costs $200

The perfect knowledge of the products would lead a consumer to buy one over the other. Refresh rates, durability, service etc would all be part of the perfect knowledge.

Am I missing the question? Currently all of this information is accessible.

free market capitalism works better amongst intelligent, hardworking, healthy people than amongst people who are the precise opposite of that. That general statement, however, does not imply that free market capitalism will work better if we have more kids graduate from American high schools and colleges. That’s because 1. these institutions are not necessarily known to make people more intelligent and hardworking and 2. because there are inherent financial tradeoffs involved and at the present time the cost of American education is exorbitant due to waste and overheads, all paid out of taxes drained from the economy.

Free market capitalism can also, theoretically, be expected to produce decent, low cost education through private educational institutions. In practice, however, education is a field that is heavily regulated by the government and also stifled by various irrational institutional practices (such as, if you don’t have 4 year degree from one of a set of colleges, private capitalists nowadays wouldn’t hire you). The latter problem illustrates the point I made about people needing to be INTELLIGENT to keep things running well and for a competitive environment to exist - dumb people can and will run any economic system, including capitalism, into the ground. Cue Idiocracy - Wikipedia for a comedic illustration.

The problem is that you can’t just lump everything under “free market capitalism”. All the free market means is that people have personal property and are free to trade with one another at whatever value they come to.

But ultimately Capitalism is a philosophy that’s goal is quite explicitly to improve the world and the livelihood of the populace. Anything which allows it to do that better is encouraged, anything which hinders it is discouraged. There is no ideal system that is known or emphasized as the Ultimate Truth from Up on High, unless you’re a Libertarian maybe. But that’s not in keeping with the history of it.

Educated and skilled people will be more effective at producing products. As for buying products, I don’t get it. Those companies who make a product which is technically better might be in favor, but a lot of product selection is done based on taste or emotional factors, and education is not going to change that.

I work in the high tech area, and there are plenty of places where highly educated people differ wildly on what is best - try a vi vs. emacs religious war some time.
I wonder if the critical thinking skills we usually say are the biggest benefit of education will be seen as a plus or a minus by companies selling stuff.

Yes. However most people (myself included) are not which is why we (try to) mandate regulations to meet a certain level of sustainability, labor rights, safety requirements and environmental laws.

Interesting question. As a producer, you wish to make as much profit as possible-does this lead you to skimp on quality? having intelligent, well-informed consumers will make it impossible for you to cheat (too much).
I agree completely with a previous poster, who cited the poor secondary school education in much of the USA-part of the reason people are scammed, is that they do not know about things like:
-compound interest
-buyer’s rights
-sources of product information (e.g. CONSUMER REPORTS)
A free market offers the best chances for the consumer. Communist economies offered limited choices and (usually) poor quality.

You have to separate individual decision making from aggregate decision making. Any individual can make bad or irrational choices. But given a large enough market and the existence of competitors, the products with the best price/performance generally rise to the top. The reason is that there are forces at play other than individual choices. Competition between competitors drives quality up. New entrants to the market seek to make a name for themselves by offering better or cheaper products. Any individual may not choose to buy the better product, but the market as a whole tends to do so.

This should be self-evident. Just look around you. Look at the computer you’re using and the monitor you’re looking at. Chances are, it’s much better than anything you could have purchased five years ago. Look at how much better cars are today than they were in the 1990’s, and how much better those cars were than the cars from the 1980’s, and so on.

Of course, you can always find what you think is an exception. Some product you think is a lemon that nonetheless continues to sell well enough to keep the company alive. Often, if you dig deep you’ll find reasons for the product’s success. But of course, when products become fairly similar in quality, people can disagree over which one is truly the ‘best’. Mac users vs Windows users, Ford vs Chevy vs Toyota, etc. The fanboys will always argue that everyone else is ‘stupid’.

But in fact, the differences between these products is trivial compared to the differences between them and equivalent products a generation ago.

Are educated consumers better consumers? Of course. But the fact is that the market provides high quality goods even to idiots or the ignorant. I’ll bet a lot of you really have no idea how to look for great quality in a lot of the products you use, yet the market provides high quality products to you anyway.

Brand names that become popular are one way in which poorly educated people can discern quality. Everyone knows that Nike shoes are likely to be much better than no-name shoes from Wal-Mart. If you’re an auto ignoramus but you want a high quality car, you know that if you buy a Lexus you’ll probably get the quality you want, even if you wouldn’t personally know what to look for.

Because brand names have tremendous value, companies that achieve good brand recognition work very hard on quality to keep it. Even if they could sell junk to people by trading on their brand, they know that the money they’d earn doing so would be soon eclipsed by the financial loss taken from the brand being devalued.

And when companies fail to heed those rules, they go out of business. Capitalism punishes them more effectively than does government regulation. Unless, of course, they are GM or Chrysler. Then the government bails them out. But that’s a different story.

I actually think a free-market capitalist system CAN NOT work when people become informed. The entire system is built around the concept of preventing and obscuring information. Why are doctors and lawyers paid so much? Because they have information the rest of us can’t get access to. I don’t know what this lump on my arm is, a doctor does, so I pay him as much as he wants to charge for that disparity of information. When he screws up and I need to file a lawsuit, only lawyers have the information and access. If that information became more readily available they wouldn’t be able to charge so much.

Sony is the perfect example, why do they get to sell products for three times what they’re worth? Because they put in a lot of effort to convince people their refresh rate is some how better than someone else’s. They work very hard to make sure people can’t be informed or be able to compare their product.

Have you ever tried to compare Intel chips vs AMD chips? They both do the same thing, for a different cost, and Best Buy is happy to prey on that.

And then even at the retail level, companies work hard to make sure you don’t know how much something costs. Check out bestbuy.com and notice how often now you can’t check what the price is until it’s in your shopping cart.

Technically speaking, if people were able to be informed profit is supposed to drop to zero. Free market capitalism isn’t meant to allow profit, profit is actually inefficient. Someone else should be able to make and sell a tv that costs less than Sony and sell more of them, forcing Sony to lower its price. But it doesn’t happen because of education.

Please don’t forget that one of the fundamental premises of economic theory is that consumers are rational actors.[sup]*[/sup]

A perfect free market assumes perfectly rational beings (suck it, Kant) capable of making perfectly rational choices.

This capability of making perfectly rational decisions entails perfect information. The application of perfect information to choices entails a sufficiently well informed and educated actor.

Perturbations from there is where theory starts to snuggle up to reality.

Any claim that “free-market capitalism” doesn’t begin with this is political poppycock.

On the side note:
Another fundamental of capitalism (grossly generalized here) is it’s efficiency: it achieves maximum utility for minimum price. This is driven by competition on the supply side (e.g., improvements to products lure customers away from competitors; improvements to processes decrease cost to consumers) as well as the demand (e.g., actors willing to pay higher prices for increases in utility).

The hallmark of capitalism is that (in theory) it gets all supply and demand signals as close to perfection as (humanly) possible. Signals are not set by fiat, they are set by individual actors expressing their preferences in the market. One of those signals is utility (i.e., warm fuzzies, not functional utility). Utility and quality are not synonymous, though they often overlap. Capitalism maximizes the former, not the latter.

[sup]*This is as absurd but well-functioning as physicists’ assumptions of frictionless vacuums. [/sup]

I’m not sure if you’re saying what I think you’re saying, but if you’re saying that there’s value in physics models that assume massless frictionless vacuums as simplifying assumptions, even though we know that no such thing exists, then I would agree with you.

Textbook formulas for economic behavior may assume perfect information and frictionless trades and non-sticky wages and zero-delay information transfer and all the rest, because otherwise everything would be so couched in exceptions and complications that it would be impossible to teach. We know the world isn’t perfect like that, and Ph.D economists spend a lot of time sorting out how the imperfections affect the models.

However, this doesn’t change the fact that free markets approach these ideals, with many noted exceptions (sometimes quite large - information asymmetry has broken the health insurance market). But the exceptions are notable only because in the vast majority of cases, the market does very well.

I bought my desk from Staples almost ten years ago. It was cheap, and made of substances that typically don’t stand up all that well - veneered particleboard, mainly. Twenty years ago, such desks would have come apart in a few years, with the veneer peeling off, the furniture becoming wobbly, etc. This thing still looks and feels new, and I’m pretty hard on my desks. Glues have gotten better, veneers have gotten better, assembly techniques have improved, manufacturing tolerances are tighter.

And I don’t have to know anything about glues, because the company that makes the furniture does, and they discriminate between glue suppliers. The glue suppliers in turn have a vested interest in educating their corporate customers on the various values of their particular brand. Corporate buyers become experts because they buy large quantities and a little information can save a lot of money.

And so it goes. As people cooperate and sell each other intermediate products up the supply chain, quality is assessed at each level. In my company, we were working on a big sale of some software, and the customer actually sent software engineers into our offices to assess our practices and validate for themselves what our quality was like. We had to show them our QA reports, our test scaffolds, etc. Much the same thing happens every time we renew our ISO9001 certification as well.

And yet, I didn’t know any of these things. I was a pretty ignorant consumer - I bought what looked nice and what gave me maximum space within my budget. I wouldn’t have known good glue from bad, or cheap veneer from good veneer. And yet, I got a quality desk mainly by shopping at a store I trust and buying a brand I had heard of before.

And consumers ARE more educated. Dramatically so. The internet has revolutionized consumption. It’s much harder today for a company to create a lemon of a product and still sell it. Price competition has gotten fierce, because it’s so easy to compare prices. Customer reviews can be found for anything, in large enough quantities that you can get a pretty good sample size to ignore the outliers or the unreasonably happy or disgruntled. Poor products have a much tougher time finding a market than they once did.

Where to begin… Let’s just start with:

How does one determine the “worth” of a Sony product?

emacknight,

the ability of lawyers and doctors to take you to the cleaners is not the fault of “free market capitalism”. It is the fault of market-restricting regulations originating both from government and from quasi-governmental bodies (like American Medical Association). If we had less government, less lawsuits (which happen because government allows or even encourages them to happen) and less cartels a lot of those unearned rents you mention would have disappeared overnight.

By the way, is the money your employer might be spending on “diversity coordinator” and “Green sustainability program” also a fault of the free market capitalism? Just saying…

That’s a really excellent example. Some years Intel chips are better, some years AMD chips, but the difference in quality is measurable only through sophisticated benchmarking which the average consumer is not going to understand, and which will be invisible to him anyhow. When I worked at Intel the management considered the Intel Inside ad campaign brilliant, which it was, because it gave consumers the impression that Intel inside was somehow special, and made paying extra for the identical performance worth it. When it started there were some AMD bugs causing incompatibility in some obscure cases, but if there have been any in the past decade I haven’t noticed.

Anyone thinking the market always drives better quality is living in a fantasy land. There is almost always a niche market for cheap products in both senses of the word. Any successful toy immediately gets a Chinese knockoff.

Branding sometimes means quality, but it often is used for the perception of higher quality. Factories often make a product under a brand and then exactly the same product under a private label, which fetches a lower price with the same quality. And I heard a very high level manager of a division of a major company (not Intel, to be clear) say that their brand allowed them to charge more for a lower quality product, because there was a perception of quality. That business did close, but not because of that, and knockoff makers make tons of money before going out of business. Closing a product line is not the end of the world to lots of companies.

Perhaps educated consumers will still buy junk, but a lot of junk purchase come from those who are fooled into thinking they are getting a better deal than they are.

Advertising addresses emotional, irrational, needs far more than it does product features and quality. And it is getting more so: look at ads from 100 years ago, which are often wordy product descriptions.

This is not going to change with more education. Browse through any trade rag, and you’ll see some advertisements based on features and some based on emotions. It is better than it used to be since it became impermissible to use girls in bikinis to sell power supplies.

Wow, where to begin? What the AMA has to do with lawsuits is beyond me. Having jack booted thugs from Washington telling Joe Public that he can’t sue the company that he thinks ripped him off seems like more government to me, not less. And do you really think that antitrust would be less of a problem without the government? Do you know any economic history? Does Standard Oil ring a bell?

Does your vision of Eden include the right of any quack to practice medicine while preventing those he harmed from suing him? Because it sounds like it.

If capitalism were perfect, it would have noticed that any form of discrimination leads to a non-optimal employee pool, and diversity training would be unnecessary, and if companies realized that in the long run a dead world does not make business sense, we wouldn’t need Green initiatives. But people naturally work for immediate rewards, which often does not produce optimal results in the long term.

That’s it exactly. One of my favorite senior seminars was … was … holy shit I can’t remember its name. But anyway, it had a cool name and we spent the year hacking the rationality assumption to bits. We were all econ majors (what made it fun was that a lot of us were also philosophy majors) so we never lost site of its function and whatnot, but that reality-based divergence is the soul of a lot of economic theory.

One of the fascinating bits was that even though it’s ostensibly a wrong assumption, it is nonetheless an intrinsic part of capitalism.

Right. Note, though, that I was explicit in stating that utility = warm fuzzies, not functionality. You can get utility from functionality, product features and quality, but you can also get utility from emotional, irrational needs and desires. Fortunately (for the sake of progress), people’s derive utility on a spectrum between the two.

You got it perfectly right. Did your seminar cover the interesting findings about how increasing consumer choice can decrease sales and reduce the quality of the choices made?

Where is this written?

“Capitalism” actually means quite a lot of things, but I’ve never seen any definition that “explicity” stated what you claim it does. IF you can refer to to this explicit statement I’d be very appreciative.

Wow. Just, wow.

Economics threads are profoundly depressing.

Part of the original (at least so far as we can tell it’s original) Hippocratic Oath included the promise of the physician to not share his knowledge with non-physicians. Surgeons in the middle ages and early modern Europe were part of guilds that required their members not to share trade secrets with outsiders. These days, I can access the latest information on how to perform surgeries and how to treat diseases. It’s no longer a trade secret. So I don’t think your example is all that great. Am I a trained physician? No, but I have access to good information.
Odesio