"The Market Doesn't Care What I Think"

We complain about the world, but the market proves our actions speak louder than our words

A former branding consultant friend of mine had an important saying about the world, “The market doesn’t care what I think.”

The market is an incredible tool for bringing reality to the surface. We all have ideas about how to improve the world - or so we think. But can they survive contact with the market?

An example: many people complained about legroom on airplanes. So American Airlines created a program called “more room throughout coach.” They took rows of seats out of their planes and added legroom to those that remained.

The program was a total failure. It turned out, most people weren’t willing to pay more to fly American to get more legroom.

What happened after that is that airlines segmented their customer base and started charging more for premium seats with more legroom. This same model got applied more broadly, with the result that we now get charged à la carte for almost everything involving air travel.

People complain about this. It does destroy consumer surplus. But the market has shown that this is what we really want. How we choose to spend our money reveals our actual preferences.

This includes my own. I fly semi-regularly, and almost always choose a standard economy fare and don’t pay for an upgraded seat. I can’t justify to myself paying $23 for a few inches of leg room on a flight that will only last an hour or two. I also don’t belong to any airline lounges.

This applies to so many things in life.

For example: everybody complains that we have poor leadership in America. That’s a proposition that’s hard to argue with in many cases.

But is there any evidence that people actually want good leadership? Just look at who wins elections in most cases. It’s generally not the most serious, high-minded, competent candidate. Where in America is good political leadership being rewarded by the market?

While I’m not as cynical as H.L. Mencken, his quip that, “Democracy is the theory that the common people know what they want, and deserve to get it good and hard” has some truth. In some ways, we get the leadership we deserve, certainly when it comes to elected officials. (Structural factors, which I’ve written about many times before, play an important role too).

It’s the same with the proverbial quest for community. The decline of community has been bemoaned longer than I’ve been alive. Yet we still keep moving away from family and friends. We aren’t joining fraternal organizations.

As with airline seats, everybody complains about what we’ve lost with the decline of thick communities and durable relationships. But looking at people’s actual choices, we don’t actually want those things. We aren’t willing to accept the limits and impositions of that kind of community. (Alan Ehrenhalt’s The Lost City does a great job of showing what that old world was like in practice).

Or think about megachurches. People love to hate on megachurches. They are said to be shallow, cheesy, etc. Even decades ago Willow Creek Church was doing congregational surveys showing a need for more discipleship.

But megachurches must be doing something right. They still look to be very popular as far as I can see. Where is the alternative model of church that’s so much better - and actually drawing the people?

Of course, the market isn’t the measure of right and wrong. Just because something is popular doesn’t make it morally correct.

It’s also true that many of us can point to the legitimate downsides of so many things in our society today.

Those downsides may be real. But everything involves tradeoffs. The market is the way we resolve what tradeoffs we want to make. It doesn’t necessarily follow that we can easily change the things we don’t like if there’s no market for the alternative.

This doesn’t mean changing the world is impossible. But it does mean we need to pay attention to the market.

Organizations start to fail when they find ways to insulate themselves from the market. A rule of thumb for a performing arts organization is to get a third of its revenue from an endowment, a third from annual giving, and a third from ticket sales. This helps keep an organization connected to the marketplace. It needs to be able to both sell tickets (the mass market) and convince donors to give money (the VIP market).

An organization with an endowment so large it buffers against a need to retain a constituency is probably going to go off mission and maybe even go crazy to boot. The market helps discipline against this.

One reason the conservative institutional world was blind-sided by Trump, unable to understand his appeal, and thus unable to formulate an effective counter to him is that they became disconnected from the market. These organizations are funded mostly by large donors. Contrary to popular belief, think tank fellows are not shills for donors. But having those big donors allowed these organizations to grow distant from the Republican base. Were these organizations more dependent on “retail” support, they would have understood what was happening much earlier.

Another example of market insulation is bailouts. As Nassim Taleb points out, every bank bailout makes the next one even more likely. People begin to operate under the expectation that they will be bailed out, and so take risks they never would have otherwise.

The results of the market aren’t always what we want, but the alternatives are generally much worse. That doesn’t mean we can’t have regulations and such. But we should look to work with markets rather than against them. Remember, government makes markets.

And critically, we need to be willing to face the unpleasant fact that very often things we intensely dislike - say, bad leadership - may well be what the people actually want in practice. Any changes we want to make are going to have to survive contact with the marketplace.

Cover image credit: David Lytle/Wikimedia, CC BY 2.0