Free Markets (19) - Serving Consumers

To succeed in a free market, businesses must serve consumers. Imagine a florist who is passionate about yellow flowers but hates red and white ones. She loves them so much that she decides that she will only stock yellow flowers. To sell flowers, the florist will have to meet two conditions.

• She will have to find clients who want yellow flowers.
• She will have to sell yellow flowers at least as cheap as other florists.

This florist business would almost certainly struggle.

• When no yellow flowers are available, the florist shop will be empty.
• Most towns will not have enough people wanting yellow flowers.
• The shop will be quiet on Valentines Day when red roses are popular.
• The florist would lose clients wanting white flowers for weddings.
  
• The florist might be able to persuade some people wanting red flowers to buy yellow ones, but that would be hard work.
• If a belief that yellow flowers bring bad luck prevailed, none would sell.
• The florist could try and get the government to pass a law outlawing red flowers and white flowers, but that would be almost impossible.

To increase sales, the florist will have to overcome her dislike for red and white flowers enough to make them available to customers.

Consumers can indulge their preferences for flowers provided they are willing to pay for them, but once the florist decides to sell flowers to the public, she loses that freedom. She does not have to change her preferences, but she is faced with a stark choice between serving her customers and losing sales. Selling in a free market will force her to respond to the preferences of her customers.

Free markets force businesses to serve their clients. A business that does not provide the goods and services that their clients want will lose customers. A business that produces the things its staff enjoy producing, or the things that it thinks people should buy, will eventually fail. A successful business must serve its customers. Free markets set consumers free, but they are very constraining for businesses.

Serving the Church?
Pastors do not understand the tyranny of the market, because they work in a different world. They are not called to serve their customers, but to change them. A pastor is selected for his theological views and he is expected to preach that line to his church. He does not change his message to match the tastes of his listeners, but preaches what he believes God wants them to hear. A pastor is expected to implement his vision for the church. Those who are not stirred by his vision are advised to seek another church.

The pastor is charged with changing the thinking and behaviour of his people to be more like his own. His purpose in life is to persuade people to like yellow flowers (gospel truth). He would be failing in his duty, if he allowed them to choose any coloured flowers (pluralism). This means the pastor’s customers are usually wrong. If the pastor has the ear of God and preaches clearly, backsliders and rebellious people will reject his message (you can’t make me like yellow flowers). A response that would be a sign of failure to a business is actually a sign that a pastor is preaching boldly.

Businesses must serve customers to succeed. Pastors do not understand the tyranny of the consumer, because they do not have to serve them to succeed.

Savings and Investment (2) - Consumers

Artificially low interest rate interest rates cause dislocation in the economy. Households respond by reducing saving and increasing consumption (for most households, a car and a home are consumption goods and not investment goods).

Big spending on consumption goods makes people feel good, but it cannot last forever. When interest rates go up again, personal debt becomes a burden and interest payments take an ever greater share of disposable incomes. Households are forced to reduce spending on consumption goods to get their balance sheets back in shape.

When the demand for consumption goods declines, businesses have to cut back on the production of consumer goods. Ideally, the resources that are no longer needed to produce consumer goods should be switched to the production of investment goods. If this does not happen, the economy will decline as the resources that previously produced consumers will be underemployed.

Unfortunately, two things have happened that make this shift in resources impossible. Firstly, there is no additional savings available to fund any new investment expenditure. Although households have reduced their expenditure on consumption, their surplus income does not go into savings. Most of it goes toward payment of interest. Any surplus not used on interest is not available to fund additional investment, because it must go towards repayment of debt. Although there has been a decline in consumption, there are not additional savings to fund the purchase of new investment goods.