Wednesday, 17 March 2010

How increasing access to information is going to make some ideological retards very happy with themselves.

Few things grate me more than when it seems like highly opinionated but fundamentally ignorant people might end up being inadvertently right about something. Nothing seems so unjust as fate rewarding stupidity with false validation.


The topic about which they are so wrong is economics, the agent of change is information technology, the idiots are free market fundementalists who cry socialism as soon as the government even thinks about intervening in the 'smooth and efficient' running of the 'self regulating' economy. The good news is that we're all going to benefit from this change even if it does embolden a disproportionately stupid but powerful group of people on the right.


First a little simplified economic theory. Free market fundementalists believe that, left to it's own devices, the free market economy (an economy with no regulation or government intervention) will perfectly distribute resources (raw materials, labour and money) to where they are most needed for optimally efficient production and, crucially, social utility. This is the case, so they say, because consumers will punish companies that supply substandard goods at too high a price by not buying from them, ultimately forcing them out of business, leaving the way clear for better, more innovative companies to take their place. By this method (often known as the 'creative destruction' of the market), they claim, the needs of consumers are best taken care of and innovation is encouraged, enriching society as a whole with knowledge, progress, wealth and, my personal favourite, freedom. It is a theory that was first touted by Adam Smith in the late 18th century and has been the foundation for almost all economic thought ever since. It is a beautiful theory and it works beautifully, in theory.


The problem is that, like all models, it is built on the basis of a couple of certain set assumptions... rather unrealistic assumptions. The one I'm going to focus on is the theory's characterisation of the consumer as rational, utility seeking and perfectly informed. Basically, we're all supposed to be super human calculation machines, divinely endowed with all of the facts about any potential purchase and only capable of desiring items of which Mr Spock would be proud. I hardly need to point out that the reality is a little messier than that.


But I will. In fact, of course, we're a bunch of burger eating, Rolex watch wearing, heroine injecting, fashion obsessed cretins who are subject to a never ending stream of irrational whims and impulses. We're easily influenced by substanceless marketing and advertising that is targeted at our more magpie-ish tendencies and on top of all of this, and in fact underlying it, is our general lack of knowledge and information concerning the macro and micro economic world in which we live. Even worse are what's known as the information asymmetries (that is, the fact that you rarely know as much about a product or the market as the company selling it to you does). Companies wield this superior knowledge to their advantage, selling you a worse product for a higher price than you would accept if you knew the truth. They also seek to widen the information gap between themselves and the consumer ever more as the size of this gap is directly proportional to the size of their profits.


This happens in virtually every economic transaction that you are part of and the net effect is the massive inhibition of social well-being and innovative human progress. Free market fundamentalists somehow manage to sweep this under the carpet and blame any socially undesirable outcomes from business on the meddling of big government whose real role is far more mixed. Sometimes the problem, sometimes the solution depending on the competency and corruptibility of its constituent parts.



There are a few instances of technology closing that information gap. Price comparison websites that collect all the offers in the market for a given product or service and rate them for you spring to mind. Amazon does this as well for consumer products and on top of that has a list of reviews. Expedia helps you find a cheap flight and has forced airlines to compete more aggressively on price than ever before. You get the idea. This is good stuff but it hardly amounts to the coveted state of 'perfect information' needed to make classical free market economic theory viable. To start with, a lot of people are still uncomfortable buying products that they can't see or hold in their hands before purchase. There's always the fear that lurking behind the glossy picture and description displayed on your computer screen is a hidden defect or design flaw that one could pick up on if one was purchasing it in the real world. The fact is that the vast majority of economic transactions still take place in the flesh where there is no internet powered information enhancement available and information asymmetry abounds.


The other day I made a personal leap towards perfect information. I needed a set of hair clippers and I needed them immediately, no time for faffing on Amazon. Off I went to a big pharmacy and was presented with four choices of varying prices. Now I've been burned before when it comes to clippers. Some have blades that blunt fast, some break easily. Feeling incredible geeky, and yet somehow cool at the same time, I whipped out my phone and typed the various models into the web browser. After about five minutes of research I knew which one was for me and made my purchase. Score 1 for informed consumption!


Most people, however, aren't as prepared as I am to go through all the hassle involved in a real world on-the-go information hunt and purchase. The technology just isn't good enough yet. Most people in my position are going to decide how much they want to spend and trust that the price tag realistically reflects the quality of the product they're buying. They might also factor in a bit of perceived brand respectability as well, which often has very little to do with a brands actual quality. If all else fails we probably make a decision based on the packaging which is why so much effort goes into the production of something that will end up in your rubbish bin within minutes of getting home.


In this instance, most people would have been screwed and bought the wrong product. It turns out that the clippers with the best reviews were the ones that looked the cheapest (in fact they were the second cheapest) and were from a company I didn't know. Had I not done my little on the spot info hunt they would have been my last choice.


The good news for consumers and retarded free market economists alike is that information technology is changing ever more rapidly. At the latest TED (Technology, Entertainment, Design) conference in California, Pattie Maes of MIT unveiled her teams' new prototype creation, a 'wearable device that paves the way for profound information rich interaction with our environment' (www.youtube.com/watch?v=nZ-VjUKAsao&feature=channel_page). Composed primarily of a camera, a mini-projector and an internet capable mobile phone, the device can project detailed information about a huge array of items placed within the cameras view. She gave the example of being in a supermarket and trying to decide which of the various kitchen rolls to buy if one was ecologically minded. In an instant the device projected the eco-rating of each possible product onto the product itself as it was held in front of the camera enabling a fast, easy and fully informed decision to be made.



As it stands, the device is a little clumsy and probably more limited than Pattie let on (it was still fantastically impressive though) but it shows the way in which we are likely to progress. In much less time than you would think possible the projected image will be appearing in our field of vision via electrical impulses sent directly to the brain rather than actually requiring a light projection onto a real surface. The computation will become faster, the scope of available information broader and the personalisation of the device more flexible. Before long we will each be able to draw upon all the relevant information about any given situation, be it economic or social, and thus have the ability to make decisions from a position of information strength and symmetry rather than the weak asymmetry that we currently have to endure.



The advantages to the individual of this development are all too obvious. Those who don't want to will never have to feel clueless again, commanding as they will the entire scope of human knowledge with unprecedented speed and agility. However, it is the broader social implications that really excite me.



Imagine a world where consumers have all the power and knowledge of a philosopher king. A world where unethical business practices can't be hidden or PR'd away. A world where advertising, instead of attempting to create irrational desires within us, simply seeks to inform us about what's in our best interests. A world where quality trumps image every time. A world where the ability to innovate rather than manipulate drives the economic process. That is a world of which Adam Smith would have been proud. It's a world which our naïve right wing friends seem to think already exists.



But it doesn't exist. As it stands, some huge proportion of human endeavour is not engaged in anything productive at all. The entire advertising and PR industries are effectively engaged in spreading confusion and deception throughout society, advancing the well being for no one but themselves and their clients in the short term and not even that in the long run. As a fine example you can't do much better than the global pharmaceutical industry. It currently spends only about 20% of its budget on researching new drugs (and less than half of that is on genuinely innovative drugs) as compared to over 40% on marketing and advertising (virtually none of it information based).



Another example is the prevalence of the salesman in modern life. I'm always suspicious of people trying to sell me something for the simple reason that almost everything worth buying can sell itself without more than the tiniest amount of human assistance. With a device that told me everything about a product I wouldn't need a salesman to inform (more realistically mislead) me. Think of all those salesmen and women who could suddenly be freed to do something creative and constructive with their lives! Just imagine never having to sit next to a salesman at a dinner party ever again. That same person would be far more likely to have lived a life or creative interest rather than rat race grind.



Now think of all the resources spent on sparkling shop fronts and brands and taste creation simply aimed at getting you to buy one mediocre product over another. Can you imagine how much faster humanity would progress if we spent the billions we currently waste on manipulating the tastes and desires of each other on something productive that actually moved us forward as a species instead? We're talking about more than doubling (and in fact probably more than tripling or even quadrupling) the rate of human progress.



The simple fact is that the current lack of information available to the consumer has massively retarded human development. It seems like we're progressing fast (check out my iPhone guys!) but when compared to how fast we could be progressing we should all feel exasperated to say the least. Devices like Pattie Maes' are the latest of many steps aimed at correcting an information imbalance but which will have the broader effect of making human activity exponentially more productive and focused. The information revolution is upon us and its reaching its climax. If all runs to plan, government regulation of, and intervention in, the economy to protect the consumer and point society in the right direction should become less and less necessary. I for one can't wait even if it does mean that a load of ideological simpletons get a pat on the back they ill deserve.



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