Tag: information

How Information Destroys Dictators (Are Demagogues Next?)

I recently saw a presentation by economist Antony Davies on the basics of Public Choice Theory and the predictable problems with democratic systems.  Ant laid out the median voter theorem, then observed that national elections continue to get tighter and tighter as candidates become more and more similar in an effort to win the median voter.

This process is accelerated by the information age.  Candidates don’t have to determine a platform and then go try to sell it, hoping a large chunk of people already agree.  They don’t even have to study opinion research and craft a platform most likely to win.  They can A/B test in real time.  Campaigns can go to Twitter and try out some slogans or positions, they can react immediately and pivot their posture.  The old saw that politicians put their finger in the wind is true as ever, but fingers are no longer necessary when you have a digital weather vane plus anemometer streaming real-time measurements to your smartphone.

In other words, power hungry politicians are more accountable to the shifting moods of the public than ever.  Don’t get too excited.  This is far worse than a free and open market society in terms of decision-making and individual and public good.  People behave differently when voting or tweeting than they do when their own skin is in the game, and a system that caters to the costless whims of the majority is far scarier than a truly free society.

Still, it might be better than a pure dictatorship.  I suspect the days of a charismatic, strong leader who wins over throngs of people with good speeches are numbered.  Absent a better means of communication, societies rally around symbols because they can convey quickly a complex set of feelings and ideas.  They can also be more easily exploited.  Simplistic urges like nationalism, shared hatred of perceived enemies, moral crusades, and other dumbed down tales of us vs. them are the stuff of dreams for power-hungry tyrants.  Whip them up into a sense of unity around a common (often violent, envy-based) cause, and you can own the country.  This is harder than it’s ever been.

More and more citizens around the world can jump online and see pictures of their supposed enemies.  They can see the other side.  Humans seem to have limited compassion, and proximity is one of the rationing mechanisms.  The information age brings the world closer, and therefore makes compassion able to span the globe.  A fine speech about barbarians at the gate can create a wave of support for a hawkish autocrat, but when you can see those ‘barbarians’ with your own eyes, read their stories, and talk with them, it’s harder to get behind.

The ease with which information flows – what economists would call a reduction in transaction costs – is dramatically reshaping the way we do business, culture, life, and politics.  At first we’ll see political figures that appear more like focus-group generated spokespersons, as they get better at following the trends.  The switch from forceful dictator to savvy demagogue is perhaps a small improvement.  But I don’t think it will stop there.

This reduction in transaction costs also means all the things previously thought to be collective action problems solvable only through the clumsy and corrupt mechanisms of voting and politics can be tackled through voluntary markets.  Imagine your neighborhood HOA, instead of voting on higher fees for a new park, letting residents access a Kickstarter-like app where they can pledge an amount they’re willing to pay and the project only goes forward when it hits its goal?  The political figureheads and representatives can be eliminated just as Bitcoin eliminates financial gatekeepers.

The easier it is for individuals to connect and share ideas and goods with each other, the less powerful political gatekeepers trying to take their cut and regulate our relationships become.  Ultimately, information will beat oppression.

It’s Not About GDP

I’ve been thinking lately about GDP, and common ideas of economic progress more generally.

I just attended an event about the causes of and cures for poverty in the poorest countries.  So much of the discussion utilized comparisons between countries based on measures of GDP, GDP growth, and the like.  The more I thought about it, the less sense this made.  Not that GDP doesn’t decently correlate to overall wealth, opportunity, and progress – it does – but that it does less and less as technology and markets change.  GDP charts would fail to show, for example, the tremendous progress made in many poor countries by the fact that nearly everyone now has access to cell phones.  In fact, GDP does a bad job at measuring the progress of information/communication/data in general.

Consider MOOC’s and the abundance of free online learning.  Since the education industry is a chunk of GDP, putting it all out there for free can actually bring GDP numbers down, even as human well-being and human capital increase.

Think about other areas of misleading measures.  What you can do with a computer or smart phone in terms of sending data across the globe means fewer freight ships, the things easily measured in GDP calculations, but not less progress and opportunity.

Automation, information technology, decentralized networks, open-source…these make the world better and increase human flourishing, though they don’t do much for old-school metrics like employment and GDP.  Being listed as on the payroll of a company doesn’t always equal being better off (depending upon what else you might be doing of course), and having a larger number of physical objects to count doesn’t either.

For this reason, I don’t take much stock in those who lament slowed economic growth and fear it will bring an end to the complex market systems in countries like the US.  We used to consider farming the only thing that really mattered for economic well-being.  Then manufacturing.  As machines can do more of both of these, we humans can be redeployed in myriad ways previously unimagined.  Think about all the micro entrepreneurship going on today.  Think of crowdfunding for one-off projects.  I know authors who probably aren’t technically “employed” most of the time, if at all, and don’t produce GDP enhancing widgets, but they live wonderful lives by pitching book ideas on kickstarter, raising the money, travelling the world, doing the writing, and selling ebooks.  They may make aggregate data appear we’re economically worse off, but they’d rather not trade their life for one hoeing rows or assembling buggies.

The fact that no one quite knows how to calculate the value of the internet and other information age technologies probably causes us all to underestimate just how well-off we are today, and how bright the future is.  It’s the perfect time to seize the opportunity and do something new.  Carpe diem.

Milton Friedman on Risk, Choice, and Regulation

A while back I came across one of many video clips in which Milton Friedman insightfully responds to a tough question.  The question is about Ford making a car with a part that saved 13 dollars, when studies showed that using the more expensive part could reduce harm in the case of collision and potentially save 200 lives.  The questioner feels this is a clear example of the callous, money-grubbing nature of the free market, the implication being that some regulatory body should prevent Ford from making such calculations.

Friedman asks how much Ford should be willing to spend to reduce the risk of a single death.  The student refuses to answer.  Friedman’s point is that the question was not over any principle, but over what amount of money Ford should be willing to pay for a single life.  It’s about costs, benefits, and trade-offs.  The student doesn’t seem to follow, but Friedman is dead-on.

Let’s say Ford decides to install the more expensive part.  Their profit margin goes down, maybe some shareholders start selling shares.  How do they make-up the difference?  Maybe they lay off a few low-wage workers.  Maybe they raise the price of their cars, putting them out of the reach of a few low-wage consumers.  Is it worth it?  Maybe these consumers would have been happy to buy the cheaper car, even if it was less safe.  Aye, there’s the rub.

Friedman mentioned this, but in the short Q&A there wasn’t sufficient time to really hammer it home. This real discussion is not about what Ford should make and sell, or how much risk is too much. It’s about who should decide how much risk is acceptable.  That’s the principle worth debating.

Advocates of free-markets like Friedman believe that each individual is in the best position to decide how much risk they are willing to incur.  In every action, every purchase, and every sale, there are costs, benefits and risk involved.  You are the best person to decide whether you should buy a motorcycle, or not buy the most expensive dead-bolt, or produce and sell an extremely sharp cooking knife.  The principle Friedman was referring to is that of freedom to choose what decisions to make and what is in your own interest.

Those who favor regulatory intervention want such choices made once for all by bureaucratic bodies.  They want a set standard of tolerable risk to apply to every human in every situation, no matter how costly abiding by it may be, or how much poverty or even death may be the unintended result.  These regulatory bodies are in the perfect situation to be captured by the largest, most connected businesses who will get them to pass regulations that help them and hinder smaller competitors, with no concern for what it does to consumers.  These bureaucracies are also most attractive to the very kind of unscrupulous, greedy sociopaths that interventionists worry about in the marketplace.

If Ford sells a risky product it may be a bad move on a variety of counts, but no one has to buy it.  Government decisions are the only ones that every single person is forced to abide by, no matter how bad they may be.  Regulatory intervention not only falls far short of free-markets on moral grounds – coercing everyone to make choices set by elites – it dramatically reduces the benefits to all.  It destroys wealth and the incentive and space to innovate.  It rewards political gamesmanship over consumer service.  It interferes with valuable signals sent by and to all market participants about what level of risk people want, and what makes them happy.

There are trade-offs all around us.  The question is not which decisions are correct for other people – we have a hard enough time figuring out which are correct for ourselves.  The question is, where should these decisions be made, and by whom?

Crowd Funding vs.Taxation

The main justification given for taxation is that it solves a collective action problem.  Everyone would be better off, we are told, with the construction of a road or a park, but no individual has the incentive to pay for it, and if a collection were taken up, everyone would shirk and expect the next guy to pay.  If you know your few bucks won’t make or break the project and you’ll get the benefit either way, why pay?

There are many flaws in this analysis, but even if we accept it, consider the emergence of crowdfunding as an alternative.  You can share the details of a project and the cost, and offer specific access or benefits to those who contribute a certain levels.  The project does not move forward until full funding is committed.  This is an amazingly powerful tool that is just starting to reach its potential.

If what is funded benefits the whole world, great!  They needn’t be labelled free-riders, because everyone who pledged to support it knew ahead of time this would be the result, and indeed welcomed it.  If it’s a project that can’t sustainably benefit everyone, crowdfunding allows the ability to restrict access to those who pay.  It also utilizes the power of transparency and shame.  If you claim to really want a project to succeed, yet you pledge no money yourself, you’ll incur the wrath of your peers.  Crowdfunding harnesses people’s public spiritedness.  It lets you openly demonstrate what you’ve pledged.  It creates competition to cooperate.

I’m not just talking about bake sales for summer camp.  There have been startups that raised ten million dollars on sites like Kickstarter.  There have been massive research projects and prescription drug advances utilizing crowdsourcing (harnessing dispersed knowledge) as well as crowdfunding; not just the supply of capital, but the supply of human and intellectual capital can be done without central control.

The very projects that people worry wouldn’t happen without government funding are those most suited for crowdfunding.  Works of art that won’t generate tons of popular sales through traditional channels.  Highly speculative research.  Space travel.  Charity and welfare enhancing programs.  Helping a single person pay for a costly medical procedure.  Why couldn’t bridges or buildings be financed in the same way?

We live in an amazing world.  Every day, more people voluntarily coordinate and co-create and make the functions the state tries to monopolize less and less relevant.  Humans have always created free institutions that, under no compulsion and with no clear designer, enhance our individual and collective well-being.  Technology just puts it in high relief and speeds the process.