I'm no economist, which explains why I attempted to describe the economy using "deadlocks" and "local minima/maxima". And I suspect that many other commentators aren't economists either, which explains why their preferred analysis also comes from a different domain: morality. Within that frame, economic decisions are moral decisions; decisions in the context of efficient markets result in swift and appropriate moral consequences. Personal responsibility is a synonym for the level of economic success.
Like many perspectives, this one has an unsurprising problem: its implications aren't a perfect fit for all reality. For example, market shifts in the unit price of fossil-based fuel have unavoidable consequences on anyone who has no substitute method of transportation to and from the workplace, yet the sole cause of these shifts isn't their personal decisions. Nor are they personally responsible for drastic adjustments in the market price of their largest assets. Nor are the downsized employees of a company responsible for the new competing product that decimated the company's number of customers. In an actual massive economy, relatively tiny participants might not have meaningful personal responsibility for their current level of economic success. (Although they decide how to adapt to the changes, of course.) Poetically, transactions link the fates of many, whether temporary or ongoing, whether material or contractual.
Hence, while the moralistic interpretation is sometimes accurate and instructive, it also has pragmatic limits. To prescribe grave and unrestricted consequences is to affect the "innocent" as well as the "wrongdoer". To permit a woeful decision to ricochet is to watch escalating damage to the bystanders. It's paradoxical. Market "punishment" can be effectively unjust. The perpetrator might be able to absorb the fall in wealth without much harm but the same loss eliminates the net worth of multiple others.
I agree that personal responsibility is a vital principle for a realistic free market. I agree that an economy without risks is an economy without a brighter future. But I disagree that the entire thing must be left sick whenever a slob sneezes, in order to ensure the slob's maximum pain.
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Sunday, July 01, 2012
Saturday, March 31, 2012
other economic fellows
A banker is a fellow who lends you his umbrella when the sun is shining, and wants it back the minute it begins to rain. -Mark TwainThe above is a popular quip nowadays. Let me suggest some others.
- A deadbeat is a fellow who asks for a bushel of apples now, and pays back a bushel of cores later.
- A market victim is a fellow who waited to buy a snowshovel until the snowstorm, and now needs to sell it during the middle of summer.
- An insurer is a fellow who offers you a life jacket on the road, and offers you a spare tire on the ocean.
- A nation undergoing "quantitative easing" is a fellow who promises that his wares are popular, and demonstrates it by buying up a quarter of the merchandise himself.
- A central banker in a time of crisis is a fellow who buys everyone's lit dynamite, and extinguishes all of it by unleashing a flood.
Thursday, March 08, 2012
trigger words
Sometimes I like to select words that I know to be "triggers" for particular thoughts and emotions. My purpose isn't to follow the basic communications proverb "consider your audience" 1 but to provoke internal contradiction and confusion. It's fun to watch the reaction. I'll concede that it isn't constructive or respectful.
For instance, imagine a hypothetical conversation with someone who's angered by Wall Street yet who also has a fanatic attachment to free markets2.
"We need to do something about those thieves and gamblers on Wall Street."
"Who is we? Are you suggesting 'government intervention'?"
"No! Government intervention is always bad. I just mean that Wall Street should play fair."
"Are you proposing better 'regulation' to define and enforce fair play?"
"No! Regulations are always bad. But what if all the money that's currently sunk into finance was in manufacturing instead?"
"You mean a 'redistribution' of that money? Or 'public investment'?"
"No! Redistribution is always bad, and so is when the government tries to pick winners by investing. Forget that. What the individual worker needs is more power and a greater share of the overall pie. Despite their hard work they earn so little compared to company executives."
"As individuals, workers don't exert much power. As a group, they could. They could 'bargain collectively' to argue their case for a greater share."
"No! Collective bargaining is always bad. Really, the cause of the crisis was too much debt. I wish Wall Street hadn't swindled people by providing them with mortgages."
"Those mortgages were voluntary. So the underlying problem was the 'free exchange' of credit?"
"No! Free exchange is always good. The problem was that the people who took out those mortgages weren't knowledgeable about adjustable rates, so they were at an information disadvantage compared to the lenders."
"A market in which any participants have incomplete information isn't an ideal well-functioning market. Are you asserting that the market therefore failed to 'self-regulate' or act 'rationally' or 'efficiently'?"
"No! Markets always adjust rapidly to compensate for every weakness or eventuality. Therefore the problem must have been the government. The government has a monopoly on the money supply, hence its mismanagement of the money supply must be the culprit."
"That makes sense if excessive money forced people to take stupid actions. Would that the opposite is true: that it's better to cut off the majority of credit and speculative loans altogether? That would certainly restrict the generation of 'start-ups' and 'small business' to the 'independently wealthy', who can finance their own risks."
"No! I greatly like start-ups, small business, and self-made men who started out, um, independently poor. Talking to you is so frustrating. You keep stating things the wrong way."
1By quoting the proverb, I'm not implying that I'm effective at observing it. For instance, I'm spectacularly uncertain who the audience of this blog is. (According to the redone Blogger interface for posts, "nobody" isn't too far off!)
2The key word is "fanatic". In my opinion, that's distinct from believing in the macroeconomic truism that, in practice, decentralized experimenting actors in a well-functioning market are better at adapting to information and change than a centralized stagnant authority. Someone can have principles without being blind to the complexity and limitations inherent to applying those principles.
For instance, imagine a hypothetical conversation with someone who's angered by Wall Street yet who also has a fanatic attachment to free markets2.
"We need to do something about those thieves and gamblers on Wall Street."
"Who is we? Are you suggesting 'government intervention'?"
"No! Government intervention is always bad. I just mean that Wall Street should play fair."
"Are you proposing better 'regulation' to define and enforce fair play?"
"No! Regulations are always bad. But what if all the money that's currently sunk into finance was in manufacturing instead?"
"You mean a 'redistribution' of that money? Or 'public investment'?"
"No! Redistribution is always bad, and so is when the government tries to pick winners by investing. Forget that. What the individual worker needs is more power and a greater share of the overall pie. Despite their hard work they earn so little compared to company executives."
"As individuals, workers don't exert much power. As a group, they could. They could 'bargain collectively' to argue their case for a greater share."
"No! Collective bargaining is always bad. Really, the cause of the crisis was too much debt. I wish Wall Street hadn't swindled people by providing them with mortgages."
"Those mortgages were voluntary. So the underlying problem was the 'free exchange' of credit?"
"No! Free exchange is always good. The problem was that the people who took out those mortgages weren't knowledgeable about adjustable rates, so they were at an information disadvantage compared to the lenders."
"A market in which any participants have incomplete information isn't an ideal well-functioning market. Are you asserting that the market therefore failed to 'self-regulate' or act 'rationally' or 'efficiently'?"
"No! Markets always adjust rapidly to compensate for every weakness or eventuality. Therefore the problem must have been the government. The government has a monopoly on the money supply, hence its mismanagement of the money supply must be the culprit."
"That makes sense if excessive money forced people to take stupid actions. Would that the opposite is true: that it's better to cut off the majority of credit and speculative loans altogether? That would certainly restrict the generation of 'start-ups' and 'small business' to the 'independently wealthy', who can finance their own risks."
"No! I greatly like start-ups, small business, and self-made men who started out, um, independently poor. Talking to you is so frustrating. You keep stating things the wrong way."
1By quoting the proverb, I'm not implying that I'm effective at observing it. For instance, I'm spectacularly uncertain who the audience of this blog is. (According to the redone Blogger interface for posts, "nobody" isn't too far off!)
2The key word is "fanatic". In my opinion, that's distinct from believing in the macroeconomic truism that, in practice, decentralized experimenting actors in a well-functioning market are better at adapting to information and change than a centralized stagnant authority. Someone can have principles without being blind to the complexity and limitations inherent to applying those principles.
Tuesday, November 22, 2011
the rational course for tiresome dollar pessimists
I Am Not A Financial Advisor. Nevertheless, here's some advice for the most tiresome dollar pessimists.
I'm not referring to lowly savers who are understandably anxious about the negative real interest rates of their risk-free deposit accounts. I'm referring to the strident soothsayers who remark repeatedly that the dollar is primed to become worthless in the near future, i.e. within the next two years. They know just enough about economics to support the opinions that they hold from the beginning to the end of time, because changing your thoughts in response to objective data is considered a sign of weakness. They're enthusiastic to spread their discoveries of the various factors that are poised to sink the dollar.
If any of them are reading this, please accept the criticism that you're missing a once in a lifetime opportunity to exploit your special knowledge about the dollar's imminent path. First, you need to keep quiet. The more that the rest of the market shares your information, the lesser advantage you have. They don't know that their dollars are attached to little imaginary fuses that have almost run down. If they did, they would compete directly with your financial strategies; in any case they'd refuse to be the ignorant suckers whom you need to carry out the transactions.
Second, you need to act immediately. Your prediction is time-limited by its very nature. Once the shocking collapse springs into action, no more profit is possible. The longer that you delay, your unique prescience decreases in value. Like a stock, it's best to jump in before everyone else, at the earliest time, on the "ground floor".
Third, now that you've established the supreme unreliability and undesirability of the US dollar, you should think of a suitable alternative store of value. Since other economic agents will foolishly continue to expect that you honor their dollars and demand that you exchange dollars for their goods/services, the alternative must be relatively easy to convert. You could opt for a number of wild choices, but I suggest acting conservatively in this instance: gold pieces. Find a trustworthy local dealer who's not afraid of high volume and low margins. Don't resort to one of those huge gold piece dealers who show TV commercials; they're far too inconvenient for everyday use.
After buying gold pieces with your volatile dollars, treat the local dealer as your replacement bank. That is, periodically trade some of your gold pieces for intermediate dollars so that you can make your next batch of purchases. And when someone tries to hand you dollars, hurry to the your dealer to trade those "hot potatoes" for comforting hard gold pieces. Throughout your dealings, keep in mind that for you, dollars are like credit card balances. You use dollars purely for convenience and never hold the dollars long-term. That way, the horrible inflation rate that's right around the corner won't affect you too deeply. Going back to the stock analogy, you're closer to a day trader than a value investor. True, your earnings will be affected by the unfortunate fluctuations of the dollar, but only over very short time spans. You can also expect to lose some value due to the constant churn of conversion between dollar and gold piece, because the dealer probably expects to be compensated for his or her service and the general overhead of running the business. Think of these transaction costs as a reasonable price to pay in return for your peace of mind.
All this dependency on the gold market may make you queasy. Apart from the projected inflation of those irritating dollars, what if there are significant swings in that individual part of the economy? Those swings could erode the value of your gold pieces. To avoid that risk, you might diversify. In addition to the gold dealer, you might pursue other nonperishable assets for storing value. eBay is packed with smooth open markets for a wide variety of options. As one market goes down, you could buy using that market rather than the rest. As a second goes up, you could sell using that market rather than the rest. Call your diversified collection of markets your "basket of goods". Perhaps, at that point, you could publish your forecast of massive inflation far and wide, and then your audience would scurry to buy from your basket of goods. In this brave new world, where market participants cease to hoard dollars, you will be king.
Or you could avoid both gold pieces and diversified baskets of goods. Consider the Canadian dollar. The Loonie could be quite apropos.
I'm not referring to lowly savers who are understandably anxious about the negative real interest rates of their risk-free deposit accounts. I'm referring to the strident soothsayers who remark repeatedly that the dollar is primed to become worthless in the near future, i.e. within the next two years. They know just enough about economics to support the opinions that they hold from the beginning to the end of time, because changing your thoughts in response to objective data is considered a sign of weakness. They're enthusiastic to spread their discoveries of the various factors that are poised to sink the dollar.
If any of them are reading this, please accept the criticism that you're missing a once in a lifetime opportunity to exploit your special knowledge about the dollar's imminent path. First, you need to keep quiet. The more that the rest of the market shares your information, the lesser advantage you have. They don't know that their dollars are attached to little imaginary fuses that have almost run down. If they did, they would compete directly with your financial strategies; in any case they'd refuse to be the ignorant suckers whom you need to carry out the transactions.
Second, you need to act immediately. Your prediction is time-limited by its very nature. Once the shocking collapse springs into action, no more profit is possible. The longer that you delay, your unique prescience decreases in value. Like a stock, it's best to jump in before everyone else, at the earliest time, on the "ground floor".
Third, now that you've established the supreme unreliability and undesirability of the US dollar, you should think of a suitable alternative store of value. Since other economic agents will foolishly continue to expect that you honor their dollars and demand that you exchange dollars for their goods/services, the alternative must be relatively easy to convert. You could opt for a number of wild choices, but I suggest acting conservatively in this instance: gold pieces. Find a trustworthy local dealer who's not afraid of high volume and low margins. Don't resort to one of those huge gold piece dealers who show TV commercials; they're far too inconvenient for everyday use.
After buying gold pieces with your volatile dollars, treat the local dealer as your replacement bank. That is, periodically trade some of your gold pieces for intermediate dollars so that you can make your next batch of purchases. And when someone tries to hand you dollars, hurry to the your dealer to trade those "hot potatoes" for comforting hard gold pieces. Throughout your dealings, keep in mind that for you, dollars are like credit card balances. You use dollars purely for convenience and never hold the dollars long-term. That way, the horrible inflation rate that's right around the corner won't affect you too deeply. Going back to the stock analogy, you're closer to a day trader than a value investor. True, your earnings will be affected by the unfortunate fluctuations of the dollar, but only over very short time spans. You can also expect to lose some value due to the constant churn of conversion between dollar and gold piece, because the dealer probably expects to be compensated for his or her service and the general overhead of running the business. Think of these transaction costs as a reasonable price to pay in return for your peace of mind.
All this dependency on the gold market may make you queasy. Apart from the projected inflation of those irritating dollars, what if there are significant swings in that individual part of the economy? Those swings could erode the value of your gold pieces. To avoid that risk, you might diversify. In addition to the gold dealer, you might pursue other nonperishable assets for storing value. eBay is packed with smooth open markets for a wide variety of options. As one market goes down, you could buy using that market rather than the rest. As a second goes up, you could sell using that market rather than the rest. Call your diversified collection of markets your "basket of goods". Perhaps, at that point, you could publish your forecast of massive inflation far and wide, and then your audience would scurry to buy from your basket of goods. In this brave new world, where market participants cease to hoard dollars, you will be king.
Or you could avoid both gold pieces and diversified baskets of goods. Consider the Canadian dollar. The Loonie could be quite apropos.
Wednesday, September 07, 2011
deadlocks in the economy
The affliction of a specialist is the compulsion to redefine every discipline into that specialty. As someone in a software job, I see the economy exhibiting mishaps of coordination. Programs executing simultaneously, or one program whose several parts execute at once, might interfere and cause confusion. In an economy, legions of economic agents engage in transactions. Given the difference in scale, coordination issues probably are more, not less, applicable to the economy than to a computer. Some of the names, like producer-consumer, even invoke the comparison.
A fundamental topic in program coordination is the "deadlock". Put simply, a deadlock is whenever all collaborators end up waiting on counterparts to act. Say that there are two programs, each of which needs exclusive access to a pair of files to do some work (e.g. the second file might be a "summary" which needs to be updated to stay consistent with the first file after it changes). 1) The first program opens the first file. 2) The second program sees that the first file is already opened, so it naively opens the second file before the first program can. Voila! The first program waits for the second program to finish up and relinquish the second file, while the second program waits for the first program to finish up and relinquish the first file. Everything is "locked" without any way to proceed.
Back to economics. An economy is a massive set of roughly circular flows. Buyers send money (or liquid credit) to a seller, and the seller sends the desired item back. The seller then (possibly) reuses the money as a buyer, and the buyer then (possibly) reuses the item as a seller. If the buyer obtains money in the labor market, i.e. working a job to earn wages, then that's another flow which connects up to this one. These flows continually recirculate during normal functioning.
However, clearly a stoppage (or slippage) in one flow will also affect other flows. This is the economic form of a deadlock: economic agents that halt and in so doing motivate additional agents to halt. Until flows restart, or a newly created substitute flow starts, nobody progresses. No money or items are moving, so each is facing a shortage. Moreover, without the assurance of complementary flows in action, it's in an agent's selfish interest to wait rather than take risks. Therefore everyone waits for everyone to take the first step. Sounds like a deadlock condition to me.
Examined from a high level, deadlocks are clearer to spot. For instance, if the interest paid on a loan for a house is linked to a shifting rate and the rate and the interest both increase, then there could be a lack of funding to cover it. Unpaid interest implies a reduced flow in the money earned by the loan, as well as a corresponding reduced value for the loan itself (a loan without paid interest isn't worth much!). The current and projected reduction in the flow of interest disrupts "downstream" flows that otherwise would've relied on that interest. So the owner of the loan must reallocate money. That reallocated money isn't available for other lending flows. The intended recipients of the other lending flows are left unable to follow their own economic plans. And so forth. Eventually, the original cutoff may come full circle; due to the propagation of effects, larger numbers of loan-payers don't have the flow to pay their interest. The payers can't fulfill the interest payments when lenders have ceased usual risk-taking, and the lenders continue to cease usual risk-taking when payers can't fulfill interest payments. Money is in deadlock. Thus the economy's assorted flows of items (including jobs), which require the central flow of money (or liquid credit) to temporarily store and exchange value within transactions, are in deadlock too. The trillion-dollar question is which technique is most beneficial to dislodge specific deadlocks of money or to cajole activity in general.
Unlike software, humans are improvisational. Confronted with deadlock, they don't wait forever for the deadlock to break. Instead, they adjust, although it could be uncomfortable. Economic flows that were formerly wide rivers might become brooks. Flows that started out as trickles might become streams. Over a long time period, deadlocks in an evolving economy are temporary. Circumstances change, forcing humans and their trading to change.
A fundamental topic in program coordination is the "deadlock". Put simply, a deadlock is whenever all collaborators end up waiting on counterparts to act. Say that there are two programs, each of which needs exclusive access to a pair of files to do some work (e.g. the second file might be a "summary" which needs to be updated to stay consistent with the first file after it changes). 1) The first program opens the first file. 2) The second program sees that the first file is already opened, so it naively opens the second file before the first program can. Voila! The first program waits for the second program to finish up and relinquish the second file, while the second program waits for the first program to finish up and relinquish the first file. Everything is "locked" without any way to proceed.
Back to economics. An economy is a massive set of roughly circular flows. Buyers send money (or liquid credit) to a seller, and the seller sends the desired item back. The seller then (possibly) reuses the money as a buyer, and the buyer then (possibly) reuses the item as a seller. If the buyer obtains money in the labor market, i.e. working a job to earn wages, then that's another flow which connects up to this one. These flows continually recirculate during normal functioning.
However, clearly a stoppage (or slippage) in one flow will also affect other flows. This is the economic form of a deadlock: economic agents that halt and in so doing motivate additional agents to halt. Until flows restart, or a newly created substitute flow starts, nobody progresses. No money or items are moving, so each is facing a shortage. Moreover, without the assurance of complementary flows in action, it's in an agent's selfish interest to wait rather than take risks. Therefore everyone waits for everyone to take the first step. Sounds like a deadlock condition to me.
Examined from a high level, deadlocks are clearer to spot. For instance, if the interest paid on a loan for a house is linked to a shifting rate and the rate and the interest both increase, then there could be a lack of funding to cover it. Unpaid interest implies a reduced flow in the money earned by the loan, as well as a corresponding reduced value for the loan itself (a loan without paid interest isn't worth much!). The current and projected reduction in the flow of interest disrupts "downstream" flows that otherwise would've relied on that interest. So the owner of the loan must reallocate money. That reallocated money isn't available for other lending flows. The intended recipients of the other lending flows are left unable to follow their own economic plans. And so forth. Eventually, the original cutoff may come full circle; due to the propagation of effects, larger numbers of loan-payers don't have the flow to pay their interest. The payers can't fulfill the interest payments when lenders have ceased usual risk-taking, and the lenders continue to cease usual risk-taking when payers can't fulfill interest payments. Money is in deadlock. Thus the economy's assorted flows of items (including jobs), which require the central flow of money (or liquid credit) to temporarily store and exchange value within transactions, are in deadlock too. The trillion-dollar question is which technique is most beneficial to dislodge specific deadlocks of money or to cajole activity in general.
Unlike software, humans are improvisational. Confronted with deadlock, they don't wait forever for the deadlock to break. Instead, they adjust, although it could be uncomfortable. Economic flows that were formerly wide rivers might become brooks. Flows that started out as trickles might become streams. Over a long time period, deadlocks in an evolving economy are temporary. Circumstances change, forcing humans and their trading to change.
Tuesday, September 06, 2011
local minima and maxima
I'm sure it counts as trite to mention that humans aren't great at coping with complexity. (Computers can but only if the complexity doesn't require adaptability or comprehension.) One example is the oversimplified dichotomy between systems: 1) few pieces with highly organized interconnections and controlled variances among the pieces, 2) numerous similar pieces with little oversight that nevertheless mostly act the same and have few decisions to make. An engine is in #1. An ant colony is in #2. A projectile is in #1. A contained cloud of gas particles is in #2. In #1 systems, analysis is rather easy because all the pieces are ordered to accomplish parts or stages of a defined objective. In #2 systems, analysis is rather easy because the actions of all the pieces are generalizable into "overall/average forces". In #1 systems, statistics consist of a series of well-determined numbers. In #2 systems, variances and aggregates are tameable by modeling the population distribution.
The problem is that as useful as these two categories are, reality can often be more complicated. Loosely-connected systems could consist of many unlike pieces. Or the pieces could be alike yet affected in a nonuniform manner by an external disturbance. Or each piece could individually respond to five factors in its immediate neighbor pieces. Or pieces might have ephemeral subgroups which act in ways that loners don't. The possibilities are abundant and stymie attempts to classify the system as #1 or #2.
Consider a minimum or maximum quantity that represents a system. In a #1, that quantity is calculable directly by finding the corresponding quantities for each piece. In a #2, that quantity is an equilibrium that all the pieces yield through collective activity. Either way, the system has one minimum or maximum, and it's reached predictably.
However, this conclusion breaks down when a system is of a "more complicated" kind. Those systems contain pieces that, taken one at a time, are easily understood, but whose final effect is difficult to fathom. As a representation of that system, the minima and maxima could be messy. For instance, a specific constraint is strongest at the lower end of a range but a second constraint is strongest at the higher end. Under such circumstances, the system has more than one minimum or maximum. To the extent that the description works, the "forces" of the system then push toward the local minimum or maximum, whichever is closest.
From the viewpoint of an uninformed observer trying to cram a complex system into #1 or #2, the apparent failure to reach the absolute furthest (global) maximum could be mystifying. If it's caught in the grip of a local maximum, then the failure is more intelligible. The system "rejects" small changes that result in an immediate "worse" outcome regardless of whether or not it's on the path to an ultimately "better" outcome. In short, a wildly intricate system occasionally gets stuck in a pothole of inferiority. And for that system, that state is as natural as anything else.
Hence knowledge of local minima and maxima provides greater nuance to human interpretation. Reasoning about the national economy is a ripe area. The temptation is to reduce discussion into the relative merits of a #1 system, in which the economy is like a tightly-directed machine operated by government, compared to a #2 system, in which the economy is like a spontaneous clump of microscopic participants. This is a discussion about nonexistent options. The economy isn't solely a dangerous beast that needs strict supervision. It isn't solely a genie that showers gifts on anyone who sets it free. It's beyond these metaphors altogether.
An economy that has run aground on local minima or maxima can't be adjusted successfully by treating it as a #1 or a #2 system. "Freeing" it won't erase the slope toward the local minimum. "Ordering" it to stop misbehaving also won't. The economy doesn't always accomplish every desired purpose. On the other hand, government can't completely override the economic transactions of the entire populace (nor should it try). What government can do, potentially, is help nudge the economy out of a local minimum by bending the system. Of course, the attendant risk is that excessive bending by the government might set up a new local minimum in the economic system...
The problem is that as useful as these two categories are, reality can often be more complicated. Loosely-connected systems could consist of many unlike pieces. Or the pieces could be alike yet affected in a nonuniform manner by an external disturbance. Or each piece could individually respond to five factors in its immediate neighbor pieces. Or pieces might have ephemeral subgroups which act in ways that loners don't. The possibilities are abundant and stymie attempts to classify the system as #1 or #2.
Consider a minimum or maximum quantity that represents a system. In a #1, that quantity is calculable directly by finding the corresponding quantities for each piece. In a #2, that quantity is an equilibrium that all the pieces yield through collective activity. Either way, the system has one minimum or maximum, and it's reached predictably.
However, this conclusion breaks down when a system is of a "more complicated" kind. Those systems contain pieces that, taken one at a time, are easily understood, but whose final effect is difficult to fathom. As a representation of that system, the minima and maxima could be messy. For instance, a specific constraint is strongest at the lower end of a range but a second constraint is strongest at the higher end. Under such circumstances, the system has more than one minimum or maximum. To the extent that the description works, the "forces" of the system then push toward the local minimum or maximum, whichever is closest.
From the viewpoint of an uninformed observer trying to cram a complex system into #1 or #2, the apparent failure to reach the absolute furthest (global) maximum could be mystifying. If it's caught in the grip of a local maximum, then the failure is more intelligible. The system "rejects" small changes that result in an immediate "worse" outcome regardless of whether or not it's on the path to an ultimately "better" outcome. In short, a wildly intricate system occasionally gets stuck in a pothole of inferiority. And for that system, that state is as natural as anything else.
Hence knowledge of local minima and maxima provides greater nuance to human interpretation. Reasoning about the national economy is a ripe area. The temptation is to reduce discussion into the relative merits of a #1 system, in which the economy is like a tightly-directed machine operated by government, compared to a #2 system, in which the economy is like a spontaneous clump of microscopic participants. This is a discussion about nonexistent options. The economy isn't solely a dangerous beast that needs strict supervision. It isn't solely a genie that showers gifts on anyone who sets it free. It's beyond these metaphors altogether.
An economy that has run aground on local minima or maxima can't be adjusted successfully by treating it as a #1 or a #2 system. "Freeing" it won't erase the slope toward the local minimum. "Ordering" it to stop misbehaving also won't. The economy doesn't always accomplish every desired purpose. On the other hand, government can't completely override the economic transactions of the entire populace (nor should it try). What government can do, potentially, is help nudge the economy out of a local minimum by bending the system. Of course, the attendant risk is that excessive bending by the government might set up a new local minimum in the economic system...
Thursday, September 01, 2011
rule of 8...
...If someone discusses the budget of the federal government of the U.S.A. with fewer than 8 independent numbers or factors or categories, then chances are that the discussion is oversimplified. Figures have been skipped to present a "condensed" viewpoint that's more consistent with a partisan narrative. The 8 or more numbers are "independent" in a statistical (information-theoretical) sense: none of the numbers is a complete mathematical function of the others, such as the third always equaling the difference of the first and second.
Saturday, July 30, 2011
omniduction breakdown
Apologies for flashing some political stripes, but here goes... Recently I read an angry online comment about the "threat of raising taxes by gradually reducing the mortgage interest deduction". 1) On one hand, the comment's writer believes in limited government that doesn't intervene in private markets. 2) On the other, the comment's writer believes that all rises in the effective tax rate are by definition terrible. So removing a tax cut, which is evil according to #2, would reduce government intervention in the housing market, which is good according to #1.
The attempt to derive an opinion by omniduction has produced a "SYSTEM ERROR". Perhaps policies in the real world have trade-offs and case-by-case factors to consider, and individual policies can't be attacked in isolation from the rest?
The attempt to derive an opinion by omniduction has produced a "SYSTEM ERROR". Perhaps policies in the real world have trade-offs and case-by-case factors to consider, and individual policies can't be attacked in isolation from the rest?
Thursday, January 17, 2008
defining information and data: the economics of information, part 1
Other parts (since blog entries are consumed in reverse-chronological order, the parts are posted in reverse-chronological order):
Part 2, valuing information
Part 3, trading information
Disclaimer: I'm not an actual theorist or scholar of anything. If any of the following series seems derivative, that's because it is. Moving along...
introduction
Per usual practice, I'll use the Thomas Jefferson quote as a preface:
Techdirt's "The Grand Unified Theory on the Economics of Free" (and its thesis-defense comments) prompted me to ponder some general questions about information, especially digitally-encoded information. What is it? What is its value, and how is that value derived? How could the answers to those questions tie together into economics, whether in conventional terms or the terms Techdirt's article laid out? I proceeded in careful steps, philosophy-style. The result is loooong but divisible by topic, so it's a series.
defining information and data
As Jefferson hinted, information (what he calls an idea) is fundamentally different from matter. Specifically, information can only be manipulated by a mind. As many minds exist, so can many copies of information exist. Rather than attempting to define "mind", and potentially become mired into a discussion about the nature and origin of consciousness, I'll resort to circular definitions: "mind" is defined as that which understands and manipulates information, and "information" is defined as the material which minds understand and manipulate. (Someone may break in at this point to protest that human minds also manipulate human bodies. Wrong! Brains manipulate human bodies. Note that I'll also not consider the relationship between the brain and the mind--I don't wanna. However, for extra credit, the reader may ponder this oft-explored hypothetical: given two humans, how much about them must be identical for them to have identical minds? Identical synapses? Identical bodies? Identical experiences? Identical surroundings?)
The next step is to recognize something else the Jefferson quote expresses: a mind can either hoard information, or it can communicate the information to another mind (letting the brainwaves ripple, so to speak). Communication is necessary because minds are disconnected, separate. (By the above circular definitions, two or more minds could only be considered a single mind if all the minds understood and manipulated the exact same set of information, which is not the case. I am Hugh.) Since minds are separate, the separation material must consist of matter. Therefore, communication has multiple steps: 1) the sending mind encodes the information into matter, 2) the matter travels to another mind, 3) the receiving mind decodes the matter into information. Nothing in this model is controversial, aside from being a blatant oversimplification compared to real communication theories/models. For clarity's sake, "data" shall refer to the matter representations of information, used in communication.
In passing, for the sake of full disclosure, note that real communication is implicitly imperfect, ultimately stemming from the difference between, or the boundary of, mind and matter. (One might say, "the map is not the territory".) Perhaps the original purpose of minds is to do what matter on its own cannot: apply information to other information, "annotating" new information with meaning, forming context, birthing information of greater worth than the individual bits. To communicate is to dislodge a subset of information from outside of its original context within a mind. The very first step of information encoding is lossy. The very last step of information decoding is extrapolation. Strictly speaking, mental information (as opposed to sensory information recorded almost perfectly by technology) isn't duplicated; it's torn out, encoded to data with approximations, sent, decoded from data approximations, and interpreted. "Reproduction" of information, via a communication channel of data, is not really a "magical" loophole of conservation laws.
Data's most basic form is personal interaction such as gestures, vocalizations, and speech. A variety of creatures create and consume this form of data through a variety of methods, but its expression peaked in humans: spoken language, which has stunning complexity. Advances in communication have at least partly been refinements in data: pictures, stylized/standardized pictures, phonetic pictures, characters/alphabets, the printing press, photography, the phonograph, the telegraph, the telephone, radio, cinema, television, modems/faxes, broadband networks.
Most importantly, data manipulation changed forever once humans realized that by translating or encoding data into a digital (binary-series) form, meaning a succession of either 0/1 or off/on or no/yes, any technology which can handle the digital form can therefore handle the data. And since the presence and absence of an electric current are excellent ways to represent 0/1, the data could also be "electrified", which enables quick transmission, storage, and modification. Experts may smirk at someone who simplistically asks "how to quickly show, to my relative in the other half of the country, a picture I took from my new itty-bitty camera" or at someone who asks "how many songs can my portable music player contain", but that level of abstraction better illustrates the profound communication effect of digitized data. On some level, all websites, within and without the Web 2.0 bubble, are "social".
Digital data's technologically-achieved processing efficiencies naturally extend to yet another operation: copying, which is just retrieving, transmitting, and re-storing the data. Moreover, unlike both the manual and mechanical copies of past forms of data, the copies can be identical: all that's necessary is reliably duplicating each 0/1 in the series, by repeating the procedure bit by bit. For humans, who really only care about the information rather than the data, it would be an excruciating way to copy, but it's ideal for the purpose of automation. Besides greater speed and accuracy, digital data copying also has become quite cheap in cost. The number of 0/1 bits per unit of currency keeps increasing across the range of all devices, while the cost of each data operation is tiny (the cost as in watts of power and common device wear and tear).
Essentially, digital data resembles information more than any previous form of data, and therefore the machines that manipulate the digital data resemble the mind in the same ways. Given this is the case, the urge to apply the Thomas Jefferson quote to data as well as information is not surprising. Also, digital data prompts a reevaluation of the economics of information as a resource or good in itself, rather than just as a factor in economic decisions.
Part 2, valuing information
Part 3, trading information
Disclaimer: I'm not an actual theorist or scholar of anything. If any of the following series seems derivative, that's because it is. Moving along...
introduction
Per usual practice, I'll use the Thomas Jefferson quote as a preface:
If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.
Techdirt's "The Grand Unified Theory on the Economics of Free" (and its thesis-defense comments) prompted me to ponder some general questions about information, especially digitally-encoded information. What is it? What is its value, and how is that value derived? How could the answers to those questions tie together into economics, whether in conventional terms or the terms Techdirt's article laid out? I proceeded in careful steps, philosophy-style. The result is loooong but divisible by topic, so it's a series.
defining information and data
As Jefferson hinted, information (what he calls an idea) is fundamentally different from matter. Specifically, information can only be manipulated by a mind. As many minds exist, so can many copies of information exist. Rather than attempting to define "mind", and potentially become mired into a discussion about the nature and origin of consciousness, I'll resort to circular definitions: "mind" is defined as that which understands and manipulates information, and "information" is defined as the material which minds understand and manipulate. (Someone may break in at this point to protest that human minds also manipulate human bodies. Wrong! Brains manipulate human bodies. Note that I'll also not consider the relationship between the brain and the mind--I don't wanna. However, for extra credit, the reader may ponder this oft-explored hypothetical: given two humans, how much about them must be identical for them to have identical minds? Identical synapses? Identical bodies? Identical experiences? Identical surroundings?)
The next step is to recognize something else the Jefferson quote expresses: a mind can either hoard information, or it can communicate the information to another mind (letting the brainwaves ripple, so to speak). Communication is necessary because minds are disconnected, separate. (By the above circular definitions, two or more minds could only be considered a single mind if all the minds understood and manipulated the exact same set of information, which is not the case. I am Hugh.) Since minds are separate, the separation material must consist of matter. Therefore, communication has multiple steps: 1) the sending mind encodes the information into matter, 2) the matter travels to another mind, 3) the receiving mind decodes the matter into information. Nothing in this model is controversial, aside from being a blatant oversimplification compared to real communication theories/models. For clarity's sake, "data" shall refer to the matter representations of information, used in communication.
In passing, for the sake of full disclosure, note that real communication is implicitly imperfect, ultimately stemming from the difference between, or the boundary of, mind and matter. (One might say, "the map is not the territory".) Perhaps the original purpose of minds is to do what matter on its own cannot: apply information to other information, "annotating" new information with meaning, forming context, birthing information of greater worth than the individual bits. To communicate is to dislodge a subset of information from outside of its original context within a mind. The very first step of information encoding is lossy. The very last step of information decoding is extrapolation. Strictly speaking, mental information (as opposed to sensory information recorded almost perfectly by technology) isn't duplicated; it's torn out, encoded to data with approximations, sent, decoded from data approximations, and interpreted. "Reproduction" of information, via a communication channel of data, is not really a "magical" loophole of conservation laws.
Data's most basic form is personal interaction such as gestures, vocalizations, and speech. A variety of creatures create and consume this form of data through a variety of methods, but its expression peaked in humans: spoken language, which has stunning complexity. Advances in communication have at least partly been refinements in data: pictures, stylized/standardized pictures, phonetic pictures, characters/alphabets, the printing press, photography, the phonograph, the telegraph, the telephone, radio, cinema, television, modems/faxes, broadband networks.
Most importantly, data manipulation changed forever once humans realized that by translating or encoding data into a digital (binary-series) form, meaning a succession of either 0/1 or off/on or no/yes, any technology which can handle the digital form can therefore handle the data. And since the presence and absence of an electric current are excellent ways to represent 0/1, the data could also be "electrified", which enables quick transmission, storage, and modification. Experts may smirk at someone who simplistically asks "how to quickly show, to my relative in the other half of the country, a picture I took from my new itty-bitty camera" or at someone who asks "how many songs can my portable music player contain", but that level of abstraction better illustrates the profound communication effect of digitized data. On some level, all websites, within and without the Web 2.0 bubble, are "social".
Digital data's technologically-achieved processing efficiencies naturally extend to yet another operation: copying, which is just retrieving, transmitting, and re-storing the data. Moreover, unlike both the manual and mechanical copies of past forms of data, the copies can be identical: all that's necessary is reliably duplicating each 0/1 in the series, by repeating the procedure bit by bit. For humans, who really only care about the information rather than the data, it would be an excruciating way to copy, but it's ideal for the purpose of automation. Besides greater speed and accuracy, digital data copying also has become quite cheap in cost. The number of 0/1 bits per unit of currency keeps increasing across the range of all devices, while the cost of each data operation is tiny (the cost as in watts of power and common device wear and tear).
Essentially, digital data resembles information more than any previous form of data, and therefore the machines that manipulate the digital data resemble the mind in the same ways. Given this is the case, the urge to apply the Thomas Jefferson quote to data as well as information is not surprising. Also, digital data prompts a reevaluation of the economics of information as a resource or good in itself, rather than just as a factor in economic decisions.
valuing information: the economics of information, part 2
Other parts:
Part 1, defining information and data
Part 3, trading information
Information has much value, although its value is harder to grasp than the value of other goods. Of course, the same key economic principle applies: value is assigned by a market. The market for information is minds.
Minds value information in the same way any economic agent values any good: for what it achieves. The question of what an economic good, especially information, achieves can be subjective and loosely-defined. If someone says a story made him or her laugh, cry, and think, then the information has definitely achieved something for him or her, and it has proportional value. If someone learns how to play pinochle, then that information has increased his or her capabilities, and it has proportional value (i.e., depending on how much he or she will be playing pinochle). If someone legally hears of a stupendous stock tip, then that information has substantive value indeed. If a spy discovers a long-planned surprise attack from an opposing army, the value is measured in the preservation of human lives (from the perspective of one of the sides, anyway).
All these values happen on the consumer or demand side of the market, but in any (semi-free or more) market, the value has a corresponding producer or supply side. Just as value on the demand side of the information market varies widely, value on the supply side of the information market varies widely. Of course, for the producer, value means cost. Information production has costs. R&D is an example that has price tags. Basic science research has price tags, too--supercolliders and space telescopes aren't free. Less obviously, the creation of "fuzzier" information by artists, writers, engineers, architects, etc., have costs. The creator's time and exertion are far greater than zero.
Another supply-side value which deserves more attention is the expertise of the information producer. Rarity raises value, and the expertise involved in producing worthy information is relatively rare. In my opinion, the spike in amateur videos has confirmed this all too well. For every truly noteworthy piece of creative information, a multitude of mediocre to awful creative information also exists. Still more rare is the information producer whose expertise results in consistently-high output.
So information undoubtedly has value. But the data, the material manifestation of the information which can be seen and felt and heard, has its own components of value. One is fidelity: how well the data reflects the information. Low-fidelity data, like a scratched vinyl album, or a grainy filmstrip, has lower value than high-fidelity data for the same information. A second component of value is utility: how easily, flexibly, etc., the data, and therefore the information represented by the data, can be manipulated. Data which requires specialized devices to read it has lower value than universal data. The point is always the information, not the data. Fidelity and utility describe the degree to which the data doesn't hamper the communication of the information.
Once again, digital data's technologically-achieved processing efficiencies have changed data to more closely match information. On the consumer or demand side, digital data is increasingly easy and cheap to obtain and experience. For instance, not many years ago, communicating a large quantity of video data via priority mail was quicker and cheaper than trying to send it through a line, but more recently the decision has flipped. In the case of data like text, the digital form's proposition was stronger almost from the start (recall the excitement over having an entire encyclopedia on a data CD, including "multimedia"?). The growing ease of consuming data, particularly on an interactive or on-demand basis, in effect makes the data market itself larger and more efficient. In simple terms, this just means that the consumer has more choices. A common term for this is the Long Tail.
Meanwhile, digital data has had similar effects on the producer or supply side. Through the assistance of technology (without which the digital form would be quite useless), data is subject to any modifications of arbitrary precision. People can create new experiences of sound without picking up an instrument, munge pictures, and computer-generate movies and TV shows. Moreover, the technology for doing these tasks has grown steadily cheaper, allowing more potential producers to become real producers. (For instance, anyone can publish through a blog, or calculate finances with a spreadsheet.) As on the demand side, the growing ease of producing data has made the market itself larger and more efficient.
Ultimately, information will remain valuable on both the demand and supply sides. Its market won't vanish. As data better serves its function of communicating information, it will give way to the underlying market, the information market. More to the point, continuing to target the data market rather than the information market will become steadily irrelevant. However, the information market comes along with its own set of conceptual shifts.
coda about software
Software is a unique case of data, in which the data represents information about manipulating data. For clarity's sake, the data manipulated by the software shall be called "work". (Of course, in practice the software is separated from the work for security and efficiency, but all data is nevertheless stored and retrieved in the same general way. Well, software and work have separate caches.) Since the manipulation of the work is the motivation for using the software, the value of the work is thus intrinsic to the software's value. In the opposite way, since software creates and modifies work, the software's value becomes intrinsic to the work's value--if the work can't be manipulated, its information is lost, at least without conversion.
The trend to transform the data market ever further into a purer information market will apply pressure to any obstacles which would trap information into data. Consequently, the value of software will lie in how much of the information market it can manipulate. The value of work will lie in what degree it can be treated like information--that is, the degree to which it can be easily manipulated. Minds don't need apparatus like software to manipulate any ideas. Similarly, ideas are much more fluid and interconnected than work, the actual bits of digital data. A second fusion between software and work will probably occur, but not in the rigid co-dependent way as before: "smarter" data, with standardized, replaceable parts. Dare I say Semantic Web? Or the Cloud?
Part 1, defining information and data
Part 3, trading information
Information has much value, although its value is harder to grasp than the value of other goods. Of course, the same key economic principle applies: value is assigned by a market. The market for information is minds.
Minds value information in the same way any economic agent values any good: for what it achieves. The question of what an economic good, especially information, achieves can be subjective and loosely-defined. If someone says a story made him or her laugh, cry, and think, then the information has definitely achieved something for him or her, and it has proportional value. If someone learns how to play pinochle, then that information has increased his or her capabilities, and it has proportional value (i.e., depending on how much he or she will be playing pinochle). If someone legally hears of a stupendous stock tip, then that information has substantive value indeed. If a spy discovers a long-planned surprise attack from an opposing army, the value is measured in the preservation of human lives (from the perspective of one of the sides, anyway).
All these values happen on the consumer or demand side of the market, but in any (semi-free or more) market, the value has a corresponding producer or supply side. Just as value on the demand side of the information market varies widely, value on the supply side of the information market varies widely. Of course, for the producer, value means cost. Information production has costs. R&D is an example that has price tags. Basic science research has price tags, too--supercolliders and space telescopes aren't free. Less obviously, the creation of "fuzzier" information by artists, writers, engineers, architects, etc., have costs. The creator's time and exertion are far greater than zero.
Another supply-side value which deserves more attention is the expertise of the information producer. Rarity raises value, and the expertise involved in producing worthy information is relatively rare. In my opinion, the spike in amateur videos has confirmed this all too well. For every truly noteworthy piece of creative information, a multitude of mediocre to awful creative information also exists. Still more rare is the information producer whose expertise results in consistently-high output.
So information undoubtedly has value. But the data, the material manifestation of the information which can be seen and felt and heard, has its own components of value. One is fidelity: how well the data reflects the information. Low-fidelity data, like a scratched vinyl album, or a grainy filmstrip, has lower value than high-fidelity data for the same information. A second component of value is utility: how easily, flexibly, etc., the data, and therefore the information represented by the data, can be manipulated. Data which requires specialized devices to read it has lower value than universal data. The point is always the information, not the data. Fidelity and utility describe the degree to which the data doesn't hamper the communication of the information.
Once again, digital data's technologically-achieved processing efficiencies have changed data to more closely match information. On the consumer or demand side, digital data is increasingly easy and cheap to obtain and experience. For instance, not many years ago, communicating a large quantity of video data via priority mail was quicker and cheaper than trying to send it through a line, but more recently the decision has flipped. In the case of data like text, the digital form's proposition was stronger almost from the start (recall the excitement over having an entire encyclopedia on a data CD, including "multimedia"?). The growing ease of consuming data, particularly on an interactive or on-demand basis, in effect makes the data market itself larger and more efficient. In simple terms, this just means that the consumer has more choices. A common term for this is the Long Tail.
Meanwhile, digital data has had similar effects on the producer or supply side. Through the assistance of technology (without which the digital form would be quite useless), data is subject to any modifications of arbitrary precision. People can create new experiences of sound without picking up an instrument, munge pictures, and computer-generate movies and TV shows. Moreover, the technology for doing these tasks has grown steadily cheaper, allowing more potential producers to become real producers. (For instance, anyone can publish through a blog, or calculate finances with a spreadsheet.) As on the demand side, the growing ease of producing data has made the market itself larger and more efficient.
Ultimately, information will remain valuable on both the demand and supply sides. Its market won't vanish. As data better serves its function of communicating information, it will give way to the underlying market, the information market. More to the point, continuing to target the data market rather than the information market will become steadily irrelevant. However, the information market comes along with its own set of conceptual shifts.
coda about software
Software is a unique case of data, in which the data represents information about manipulating data. For clarity's sake, the data manipulated by the software shall be called "work". (Of course, in practice the software is separated from the work for security and efficiency, but all data is nevertheless stored and retrieved in the same general way. Well, software and work have separate caches.) Since the manipulation of the work is the motivation for using the software, the value of the work is thus intrinsic to the software's value. In the opposite way, since software creates and modifies work, the software's value becomes intrinsic to the work's value--if the work can't be manipulated, its information is lost, at least without conversion.
The trend to transform the data market ever further into a purer information market will apply pressure to any obstacles which would trap information into data. Consequently, the value of software will lie in how much of the information market it can manipulate. The value of work will lie in what degree it can be treated like information--that is, the degree to which it can be easily manipulated. Minds don't need apparatus like software to manipulate any ideas. Similarly, ideas are much more fluid and interconnected than work, the actual bits of digital data. A second fusion between software and work will probably occur, but not in the rigid co-dependent way as before: "smarter" data, with standardized, replaceable parts. Dare I say Semantic Web? Or the Cloud?
trading information: the economics of information, part 3
Other parts:
Part 1, defining information and data
Part 2, valuing information
Economically considered, transactions in the information market have some unusual properties, due to information not being matter (recall part 1, each time communication occurs, the receiving mind decodes the data and "recreates" the information): 1) the producer's "inventory" of information isn't depleted, 2) the consumption of the information doesn't eliminate the information, 3) the consumer is immediately able (physically, mentally) to use the information in future transactions, this time as a producer.
Taken together, these unusual properties lead to a predictable outcome: the more transactions in the information market which occur, the greater the supply of the information becomes, on a compounding scale. Old-fashioned hearsay, rumors, and gossip can take less than a week to become common knowledge. New-fashioned blogs commenting on blogs produce an "echo chamber" (I WILL NOT use "blogosphere" non-ironically!), rocketing a particular entry to popularity...or notoriety.
Since the data market approaches the information market as data's efficiencies, particularly digital data, approach those of information, the economics relied upon by participants in the data market must adjust. Fortunately for producers who wish to eat (as opposed to having their lunch eaten), information retains the same value it always has had. There isn't a set formula of precisely how to adjust, but some suggestions and observations pertaining to the information market are available. Generally speaking, each one is aimed either toward leveraging a lack of scarcity or introducing scarcity, so the high level of overlap is unsurprising. Naturally, no guarantees are included.
A top factor in the dominance of the human species (over other lifeforms and to some degree Earth itself) is its talent for information. Over time, the matter representations of information, data, have grown in efficiency by the advances of technology. Data increasingly resembles information, and people will treat data more and more like information. Thus, the market for data will approach a market for information. Information will remain a market because, though the efficiencies of manipulating data enable large-scale (& decentralized) information production, good information will still have value. Nevertheless, the information market has its own set of challenges for yielding a profit. Those challenges aren't new, but take on more significance.
Part 1, defining information and data
Part 2, valuing information
Economically considered, transactions in the information market have some unusual properties, due to information not being matter (recall part 1, each time communication occurs, the receiving mind decodes the data and "recreates" the information): 1) the producer's "inventory" of information isn't depleted, 2) the consumption of the information doesn't eliminate the information, 3) the consumer is immediately able (physically, mentally) to use the information in future transactions, this time as a producer.
Taken together, these unusual properties lead to a predictable outcome: the more transactions in the information market which occur, the greater the supply of the information becomes, on a compounding scale. Old-fashioned hearsay, rumors, and gossip can take less than a week to become common knowledge. New-fashioned blogs commenting on blogs produce an "echo chamber" (I WILL NOT use "blogosphere" non-ironically!), rocketing a particular entry to popularity...or notoriety.
Since the data market approaches the information market as data's efficiencies, particularly digital data, approach those of information, the economics relied upon by participants in the data market must adjust. Fortunately for producers who wish to eat (as opposed to having their lunch eaten), information retains the same value it always has had. There isn't a set formula of precisely how to adjust, but some suggestions and observations pertaining to the information market are available. Generally speaking, each one is aimed either toward leveraging a lack of scarcity or introducing scarcity, so the high level of overlap is unsurprising. Naturally, no guarantees are included.
- Produce information whose value to the producer increases as the information is consumed. The traditional example is advertising. "Viral" marketing and product placement are some other techniques.
- Instead of producing information, produce tools and services which empower consumers to manipulate information, whether creating, modifying, storing, sharing, securing, selling. Admittedly, the more these tools and services are offered for free, and the stronger and easier those free tools and services become, the probability of earning a profit here will shrink.
- Ensure that the original producer of the information continues to be the best source for that information. Recommended tactics are offering the most convenient transactions (greater hassle for the consumer equates to greater perceived cost), frequent updates to keep past versions of the information less desirable (note that even information takes nonzero time to indirectly spread, depending on the number of intermediaries/layers), extra benefits to consumers who use the original source (the benefit could even be additional information), greater context for the information.
- A more efficient information market means that more choices are available to the consumer. His or her time and attention are limited. This immutable fact presents an opportunity for tools and services that could aid him or her in finding and discriminating information. An information market has less profit in distribution (how expensive is it to distribute something that's ethereal?), but it has more profit in filtering.
- On its own, information is inert. "Interactive" information is cleverer at not seeming inert, but only up to a point. By contrast, the greater value of interacting with a mind is hard to overestimate, which is why education will continue to have a deep need for teaching professionals in the face of widespread information. (Of course, some kinds of information are hard-to-impossible to communicate apart from the immediate feedback of a "coach".) A consumer can reuse information in another transaction; he or she can't take and resell the source mind.
- The value placed on information, like the value placed on any other resource, has a subjective component. Information producers can drastically exploit the subjective component because information is extremely malleable at low cost. Customized information is simultaneously of higher value to the targeted consumer and of lower value to every other consumer. (Then again, the same malleability potentially makes it easier for secondhand consumers to un-customize and re-customize the information.) Significant customization assumes a corresponding amount of work by the producer, though.
- Joint ownership of conventional goods illustrates that simple possession isn't the sole measure or benefit of ownership. So information producers can still trade "ownership-like" privileges for a shared possession like information. For instance, like a stock investment, information could be "pre-sold" before production--the obvious difference being that the investing consumers are expecting a return in information, not currency. (Clearly, the "investors" would need to be convinced that the information will be worthwhile.)
- Use a pricing strategy opposite to that of mass production: because large numbers of transactions can't be counted on (due to the potential of cheap duplicates), make up the difference through setting a higher price per transaction. Or go with a "group rate" paradigm, in which the high price could be split among several consumers, but each of the consumers in the group receives the information.
- Finally, economic behavior isn't independent of other behavior. More abstract incentives, positive or negative, can affect decisions. Societies function on incentives like those.
A top factor in the dominance of the human species (over other lifeforms and to some degree Earth itself) is its talent for information. Over time, the matter representations of information, data, have grown in efficiency by the advances of technology. Data increasingly resembles information, and people will treat data more and more like information. Thus, the market for data will approach a market for information. Information will remain a market because, though the efficiencies of manipulating data enable large-scale (& decentralized) information production, good information will still have value. Nevertheless, the information market has its own set of challenges for yielding a profit. Those challenges aren't new, but take on more significance.
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