Tag Archives: society

Reality, perception, and the media’s effect on the economy

Posted on March 11, 2001 | Leave a comment

For each of us, perception is reality, and drives our behaviors and investments. The media have strong influence over the perceptions of communities, and this drives the net investments of time and money in a community.

It is this net investment of time and money that dictates changes in the economy and the community. So those who produce the information that change perceptions can manipulate the reality of the growth of the community. Is a relationship this general something that we want to foster in our own community? Will it lead down the best path for humanity? A major manifestation of this relationship is the growing value of media. Those who control the media can manipulate the users of it by biasing the information flow. Biases often manifest themselves in analysis and selection of content. It is no wonder that the latest tulip bulb incident centered around the technology and media industries that helped to create that boom-bust. Where would we go if we were not biased? Given all the info and allowed to weigh it as we see fit, we would all more independently perceive the world. The range of individuality would increase, while the volatility of consumer confidence over time would fall because correlations in idiosyncratic confidence levels would fall – affecting every cyclical market. If there is such thing as a risk premium, then people are willing to pay to reduce volatility and are effectively indicating that lowering volatility of cyclical markets would be a good thing.

Is religion succumbing to media as the primary influence in the populations’ perceptions of self and community? And if so, are we replacing one set of biases with another? The most important reason to avoid biases is that they possibly influence decisions away from what is right or best. And the development of the community is optimized when large numbers of unbiased (and rational) individuals participate in decision-making.

We are naturally transitioning toward an environment where individuals have more control over their information. The internet is a strong influence on that process. As the barriers to entry continue to fall in the media space, we will have more and more access to varied information. As this happens, we will see new tools arise that allow us to filter, select, and interpret our information. This is an important process in the evolution of our society, and is a necessary step in the transition toward fairness and truth.

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Posted in Economics, Psychology, Public Policy

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Irrational exuberance and other drivers of economic growth in the information age

Posted on February 2, 2001 | Leave a comment

Alan Greenspan, the Federal Reserve Chairman, once labeled the nation’s sentiment as one of “irrational exuberance”, and subsequently tightened monetary policy to prevent an overheating economy. It seems pretty clear, however, that this period of optimism and growth was one of the most important periods of technical and social development in human history. New business possibilities, medical breakthroughs, and communications tools mark this period, and drove the exuberance. I propose that the exuberance is not irrational at all. In fact, I believe that the market was correct to be excited about the potential of recent technological advancements.

Value and growth are not necessarily measured best when viewed in dollar terms, and the period of time when a company commercializes its non-financial value can often be many years. Take Geocities for example. This is a company with negligible financial assets, yet was purchased by Yahoo for more than $5 billion… yes. Was that irrational? Or does Yahoo know something that Greenspan does not? There is significant value in information and habit. Information is the better-than-money bits that translate to utility in the information age. Habit is what brings customers back, and signals the acquisition of and demand for future information.

Ok, then how should the Fed think about economic growth? How should they consider information assets in the optimization model for the welfare of Americans? I think that, for the most part, the financial markets do a decent job of evaluating information assets; we see the widening distribution of P/E ratios in public company market capitalizations as investors placing value on non-financial assets. It is not absurd to think that investors are placing large value on the information assets that do not play a role in the traditional valuation models used for equities. Additionally, economic growth can go up without creating inflation as long as productivity increases enough.

Now that the Fed has loosened rates by a full 1% in less than a month, I think that they are attempting to re-ignite the ‘growth’ that marked most of the 1990s. That is not to say that they are looking to raise the level of the stock markets, or increase economic growth beyond 3-4%, but that they will try to create an environment where technical and social development is optimal. Inflation tends to fall as productivity increases, all else equal. I hope that the Fed begins to use their power to encourage gains in productivity as a vehicle to offset inflation under historically high economic growth rates.

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Posted in Early Stage, Economics, Freakonomics, Investment, Psychology, Public Policy, Stocks, The FED

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The probability of the extinction of humanity is increasing

Posted on January 31, 2001 | Leave a comment

As communities overlap more and more, the unanticipated toxins that destroy cultures have a greater likelihood of spreading to other cultures.

When the Roman Empire poisoned itself with lead, for example, it destroyed a large culture, but not everyone. When the plague killed 1/3 of the world’s population, it even impacted the economic prosperity of Africa as the limited trade routes fell apart. If today’s aspartame (or any other component of our environment) were to cause damage to our evolutionary viability, it would vastly destroy the population of the world. Coke, for example, sells to just about every corner of the globe. As this occurs with more foods, drugs, medical procedures, manufacturing byproducts, and societal norms, we increase the likelihood of breaking the chain of humanity.

It may make sense to restrict the propagation of new products at some point in order to protect populations from negative ramifications. It also seems wise to maintain different food and drug administrations in different countries as long as there is unpredictability in long-term implications. The responsibility of the food and drug administration will become more and more important as similar ingredients become a part of the diet of larger and larger part of the population.

Chemical, biological, nuclear, nano-, and genetic weaponry is increasing in effectiveness. It will be possible in the next decades to produce agents that will kill all life with genetic code that matches any set of very specific genetic or other criteria.

This is really scary to me. I don’t know how to stop it. Similar to the way that software viruses and anti-virus software battle for dominance, new weapons and the protections against them will battle for dominance… in this case, with lives on the line. Over time the technology for constructing microscopic, cheap, and effective weapons will become more accessible. Columbine has the potential to be much worse. Assassination could be as easy as sending a nanoterrorist or finding a hair and releasing an airborne virus with a single target. It makes me think something that rarely crosses my mind: that the government should enforce involvement.

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Posted in Economics, Freakonomics, Personal, Public Policy, Science, Tech, The Future

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Global economic downturns are amplified by global communications and consolidation of media

Posted on January 31, 2001 | Leave a comment

Economic downturns are the result of coincident reductions in financial investments. They are marked by larger numbers of companies cutting back on their budgets, and by large numbers of investors who perceive value to be falling. When one individual makes a decision, it has negligible impact on the market (unless it’s Buffet!), but when large numbers of individuals act at the same time, the market moves. The more people are making the same decision at the same time, the equilibrium is shocked by more, too. In other words, the invisible hand becomes an invisible linebacker; pushing harder.

This means that when larger groups of people are influenced in the same ways by the same media, then the market and the economy are going to swing with greater magnitude.

Social inconsistency provides a healthy dissonance in the economic markets. Different consumer confidence levels and uncorrelated investment views ensure that the economic growth remains relatively stable. Just like many stocks in an index reduce the volatility of the index relative to the average volatility of the index components.

So, ironically, by improving the communications tools that make our economy function better, we are also increasing the magnitude and danger of economic downturns.

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Posted in Economics, Freakonomics, Investment, Media, Psychology, Public Policy, Stocks, The FED, The Future

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Human Responsibility

Posted on January 10, 2001 | Leave a comment

The Human Rights movements of the 20th century will evolve into the Human Responsibility movements of the 21st. Just as the moral masses rose to fight battles of freedom, representation, protection, and equality, new moral questions of responsibility will arise as paramount. We will be forced to confront and socially decide upon subjective and highly contested issues in the use of technologies, preservation of environments, and rules of trade and labor. Harold T. Shapiro *64 is an early hero in this movement, speaking to thousands:

In the 21st Century, scientists and engineers will continue to inform us regarding what we can do with our ever-expanding knowledge base, but it is our shared responsibility to decide what we should do. And deciding what we should do is the greatest responsibility we all bear as we move forward together.

It will be a moral call to arms. Factions will grow in much the same ways that they have around abortion questions. Large numbers of issues will arise, and be grouped by medical, moral, philosophical, religious, technical, and other similarities. Specialized factions will fight for ultimate personal freedom to act, at least upon themselves, without restraint. While others will fight for the protection of others, even to the great restraint of personal freedoms. And there will be a majority in between.

Communities will form, and governments will be organized around the constituents’ answers to these questions. Those countries that embrace the most freedoms, particularly for businesses, will have financial advantages over those that embrace the most protections of others. This imbalance will allow particular countries to benefit for decades at the detriment of the whole, as their own incentives are not aligned with the benefit of the whole, but instead with their own short term economic benefit.

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Posted in Just for fun, Law, Personal, Psychology, Public Policy, Rights, Taxes, The Future

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