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Musings Report #30 7-25-15 If Knowledge Is Power, Is It Also Wealth?
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For those who are new to the Musings reports: they are basically a glimpse into my notebook,the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
If Knowledge Is Power, Is It Also Wealth?
Let's consider a syllogism: Knowledge is power, power equals wealth, so knowledge equals wealth.
Is this true? Author George Gilder thinks so. His book Knowledge and Power: The Information Theory of Capitalism and How it is Revolutionizing our World
proposes that (in Bill Bonner's phrase) "an economy is fundamentally a learning system, not a way for distributing wealth."
In Gilder's view, new information (i.e. knowledge) enables us to do things better, i.e. increase productivity. New knowledge is what creates value.
New knowledge is always surprising, and it naturally disrupts "business as usual." So those benefiting from business as usual must suppress the disruption arising from new knowledge to maintain their incomes/profits.
Bonner summarizes the conflict between vested interests (cronies and zombies) and those with new knowledge in this lively fashion:
"In an economy, the person who is the source of most important new information is the entrepreneur. He is the fellow who takes risks and builds a new business.
The cronies want to stop him, before he undermines the value of their old assets and old business models with new information. The zombies want to drag him down, leeching on him so greedily that he runs out of energy."
Gilder views vested interests limiting new knowledge as the real threat to the economy. This is the danger of "regulatory capture," when vested interests bribe the state (government) to erect barriers to competition to maintain monopolies and rentier privileges.
But what's missing from this view of the economy as a learning system is that value flows to what's scarce, and information is abundant.
In other words, only very specific kinds of knowledge are scarce--the kind that create new goods, services and business models.
These new models are precisely what destroys not just "bad" cronyism but "good" jobs. What's scarce is ideas that automate existing processes.
As Michael Spence and co-authors Andrew McAfee and Erik Brynjolfsson observed in their 2014 essay, Labor, Capital and Ideas in the Power Law Economy, neither capital nor labor have scarcity value in the age of automation and nearly-free credit. “Fortune will instead favor a third group: those who can innovate and create new products, services, and business models.”
Value in the knowledge economy is not distributed equally. The return on abundant human labor and capital are very low, while the scarcity of skills and knowledge that create new products, services, and business models drives most of the gains to the creative class:
“The distribution of income for this creative class typically takes the form of a power law, with a small number of winners capturing most of the rewards. In the future, ideas will be the real scarce inputs in the world -- scarcer than both labor and capital -- and the few who provide good ideas will reap huge rewards.”
Learning--the acquisition of skills and knowledge--is difficult and costly. Developing new ideas and applying them in the real world is an uncertain process and therefore risky.
From this perspective, rewards flow not just to what’s scarce but to what is inherently risky. Since most ideas fail to reach fruition, new ideas that succeed in boosting productivity are intrinsically scarce.
In other words, there is no risk-free way to identify and exploit scarcity in a knowledge economy in which vast troves of information and knowledge are free and have no scarcity value.
It seems to me that while knowledge may be powerful in terms of empowering the learner to improve their own lives, knowledge can only generate wealth if it is scarce. The ideas that are scarce are those that disrupt "business as usual" by automating what has not yet been automated.
Summary of the Blog This Past Week
Bubble, Bubble, Toil and Trouble: When Authorities Buy Assets to Prop Up Markets 7/24/15
Is the Echo Housing Bubble About to Burst? 7/23/15
Will the Oil Patch Bust Trigger Recession? 7/22/15
Are Tech Giants' New Buildings Signs of the Top? 7/21/15
We Need a Crash to Sort the Wheat from the Chaff 7/20/15
Best Thing That Happened To Me This Week
We cranked out the first batch of 7 peach pies--yummy! (Of course we gave away most of the pies to friends...)
Market Musings: Gold Miners
The general view of gold mining companies is that they are high risk, as they are exposed to declines in the price of gold and declines in the stock market, even if gold is moving higher.
But there are other factors in play. One is the sharp decline in the price of energy/oil, which is a key input in the cost of mining. Every drop in the price of energy lowers the miners' operating costs.
The other factor is the possibility that gold has finally hit bottom after many years of declining from $1900/oz to $1072. Maybe price needs to visit $1050 or $1030, as some suggest. But from the big picture perspective, 98% of the decline may be done, i.e. a drop of 2% to 4% may be all the downside that's left to play out.
A third factor is the shift of sentiment. Even in bear markets, participants who are selling stocks are looking for sectors that are going against the grain, i.e. rising.
If gold hits bottom and spikes higher on global uncertainty (that is, as demand for risk-off assets increases and risk-on assets are dumped), the miners could move higher as well on the recognition that they can make money now that energy has resumed its slide.
The chart of GDX (gold miners etf) suggests capitulation: a huge spike in selling, a gap down below the lower trendline and oversold readings on RSI and stochastics.
As for sentiment--it's hard a to find a more hated sector than gold and silver miners. Once the sellers capitulate and get out, the stage is set for buyers to push prices higher.
From Left Field
Celebrated Political Theorist Hannah Arendt on How Bureaucracy Fuels Violence -- very insightful....
The Dark Side of Emotional Intelligence -- it can used to manipulate....
The surprising reason Americans might be obese, anxious and depressed -- the microbiome again...everything's connected...
Because You're Worthless - Challenging The Current Economic System in 3 Minutes
The Future of Work According to academic entrepreneur & strategist Heather McGowan, a focus on certainty over creativity is coming at our peril.
Bye, Bye Capitalism. We’re Entering the Age of Abundance -- cofounder of Zipcar...
The end of capitalism has begun -- easy to say, but what does it mean?
Could China Be the Next Japan? China today is very similar to Japan in 1990, and the world's No. 2 economy should be wary of repeating the policy mistakes of Japan
The Charitable-Industrial Complex -- maintaining poverty to continue milking it...
Building a Start-Up Culture in a Broken-Down Economy -- Greece; this reminds me of Rumi: Where there is ruin, there is hope for treasures.
Just a Weed, or an Unrecognized Health-Boosting Plant? we have Purslane wherever there is water in the garden...
Listen to the instrument da Vinci invented but never got to hear -- amazing....
"For it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa.” Frederic Bastiat
Thanks for reading--
charles |
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