Solutions Start with Innovation and Transparency

March 4, 2015

Innovation is selectively restrained in systems controlled by vested interests.

Just as everyone supports "solutions" until the solutions crush their share of the swag, everybody supports innovation and transparency (IT) until IT disrupts their share of the swag. Then they scramble to hide the ugly truths and suppress the spread of threatening innovation.

This parallel rejection of swag-crushing solutions and innovation/transparency by vested interests is not coincidental: innovation and transparency are the heart of real solutions.

It's not surprising that the Status Quo craves pseudo-solutions, for real solutions necessarily disrupt the corrupt, sclerotic, wasteful, inefficient, fraud-ridden and cronyist-paradise of vested interests. "Faster, better, cheaper" does not result in larger bureaucracies of do-nothing paper-pushers or multiplying crony-parasites. Rather, "faster, better, cheaper" destroys the friction of vested interests.

There's no other way to become "faster, better, cheaper" than to destroy the costs of the current arrangement.

While the disruptive impact of technological innovation is widely appreciated (and feared by despots and vested interests alike), less well-understood is the critical importance of the quality and distribution of transparency and innovation.

While apologists for vested interests will claim the U.S. economy is transparent, they fail to account for the poor quality of the transparency. All sorts of economic vital signs are collected and issued by government and private sources, but the quality of these statistics is suspect.

The unspoken reality is that the vast majority of these statistics are collected and organized to present the most bullish case possible. House sales typically reflect the number of initial offers, not the number of sales that closed escrow, because the first number will always be larger than the second number.

Unemployment, GDP and other key official stats are designed to maximize bullish interpretations by understating systemic unemployment and the poor quality of "growth." What isn't bullish--for example, the declining quality of new debt--is simply not measured at all.

Key trends such as the diminishing returns of financialization are only found in in obscure academic papers few know about and even fewer understand. For example, Reassessing the impact of finance on growth (BIS Working Papers #281, via B.C.).

Dissent is relegated to the archives or washed away by a tsunami of happy-story propaganda. The quality of what passes for corporate accounting is also suspect; after scraping away pro forma adjustments and other trickery, many "beat-estimates-by-a-penny profits" vanish into thin air. Forensic accounting is buried, happy-story propaganda is trumpeted.

Dig into the claim that the majority of college students with Masters Degrees have jobs and you find part-time, temp jobs are counted alongside permanent full-time jobs. Now that this sort of statistical legerdemain is the norm, simulacrum transparency delivers propaganda to protect vested interests from real transparency and the disruptive consequences of innovation.

Innovation is selectively restrained in systems controlled by vested interests. Anyone who examines the absurdly overpriced delivery of higher education and the dismal market-value of the resulting "education" knows that the system of higher education is ripe for a 90% reduction in costs. (A factor-of-10 reduction in higher education is outlined in my book The Nearly Free University and the Emerging Economy: The Revolution in Higher Education.)

The enormous power of the vested interests controlling higher education is focused on limiting innovation that threatens the vested interests' chokehold on accreditation and the signaling value of a college degree. That the signaling power of a degree is collapsing due to the poor quality of the education being delivered is less important than keeping a chokehold on the credentialing of "value."

The same suppression of innovation that threatens the vested interests is visible in national defense and healthcare. As long as innovation is limited to consumer gadgets, all is well. But when innovation threatens to reduce costs by a factor of 10 and wipe out the vested interests' gravy trains of swag, then a thicket of regulations is thrown up to stop innovation in its tracks.

Regulations act as a complexity fortress that protects vested interests from unwelcome intrusions of innovation. Innovation is safely limited to the lab, where it cannot threaten to disrupt bloated bureaucracies.

But don't take my word for it: read The Anti-Innovators: How Special Interests Undermine Entrepreneurship (James Bessen, Foreign Affairs).

Of related interest:

You Want a Solution? Try Not to Get Hurt When It Collapses, Then Start Over (July 14, 2014)

"Monetary Policy" Transfers Your Children's Future Earnings to the Financial Elite (December 23, 2009)

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