Monday, February 08, 2016

If Knowledge Is Power, Is It Also Wealth?

Ironically perhaps, the ideas that are scarce are those that disrupt "business as usual" by automating what has not yet been automated.
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 apt phrase) "the 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 earning money 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 Economyneither 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.
The wild card here is knowledge is increasingly unownable and therefore it cannot be kept scarce for private gain.
It seems 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 and ownable.
Ironically perhaps, the ideas that are scarce are those that disrupt "business as usual" by automating what has not yet been automated.
This essay was drawn from Musings Report 12. The weekly Musings Reports are emailed exclusively to subscribers and major contributors ($50+ annually).
Musings Subscribers: If you did not receive your Musings Report this week, your subscription has likely expired. If you would like to resubscribe, you can do so via this page: How to Contribute, Subscribe/Unsubscribe to Of Two Minds.com.
Admin note: I will be busy with family commitments until mid-month. As a result, blog posts will be sporadic and email responses will be near-zero. Thank you for your understanding.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, George V. ($50), for your fabulously generous contribution to this site -- I am greatly honored by your steadfast support and readership.
Thank you, Michael J. ($25), for your splendidly generous contribution to this site -- I am greatly honored by your support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:


Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative). If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.


PRIVACY NOTICE FOR EEA INDIVIDUALS


This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice. https://stg.media.investingchannel.com/gdpr-notice/


Notice of Compliance with The California Consumer Protection Act
This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Limit the Use of My Sensitive Personal Information.


Regarding Cookies:


This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.


Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP