Finding Useful Information                                          by John Suter

Thomas D. Howes on Hayek’s Discovery, Use, and Transmission of Knowledge

Words and Concepts:  Discovery, Competition, Capitalism, Structures and Processes, Feedback, Changing Environment

Friedrich Hayek understood that the study of economics goes beyond what can easily be seen and measured.  In a recent article of The Austrian Institute of Economics and Social Philosophy, Thomas Howes writes about Hayek and the use of competition to discover economic information and price as a signal for coordination of decision making.   (Austrian Institute Paper No.34 / 2020)   Howes expands this to include knowledge management and educational reform.  

Since the time of Hayek the use of competition has remained important, but other things have changed.  Over the last few decades there have been changes in structures and processes that both increase and decrease resistance to the movement of useful information.  These are both social structures and physical structures.  If a point of resistance can be identified as a bottleneck, then steps can be taken to correct it.  Often, however, the resistance is more subtle or dispersed.   There are a number of reasons for this.  Media ownership can slant stories in ways or omit pertinent facts in ways that elude even a careful reader.  No one would expect the Washington Post to be critical of the parent company Amazon, though an omission may not be directed by any one person.  It is more likely self-censorship.  In a similar manner, surveillance by government or big tech throws cold water on new ideas or probing questions.  Who would want to risk losing a job if the boss is listening to a conversation?

Other things have changed since Hayek’s time not so long ago.  Fiber Optics give traders a split second advantage by simply make the message move faster.  With computer trading this can make the difference between profit and loss.  When we buy items on Amazon, we make decisions about things we cannot immediately see nor can we meet the makers of an item and look them in the eye.  This adds another layer of complexity to decisions.  Buying insurance becomes even more obscure and so there develops a market for specialists in these areas.   

Simple discovery of information in many situations is not enough to figure out what is going on and polls are often of little help.  We must dig deeper to examine not only the sources, but also the structures and processes that we use to filter the good and useful information while avoiding the misinformation, disinformation, and spin.  Friendly competition among randomly picked groups can help, creating information filters that reach through existing social structures and across the social spectrum.  Just as the dimensions and rules of baseball are important to bring out the spirit and skills of the players, the right structure for filtering information will have some optimal design and can be created as a sport.  But first a look at power.

Power Types – 

Coercive Force of Arms (CFA), Economic Power, and the Power of Information

In any institution or large business, trying to move useful ideas and information up the ladder seems impossible unless management creates a process or pathway.  This reflects the flow of power from the top that is primarily based on the use or threat of coercive force of arms (CFA), what Max Weber noted as the defining parameter of the nation-state.  As long as everyone knows their role none of the signals have to be overt.

Capitalism gets much of its power by its ability to organize people to make goods and services.  Organization happens with the downward flow of money as salaries and wages, looking a lot like the Marionette doll snapping into shape when the strings are pulled.  Because both government and businesses use money, their social hierarchy is backed up by CFA.  Without CFA, buying debt would be a very risky thing to do.  This relationship of money to CFA power may also be the reason that crypto currency will never be a major currency since it too must rely on contracts, something that a government with an established currency may not want to uphold.

Expanding the definition of power can be helpful.  Power is “the ability to get things done, or the ability to slow momentum of things already in motion.”  That would include economic power and the power of finding, filtering, and moving useful information.  These other axes of power sometimes work with CFA power and sometimes point in their own direction.  They all interact to form a social hierarchy that can be influenced by the separate elements.  Big business certainly shows what economic power can do.   A kid with knowledge of how to ride a skateboard or who knows a path through the woods has information power that he or she may want to share – or not. 

Resistance to Finding Useful Information.  Is it Structural? 

There are many political examples of decisions made on bad information, the aluminum tubes leading to the War in Iraq being one recent example.  People at leadership levels only listen to others at their level rather than expand the search to lower levels, partly for reasons of time, but also to maintain lines of power.  Yet they do not realize their information and feedback are not optimal.  Robert McNamara, Secretary of Defense during the Vietnam War, wrote his book “In Retrospect” to explored the lessons learned from that misadventure.  He was looking for better ways to find and move useful information.  In a recent broadcast, Robert’s son Craig McNamara admitted that we have not learned those lessons. 

If we take a measure of the increasing income gap and mistrust of information from government officials, it might appear that our system of government is becoming senile.  Senility in humans means being unable to respond to changes in the immediate environment due to an impairment of the nervous system, that system which processes and moves information.  A current example is what the Fed calls “forward guidance” meant to give cues about the next Fed move on inflation so that business and financial institutions can plan ahead.  For those who cannot read these cues it feels like insider trading.  Yet Cambridge economist Mohamed El-Erian states that the Fed should give more forward guidance, not less.  Will this fix the problem?

In the book “Adapt”, Tim Harford quotes Hayek, saying that sometimes there is no substitute for information learned on the ground.  He was describing the Iraq war.  He argued that the power of new communication technology should allow decisions to be made at the appropriate lower levels.  Unfortunately, information technology also allows people in central command to try to control everything.  Again, one way to counter this trend is the ad hoc construction of feedback loops and sensors created by the end users, whether those sensors are technology tools or small groups of people.  Feedback loops can be built by the people who plan a policy or program, but feedback can also be provided after the fact by people on the outside.  Whether or not this hinders or helps depends on the quality and balance of the feedback.  

Capitalism, Courts, and Contracts also create a ratchet mechanism that acts like a one-way power device with leverage.   One can see this ratchet mechanism in both democratic and non-democratic countries in a quest for cheap labor.  We all use it to advantage because it creates organization and provides us with goods and services. 

Is Capitalism in Decline?  Models from Biology

The Club of Rome with its report on “The Limits of Growth” is generally talking about “growth” in an economic sense as measured by GDP or increase in the nominal number of jobs.  We are getting bigger and taller, right?   Yet, if one looks at a biological model, there are many ways for an organism to grow in order to increase its chance of survival, even though it may not appear to grow on the outside.  Cellular biology becomes quite complex and changes as the needs change.  The analogy in human dimensions point toward a growth of security and greater ability to respond to changes for the community as a whole, the “cell” of society.  This requires improvements in filtering information, not division into silos at the whim of leaders and media moguls who have their own agenda. 

Howe writes a story about the gap in communication between management and employees at Xerox, but this was not the only gap at that same company.  Even among employees there was a lack of communication as noted in John Seely Brown’s “The Social Life of Information”.  When Steve Jobs and friends paid a visit to Xerox they saw a Graphic User Interface (GUI) that was to become an industry standard, but because engineers and scientists were not talking to each other, Xerox was not able to develop it.  So Jobs and friends took the idea to use at Apple. 

Does the cigarette smoker have enough information and experience to make a good decision?  The price signal gives an indication of desire for cigarettes, and I can make money selling cigarettes, but it does take away real value from that person’s family, friends, and community who must then care for someone with chronic lung disease.  Tobacco use has dwindled to a minimum in the US, not because of a free market dynamic, but because of court cases which basically pushed smokers out of public places.  Most smokers came to appreciate that move, because most smokers were trying to quit.  But it took more than 30 years.  A better designed information structure could have accelerated that change.

Nature is Competition.  Don’t back off.

Much of nature is about competition.  Evolution picks those who survive in a specific environment.  This is usually genetic luck and not planned, except maybe in humans.

Democratic Capitalism is the most efficient way to divide the spoils of nature and natural resources.  Now we are reaching some limits.  Do we stay with our system or change course?   Cooperation is important but so is competition, though it should be friendly competition.  Politicians and Business leaders apparently love to compete.

But don’t back off from competition.  Move it to another level.  Use different players and goals.  In education move the competition to specific courses and styles of teaching.  Cooperate?  Yes.  Follow the leader?  Probably – except with information gathering and processing where people need to think for themselves. 

E = Experiment

For anyone looking for fruitful areas of research, focusing on Small Groups and Neighborhood Communities is a place to start.  Simply start by creating some teams, giving a challenge and a goal (incentive and general direction).  See if they can organize to get something done.  An incentive may help to start the process.

It is important to have both players and judges from a similar cross section of the group.  This is important because the boss does not have enough time to pick a winner and will have a bias of their own.   Herb Simon described a “Mangement Information System” from the 1980’s that would “gather up all the relevant information and dump it on the bosses desk – and the boss didn’t like it very much”.

Is the phrase “Systemic Discovery” an oxymoron?  One must be cautious that an outcome has not already been decided by someone at a higher level.   The true explorer is the person who is lost.  (Tim Cahill).   That person must really search, look, listen and think.  They must draw on all their senses.  We have plenty of challenges to pick from on issues that do not have a pre-determined answer.  

If the answer is known, then it is an exercise, not a problem.  (Paul Zeitz)

Theoretical v Experimental

Hayek noted that some knowledge will surface only if the situation needs it.  Otherwise it will remain inchoate or hidden.  Discovery of hidden knowledge may have to be done with experiments if we are to break our habits of looking and listening only to others in our circle.  Some habits are deep.  Some habits are rigid.  Finding the difference may require a push.  Doing an experiment to give this push may help find the necessary hidden knowledge that will move us to a better place or provide better feedback to leaders.

Real school choice is more than giving school vouchers.  It is not enough to offer school choice to parents who do not know what a good education should look like or what it should demand.  Feedback loops can be created for specific courses to find out how to teach better and how students can learn better.  Use competition for specific subject matter and include parents, students, and teachers on competitive teams to find faster, more durable ways of learning the material and the concepts covered.   Answers may or may not come from education experts who have their own ideas but have not checked or talked with top students.   (Cal Newport)

F is for Feedback

Feedback is essential for learning almost anything.   Well-designed feedback, both from within and from the outside, can help to make needed changes in the larger society, even without a revolution or regime change.  The feedback sensor can be simple.  It is often measuring one item and sending specific information from one person or place to another. 

Feedback loops should be carefully thought out and do not have to simply be along lines of CFA power.  Feedback can be given to other people at other levels of the social hierarchy above or below.  Bossware is computer software used to spy on employees and is a type of feedback but mostly poorly designed, often leading to counterproductive results and “quiet quitting”.  There are other markers of work and services produced without resorting to oppressive measures.

Decision Making as Freedom

Many decisions are small but some decisions can be meaningful, helping to set the course for a person or their larger group.  Surveillance states such as China may offer choices and even encourage choices as a matter of form, but are those choices significant for citizens in creating their own future?  And if the sources are not trusted, then it really is a dystopia.  The way out is to make more decisions. . . not fewer.   Create more competition for better information.  Push others to make decisions for themselves or for others.   Start anywhere.

Is the US declining?  Or going into Economic Hibernation? 

Until we can find alternate energy sources and better solutions to other difficult problems, economic hibernation may be the only way to avoid a depression.  This hibernation process may have to start at the community and small group level.  If we become totally dependent on the Fed to print more money, we are more likely to go into depression. 

People who work in corporations and small business can be moral beings and make moral decisions, but the business itself cannot be moral or immoral.  It is amoral.  

A business has a different function than a community.   If someone in the community hacked into a computer, that person would be prosecuted by the community. (It’s the law!)  But a business might hire the hacker.  Why?  Information.  The business is able to take a risk that the community is not willing or able to take.   However the community is still the basis of morality, the place where most of our Maslow needs are met and without which we cannot move forward.

EXPERIMENT Ideas (E 1-4) with Small Group Competition

E.1  Can each Neighborhood Community create jobs for some of the people who live there?  It may be a temporary structural change, but opportunity also.  Decision Making as Freedom means talk, search, and talk some more.

E.2  It is not enough to offer school choice to parents who do not know what a good education should look like or what it should demand.  Use competition for specific subject matter and include parents, students, and teachers on competitive teams to find faster, more durable ways of learning the material and the concepts covered.  

E.3  How to Focus on a Few, focusing the efforts of many in order to heighten the incentive for a few players.  How to pick players and judges randomly and mix them frequently?  Optimize a learning structure for the issue.

E.4  Sustainability of another community away from the small group competition.  Target learners could be in the nearby community or, with information technology, they can reach around the world.   Competition can make if more efficient.

SUMMARY

-Physical and social structures can help or hinder in finding useful information.  

-There are at least 3 types of power and they all interrelate.  Coercive Force of Arms as will not go away but we can use these other types of power to get things done. 

-The smoker does not need to be a player, but he or she needs the information that results from a well-structured competition.  The same is true of a parent looking for better education for their child.

-Hayek’s emphasis on the discovery of hidden knowledge is important.  Price signals create information for decision makers.  Price also measures addiction potential and indirectly affects our belief systems and stories that we create to live by.

-Decision Making as Freedom (DMF) is a seed and a mindset that can grow, primarily from one small group to another, one town to another.  Push others to reach a bit further than they have gone before.  Use small groups to experiment with the processes and structural changes to make decisions.

-Anyone can start and do formal or informal research on Small Group Competition at any level.  One can start with as few as 3 people.