We typically think of information systems in terms of computers and communication technologies, but they are really anything that transmits information from one person to another. This includes things like music, art, and speech, as well as the tech. George Gilder, an economist involved with tech most of his life, and who, at an age of almost 90, is still a leading light and writing books on the future of technology and information, has described information as “surprise.”
Most of what we see, hear, and experience in our daily lives is not information in that sense. We know that a hot stove can burn, but when people cook, they don’t think about it. They set the temperature and go about their business. If the pan starts to smoke, that is unexpected and indicates that the temperature is probably too high. The smoke is information, it is surprise that tells us to make a choice.
In information systems of every type, the message and the channel are different things. With a cell phone, the channel is the electric circuits, transmitters, and radio waves, and the message is your mom’s voice through the speaker inviting you to dinner. If there is a lot of noise or if there are unexpected breaks arising from the channel, the message might not be heard or might be misunderstood.
An economy is also an information system, conveying knowledge between participants. Markets, in the broad sense of the word, are the carriers. The messages are prices and profits. When two parties exchange, it tells each one and outside observers something about how the participants value the things they give and get. The demand and supply adjust based upon market messages of buyers and sellers.
Profits are another surprise, another piece of information that causes activity. Those products and industries that are profitable, meaning that selling price is higher than the costs, tend to draw more participants to it. This is good for customers, because it tends to increase the supply and put downward pressure on the price.
As with the cell phone, a crystal clear signal ensures that the message is heard by the receiver, but there are many ways that economic signals can be distorted. Many political actions directly interfere with the transactions, artificially making them more or less desirable to one party or another, such as price and wage controls. Import quotas or embargoes create artificial shortages, raising prices for buyers. Requiring sellers to offer things they wouldn’t otherwise increases seller costs and buyer prices, as with the items that health insurance companies are required to cover by law in order to sell any policies.
The markets that are the most dis-coordinated are those where government intervention is the greatest. With the example of health care, decades of piling layer upon layer of regulation, limitation of competition, and flooding the markets with government dollars has clouded the actual market signals and made politics more important than markets. The actual signals from buyers and sellers get lost in the chaos, as politicians determine outcomes.
Economic freedom and limitation of government interference are the hallmarks of prosperous societies for the very reason that they allow everyone who participates in the markets to hear what prices and profits are telling them. People can act on the basis of economic reality, rather than arbitrary political whim or noise. They can determine what is valuable to them and have the greatest freedom to improve their own circumstances. The economy is individuals, and an economy prospers when the individuals prosper. America needs to regain its position as the nation of freedom, the nation of choice, and a nation of limited government, so that the signals are not overwhelmed by the noise.