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wonderpup

If Scarcity = Value Then The Knowledge Economy = Fail.

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The idea that scarcity and value are interdependent when it comes to trade is widely accepted- the more scarce a good or service is, the more trade value that good or service will have- relative to demand of course.

In fact it could be argued that scarcity is the basis for all trade since that which is not scarce to some degree is unlikely to generate a market in the first place- and this rule even applies to an essential like air. We all need air but except in highly polluted areas there is little or no market for fresh air- it's too readily available to make it a viable source of trade income.

So what about knowledge- is this a naturally scarce commodity or not? The question is not trivial since most of us making a living by in effect selling our knowledge or expertise in one form or another.

Historically I think the answer to the question was yes- in the past access to knowledge was very restricted- many could not read or were not members of the privileged classes who had access to the rare books in which most knowledge was stored. And the craft guilds clearly understood that 'knowledge is power' because they jealously guarded access to their own repositories of knowledge, limiting this access only to those they chose to accept into their ranks.

But unlike almost all other commodities in the marketplace knowledge has a unique property- no matter how many times it is shared it never runs out. I could tell everyone on the planet that e=mc2 without 'using up' that knowledge.

So-in theory- knowledge is an infinite resource, like the mythical 'horn of plenty' in which no matter how much you drank from it it always remained full to the brim.

But this poses an interesting question- could you base a global economy on an infinite resource? Well the closest thing we have to an infinite resource is air- it's something we find extremely useful but at the same time is so available that it has no 'economic' value- no one makes a killing selling air. In fact in most places the trade value of air is more or less zero- it's worthless.

Ok- but unlike air knowledge takes time and effort to acquire, so while theoretically infinite in practice it is less infinite, it's a bit more scarce, which does lend it some value.

However we are told that the key to our future prosperity depends on reducing this scarcity by educating as many people as possible to as high a standard as possible- but here's the rub; How can making something less scarce increase it's value?

So it seems to me that the very premise of the knowledge economy idea is inherently contradictory in that the more we succeed in disseminating knowledge throughout the global population- the greater the number of people who join the ranks of the global knowledge economy- the less value that economy will create for those whose living depends on selling that knowledge in the marketplace.

So even as the number of students rise, the value of the knowledge they are gaining declines in economic value to the same ratio. And of course the internet massively exacerbates this trend as it allows more and more people access to knowledge on scale hitherto unimaginable.

So the meme that it will be education that will raise the living standards of the worlds population seems to have overlooked a basic economic reality- that the less scarce a commodity is, the less marketable value it will have and the lower the price it can command in the marketplace.

"Some commentators are under the false impression that wage inequality is a simple consequence of employers’ demand for increased skills and education—often thought to be driven by advances in technology. But new data from 2014 shows that even college educated workers and workers with advanced degrees are not in demand enough to see their wages rise."

In other words, wages are declining even in fields where advanced degrees are supposed to inoculate the highly educated from declines in earnings. This is not entirely surprising to anyone who has first-hand knowledge of the tremendous glut in workers with advanced degrees, but it does drive a stake in the heart of the argument that the solution to income inequality is more education.

ironically, all that minting another 5 million Masters degrees, MBAs, law degrees and PhDs will do is increase the oversupply of highly educated workers and thereby exacerbate the decline in wages paid to these workers.

http://www.zerohedge.com/news/2015-03-20/income-education-and-inequality-recovery-prepare-be-surprised

One other point is worth exploring. It could be argued that having a highly educated global workforce will create wealth due to the boost this would give to the innovation of new products and services as all that new brainpower was harnessed- and this might well be true but it does not solve our problem because access to wealth in our system is not based on the merit of one's ideas or the profit those ideas might generate- in order to capture the gains of one's efforts one must have the social power to assert those claims.

The problem is that most of us are not self employed entrepreneurs, most of us are employees of one sort or another- and the way an employee asserts his claims to a share of the company's profits is via his scarcity value to his employer- however in a world in which highly educated people are ten a penny most employees will not have much scarcity value- so their ability to demand pay rises or other shares of increased profits would be very limited.

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Some knowledge is very hard to obtain. In my field, it takes many years of experience at the lab bench to become a decent experimentalist. A few minutes on Google/Wikipedia cannot substitute for that.

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How can making something less scarce increase it's value?

Your right, we can "create value" merely by creating scarcity, its amazing noones though of it before - we could start by destroying 99% of the worlds stock of cancer treatment drugs, imagine the value this would create. But why stop there, lets euthanase 99% of the worlds graduates, imagine the value created by a critical shortage of engineers and doctors etc, and thats just the start, look at the abundance of food water and air, lets have a world wide contamination program, imagine the scarcity, imagine all the value we could create.

More serious answer - inducing artificial scarcity (or failing to exploit an opportunity to reduce scarcity) is tantamount to "breaking windows" http://www.investopedia.com/ask/answers/08/broken-window-fallacy.asp

"In this sense, the fallacy comes from making a decision by looking only at the parties directly involved in the short term, rather than looking at all parties (directly and indirectly) involved in the short and long term."

... i.e. exactly the flaw in reasoning that underpins pretty much all of the many fallacious statements you have made on this subject over the years.

Simply put, when productivity increases, people in the round derive greater benefit from exploiting abundance (and therefore cheapness) of goods/service provided by others, than they lose from reduced pricing power of what they themselves produce. Unless of course you can come up with some other reason why our standard of living is dramatically better now that say 100 years ago.

Edited by goldbug9999

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interesting thought thanks for taking the time to share it.

surely it is just supply and demand, we temporarily have an oversupply in some fields, so therefore wages will be suppressed for a few years. once the wages fall to a level where is it just not worth doing the degree the supply will dry up for a few years. then wages rise. Still requires effort to gain a certain level. and thus that requires a worthwhile reward.

The big education push seemed basically a business driven thing in the boom times, where skills were actually scarce they resented paying ever increasing amounts for i. Now there is huge oversupply in some fields (not engineering!) its a double negative for workers as wages drop, but in some ways good for businesses except also productivity dies a death as no-one feels fairly rewarded.

as it happens everyone is suffering as the required inflation has no drivers, the world seemed locked in a stagnant period where even the wealthy are loosing their ability to play their games in the ups and downs. asset holders have done ok so far but even they will face a correction in this environment.

engineering is currently facing a huge skills shortage yet wages are extremely slow to react, thus improvements are not made or delayed.

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The biological appearance of excess dioxygen in the Earth's atmosphere took something like 900 million years to create, that's a lot of time and effort!

More seriously, I think emergence and novelty are better measures of local scarcity/value than knowledge which seems to me more a measure of environmental complexity.

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It's not just whether something is scarce, but whether people believe it is. You can create false scarcity e.g. time limited offers for digital products.

With knowledge, often timing is everything. Financial data is worth a lot in the first few fractions of a second of its existence, but rapidly loses it.

Knowledge on its own can be worthless without the right intelligence or skills to apply it. The poster mentioning working in a lab is a case in a point. Without sufficient dexterity, insight, self-motivation and patience - you will make a poor lab worker - no matter how good your theoretical understanding. Knowledge of counselling is probably useless without any social intelligence, and an interest in helping others.

Edited by StainlessSteelCat

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Also - there are new winners. Not the passing of knowledge/information - but the CREATORS of Information.

If you create some sort of media/information and people like it they have to come to the creator who produces it. In the secondary market it is hard to pass that information on for profit unless you are the king player with the resources and established brand - e.g. Netflix.

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Think we are moving to a more collaborative future as demonstrated by the success of open source software, and gradually we are starting to get open source stuff.

Not sure what I've posted is relevant to the topic, but there you go.

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Im not sure of the relevance of such thinking outside the void that exists in place of a brain inside an economists head.

Water is hardly scarce, it doesn't make it any less valuable, utility wise.

Its a horribly overused and misused saying but 'people who know the price of everything and value of nothing' comes to mind. I mean, take the 'air' example...are you trying to say its bad no one pays for air? If everything becomes free, like air, surely thats a good thing (unless you're a government wanting to extract via taxation)

Not trying to say the premise is wrong as such, in fact i'm sure George Osbourne would love to hear from you, just your and my definition of 'fail' would likely differ.

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Knowledge is infinite.....but as individuals we only need certain knowledge to see our lives through in the most effective and comfortable way....much knowledge we learn has no or very minimal value when it come to living a great life, other knowledge we gather is priceless.....best concentrate and collect, learn and remember and put into practice the valuable stuff and stop wasting time and effort on learning worthless stuff.....everything that is already known is out there and can be found out if the effort and sometimes cost is worth it.....very often it is not.....the best stuff is learnt by living.

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Experience is where the value is, and unlike knowledge is not storable or transferable and has a finite life.

Most major human advances have stemmed from a combination of the two.

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Experience is where the value is, and unlike knowledge is not storable or transferable and has a finite life.

Most major human advances have stemmed from a combination of the two.

Agree that it is not the knowledge so much as how the knowledge is used......all knowledge can be used wisely to benefit a greater good or recklessly and selfishly to better oneself.

Kept or freely shared.

Edited by winkie

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...ironically, all that minting another 5 million Masters degrees, MBAs, law degrees and PhDs will do is increase the oversupply of highly educated workers and thereby exacerbate the decline in wages paid to these workers.

The issue is: What will the majority of people on the planet be able to do for a living (in The Knowledge Economy) in exchange for a fair existance, to buy a house and raise a family etc.

It seems the current system will continue to produce a more serious collapse in living standards, with a painful poor enslaved population and a few 'I'm alright Jacks' at the top. Or we could adapt to something radically new, dare I say it, with a more social(ist) context, fairer distribution for the bennefit of all participants (ultimately to something like a 'Star Trek economic model').

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Rich Dad Poor Dad, said "Scarcity = Profit"

Breaking a window creates profit for the window fitter but is detrimental to the economy as a whole.

To repeat the quote I made earlier ...

http://www.investope...dow-fallacy.asp

"In this sense, the fallacy comes from making a decision by looking only at the parties directly involved in the short term, rather than looking at all parties (directly and indirectly) involved in the short and long term."

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More serious answer - inducing artificial scarcity (or failing to exploit an opportunity to reduce scarcity) is tantamount to "breaking windows" http://www.investopedia.com/ask/answers/08/broken-window-fallacy.asp

Wonderpup is not saying that we should deliberately stop educating people to raise its value. When people ask questions like "How can X cause Y?" they're speaking abstractedly and trying to explain cause and effect rather than offering their own opinions.

For example, If I said "How can saving more energy cause more energy use?" does not mean this is what I necessary think or even mean that I believe we should stop saving energy, I am offering an argument and then trying to explain it. It looks like you actually agree with what wonderpup is saying. I think you just slightly misread what he meant. A good example is when people write "you" but they are using the pronoun you, they're not talking about you specifically.

Great post wonderpup!

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Simply put, when productivity increases, people in the round derive greater benefit from exploiting abundance (and therefore cheapness) of goods/service provided by others, than they lose from reduced pricing power of what they themselves produce. Unless of course you can come up with some other reason why our standard of living is dramatically better now that say 100 years ago.

This is a good point. The more people are educated, living standards improve but it is also true that wages decline as more people get educated. I think they can be simultaneously true!

Educated roles (doctors, dentists, lawyers etc) in society become less privileged over time and new roles takes their place.

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The point that you are missing is that there are increasing returns to the economy as the amount of knowledge in an economy increases. Discoveries in one discipline can leap over to another area and inspire progress in another field. An individual trained in a particular science or skill can apply the techniques of acquiring that knowledge to more easily learn skills in a new area.

Also, value is not solely a function of scarcity. The poo of female great crested newts is pretty scarce. Not much value though. Value is a function of scarcity and utility. Water is hardly scarce, but it has a great deal of utility, so people are willing to pay hundreds of pounds a year for it. Linking back to the idea of knowledge, if there is increasing marginal utility for knowledge, then the increasing utility of knowledge will counter-act its decreasing scarcity such that the value of knowledge does not decline.

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I think it depends on the knowledge you have.

Some knowledge is scarce and has no value, outside of academia if you could read Linear A it wouldn't be of much value but it is a knowledge that no one has. Gaining this knowledge is unlikely to be profitable.

However having the knowledge to build a safe nuclear power reactor would be extremely valuable.

Basic knowledge of reading/writing is essential in modern life.

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Wonderpup is not saying that we should deliberately stop educating people to raise its value. When people ask questions like "How can X cause Y?" they're speaking abstractedly and trying to explain cause and effect rather than offering their own opinions.

For example, If I said "How can saving more energy cause more energy use?" does not mean this is what I necessary think or even mean that I believe we should stop saving energy, I am offering an argument and then trying to explain it. It looks like you actually agree with what wonderpup is saying. I think you just slightly misread what he meant. A good example is when people write "you" but they are using the pronoun you, they're not talking about you specifically.

Great post wonderpup!

I think we have to understand when politicians say something, they often mean the opposite.

While many are utter idiots, not all MPs are, and they know damn well if you increase the number of people with degree's you devalue those degrees. Simple supply/demand. They knew they were not going to get higher tax receipts. The 'knowledge economy' was a lie from that angle.

It's there to 1) simply hide youth unemployment

2) create a bigger client class of lecturers and other unionized higher ed staff

3) Increase mass foreign immigration for whatever twisted social engineering end game they have in mind.

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Think we are moving to a more collaborative future as demonstrated by the success of open source software, and gradually we are starting to get open source stuff.

Not sure what I've posted is relevant to the topic, but there you go.

I think it is relevant. Open source software is a good example of the benefits that hyper-abundance brings to something that was previously scarce and expensive. It largely thanks to open course software that there are so many opportunities to work on interesting and varied software development projects (and I'm talking about the paid variety).

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Wonderpup pulling his usual trick again?

Start from a false premise, blur a few definitions then arrive at a bo11ocks anti-capitalist conclusion.

In this case the trick is confusing value with price.

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to gain knowledge(expertise) you require aptitude+input+time

none of those are infinite at any moment

true expertise is relatively scarce.

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to gain knowledge(expertise) you require aptitude+input+time

none of those are infinite at any moment

true expertise is relatively scarce.

This is very true....once the knowledge is gained using aptitude input and time is is then available for others to make use of as they feel fit to use it.....the work has been done now the benefits can be shared.....nobody owns knowledge, if they don't share it all knowledge is then lost.

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