Monetizing Trust

from Gary North

Trust is crucial to transactions.

One reason why money is the most marketable commodity is trust. You can trust it. Nobody has to run a credit check if you pay with currency.

The greater the trust, the greater the opportunities for exchange. The greater the opportunities for exchange, the wider the range of possibilities of specialization. The greater the specialization, the higher the output. The higher the output, the higher the income.

TED has a list of six presentations on trust. It is here:  https://www.ted.com/playlists/366/the_economy_of_trust.

I watched this 2012 talk on reputation:

She saw what was coming in 2012. It is ramping up fast. It is the wave of the future. This will be a decentralized future. It will be hard to cartelize it.

Think of Uber. Think of taxi fleets with massive debt for city taxi-medallions. The future is visible. Even better, the future is audible. The cries of outrage by the cartel owners are music to my ears.

TRANSACTION COSTS
One of the reasons for large businesses is the reduction of transaction costs. We have known this for two generations because of the 1937 article on the firm by Ronald Coase, who later won the Nobel Prize in part because of this. (He is my longevity model. He wrote his last book at age 98. He died in 2013 at 102.) If we had greater reliable trust, we could outsource more of our lives.

This is now happening on a massive scale, and it is accelerating. The smart phone is the driver here, but the Internet in general is the catalyst.

As trust increases, we have more opportunities to spend money and earn money. This is being driven by a reduction in transaction costs. An increase in trust is part of this.

The ability of an individual to start a part-time service business is increasing. This is a great thing.

Craigslist, Angie’s list, and other services are helping to spread the word.

Better yet, this rewards reliable people. It imposes negative sanctions on the flakes of the world. This is good. This will lead to greater inequality. This is also good. It will be Deuteronomy 28 in action.

Robots invade work space through extreme specialization. The knowledge associated with decision-making is analogical, not digital. This will help trustworthy people gain an advantage over robots and algorithms.

The kinds of tasks being offered for sale online are not repetitive. They involve decision-making.

PIN-MAKERS
It goes back to Adam Smith and the pin-makers.

To take an example, therefore, the trade of the pin-maker; a workman not educated to this business, nor acquainted with the use of the machinery employed in it, could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving, the head; to make the head requires two or three distinct operations; to put it on is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some factories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. I have seen a small factory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations.

But there is a problem, as Smith recognized.

The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become.

How can we get more specialization, yet without demoralization through robot-like repetition? This way: complete tasks that involve specialized knowledge of an entire operation. Example: putting together Ikea furniture. A robot cannot do this. Yet the skill is narrow: only Ikea furniture.

The production line does this through group tasks. This was what Henry Ford pioneered. But men doing narrow, repetitive tasks are not happy. They are also replaceable by robots. The auto assembly line is a classic example of early robotics.

Installing a new windshield is non-robotic. It takes judgment.

THE RETURN OF THE CRAFTSMAN
There will be people who specialize in 3-D printing of certain items. This will reduce the number of factory jobs. But there are not many factory jobs anyway.

We will see the return of the craftsman. He will have a tool box: a specialized 3-D printer.

The robots cannot invade this market space. Not yet, anyway.

Industrious people will stay ahead of the robots through reliable, creative service.

WINNERS AND LOSERS
Lazy, uncreative, unreliable people will beg or starve or change. I recommend changing. This is the message of skid row rescue missions. It is a good message.

The welfare statists will tell us that the state must support these people unconditionally. Fortunately, Granny and the Pentagon got in line first. The handouts are spoken for. The robot-displaced workers will have to adjust.

Reprinted here by expressed written permission from Gary North.

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