This page deals with economics and business issues,concerning Latin America, and the global economy.-
Friday, February 24, 2017
Fake news and economics
Recently, it has been usual to know about the publication of "fake news".Perhaps even worst, there is a new concept concerning news, which is called the "post (follow up) Thruth".Is there any relationships between these two way to inform people?.What does economics may say about it?.
The post thruth, deals with the quality of the messenger to qualify any message as truth or ultimately false. It is not the quality of the message, but the quality of the messenger which make the falsehood of the message, instead of the facts which either sustain or not the thruth about the messsage.Thus, any one who say for instance that government should stay away from the economy for the purposes of well being, may be presented as an out of touch individual (either man or woman),such that to make such an argument become a complete nonsense. It follows that, any suggestion of limited government becomes such an insult for society as a whole, that only crazy individuals can believe in.So, limited government as a source of wealth become a falsehood.
The outcome is to create a fake reality, which individuals have to live in ,one which excludes unconvenient truth, as much as it support convenient falsehoods, specially with those issues concerning individual responsibility, government intervention in the economy and the like.The variey goes to a wide range of topics.Like the Gresham law which explain how bad money replace the good one through inflation, "fake news" replace good private values (honesty,ethic), for public bads ones(lies,disqualification), the ones which may lead you from trusting someone, toward those who leads you not to trust anyone. In economics ,this is called adverse selection, and it implies welfare losses.-
Economic analisys has a branch called the adverse selection problem, which happens when either good or services markets do not have perfect imformation about all available options ,such that consumer chose the remaining lower quality alternative . This is the case of used cars, insurance programs, where reliable participants are left out, because markets do not qualify them at their real economic value, or what it is the same , markets disqualify them as partners because it does not trust them about their own valuation. The outcome is that average quality of used cars is lower, because all good used cars are left out from the market.Nobody want to sell his or her good used car below a certain price which includes not only the mechanical aspect of it, but also the emotional ones .In the insurance case, good clients(healthier ones), are not ready to pay the more expensive charge of the average less healthy ones, leading to higher cost of insurance policies for everyone,which imply that some people may not afford an insurance policy at all.-
The difference is that adverse selection, comes out from the market which is neutral about the characteristics of all of those who are in for making transaction, and as such nobody have control of its outcome.It just happens because of institucional failures, which means that institutional correction may solve the problem.In the examples above mechanical test (used cars), or hihger deductible charge to disincentive less healthy clients to get in, keeping average fee lower.This way, it is possible to correct the losses of welfare arising from adverse selection.
Fake news and the follow up (post)thruth instead, means a net loss for the welfare level of society, either hard to recover or to mitigate.Besides from the economic stand point, the issue of "fake news", has nothing to do with the massive access to virtual netwotk,cell phones and the like, because it deals with the preferences of those capable of shaping massive preferences given the abstratc nature of the service(news), which becomes a public good. In the case of private good and services markets, nobody can shape simultaneously the preferences of everyone, while there are millions of customers interacting according their (own) individual preferences even with advertising along the way.-