Inequality is in the spotlight. Not since Teddy Roosevelt set about busting trusts has this issue gotten people so exercised. But the hullabaloo around inequality is more than just an Occupy rallying cry for the 99%. It’s about whether the consumer marketplace can rally. A newly released report from ratings agency Standard and Poor’s (S&P) made headlines with its conclusion that rising income inequality is a significant drag on the economy, both today and over the next decade.
The S&P analysis is not an indiscriminate censure of inequality. Unequal outcomes are expected and necessary in a thriving market economy, says the report, but when inequality becomes “extreme,” strong growth is unsustainable. Several factors are cited as reasons why, chief among them that middle incomes stagnate when income skews top heavy, thus forcing middle-class consumers to borrow to keep up. This leads inevitably to over-leveraging and economic downturns. The resulting damage to household balance sheets from these boom and bust cycles takes a long time to repair, keeping growth in check.
The bigger issue with inequality mentioned in the report, though, is the well-documented phenomenon of a declining marginal propensity to consume. This is to say that people with lots of money spend less of their next dollar of income than people with less money. It’s the intuitive idea that if you have a lot already, you don’t need more, so you save the next dollar you earn. By contrast, if you don’t have a lot already, you spend the next dollar instead of saving it. Inequality diverts income from middle- and lower-class consumers who would spend it, channeling it instead to the rich who just sock it away. Growth slows because demand is weakened. Princeton economist Alan Krueger estimates that the shift in income gains from the middle to the top since 1979 have reduced annual consumer spending today by $400 billion to $500 billion, or about 3.5 percent of GDP.
I sent back my Google Glass. Why? No killer app.
As any banker will tell you, the moment a bank is forced to ask depositors for trust is the very moment at which, for all practical purposes, that bank becomes insolvent. A run is sure to ensue. Nobody wants their money in a bank with even the slightest chance of losing it. The mere mention of trust spooks people.
Financial regulators know this. Saving banks from having to ask for trust is one of the main purposes of deposit insurance. Government guarantees that all account losses will be made whole give troubled banks a turnaround chance they wouldn’t get if they had to ask customers to keep calm and just trust them. These guarantees are one part, if not the key part, of the system for trust.
Trust is a third rail for every kind of business or brand. It is an intangible requisite for staying in business of which companies dare not speak. As soon as you ask for it, you lose it. If trust cannot be taken for granted in the everyday course of business, if trust is not beyond question, then customers immediately jump to the conclusion that something is out of sorts.
Trust is in scarce supply nowadays, so many brand marketers have made trust a prominent part of their communications strategy. But asking for it is not the way to win back the confidence of wary customers. The solution is to have the systems in place needed to guarantee it.
Many argue that the locus of trust these days has pivoted from institutions like brands to networks of peers. Certainly, peers are more important than ever, but peers alone are not enough to guarantee trust.
The biggest technology trend these days is about less of it not more. Perhaps most emblematic of this is the Personal Surveillance Identity Prosthetic for which Chicago artist Leo Salvaggio is currently crowdsourcing funding. It’s an anti-surveillance mask fabricated so that facial recognition systems see it as Leo’s face. It’s not the first or only thing Leo has created to enable other people to hide their identities behind his. His URME project is beta testing video facial encryption software, and his You Are Me project gives people the ability to assume his digital profile when using social networks like Facebook and Twitter.
Mind you, Salvaggio is not anti-technology. He just wants boundaries, places where technology is not allowed to go. So does artist Adam Harvey, who created a clothing line called Stealth Wear. Harvey’s hoodie, scarf and burqa are all made with a metalized fabric that impedes thermal imaging. Harvey believes that as technological surveillance grows, people will want tools like his clothing to reassert control over their privacy.
Worries about the overreach of technology are growing as commercial enterprises, not just law enforcement or national security agencies, beef up their databases and surveillance. For example, Google and Facebook have been enhancing their facial recognition capabilities through acquisitions and applications development, though not without controversy. In the face of heavy criticism, Google Glass dropped plans to include a beta version of NameTag, an app that can instantly match a face with a person’s name, occupation and Facebook profile. In fact, ever since Google Glass was first unveiled in 2012, wearers have been faced with forceful, often ferocious, hostility from people who don’t want to be photographed or recorded without their permission.
The word is out. Big headlines. Facebook is running experiments with users’ news feeds. Apparently, shock and outrage are in order. But, honestly, I’m not sure why. From the outside looking in, it appears to be nothing more than garden-variety brand marketing, and ineffective to boot.
For one week two years ago, Facebook stage-managed the order in which people saw posts in their news feeds. Some saw happy posts at the top of their news feeds; others saw sad posts. The experiment was designed to see whether the emotional sentiment of the posts users saw first affected users’ moods or posting. In its analysis of this experiment, Facebook found “emotional contagion,” which is to say that the sentiment of news feeds did affect the sentiment and amount of users’ subsequent posts, and thus, presumably, the mood of users themselves.
Two things stand out. First, the observed effects were tiny. The argument has been made that even small effects over a large population of Facebook users add up to a big shift. But this argument is sleight-of-hand. The bigger cumulative impact of a small effect is still small relative to Facebook as a whole. Critics claim that the one-tenth of one percent observed effect adds up to hundreds of thousands of posts per day. That’s true, but every minute there are over 290,000 status updates and over 130,000 photo uploads. Per day, that’s over 417 million status updates and over 187 million photo uploads. A few hundred thousand is a lot but still a miniscule percentage of the total. In short, even cumulatively, a small effect is a small effect.
Moreover, statistically speaking, the size of the sample used by Facebook almost certainly had too much power. Nearly 700,000 users were included in the Facebook experiment. In a sample that large, almost everything will turn out to be statistically significant, a problem known as Type II error. This is a classic power problem with over-large samples, and the usual interpretation of such miniscule effects is to regard them as merely suggestive until validated by more precisely designed follow-up research. Huge samples make everything statistically significant, including a lot of observed effects that are nothing but chance fluctuations in the data. Simply put, there is no cause for alarm that Facebook has mastered mind control.