Just come across a paper by two Italian eco­nom­ists on the social value of pub­lic information.

Post Britain’s North­ern Rock bank­ing débâcle, the words of two other eco­nom­ists [pdf] seem a little pres­ci­ent:

For a decision maker facing a choice under uncer­tainty, greater access to inform­a­tion per­mits actions that are bet­ter suited to the cir­cum­stances. Also, to the extent that one decision maker’s choice is made in isol­a­tion from oth­ers, more inform­a­tion is gen­er­ally bene­fi­cial. This con­clu­sion is unaf­fected by whether the incre­mental inform­a­tion is pub­lic (shared by every­one) or private (avail­able only to the rel­ev­ant individual).

How far does this con­clu­sion extend to social con­texts where decision makers are inter­ested parties in the actions of oth­ers? Pub­lic inform­a­tion has attrib­utes that make it a double-edged instrument.

…

In the highly sens­it­ized world of today’s fin­an­cial mar­kets pop­u­lated with Fed­watch­ers, eco­nomic ana­lysts, and other com­ment­at­ors of the eco­nomic scene, dis­clos­ure policy assumes great import­ance. Our res­ults sug­gest that private sources of inform­a­tion may actu­ally crowd out the pub­lic inform­a­tion by ren­der­ing the pub­lic inform­a­tion det­ri­mental to the policy maker’s goals.

The heightened sens­it­iv­it­ies of the mar­ket could mag­nify any noise in the pub­lic inform­a­tion to such a large extent that pub­lic inform­a­tion ends up by caus­ing more harm than good.

If the inform­a­tion pro­vider anti­cip­ates this effect, then the con­sequence of the heightened sens­it­iv­it­ies of the mar­ket is to push it into redu­cing the pre­ci­sion of the pub­lic sig­nal. In effect, private and pub­lic inform­a­tion end up being sub­sti­tutes, rather than being cumulative.

(Social Value of Pub­lic Inform­a­tion. Authors: Mor­ris S.; Shin H.S.. Source: The Amer­ican Eco­nomic Review, Volume 92, Num­ber 5, 1 Decem­ber 2002)

“The break­down of the means of pub­lic know­ledge” is a phrase coined by the great Amer­ican journ­al­ist, Wal­ter Lippmann. He used it in Liberty and the News (1920), which is about to be reis­sued. His argu­ment is simple. Robert Park sum­mar­ised it thus:

that polit­ical liberty, under mod­ern con­di­tions, is no longer guar­an­teed by the mere free­dom of speech, i.e., the free­dom to express opin­ion and cri­ti­cize the gov­ern­ment, but by the com­plete­ness, the accur­acy, the fidel­ity with which the news­pa­pers report the news.

Lippmann, as ever, put it even more pith­ily: “the present crisis of west­ern demo­cracy is a crisis of journalism.”

Now lib­eral journ­al­ist Sid­ney Blu­menthal has writ­ten an after­word, that uses Lippmann to attack the con­ser­vat­ive media.

Blu­menthal picks up on the old notion that people use the media to rein­force their pre­ju­dices rather than chal­lenge them (only con­ser­vat­ives, mind you), but then he stops:

Today, about one-third of the pub­lic act­ively chooses sources of inform­a­tion that play to their pre­ju­dices. The read­ers, listen­ers, and view­ers of the Drudge Report, the Rush Limbaugh show, and Fox News have con­sciously selec­ted “the quack, the char­latan, the jingo” to seal them­selves from object­ive information.

The “break­down of the means of pub­lic know­ledge,” as Lippmann called it, rests on a care­fully cul­tiv­ated pref­er­ence for crank opin­ion over unset­tling fact. The more real­ity defies this public’s under­stand­ing, the more fer­vently it redoubles its res­ist­ance to it, embra­cing the dis­tor­ted ste­reo­type as the only true account.

To go bey­ond Lippmann, you have to acknow­ledge that there is no meta-level of know­ledge that will allow for the ideal of the ulti­mately well-informed pub­lic which demo­cratic ideal­ists (journ­al­ists amongst them) still cherish.

Blu­menthal is wrong to horse­whip the con­ser­vat­ive media. He wants a world where every­one can go along with Keynes: “When the facts change, I change my mind. What do you do, sir?”

In actual fact, there are few genu­ine incent­ives for indi­vidu­als to gather facts about pub­lic affairs, and none that reward avid view­ing of Fox News over — say — fail­ure to watch any news programming.

How do we reward information-seeking on pub­lic affairs issues? Will inform­a­tion– seekers turn out to be most per­sist­ently those who have already made up their minds? Should we then reward anti-abortion cam­paign­ers for their mas­tery of one side of a con­tested issue? Not easy, is it?

Time con­traints, com­plex­ity, and the divi­sion of labour all tend toward spe­cial­iz­a­tion in know­ledge (good) and frag­ment­a­tion of com­mon interest (bad).

We live in a world of incom­plete inform­a­tion, where decision-making includes feed­back mech­an­isms (e.g. occa­sional vot­ing, the media, the law) that ease the imple­ment­a­tion of policies for spe­cial interest groups the mem­ber­ship of which some­times includes us.

In such a world, we can only hope not that the pub­lic become philo­soph­ers, but that incent­ives exist to bring as much rel­ev­ant inform­a­tion to bear on decision-making as is pos­sible. And that those decisions are tempered by some respect for our own indi­vidual interests.

Journ­al­ism, never designed for the task, once shouldered the first part of that bur­den. But increas­ingly, every branch of human activ­ity has to acknow­ledge it, if only to real­ize that exist­ing insti­tu­tions and arrange­ments may not be up to the task of tack­ling the prob­lems we col­lect­ively face.