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Trading Lessons

This is the Internet Revolution

Politics / Internet Mar 02, 2017 - 04:01 PM GMT

By: Rodney_Johnson

Politics In early December, I bought a 15-year-old Jeep Cherokee for my kids to drive while they were home from college. It sounds a bit outrageous when I put that in print, but my reasoning seemed sound at the time.

With all of them flying home, we’d have extra drivers around for five weeks, and only my car and my wife’s car available. I could have rented one instead of buying one, but the cost was substantial and I would still be the only driver allowed. As long as the old beater held up mechanically, even with registration and sales tax, it would be a better deal to simply buy an old one and then sell it.


The plan seemed perfect… until it didn’t.

The kids put more than 1,000 miles on that Jeep, so it definitely served its purpose. But as I readied the car for sale a few weeks ago, I noticed the dreaded check engine light was on. The car still drives great, and looks great, but that darn yellow light stares at me as I wander around town.

I considered my options…

Sell it with the light on and take a big financial hit, or go through the diagnostic hassle of taking the car to a mechanic and then dealing with repairs?

Then I did what everyone else does these days. I went online.

In less than a minute I found that several auto parts stores would check the “trouble codes” for me for free. Great! Saves me the upfront hassle at a mechanic. But I kept looking, just to see what else I could find.

Within five minutes I found a YouTube video explaining how to see a report of the codes on the odometer for this particular vehicle: “simply switch the ignition on and off three times rapidly, and the code(s) will display.”

Voila! In a matter of minutes on the Internet, I had eliminated at least part of the need for a mechanic.

That is the beauty of the Internet at home.

Beyond Facebook time with relatives we rarely see, reconnecting with classmates from a school we hated 30 years ago, and a bunch of funny cat videos, the Internet allows for instantly accessible pooled knowledge.

The Internet moves a library of information from professionals who experience such encounters on a regular basis, such as mechanics diagnosing vehicles, to consumers who have such a question only rarely. Chances are I’ll never have the need to review diagnostic codes on a 2001 Jeep Cherokee ever again (at least I hope not). But I could this time, at no cost, and with minimal hassle.

As specialized knowledge migrates from the minds of few to the electronic cloud where it can be accessed by the masses, power goes with it.

Armed with my codes and descriptions of what they mean, I’m better able to assess my options. I can compare the cost of repair at different service outlets with a phone call instead of going to just one shop, and I’ll pay less because I know what’s wrong.

In the end, all I needed was a gas cap to stop a small evaporation leak, which proves the value of the information!

This is the same power that moved from brick-and-mortar stores, who used to carry a bunch of inventory, to consumers, who have price-check apps on their phones.

We have the ability to change the power and pricing relationship across many platforms specifically because we have access to knowledge that just 15 years ago was unimaginable.

The outcome is deflation.

Not bad deflation, where slack demand forces retailers to cut prices, leading to falling wages for workers, and hence the start of a vicious cycle. Instead, this is the beneficial deflation, where previously the price of a good or service was partly driven by the inefficiency of captive knowledge or access, which is now available to anyone with a smartphone.

Consumers experience the joy of lower prices because more of the product or service has been commoditized. I don’t have to pay for the diagnostic. I just need the repair.

The mechanic provides a narrower band of service, earning less from me, but presumably the shop is able to service more people. This should lead to fewer mechanics, with the marketplace rewarding the good ones while weeding out the weaker ones.

In turn, I now have more to spend on other pursuits, which is a wonderful thing.

The catch is, some group of mechanics will lose business, and therefore lose income. They might have been bad at their jobs and deserving of such a fate, but it still means falling wages for a group of people.

In economic theory, these workers would soon go to work providing the good or service that consumers buy more of, as they spend less on car repair. But reality is a bit messier than that.

Some will find other employment, perhaps even a few will transition to jobs in growing fields that afford comparable or higher pay. Most will either take less pay to find employment in their local area, or simply fade from the workforce altogether.

The Internet revolution at home is different from the one at work.

As we, the people, leveraged pooled knowledge and electronic communication through the workplace, companies could do more with less, which boosted their profits. This made companies more valuable and expanded GDP.

Placing more power in the hands of consumers can actually cut into company profits as well as curb GDP growth because consumers can choose to keep more of what they earn.

Just because we save on things like auto repair doesn’t mean we must spend the savings. Instead, the funds could be invested or used to pay down debt.

Those options sound pretty good to the two largest generations in our society – boomers and millennials. One group is dealing with student loans, while the other is staring down retirement.

Unlike the boost the economy received as connectivity swept the corporate landscape, I think the results from the consumer Internet revolution will be much more modest, even if it is transformative.

Rodney

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2017 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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