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The Power of Information

2012 July 8

What’s the big deal about the information economy anyway?  Surely, information has played a role in commerce since ancient times.  What’s changed?

One reason for the confusion is that we’re not used to making the distinction between information and knowledge.  Go to Istanbul’s ancient Grand Bazaar and you’ll instantly grasp that the traders know a lot, but not much that they can easily share even if they want to. That, it turns out, makes all the difference.

The emergence of information as a storable, fungible entity is transforming our economy and our society in ways that we scarcely realize.  It’s making us richer, smarter and even healthier.  What’s more, its impact is accelerating, so we’ll see a lot more change in the coming decades than we have in the past.  In fact, we’re just getting started.

A Theory of Information

If you had to put a date on it, the digital age truly began in 1948.  It was in that year that two seismic events happened, both at Bell Labs.  The first and the more famous was the invention of the transistor, which forms the basis for our present (albeit soon to be defunct) digital technology paradigm.

The lesser known, but in some ways more important event, was Claude Shannon’s  groundbreaking paper A Mathematical Theory of Communication, which launched information theory out of thin air, seemingly with no precursor.

Although not widely publicized or understood at the time, it has become central to all the digital technology we use today.

The basic idea was that information isn’t a function of content, but the absence of ambiguity, which can be broken down to a single unit – a choice between two alternatives.  Much like a coin toss which lacks information while in the air, but takes on a level of certainty when it lands, information arises when ambiguity disappears.

He called this unit, a “binary digit” or a bit and much like the pound, quart, meter or liter, has become such a basic unit of measurement that it’s hard to imagine our modern world without it.

Storage and Transfer

In the late 1940’s, Shannon’s colleague at Bell Labs, Richard Hamming became frustrated that computer errors continually ruined his work.  He built upon Shannon’s paper and created Hamming code, small bits of extra information that would allow computers to detect and correct errors.

Of course, that increased the amount of information that needed to be processed.  No problem, information theory also shows us how to compress information by eliminating redundancies.  Common technologies that we have come to use everyday, like JPEG and MP3 are, in fact compression techniques that have their roots in Shannon’s 1948 paper.

It is storage and transfer that make the information age so different from what we knew in the past.  In contrast to the knowledge that a bazaar trader possesses, computers can duplicate and transfer information an infinite number of times, with as little error as we choose.

Accelerating Returns

The ability to store and transfer information efficiently has an interesting side effect – we can improve at an exponential pace.  Returns to our efforts not only increase, they accelerate.  The most famous example is Moore’s Law, which says that processing speeds double about every 18 months.

Look at the chart above and notice the logarithmic scale.  From 2000 to 2010, the number of transistors on a single chip increased from 10 million to a billion.  That’s a hundred times more than the increase the previous decade and nearly a million times more than the decade before that.  In the next ten years, we can expect it to increase 100 -fold again.

What’s even more amazing and also of paramount importance, is that the principle isn’t exclusive to processing, but applies to every facet of information technology, from storage to bandwidth to power consumption, everywhere you look, efficiency continues to improve exponentially.

The Information Invasion

Here’s where it gets really interesting.  As information technology becomes more widely deployed, the information content of other products and services increases and they begin to follow the same exponential trends.  Take a look at genome sequencing:

As sequencing genomes became less of a pure biological science and more of an information science, the pace of advancement changed drastically enabling a whole new field of bioinformatics that will revolutionize medicine.

Similar trends are being played out across almost every industry you can think of.  In manufacturing, new technologies like 3D printing and (eventually) programmable matter are creating what The Economist calls a third industrial revolution.  Even when you go and buy a box of cereal at Wal-Mart, a good portion of the retail price is made up of informationally dense logistics.

Ray Kurzweil spoke volumes when he said that in the future “all technologies will essentially become information technologies, including energy.”

From Belief to Observation

As the informational content of products and services increases and returns accelerate, lots of good things happen.  Science fiction becomes engineered fact.  The unthinkable will become commonplace.  Incomes will rise while poverty falls.  Seemingly intractable problems will be solved and dire needs will be met.

Yet there is also quite a bit that is unsettling.  As technological cycles shorten, business models will have shorter life spans. The internalized experiences that we have come to regard as intuition will fail us more often.  Our ability to plan will diminish and the need to experiment (and fail) will increase.

And that’s what’s disconcerting.  This new information economy doesn’t run on beliefs or even, to a certain extent on ambition, but algorithms which, powered by ever more abundant processing power, test and accept or discard a dizzying multitude of possibilities, the results of which can be retrieved and recombined with other experiments.

The power of information means that we are no longer required to believe, only to imagine, test and observe.

– Greg

9 Responses leave one →
  1. Nathan Schor permalink
    July 8, 2012

    Good stuff once again, Greg. It his case, even more, since Shannon and Hamming aren’t generally known outside of geek circles, despite their fundamental contributions. As evidence, I’m in Silicon Valley and yet to see a road, park or other memorial recognizing either of them, even though this area is literally built on their work.

  2. July 8, 2012

    That’s a very good point! There should be a monument to Shannon somewhere.

    Anybody know of one?

    – Greg

  3. July 9, 2012


    Great article. Let me make a little remark.

    Traditional approach to information is just technological: information is a set of bits of computerized data. But in information economy we look a new ECONOMICAL context of information: information is a bits of knowledge and is the product of human activity.

    The problem of knowledge translation and processing is philosophical and ancient enough. Great Ukrainian philosopher Grigory Skovoroda (1722-1794) said that knowledge should be transferring by symbols and images and not by logical texts.

    Later, the Lvov-Warsaw school of logics (1890-1930) laid the basics of semantic information processing and then the era of cybernetics and computer processing of information has come.

    Today’s information economy is a passage from computerized processing of bits of data to ecosystem of information resources which are all in the relationships. And we have the new economical subject – information monada (personalized information system) – the autonomic entity that generates information and communicates with others in semantic Digital World.

    Traditional market (based on model of demand and supply) is replacing on business opportunities in global economical space and innovation activity. Access to information makes all businesses very competitive with the similar incomes and creates the New Markets. The very important difference of the new economy is the SPONTANEOUS changes everywhere.

    One more thank you for this great post.


  4. July 9, 2012

    Thanks Sergeu,

    Good point about spontaneous information transfer, btw.

    – Greg

  5. July 9, 2012


    As usual, interesting and well articulated. I have to question you’re conclusion about our intuition becoming less reliable, though. That may be true for some people–even a majority of them–for some time. However, I think that good ol’ Darwin may come into play here, and enable us to evolve at an intuitive level that corresponds with the speed of the digital (or organic, implied in your blog) processing. It’ll become an environmental pressure that forces an evolutionary process. Either that or we’ll all come to rely on AIs to process all that information, but I don’t think we’ll ever invent one that is able to make the intuitive leaps the basic wetware in our heads can.

    Although, for the moment, as a partner of mine says, “fail fast, then move on.” I couldn’t agree more with that, and I also think that all that failing will train us to adapt to the newly accelerated environment.


  6. July 9, 2012


    It’s a fair point. However, I do think that accelerating technology cycles, intuition is increasingly problematic. We have less time to gain experience in the new contexts in which we need to make our decisions.

    – Greg

  7. July 9, 2012


    Sure, but only if the new situations are so different than anything we’ve experienced before that our “blink moment machine” stops working. The fundamentals of humanity aren’t changing, just the tools we use to express that humanity. As in marketing these days, we have all these new tools and media, but the fundamentals of attracting and holding people’s attention haven’t changed.

  8. July 9, 2012

    I see what you’re saying, but we’ll have to agree to disagree.

    – Greg

  9. Mrisho permalink
    May 20, 2020

    I like

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