How can we characterize contemporary

The Role of Mechanical Thinking in Rent Seeking

As the economy grows and changes, markets are introduced to new producers and sellers which can increase competition. In a perfect market, the more competitive the market is, the more the price of the product drops. Naturally the economy in America isn't perfect, and large corporations hate competition. So, most corporations have a tendency to create barriers to entry and prevent competition so they can control the market price. The need to control the market price can lead to a predatory money making tactic called rent seeking, which Joseph Stiglitz explains in his article “Rent Seeking and the Making of an Unequal Society”, the rent seeking tendencies of big companies is to take money from a smaller company or even consumers. As technology advances and becomes more intuitive companies can take advantage of it for their own benefit. Franklin Foer in his article “Mark Zuckerberg's war on free will” describes how the algorithms are a tool that can promote mechanical thinking. Facebook uses their algorithm to examine and seek to understand their users, in order to make their news feed more personalized. Even though the use of Facebook algorithm seems harmless, the introduction of mechanical thinking through algorithms into companies, can make rent seeking easier by creating more ambiguity and confusion for the customer as well as creating more of an information gap between the top percent of the economic hierarchy and the bottom. The management of the big companies is controlled by the top percent of people that have their own benefit as their number one motivation, and use ambiguity to benefit themselves. For example, as Stiglitz explains in his essay, the motivation behind big companies is to seize control of whatever market they are selling in. Stiglitz explains that one way that they control markets by creating barriers to make the markets hard to understand for the consumer. Stiglitz explains “Sellers have more information than the buyers, and they use that information to their advantage.”(Stiglitz 393) This leaves the consumer, in some cases very confused and vulnerable for rent seeking practices. In the case of Facebook, the same is true for the user of Facebook and the company Facebook. The user enters the picture episodically, while Facebook is constantly changing and growing their algorithm to further understand the user, without them even knowing. Foer explains “Many users, 60% according to the best research, are completely unaware of the existence (of Facebooks algorithm)” (Foer 112). This, in the same way that big corporations can take advantage of the consumers through confusion, leaves Facebook to control what they do with this ambiguity and confusion. Although rent seeking isn’t used in Facebooks algorithm and news feed, they can still take advantage of the user through manipulating their newsfeed. “Facebook attempted to manipulate the mental state of its users. Or one group, Facebook excised the positive words from the posts in the news feed; for another group, it removed the negative words” (Foer 113). By creating an algorithm that is extremely complex and hard to understand, the user of Facebook has no hope for understanding all of the implication that it has. Although the outcome of the creation of ambiguity is different in the two cases, the motivation is still to confuse the consumer to the point where they have no choice other than to trust that the organization will not take advantage of the them.

Independently, the use of ambiguity in large corporations and in Facebook's algorithm can be used to confuse the user or customer, but when the two are used together rent seeking can become very easy. As mentioned before large companies seek to control of markets, and once they have control of the market, according to Stiglitz, changing prices and rent seeking can be done with little difficulty, and the uninformed consumer has no choice other than to accept it. Facebook's algorithm, as Foer explains it, is used “to make humans predictable- to anticipate their behavior and make them easier to manipulate”(Foer 111). This motivation aligns well with the motivation that is already seen in rent seeking practices. The idea behind rent seeking is to take as much money as possible by taking advantage of people that don't know better, and with the use of a platform like Facebook, it can be detrimental. Foer also explains that Facebook's algorithm can be used to “predict users race, sexual orientation, relationship status, and drug use based on their likes alone.”(Foer 114)This type of information, as seen in Facebooks news feed, can be used to manipulate the user, but this information, when used for rent seeking purposes, can be information about who is most likely to buy into a predatory loan, or who is willing to take a credit card with a bad interest rate. Stiglitz explains “The private sector can excel on its own, extracting rents from the public, through monopolistic practices and exploiting those who are less informed and educated” (Stiglitz 396). Information like education level, and other key personal facts that may give bankers insight into the most vulnerable consumer for rent seeking, are readily available at the disposal of Facebooks algorithm. And by combining the use of mechanical thinking and predatory lending the process becomes more streamlined for the rent seekers.

The introduction of mechanical thinking into the business world can also take the already large knowledge gap between consumers and producers and make it even larger. Stiglitz explains “the form of rent seeking that has been the most egregious… has been the ability of those in the financial sector to take advantage of the poor and uninformed.” (Stiglitz 393) This, in itself, is already achievable by virtue of the fact that the consumers of, specifically, the financial sector are less knowledgeable than the sellers because they aren’t constantly involved in the markets, as mentioned before. If, this already apparent knowledge gap can be paired with algorithms that can “throw all of the numbers into the biggest computing clusters the world has ever seen and let statistical algorithms find patterns where science cannot,” (Foer 110) the gap in knowledge can grow even more apparent. This can render the consumer that is educated and well informed on the markets at the mercy of the companies with access to the algorithms by virtue of the fact that there would be no way of knowing as much as said companies. As mentioned before, most people don't even know algorithms are working, and without access to them there is no way a normal consumer can process as much information as a big company using an algorithm, there is no choice for the consumer other than to trust what the seller is saying. This can render even the consumer that is educated and well informed on the markets at the mercy of the companies with access to the algorithms by virtue of the fact that there would be no way of knowing as much as said companies making room for an increase in rent seeking practices. This makes the process of rent seeking easier because the seller can manipulate that trust and push bad loans and other rent seeking tactics.

Although it seems as if the introduction of mechanical thinking into rent seeking is inevitable, corporations may still be skeptical of the addition of algorithms to large parts of their companies, because of the lack of knowledge that it may bring to their workers. Take investing for example, the essence of rent seeking when it comes to banking, as Stiglitz explains it is, “sellers are trading constantly, and buyers enter only episodically” (Stiglitz 393) this means that the sellers in the market know the ins and outs of the market while the people who are buying only know what they can see. This leads to the consumer trusting the seller based on the fact that they know more than them. But, as Foer explains in his article “perhaps Facebook no longer fully understands its own tangle of algorithms.”(Foer 112) If the seller that is selling to the public no longer fully understand why they are selling something at the price they are, consumers may be skeptical about the interaction and the producers can potentially lose out on some rent seeking opportunities. 

In conclusion, as mechanical thinking leads to better algorithms, the more those algorithms can predict about the user. This prediction can be used to make the consumer of big companies more inclined to trust them and buy into the suggestions that the algorithms lead to. Because the general public struggles to understand the algorithm, the confusion that is created can lead to the general public being left behind without any hope of using understanding the markets, while the consolidation of the knowledge of markets is collected by the top percent of executives that can benefit from them. Although as mentioned before the use of algorithms and mechanical thinking and algorithms may actually hurt the companies by removing them from the analysis of markets, mechanical thinking and the use of algorithms still makes markets harder to understand and furthers the knowledge gap, which leads to sellers having an easier time promoting rent seeking tactics.