The Information Society and Economic Instability

We are living in an information society: Most for the value produced by our economy is in intangible goods; most of the investments by firms is in intangible assets, such as IP or branding.

The price of intangible goods or intangible assets is more volatile than the price of tangible goods or assets: The demand for intangible goods can change more abruptly; since the recurring production costs are often negligible, change in demand will affect price, not quantity offered. 

Therefore, it is reasonable to expect an information economy to be less stable than an economy based on tangible assets and goods. The value of IP or of a brand is hard to assess, and can change rapidly. The value of financial assets can change rapidly, since their value is determined by volatile information.

The ability of the state and of financial institutions to dampen financial volatility and avoid positive feedbacks that carry the economy far from the optimum has tremendously improved since the Depression era. But the ability of the economy to change abruptly has also been enhanced. While government is reacting in the right direction and is doing so much faster than in the thirties, it is still possible that the reaction time is too slow, compared to the speed of economic change: Information and intangible assets have little mass, little momentum; small forces can move them very quickly.