Vol. 1, Issue 15, August 26, 2003
Greenspan Says Informed Consumers Threaten American Economy
Federal Reserve Chairman Alan Greenspan testified to Congress this morning that the single greatest threat to the recovery of the American economy is the exponential increase of information available to consumers.
"We are facing a critical juncture in the growth and evolution of our economy," Greenspan said. "While to date technology has been a significant boon to America's economic growth, the irresponsible dissemination of information to consumers is becoming an insurmountable obstacle for American companies."
Greenspan's comments echo concerns recently voiced by the motion picture industry, which blames text messaging by theater patrons for poor revenue from newly released movies. Although the entertainment industry was widely derided for blaming poor box office receipts on rapid text-messaged reviews during opening day, Greenspan's comments lend validity to the claim.
At issue is the fundamental inequity between products. While some consumer advocacy groups, such as Consumers Union, have for years been providing detailed comparisons of products ranging from soap to automobiles, the impact of these groups has been limited by practical concerns.
"Basically, only a motivated and intelligent consumer would seek out such information before a purchase," said Notre Dame Professor of Economics Lon Haddon. "Even so, one of the surest ways to ensure poor service in a retail establishment is to show up with a copy of Consumer Reports. Salespeople hate that."
However, such comparisons are now disseminated via a variety of rapidly growing media, including the internet, text messaging, and cable networks seeking niches in a highly fragmented broadcast spectrum. Even average consumers are now approaching routine purchases with at least some sense of the relative merits of a product or service.
"Informed consumers have always been a disaster for our automobile industries," Greenspan told Congress. "But the fact is that, by definition, half of all products and services produced are in the bottom fifty percent in terms of quality. How are firms such as America Online, Microsoft, General Motors, or Kraft Foods going to remain in business if people are able to make truly informed decisions in their purchases?"
Greenspan advocated several plans to counter this trend, including the dissemination of false product reviews and misinformation via counterfeit consumer advocate organizations and media "reviews." He noted that the Disney Corporation has already had some success with this approach after acquiring the ABC television network.
"We can't afford not to take these steps," Greenspan warned. "There's such a thing as being too smart for your own good."