Technology can't pinch-hit, either.

Friday, July 11, 2008

In an article he wrote for Independence Day, Robert X. Cringely points out that technology is only as good as the people using it and indirectly reminded me of a couple of other related points.

After noting that newspaper ads account for a small and shrinking portion of real estate sales, Cringely looks at how the Internet has revolutionized house hunting.

It's not that newspaper ads work so poorly for selling real estate, it's that Internet advertising works so well. You can put more words on a web ad than you could ever put in the newspaper for the same money. You can put more and bigger pictures, virtual tours, Google maps. You can put Zillow virtual appraisals and links to lenders, home inspectors, and the local Chamber of Commerce. Internet house listings can be searched in a zillion ways that newspaper listings cannot. In the time it takes to find a house -- any house, maybe even the wrong house -- in the newspaper and then go see it, well in that amount of time using the Internet you can find the house, order an inspection, get a loan, and make an offer on the darned thing. It's like crossing house-hunting with air hockey.

But is it all good?


The theme of disintermediation -- of eliminating middlemen -- has been a driving force in the Internet for as long as commerce has been allowed on the web. But what happens when the middleman you just eliminated had as one of his or her jobs the task of keeping us from being ripped off? [bold added]
That's a profound point. At least part of what you're paying for by going through , say, a real estate agent, is the insight he can offer through his specialized knowledge and experience. The Internet gives you much of what you used to get, part from newspapers and part from real estate agents -- concrete information -- but it can't give you intimate knowledge of the ins and outs of buying or selling a house.

Or, at least it can't do so quickly enough if all you want to do is buy a house. Even if you found all the information, you'd still need to evaluate and integrate it all. And then you'd still lack practice in applying what you learned!

The greater the portion of raw information that someone provides as a service, the more the Internet threatens his traditional position. Newspapers had better find a way to make money besides selling ads for houses. But real estate agents can better adjust to the Internet because they still have intellectual capital to offer thanks to the principle of division of labor. We simply can't all be experts about everything.

In addition to exposing this limitation of the Internet, Cringely also brings up something that fits in with past observations I have made concerning the false promise of telecommunications technology as an aid to the cause of freedom. If you can't necessarily avoid getting ripped off in real estate by drinking market information from the Internet fire hose, you also can't secure your freedom simply by being able to communicate well with others who might also be dissatisfied with your government's politics. As noted in the last link, knowing what freedom is remains just one prerequisite to any such effort no matter how flashy the tools used to fight.

Indeed, when one fails to apply a coherent set of principles grounded in the facts of reality, he may not only get ripped off, he may also find that the value of all this technology has already been compromised by the state!
Take our current national economic mess, the so-called sub-prime mortgage crisis. I like to think that I'm not a subprime kind of guy, but pretending to work as I do (my kids think I TYPE for a living) the world may not always see me the way I would like to be seen. So last year, in what we didn't know were the waning and idyllic pre-subprime days, I tried to get a new mortgage. Of course I used the Internet to get the loan because, as we all know, when banks compete I win. And within a few days, without having to actually meet with or even speak to another human, I found myself offered a $336,000 mortgage.

It was SO easy. Fill out a few online forms, make some choices, and there I was, about to close that loan. But then I did an odd thing. I carefully read the papers I was about to sign (I'm one of THOSE people). And in that residential loan application, right on line something or other, was a number that didn't make any sense to me at all. It was labeled "total household income" and was almost twice the pitiful amount I actually earn.

From where did that number come? It certainly never came from me. Since my signature would be at the bottom of this application I wanted to make sure everything was correct, so I called the mortgage broker. For the first time we spoke. She was a very nice lady, too, and explained that number was the variable required for all the ratios to be correct so I could qualify for the loan.

"But it isn't true," I said.

"Do you want the loan or not?" she asked.

Not. [bold added]
Cringely correctly notes that, "Securitization of mortgages works just fine unless the mortgages are based on lies." But why is that so common? Alex Epstein showed some time back, that such carelessness is encouraged by the government's promise to bail fools like this lender out if too many "mistakes" like this get them into trouble. Perhaps we have an example here of "trickle-down government bailout crack".

In addition to having a layer of expertise stripped away, then, working through the Internet is shown to be fraught with the possibility that the person you are dealing with may have been encouraged by the government to put you into a potentially disastrous situation!

Time is money and the big advantage the revolution in communications technology gives us is that acquiring and managing information is far easier than it used to be, meaning that we ultimately save time and money doing certain things. We're spending less money on information, but as Ayn Rand once pointed out, extra money still can't think for us:
Money will always remain an effect and refuse to replace you as the cause. Money is the product of virtue, but it will not give you virtue and it will not redeem your vices. Money will not give you the unearned, neither in matter nor in spirit.
Information technology is like having lots of extra money. This is a huge advantage, but it is also a huge opportunity to forget that the need to think remains.

-- CAV


Kyle Haight said...

"But it isn't true," I said.

"Do you want the loan or not?" she asked.

The mortgage crisis, reduced to the primacy of existence vs. the primacy of consciousness, in two simple sentences.

Gus Van Horn said...


Inspector said...

That's a good point, Gus.

...But I thought the whole idea of Real Estate Agents was to rip you off. I.e. they have the knowledge that you lack and would use it to take advantage of you.

Or maybe that's just the ones I've met. Heh.

Gus Van Horn said...

Setting actual fraud aside, "caveat emptor" applies.

But the Internet could make it easier to compare notes on real estate agents....

z said...

The internet is like percepts, it needs an integrating faculty to process it if it is going to be useful on the conceptual level.

Now, I've been a Realtor, and I know Realtors, and non-Realtor sales associates. I know one in particular who makes a very good living and I accompanied him to several showings. His observations were very pertinent things the buyer was often not aware of. But just like the internet, he cannot pinch-hit either. He, like the internet, is just a transmitter of perceptual information. (I don't necessarily mean on the perceptual level; I mean not yet processed by YOU the BUYER).

All information is useful, but has to be put in context and has to be verified by the facts of reality; Integrated. The internet can tell you the facts about what houses were recorded sold at the local courthouse, and for how much consideration. You can do your own field research. A Realtor or licensee can point out that this or that is susceptible to termites and what the proper proceedure is here or there, etc.

All the information must be processed by the buyer. Unfortunately, this sometimes includes macro-economic information that is either unavailable or unattainable by the buyer.

Gus, truly, your title for this post is apt. Nothing can integrate for you. The internet, nor the licensed broker should be counted on to do that job. They have specific jobs (to provide facts for you to integrate), and hopefully, they do them well.

Gus Van Horn said...

"All information is useful, but has to be put in context and has to be verified by the facts of reality...."

This is what determines whether someone is using intellectual division of labor as a tool or as a crutch.

Mike said...

When buying our house, our realtor used the internet MLS service and Google Maps the way we imagine Bach used the organ keys. We were able to lay in absolutely hair-splitting search criteria, such as setting up border streets for our search area, excluding older neighborhoods, tile roofs only, FHA availability, no short sales, single-level, 3 or 4 bedroom only, $275k or less, time on market less than 60 days, and so on. But when our realtor really earned his commission was when we toured the resulting very efficient lists and he still found disqualifiers that my wife and I would never have spotted... so that by the time we found the house we bought, we knew we weren't missing out on any superior alternatives.

Gus Van Horn said...

"$275k or less"

If we decide to buy in Boston -- and its already exorbitant cost of living would scare me a little even if the prospect of a severe economic downturn didn't loom -- a realtor who could find us anything more than a lean-to for that price would qualify as a magician!

I envy that!

In any case, what you describe is exactly what I'm talking about when I speak of the advantages of specialization. Thanks for the concrete example.