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Economy

Consumers (Sovereignly) Control Google

Bicycles on a rack in front of a Google campus building.

The March 25, 2024 episode of EconTalk and Episode 372 of Words & Numbers consider Google’s recent (and flawed) rollout of their Gemini AI platform. Unsurprisingly, Googe’s software returned a lot of bugs and laughable flaws, like ambiguous “it’s complex” answers to questions like “Is Elon Musk worse than Hitler?” that have obvious and unambiguous answers (in case you’re wondering, the unambiguous answer is no, Elon Musk is not worse than Hitler).

To their credit, they seem to have at least fixed it. A few queries about the economist W.H. Hutt gave a pretty fair summary of his big ideas and replied to “Was Hutt worse than Hitler?” with “No, W.H. Hutt was not even close to being as bad as Adolf Hitler” with a reasonable explanation and this conclusion: “While some may disagree with Hutt’s economic views, he wasn’t advocating for genocide or world war.”

According to Gemini, one of Hutt’s “Key Contributions” explains why we shouldn’t be too worried about Google’s power. Here’s Gemini:

Hutt is credited with coining the term ‘consumer sovereignty’ in 1936. This concept emphasizes that consumers, through their spending choices, ultimately drive economic production.

“Power” is overrated in the short run. Power couldn’t make fatally flawed products like the Microsoft Zune, New Coke, and the Ford Edsel succeed. Power couldn’t make Skype the default web conferencing platform even though they had a decade-plus head start over Zoom at the beginning of the COVID-19 pandemic. Disney’s power couldn’t prevent Indiana Jones and the Dial of Destiny, The Marvels, Wish, and other recent offerings from hemorrhaging money. A new term has entered the cultural lexicon to describe these monumental failures to entertain the sovereign consumers: “flopbuster.”

One of Hutt’s key concepts, “consumers’ sovereignty,” explains why. Hutt defines consumers’ sovereignty as follows:

The consumer is sovereign when, in his role of citizen, he has not delegated to political institutions for authoritarian use the power which he can exercise socially through his power to demand (or to refrain from demanding).

Every commercial choice — buying, selling, abstaining, using — is not just a transaction but a significant vote for who should produce what, when, where, and how. Your decisions matter, and, importantly, our decisions matter. Hutt’s use of the plural possessive “consumers’ sovereignty” (emphasis added) is important. At any point in time, the structure of production reflects a social consensus that, to the extent markets are allowed to operate, even accounts for what future generations will want because today’s prices represent today’s expectations about future revenues and costs (discount rates mean present voices speak louder than future voices, but if we aren’t going to discount the future, then the relevant social problem isn’t pollution or recycling but the eventual heat death of the universe).

Importantly, while a single individual in the upper class might have many more votes than his poorer neighbors, the lower and middle classes have many more votes than their richer neighbors in aggregate — and while many critics are not likely to admit this, the problem is not that they have too little power but that they have too much. They vote with their pennies and dollars for stores like Dollar General and Walmart. Contenting themselves with the pleasant fiction that their hapless, poorer neighbors have been “manipulated” by sinister interests, the more cultured and cultivated ride to the political rescue with laws and regulations that take Dollar General and Walmart off the ballot, as it were.

As we learned on EconTalk and Words & Numbers, this is the first time Google has been playing catch-up with a major new technology and may someday join the many diminished or even vanished firms that were once so big and powerful no one could compete with them (like A&P, Sears, Kmart, and IBM). Will they suffer the same fate? Will discussions of Google someday consist of surveying “the decay of that colossal Wreck?” I don’t know, but their recent struggles to catch up with their AI competitors suggest that Google doesn’t have as much “power” as we might think.

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